WAEC Economics 2011 past questions and answers

Human wants are endless: as one is satisfied, another appears.

Real (opportunity) cost is what you give up; money cost is the price you pay.

With fixed resources, producing more of one good means giving up some of the other.

A table sets data out in rows and columns.

Demand for inferior goods falls as income rises, so income elasticity is negative.

Cross elasticity = % change in quantity of Schnapps ÷ % change in price of Whisky = 30 ÷ 20 = 1.5.

Palm oil and palm kernel come from the same palm fruit, so producing one gives the other: joint supply.

A vertical supply curve means quantity does not change at all with price: perfectly inelastic, coefficient 0.

When prices rise, each naira buys less, so the value of money falls.

A minimum (floor) price above equilibrium guarantees producers a good price.

Satisfaction is maximised when the marginal utility of the last unit equals its price.

If total utility does not change, the extra unit adds nothing: MU = 0.

A rational consumer uses limited income to get the greatest possible satisfaction.

Land cannot be moved from place to place; it is geographically immobile.

Primary production extracts resources directly from nature.

Fixed costs stay the same whatever is produced in the short run.

Land, labour, capital and entrepreneurship are the factors of production.

In the long run a firm must at least earn normal profit, otherwise it leaves the industry.

Only under perfect competition is price equal to MR, so P = MR = MC at the best output.

Barriers to entry stop new firms from competing away a monopolist's abnormal profit.

Free entry means any buyer or seller can join the market.

Economic theory assumes the main aim of a firm is profit maximisation.

Each middleman adds a profit margin, which raises the price the consumer pays.

Urbanisation is the growth of towns and cities and of the share of people living in them.

Frictional unemployment is due to delays in moving between jobs, so making labour more mobile reduces it.

Unemployed = 2.5 − 2 = 0.5 million; 0.5 ÷ 2.5 × 100 = 20%.

Grouping people by their jobs is occupational distribution.

Natural growth = birth rate − death rate (ignoring migration).

Unemployment lowers incomes and welfare; it does not reduce the death rate.

Subsistence farmers grow food for their families with little capital and simple tools; they do not process raw materials.

Small firms do enjoy some economies of scale, so saying they cannot benefit at all is untrue; the other statements are true.

Private owners seeking profit tend to run firms more efficiently.

Where labour is plentiful, labour-intensive methods create more jobs and use the abundant factor.

A rise in real national income over time shows economic growth.

A regressive tax takes a smaller percentage as income rises.

GNP = GDP + net income from abroad.

With less produced at home, the country must import more to meet its needs.

Holding money to buy bonds when prices are favourable is the speculative motive.

When production costs rise, firms push up prices: cost-push inflation.

Bank deposits, together with currency, make up the money supply.

Banks earn interest by lending; this is their main source of profit.

When demand is elastic, the price rise caused by a tax makes consumption fall sharply.

More government spending increases total demand, which can push prices up.

A tariff is a tax on imports, raising their price at home so local goods can compete.

Development means higher real income per head together with structural and social improvement.

Frequent changes of government and coups disrupt and abandon development plans.

The balance of trade compares the value of visible exports with visible imports.

A quota limits the quantity of a good that may be imported.

IMF stands for International Monetary Fund.

(a) % change in quantity supplied = (150 − 100)/100 × 100 = 50%
% change in price = (40 − 30)/30 × 100 = 33.3%
Es = 50 ÷ 33.3 = 1.5
(b) Elastic, because the coefficient (1.5) is greater than 1: quantity supplied changed by a bigger percentage than price.
(c) Any three: improved technology/mechanised farming; fall in the cost of inputs (fertiliser, seeds, labour); good weather; government subsidies or tax relief; fall in the prices of other crops farmers could grow; more producers/importers; better storage and transport.

Use the original values (December 2004) as the base.

(a) Primary: Farmers $8,000, Miners $7,000, Fishermen $3,000 – total $18,000
Secondary: Bakers $8,000, Tailors $4,000 – total $12,000
Tertiary: Retailers $5,000, Teachers $6,000, Drivers $4,000 – total $15,000
Grand total = $45,000
(b) Primary 18,000 : 45,000 = 2 : 5; Secondary 12,000 : 45,000 = 4 : 15; Tertiary 15,000 : 45,000 = 1 : 3
(c) Sectors on the horizontal axis, loans ($) on the vertical axis; three bars of equal width and equal gaps with heights $18,000, $12,000 and $15,000; title, scale and labels.

Bakers and tailors make goods (secondary); retailers, teachers and drivers give services (tertiary).

(a) A centrally planned (command/socialist) economy is one in which the state owns the main means of production and a central planning authority decides what, how and for whom to produce.
(b) Any four: private ownership of property and means of production; profit motive; price mechanism allocates resources; consumer sovereignty; free enterprise and competition; minimal government interference; unequal distribution of income.

Contrast state planning with the market-based features of capitalism.

(a) Mobility of labour is the ease with which workers can move from one job to another (occupational mobility) or from one place to another (geographical mobility).
(b) Any four: size of the population; age structure (proportion of working age); school-leaving and retirement ages; wage rate; number of hours worked and attitudes to work/leisure; participation of women; health of the population; migration; social and religious attitudes.

Supply of labour is the number of people willing and able to work and the hours they offer.

(a) International trade is the exchange of goods and services between different countries, involving different currencies.
(b) Any four: countries get goods they cannot produce; specialisation according to comparative advantage raises world output; wider market and economies of scale; earns foreign exchange; lower prices and wider choice for consumers; transfer of technology and skills; promotes international co-operation; provides employment.

Explain each advantage, especially specialisation and comparative advantage.

Any five: shortage of capital; small size of the market (low incomes); ease of setting up and few legal formalities; lack of managerial and technical skills; desire for independence and personal control; personal services demanded by customers; nature of products (perishable or fashion goods); difficulty of getting bank loans; government encouragement of small businesses; limited infrastructure.

Most reasons relate to limited capital, small markets and low skills.

(a) Competitive demand: goods that are substitutes, so a rise in the price of one increases demand for the other, e.g. tea and coffee, Coca-Cola and Pepsi. Complementary (joint) demand: goods used together, so a rise in the price of one reduces demand for both, e.g. cars and petrol, torch and battery.
(b) Lower import duty makes cars cheaper, so more cars are bought (diagram 1: car supply shifts right, price falls, quantity rises). Cars and petrol are complements, so demand for petrol increases (diagram 2: petrol demand shifts right from D0 to D1); the price of petrol rises and more petrol is consumed.

Complementary goods: cheaper cars mean more demand for petrol.

(a) The demographic transition theory explains how a country's population growth changes as it develops economically, through changes in birth and death rates.
(b) Stage 1 (pre-industrial): high birth rate and high death rate, so population growth is slow.
Stage 2 (developing/transitional): death rate falls because of better health care, food and sanitation, while birth rate stays high, so population grows rapidly.
Stage 3 (developed): birth rate also falls because of education, urbanisation and family planning; both rates are low and population growth is slow or stable.

Each stage is described by the levels of birth and death rates.

(a) Shares are units of ownership in a company; shareholders are owners, receive dividends that vary with profit and (ordinary shareholders) can vote. Debentures are long-term loans to a company; holders are creditors, receive fixed interest whether or not there is profit, are repaid first if the company is wound up, and have no voting rights.
(b) Any four: high interest rates; lack of collateral; poor/undeveloped capital market; small size and poor reputation of the firm; strict lending conditions of banks; low savings in the economy; poor records and accounts; political and economic instability discouraging investors; limited liability rules (for sole traders and partnerships, cannot sell shares).

Shareholders are owners; debenture holders are lenders.

(a)(i) Consumers' co-operatives: formed by consumers who buy goods in bulk and sell to members at fair prices, sharing any surplus as dividends based on purchases.
(ii) Producers' co-operatives: formed by producers (e.g. farmers) who pool resources to produce, process and market their output together and share the gains.
(iii) Thrift and credit co-operatives: members save regularly and can borrow from the pooled savings at low interest.
(b) Any two: shortage of capital; poor management and lack of skills; dishonesty and embezzlement; illiteracy of members; disloyalty of members; competition from large firms; government interference.

Each type is defined by who forms it and what it does for members.

(a) Economic development is a sustained increase in real per capita income accompanied by improvement in living standards and structural changes in the economy (education, health, technology, reduced poverty).
(b) Any five: low per capita income; dependence on agriculture and primary products; high population growth rate; high unemployment and underemployment; low level of technology; low savings and investment; poor infrastructure; high illiteracy; dependence on foreign aid and imports of manufactured goods; dualistic economy.

Development is broader than growth: it includes welfare and structural change.

(a) Any three: to finance economic and social development projects of member countries; to mobilise funds from within and outside Africa for development; to promote investment of public and private capital in Africa; to give technical assistance for preparing and carrying out projects; to promote regional economic co-operation and integration; to reduce poverty.
(b) Any two: loans for roads, power, water and agriculture projects in member countries; technical assistance and training; financing regional projects linking countries; support for private sector development; emergency and debt relief support.

AfDB is headquartered in Abidjan and lends for development projects.