54 questions. Try each one, then open the answer to check yourself and read the explanation.
Economics is regarded as a science because it
Answer: B (uses scientific method to explain human behaviour.)
Economics observes facts, forms hypotheses and tests them, which is the scientific method.
Which of the following cannot be described as land?
Answer: C (Roads)
Land means free gifts of nature; roads are man-made, so they are capital.
An outward shift of the production possibility curve shows that
Answer: C (economic growth has taken place.)
When the whole curve moves outward, the economy can produce more of both goods: economic growth.
The following constitute the criteria for identifying an economic system except
Answer: B (scarcity of resources.)
Every system faces scarcity, so scarcity cannot tell one system from another.
A disadvantage of the mean as a measure of central tendency is that, it
Answer: A (is affected by extreme values.)
One very large or very small value pulls the mean up or down.
Which of the following is not an effect of many middlemen in the chain of distribution?
Answer: B (Low retail prices)
Many middlemen raise prices; they do not lower them.
If the price of flour rises, then bread's
Answer: B (supply curve will shift to the left.)
Flour is an input for bread; dearer flour raises the cost of baking, so the supply of bread falls (shifts left).
Which of the following is not a reason for abnormal demand?
Answer: A (Price of the commodity)
The price itself is what the law of demand relates to; Giffen and ostentation goods are the exceptions.
Increase in production subsidies will shift
Answer: B (the supply curve to the right)
A subsidy lowers producers' costs, so supply increases (shifts right); demand is not directly affected.
Government revenue will increase if taxes are levied on goods with
Answer: C (perfectly inelastic demand)
With perfectly inelastic demand the quantity bought does not fall when the tax raises the price.
If a given change in price brings about a proportionately larger change in quantity demanded, then
Answer: A (demand is relatively price elastic.)
A proportionately larger response of quantity means elasticity greater than 1.
If the price of a commodity Z falls and a consumer buys less of it, then commodity Z is a
Answer: C (Giffen good)
A Giffen good is bought less when its price falls, against the law of demand.
In order to calculate total utility (TU) from given levels of marginal utility (MU), one has to
Answer: B (add MU from the various levels)
Total utility is the sum of the marginal utilities of all units consumed.
Which of the following will not affect the market price of a commodity?
Answer: C (Intersection of demand and supply)
The intersection only shows where the price is; changes in demand, tastes or supply move it.
All the following are methods of determining prices except
Answer: B (rationing.)
Rationing shares out goods in short supply; it does not fix a price.
The law of diminishing returns relates to
Answer: D (marginal product.)
The law says the marginal product of a variable factor eventually falls.
By adding all the marginal products at each level of employment of the variable input, we obtain a value equal to
Answer: B (total product.)
Total product is the sum of the marginal products.
Which of the following cost curves is not U-shaped? The
Answer: B (average fixed cost curve)
AFC keeps falling as output rises because the same fixed cost is spread over more units.
Which of the following business organizations is likely to experience disagreements between management and shareholders?
Answer: D (Joint-stock company.)
In a joint-stock company ownership (shareholders) is separate from management, which can cause conflict.
Which of the following features distinguishes a public limited company from a private limited company?
Answer: D (Sale of shares to the public.)
Only a public company may offer its shares to the general public.
Inflation may occur if there is
Answer: C (excessive demand with limited supply)
Too much demand chasing too few goods pushes prices up.
Frictional unemployment occurs when
Answer: B (job seekers lack information where jobs exist)
Frictional unemployment is short-term, while workers search for jobs they do not know about.
Which of the following will increase the demand for labour?
Answer: B (Labour's demand for output)
The demand for labour is derived from the demand for the goods labour produces, so more demand for output raises demand for labour.
One reason for low agricultural productivity in most West African countries is that
Answer: C (farmers find it difficult getting help from financial institutions.)
Without credit, farmers cannot buy fertiliser, machines or improved seed.
The movement of labour from one grade to an entirely different grade is an example of
Answer: C (vertical occupational mobility)
Moving up or down between grades or levels is vertical occupational mobility.
Ten bags of wheat bought for $50 by a flour miller were sold for $65. What is the Value Added Tax payable by the flour miller if the tax rate is 5%?
Answer: D ($0.75.)
Value added = 65 − 50 = $15; VAT = 5% × 15 = $0.75.
Which of the following is not a strong basis for trade union's demand for higher wages? The
Answer: C (members of the union have high qualifications)
Wages are tied to profits, productivity and demand for the product; qualifications alone are a weaker basis.
The difference between the gross domestic product (GDP) and gross national product (GNP) is
Answer: C (net income from abroad.)
GNP = GDP + net factor income from abroad.
Location of firms of an industry is not influenced by
Answer: C (nearness to the source of money supply)
Firms locate near raw materials, markets and other firms; the source of money supply is irrelevant.
In national income accounting, the term net is used to indicate that a value
Answer: D (excludes depreciation.)
'Net' means depreciation has been deducted.
Which of the following best describes token money?
Answer: C (Money with face value higher than its material content)
Token money is money whose face value is greater than the value of what it is made of.
An industry is best described as
Answer: C (a group of firms that sell a closely related set of products)
An industry is all the firms producing similar products.
In developing countries, a larger percentage of the labour force is employed in the
Answer: C (primary sector)
Most workers in developing countries are in farming, fishing and mining (primary sector).
The main item traded on a stock exchange market is
Answer: D (new shares.)
The stock exchange deals mainly in shares and other long-term securities.
The proportion of commercial banks' total assets kept in the form of highly liquid assets is known as
Answer: C (cash ratio)
The share of assets banks must keep in cash (liquid form) is the cash (liquidity) ratio.
Use the table below to answer the question.
EXPECTED REVENUE
Items | Amount ($ m)
Rents and royalties | 75.00
Company income tax | 150.00
Customs and excise duties | 300.20
Personal income tax | 80.00
Fees and fines | 60.80
Value added tax | 100.00
What is the total revenue from indirect taxes?
Answer: B ($400.20 m)
Indirect taxes = customs and excise 300.20 + VAT 100.00 = $400.20 m.
Use the table below to answer the question.
EXPECTED REVENUE
Items | Amount ($ m)
Rents and royalties | 75.00
Company income tax | 150.00
Customs and excise duties | 300.20
Personal income tax | 80.00
Fees and fines | 60.80
Value added tax | 100.00
What is the total revenue from non-tax sources?
Answer: C ($135.80 m)
Non-tax revenue = rents and royalties 75.00 + fees and fines 60.80 = $135.80 m.
Which of the following is not an objective of economic planning?
Answer: C (Desire to widen the gap between developing countries and the developed world)
Planning aims to close, not widen, the gap with developed countries.
In order to control inflation, the government should
Answer: C (adopt restrictive monetary policy.)
A restrictive (tight) monetary policy reduces money supply and spending.
The exports of West African countries are mainly composed of
Answer: B (raw materials.)
West Africa exports mostly primary products such as cocoa, oil and minerals.
A conscious effort of government to achieve a specific set of goals is
Answer: A (economic planning.)
Economic planning is a deliberate government effort to reach set goals.
A country has favourable terms of trade when the prices of her
Answer: A (exports rise relative to the prices of imports.)
Higher export prices relative to import prices mean each export buys more imports.
The abolition of all forms of trade barriers among member countries while maintaining common external tariffs against non-members is a feature of a
Answer: B (customs union)
A customs union is free trade among members plus a common external tariff.
In order to correct adverse balance of payments problem, government should
Answer: B (increase subsidies on exports)
Export subsidies make exports cheaper abroad and increase export earnings.
Which of the following is a benefit to a member country of the World Bank?
Answer: A (Easy access to long term loans)
The World Bank gives long-term loans for development projects.
Which of the following is an objective of OPEC? To
Answer: C (control the level of output of oil)
OPEC sets production quotas to control oil output and prices.
The total fixed cost (TFC) and total cost (TC) functions of a hypothetical firm are shown in the graph below. Study it and answer the questions that follow
(a) Determine the firm's (i) variable cost at output levels 2, 4 and 6; (ii) average total cost at output levels 2 and 3; (iii) marginal cost at output levels 4 and 6.
(b) If the price of the firm's product is $40, calculate the firm's profit or loss when the following units are sold: (i) 2 units; (ii) 4 units.
From the graph: TFC = $40; TC = $100, 120, 140, 160, 180, 200 at outputs 2, 3, 4, 5, 6, 7.
(a)(i) VC = TC − TFC: at 2, 100 − 40 = $60; at 4, 140 − 40 = $100; at 6, 180 − 40 = $140
(ii) ATC = TC/Q: at 2, 100/2 = $50; at 3, 120/3 = $40
(iii) MC = TCn − TCn−1: at 4, 140 − 120 = $20; at 6, 180 − 160 = $20
(b)(i) TR = 40 × 2 = $80; profit = 80 − 100 = −$20 (a loss of $20)
(ii) TR = 40 × 4 = $160; profit = 160 − 140 = $20
Fixed cost is where TC starts at zero output; VC = TC − TFC.
The table below shows the incomes and rates of income tax levied on four professionals in an economy.
Profession | Income per month ($) | Tax rate (%) | Disposable income ($)
Doctor | 8,000 | 10 |
Engineer | 7,000 | 12 |
Civil Servant | 5,000 | 18 |
Nurse | 6,000 | 15 |
Use the above data to answer the questions that follows
(a) Calculate the disposable incomes of the four individuals.
(b) What system of taxation was employed?
(c) Give reasons for your answer in 2(b).
(d) With the aid of a diagram, explain the system of taxation employed in 2(b).
(a) Doctor: 8,000 − 800 = $7,200; Engineer: 7,000 − 840 = $6,160; Civil Servant: 5,000 − 900 = $4,100; Nurse: 6,000 − 900 = $5,100
(b) Regressive taxation.
(c) The tax rate falls as income rises: the highest earner (doctor, $8,000) pays 10% while the lowest earner (civil servant, $5,000) pays 18%.
(d) A regressive tax takes a smaller percentage of income as income rises. Diagram: tax rate on the vertical axis, income on the horizontal axis; a downward-sloping line/curve showing the rate falling as income increases.
Disposable income = income − (rate × income).
(a) What is a trade union?
(b) Describe any four functions of trade unions.
(c) Outline any two weapons used by trade unions to achieve their objectives.
(a) A trade union is an association of workers formed to protect and improve the wages, working conditions and welfare of its members.
(b) Any four: bargaining for higher wages; improving working conditions and hours; job security and protection against unfair dismissal; welfare services for members (loans, insurance); education and training of members; representing members in disputes; influencing government labour policy.
(c) Any two: collective bargaining; strike; work-to-rule/go-slow; picketing and demonstrations; boycott (overtime ban); lobbying and use of the media.
Weapons are the actions unions take to press their demands.
(a) Outline any four objectives of a price control policy.
(b) Highlight any four effects of a maximum price control policy.
(a) Any four: to protect consumers from exploitation; to make essential goods affordable to low-income earners; to control inflation; to protect producers' income (minimum price); to ensure fair distribution of scarce goods; to stabilise prices.
(b) Any four: shortages (excess demand); long queues; black markets; hoarding; rationing becomes necessary; reduced supply as producers are discouraged; corruption and favouritism in distribution; poor quality goods.
A maximum price is fixed below equilibrium, so shortages follow.
(a) What are infant industries?
(b) State any four reasons for protecting infant industries.
(c) Outline any three ways by which industries can be financed in West Africa.
(a) Infant industries are newly established industries that are still small, with high costs, and cannot yet compete with older, larger foreign firms.
(b) Any four: to allow them to grow and reach economies of scale; to create employment; to save foreign exchange; to diversify the economy; to prevent dumping; to develop local skills and technology; for self-reliance and national security.
(c) Any three: personal savings/owners' capital; sale of shares and debentures (stock exchange); bank loans and overdrafts; development bank loans; government grants and subsidies; foreign investment/joint ventures; ploughed-back profits; trade credit; leasing.
Infant industries need time behind protection to become competitive.
(a) What is balance of payment disequilibrium?
(b) Explain the two types of balance of payment disequilibrium.
(c) Highlight any four reasons most West African countries are experiencing balance of payment problem.
(a) Balance of payments disequilibrium is a situation in which a country's total receipts from abroad are not equal to its total payments abroad, i.e. a deficit or surplus.
(b) Deficit: total payments for imports of goods, services and capital exceed total receipts from exports. Surplus: total receipts exceed total payments.
(Other classifications accepted: cyclical, structural, short-run/temporary and fundamental disequilibrium.)
(c) Any four: dependence on a few primary exports with falling or unstable prices; high demand for imported manufactured goods; worsening terms of trade; heavy debt servicing; capital flight and profit repatriation by foreign firms; low productivity and weak industry; overvalued currencies; smuggling; political instability.
A deficit means outflows exceed inflows.
(a) What is deflation?
(b) Outline any three positive effects of deflation.
(c) Explain the ways by which inflation affects any three functions of money.
(a) Deflation is a persistent fall in the general price level (a rise in the value of money).
(b) Any three: value of money rises; people on fixed incomes and creditors gain; savings increase in value, encouraging saving; exports become cheaper and more competitive; imports fall, improving the balance of payments; cost of living falls.
(c) Any three: medium of exchange – people lose confidence in money and may return to barter; store of value – money loses purchasing power, so people hold real assets instead; unit of account – prices keep changing, making money a poor measure of value; standard of deferred payment – creditors are repaid with money worth less, so lending is discouraged.
Inflation weakens money's functions because its value keeps falling.
(a) What is protective tariff?
(b) Outline any four reasons in favour of protective tariff.
(c) State any two reasons against protective tariff.
(a) A protective tariff is a tax on imported goods meant to make them dearer so that local industries producing similar goods are protected from foreign competition.
(b) Any four: protects infant industries; reduces imports and corrects balance of payments deficit; prevents dumping; creates employment; encourages self-reliance and diversification; protects strategic industries; raises revenue.
(c) Any two: higher prices for consumers; local firms may stay inefficient; retaliation by other countries; reduces consumer choice; encourages smuggling; reduces gains from specialisation.
Protection helps local producers but costs consumers.