58 questions. Try each one, then open the answer to check yourself and read the explanation.
Scale of preference shows
Answer: D (consumers' wants in order of priority)
A scale of preference lists wants from the most to the least important.
There is unemployment of resources when production is
Answer: A (within the production possibility curve)
A point inside the curve means some resources are idle.
A major characteristics of natural resources is that they
Answer: C (are free gifts of nature)
Natural resources are provided by nature, not made by people.
A major disadvantage of a capitalist economy is that it
Answer: D (worsens income inequality among the citizens)
Private ownership and profit lead to wide gaps between rich and poor.
The mining sector of an economy contributes 60% to the Gross Domestic Product (GDP). If the GDP is $540, what is the contribution of the mining sector?
Answer: C ($324.00)
60% of $540 = 0.6 × 540 = $324.
The increase in the demand for a commodity may lead to a decrease in the demand for another if both are
Answer: D (in competitive demand)
Substitutes compete: buying more of one means buying less of the other.
The demand curve for goods of ostentation is usually
Answer: B (positively sloped)
Prestige goods are bought more when their price is higher, so the curve slopes upward.
Which of the following factors is not a cause of change in demand? Changes in
Answer: C (price of the commodity)
A change in the good's own price changes quantity demanded, not demand.
If the quantity demanded of a commodity increases from 20 units to 30 units when there is an increase in price from $4.00 to $5.00, the elasticity of demand is
Answer: C (2.00)
Quantity rises 50% for a 25% price rise: 50 ÷ 25 = 2.00.
The supply curve of a locally-produced good may shift to the right if
Answer: B (government increases subsidies)
Subsidies lower costs, so more is supplied at every price.
In perfectly elastic supply, the supply curve
Answer: B (is horizontal)
Perfectly elastic supply is a horizontal line.
An increase in the price of commodity X led to a fall in the supply of commodity Y. Commodities X and Y are
Answer: A (competitive goods)
Producers switch resources to the dearer X, so less Y is supplied: competitive supply.
The production of rice and yam on the same farmland is an example of
Answer: C (competitive supply)
Rice and yam compete for the same land: more of one means less of the other.
A consumer of a single commodity is in equilibrium when
Answer: B (he equates marginal utility and price)
For one good, equilibrium is where MU = price.
If the government imposes a minimum price on a commodity
Answer: A (market surplus occurs)
A minimum price above equilibrium creates a surplus.
A minimum price legislation is also called
Answer: B (price floor)
A legal minimum price is a price floor.
Which of the following factors is not a cause of diminishing returns?
Answer: D (Technological Innovations)
New technology raises productivity and delays diminishing returns.
In manufacturing, division of labour may be hindered by
Answer: B (low level of technology)
Splitting work into specialised tasks needs suitable machines and methods.
The production cost that varies inversely with output is the
Answer: C (average fixed cost)
AFC = fixed cost ÷ output, so it falls whenever output rises.
A firm that closes down will still incur
Answer: B (fixed cost)
Fixed costs such as rent must be paid even at zero output.
The sufficient condition for a firm to be in equilibrium is that the
Answer: D (marginal cost curve cuts the marginal revenue curve from below)
MC = MR is necessary; MC cutting MR from below (rising MC) makes it sufficient.
Cooperative societies are formed mainly to
Answer: C (promote and maintain the welfare of members)
Co-operatives exist to serve their members' welfare rather than to make profit.
A disadvantage of a joint-stock company is
Answer: D (limited control in management by shareholders)
Shareholders own the company but have little say in running it.
The middleman is responsible for
Answer: D (breaking the bulk)
Middlemen buy in large quantities and sell in smaller ones.
A major function of the retailer is to
Answer: B (break bulk and sell products in small units)
Retailers sell to consumers in small quantities.
A positive effect of a rapid population increase is
Answer: C (a wider market for goods and services)
More people means more buyers.
Which of the following factors may not affect the efficiency of labour?
Answer: C (Race and colour of workforce)
Race and colour have nothing to do with how productive workers are.
The type of unemployment found among workers who leave their jobs in search of other jobs is termed
Answer: C (frictional unemployment)
Time spent moving between jobs is frictional unemployment.
The main objective of marketing boards is to
Answer: C (stabilize the incomes of cash crop farmers)
Boards bought cash crops at fixed prices to keep farmers' incomes steady.
The use of mass advertising media will enable a firm to enjoy
Answer: C (marketing economies)
Advertising costs spread over large sales are a marketing economy.
Which of the following industries will add more value to primary products?
Answer: D (Processing industry)
Processing turns raw (primary) products into more valuable goods.
Gross National Product (GNP) less the provision for the wear and tear of assets is the
Answer: B (net national product)
GNP − depreciation = NNP.
An example of transfer payments in national income accounting is
Answer: B (unemployment allowance paid to the citizens)
Unemployment benefit is paid without any current work in return.
Increasing national income without effective control of population size in a country can lead to
Answer: B (increase in poverty)
If population grows as fast as income, income per head does not rise and poverty spreads.
An example of commodity money is
Answer: D (silver)
Silver has value as a good in itself.
If inflation is anticipated, people may
Answer: B (spend more money)
People buy now before prices rise.
If the Central Bank increases its bank rate
Answer: C (the supply of money may be reduced)
Dearer borrowing reduces lending and money supply.
Commercial banks are different from development banks in that the latter
Answer: D (do not deal in foreign currencies)
Development banks give long-term project loans and do not run foreign-exchange services as commercial banks do.
The use of the bank rate, cash ratio and open market operations constitute
Answer: B (monetary policy)
These are central-bank tools of monetary policy.
Fiscal policy measures imply a change in
Answer: D (government revenue and expenditure to regulate an economy)
Fiscal policy uses both taxes (revenue) and government spending.
If demand is perfectly inelastic, a tax imposed
Answer: B (is borne only by the consumer)
Buyers purchase the same amount whatever the price, so the whole tax is passed on to them.
Development planning focuses mainly on
Answer: B (mapping out strategies by the government)
Planning is government setting goals and strategies to reach them.
Political instability hinders economic growth because it
Answer: C (discourages entrepreneurs generally)
Uncertainty makes investors and entrepreneurs hold back.
Foreign investment and long term securities in the balance of payments accounts are recorded as
Answer: B (capital account transaction)
Investment and securities are capital flows.
An argument for the use of commercial policy rests on the need to
Answer: B (reduce domestic unemployment)
Restricting imports protects local industries and the jobs in them.
Which of the following measures can lead to an increase in exports?
Answer: C (Depreciation of currency)
A cheaper currency makes exports cheaper abroad.
Given that a country's index of export price is 180 and that of import is 200, the terms of trade is
Answer: C (90.00)
Terms of trade = 180/200 × 100 = 90.
A benefit that is present in all forms of economic integration is that
Answer: D (the size of the market is widened)
Every form of integration removes trade barriers, so producers get a larger market.
The main function of the African Development Bank (AfDB) is to
Answer: C (provide loans to members to finance viable projects)
The AfDB lends for development projects.
If petrol is no longer needed to produce energy, then demand for crude oil
Answer: C (may be limited to chemical industries)
Crude oil's demand is derived; without fuel use it would be wanted mainly for chemicals.
A hypothetical national income data for a country in a particular year is presented below.
Item | $ Million
Wages and salaries | 250
Income paid abroad | 75
Income from self employment | 120
Stock appreciation | 5
Interest | 10
Income received from abroad | 50
Rent | 25
Depreciation allowance | 3
Royalties | 2
Profits and dividends | 35
From the data above, answer the following questions. Calculate the: (a) Gross Domestic Product (GDP); (b) Gross National Product (GNP); (c) Net National Product (NNP)
(a) GDP (income method) = wages 250 + self-employment 120 + interest 10 + rent 25 + royalties 2 + profits 35 − stock appreciation 5 = $437 million
(b) GNP = GDP + income from abroad − income paid abroad = 437 + 50 − 75 = $412 million
(c) NNP = GNP − depreciation = 412 − 3 = $409 million
Stock appreciation is a price gain, not output, so it is subtracted.
The diagram below shows the effects of the introduction of a subsidy on the production of maize. Study the diagram and answer the questions that follow:
(a)(i) Identify the curves labelled X, Y and Z. (ii) State the direction of change in price and quantity with the introduction of subsidy.
(b) Calculate the total revenue of the producers: (i) before the introduction of subsidy; (ii) after the introduction of subsidy.
(c) Calculate the percentage increase or decrease in the total revenue of the producers with the introduction of subsidy.
(d) If the quantity demanded of maize increases from 20 to 40 bags as a result of a fall in price from $15 to $10, calculate the price elasticity of demand.
(e) State the type of elasticity of demand in 2(d).
(a)(i) X = demand curve; Y = original supply curve (before subsidy); Z = new supply curve (after subsidy).
(ii) Price falls from $15 to $10; quantity rises from 20 to 40 bags.
(b)(i) 15 × 20 = $300; (ii) 10 × 40 = $400
(c) (400 − 300)/300 × 100 = 33.3% increase
(d) % change in quantity = 20/20 × 100 = 100%; % change in price = −5/15 × 100 = −33.3%; Ed = 100 ÷ 33.3 = 3 (ignoring the sign)
(e) Elastic demand (coefficient greater than 1).
A subsidy shifts supply to the right.
(a) Define the term limited liability.
(b) Describe four differences between a public joint-stock company and a private joint-stock company.
(c) Outline three sources of finance available to sole proprietorship.
(a) Limited liability means the owners' responsibility for the firm's debts is limited to the capital they invested; their private property cannot be taken.
(b) Any four: membership – private 2 to 50, public at least 7 with no maximum; public company sells shares to the general public (stock exchange), private cannot; shares of a public company are freely transferable, private shares are restricted; public company must publish its accounts, private need not; public company may issue debentures to the public; ownership and management are more separated in a public company; names end in 'Plc' and 'Ltd'.
(c) Any three: personal savings; loans from family and friends; bank loans and overdrafts; ploughed-back profits; trade credit; hire purchase; government grants/loans; sale of assets.
Differences should be given as matched pairs.
(a) Distinguish between labour force and efficiency of labour.
(b) Describe five factors which determine the size of the labour force in a country.
(a) Labour force is the number of people of working age who are employed or actively seeking work; efficiency of labour is the ability of workers to produce more output, of good quality, in a given time.
(b) Any five: total population size; age structure of the population; school-leaving age and length of education; retirement age; participation of women; attitudes to work and leisure/wage rates; health of the population; migration; social and religious customs.
Labour force is about numbers; efficiency is about output per worker.
(a) What is a demand schedule?
(b) Explain each of the following terms: (i) effective demand; (ii) composite demand; (iii) derived demand.
(c) Using appropriate diagrams, explain how a change in the price of a commodity would influence the demand of its: (i) substitute; (ii) complement.
(a) A demand schedule is a table showing the quantities of a commodity consumers are willing and able to buy at various prices at a given time.
(b)(i) Effective demand: desire backed by ability and willingness to pay.
(ii) Composite demand: a commodity demanded for several different uses (e.g. sugar for drinks, bakery and home use).
(iii) Derived demand: a good or factor wanted for what it helps to produce (e.g. labour, cement).
(c)(i) If the price of a commodity rises, demand for its substitute increases: the substitute's demand curve shifts right (a fall in price shifts it left).
(ii) If the price of a commodity rises, demand for its complement falls: the complement's demand curve shifts left (a fall in price shifts it right). Diagrams show D0 and D1 with labelled price and quantity axes.
Substitutes move in the same direction as the other good's price; complements move opposite.
(a) Explain the following types of taxes: (i) specific tax; (ii) value-added tax.
(b) With the aid of diagrams, describe the effects of an indirect tax on a commodity when demand is: (i) perfectly inelastic; (ii) perfectly elastic.
(a)(i) Specific tax: a fixed amount of tax per unit of a commodity, whatever its price (e.g. $2 per litre).
(ii) Value-added tax: a tax charged at each stage of production and distribution on the value added at that stage, finally borne by the consumer.
(b) The tax shifts the supply curve upward by the tax.
(i) Perfectly inelastic (vertical) demand: quantity is unchanged and price rises by the full tax; the consumer bears all of it.
(ii) Perfectly elastic (horizontal) demand: price is unchanged, quantity falls; the producer bears all the tax.
The side of the market that cannot respond bears the tax.
(a) Distinguish between a: (i) mortgage bank and a merchant bank; (ii) commercial bank and a development bank.
(b) Explain any four functions of commercial banks.
(a)(i) A mortgage bank gives long-term loans for buying and building houses, secured on the property; a merchant bank serves businesses, e.g. accepting bills of exchange, issuing and underwriting shares, giving medium-term loans and advice.
(ii) A commercial bank takes deposits from the public, offers current accounts and cheques and gives mainly short-term loans for profit; a development bank gives medium- and long-term loans to finance development projects in agriculture, industry, etc., and does not usually take deposits from the public.
(b) Any four: accepting deposits; lending (loans, overdrafts); creating credit; providing means of payment (cheques, transfers, cards); safekeeping of valuables; foreign exchange services; financial advice; acting as agents for customers (standing orders).
Compare who each bank serves and the length of its loans.
(a) What is economic integration?
(b) Outline any three short-comings of the Economic Community of West African States (ECOWAS).
(c) Highlight any three achievements of the Economic Community of West African States (ECOWAS).
(a) Economic integration is the coming together of countries to remove trade barriers and co-ordinate their economic policies for mutual benefit.
(b) Any three: different currencies; political instability and coups; poor transport and communication links; similar export products so little trade among members; loyalty to former colonial powers; non-implementation of protocols; smuggling and border harassment; unequal benefits.
(c) Any three: free movement of persons (visa-free travel, ECOWAS passport); trade liberalisation scheme; peacekeeping (ECOMOG) in member states; regional infrastructure projects (roads, West African Gas Pipeline); common external tariff; ECOWAS Bank for Investment and Development.
Use ECOWAS examples for both parts.