2012 Economics NECO Past Questions

Hint

(a)

(b) Commodity X and y are substitutes since it has positive cross elasticity. An increase in the price of Y leads to an increase in demand for the commodity x

(c) Appropriate examples will be :

(i) Beef and Fish

(ii) Coke and Pepsi 

(iii) Close-up and MacLean

Hint

(a) Marginal propensity to consume :

MPC =    DC   =     Change in Consumption

                 DY          Change in Income

MPC       =     N40, 000,000 – N25, 000,000

                       N125, 000,000 – N105, 000,000

=     N15, 000,000       = 0.75

       N20, 000,000

(b)   Multiplier (k)     1       =       1  

                                1 – MPC       MPS    

Since MPC = 0.75, MPS = 0.25

K =     1        =     4

         0.25

(c)   Government Expenditure increases by N 12,000,000

DY      =       K DG

            =      4 x 12,000,000

          =        N48, 000,000

Hint

Specialization: is the process by which a worker or firm or a country concentrates on the task or job or economic activities which it is best suited for or where it has the greatest advantage. Division of labour gives rise to specialization.

(b)  Advantages of specialization :

(i) Increase in output: the total output of an organization increases when each worker specializes on a task in the production process.

(ii) improvement in the skill of worker: through repeated performance of the same job, a workers skill and dexterity is improved.

(iii) Leads to innovation: specialization leads to innovation thereby creating a better product.

(iv) Economies of scale: specialization will bring about economies of scale as the firm will have output as well as the benefits that comes with it e.g. low cost of production.

Disadvantages :

(i) Size of the market: the ability to specialize is limited to the size of the market,

It will be a waste of resources to produce more of what is required in the market.

(ii) Availability of capital: a times specialization requires huge capital, in acquiring machines to run the operations, this may limit specialization.

(iii) Unemployment: specializing in a particular job is risky if there is loss of job due to change in fashion, technology or trend.

(iv) Immobility of labour: specialization limits labour to a particular industry.

Hint

(i) Market : the size of a firm is determined by the size of the market for its products. The higher the demand for the firm’s product the higher the size of the business unit.

(ii) Managerial ability: if the managers of a firm are able to supervise all staff effectively, the size of the firm will expand and vice-versa.

(iii) Division of labour: division of labour increases output which promotes efficiency, the more division of labour is used, the greater the size of the business unit.

(iv) Optimum size: when the firms operate at the optimum, its average cost is at the lowest and its size expands.

(y) Provision of rare commodities: for a business unit that produces rare goods, its size grows faster than the firm producing common goods.

Hint

(i) Low standard of living and fall in per capita income: If there is an increase in the population of dependants in Nigeria it will lead to a low standard of living as the per capita income will fall.

(ii) High dependency ratio: this will certainly lead to a high dependency ratio. This category which comprises children and aged adults will depend on the working population for sustenance.

(iii) Low level of production: Increase in population of dependents in Nigeria will certainly lead to a decrease in the working population which will affect the level of production as such the gross domestic production fall.

(iv) Increase in government expenditure: the government will incur more expenditure on the provision of social services. For example, there will be more children’s education.

(v) Hindrance of economic development: as much more fund will be committed to catering for the dependents it could be at the cost of economic developments

Hint

(a) Market economy: a market economy is one in which private individuals are allowed to own and utilize factors of production for the purpose of producing goods and services. It is also a market where forces of demand and supply determine prices.

(b) Features of a market economy :

(i) Consumer sovereignty: consumer sovereignty means that consumers are the king. In a capitalist economy, the needs and wishes of the consumers determine what, how, and for whom to produce.

(ii) Private ownership of means of production: the means of production and distribution are owned and controlled by private individuals.

(iii) Existence of competition: there is competition among the various economic units. The number of buyers and sellers is high. Economic rivalry leads to improvement in the quality of products.

(v) Profit maximization motive: the major aim of owing means of production is to maximize profit. Organizations are motivated by profitability.

Hint

(a) Derived demand: these are commodities that are demanded not for direct consumption but use for further production e.g cassava, an increase for garri will lead to an increase in the demand for cassava.

(b) Joint/ complementary demand: these are the commodities that are jointly demanded to give maximum satisfaction i.e without one of the commodities the other will be rendered useless e.g car and petrol

(c) Competitive demand: these are commodities that serve the same purpose i.e. an increase in demand for one will other e.g. close substitutes. e.g. fish and meat.

(d) Composite demand: this is a demand for a commodity that serves different purposes i.e when a commodity is used for many purposes, is called composite e.g. cassava used for Garri, Starch, Tuwo, etc

Hint

(i) Structural unemployment: This arises as a result of slight changes in the industrial structure of a country. as a result of this economic recession, workers will be retrenched.

(ii) Cyclical unemployment: This is also referred to as deficient demand unemployment when there is a decrease in the quality of goods demanded or there is overproduction which results in fall on prices, industries will be affected, which may cause retrenchment or lay-off workers of the industries affected. The workers affected will suffer from cyclical unemployment.

(iii) Seasonal unemployment: This is caused by seasonal changes that affect some types of work. labour employed in economic activities such as building and construction usually become unemployed when bad weather prevents the continuation of such work. Fishing and farming face these types of unemployment.

(iv) Frictional unemployment: This is an unemployment resulting from technical progress making it possible for new machines to be invented to take the place of labour so that more machines are invented to do certain simple task formerly performed by human beings, more and more workers are thrown out of job e.g. introduction of modern computing machines.

(v) Disguised unemployment: It is also referred to as underemployment. This is the type of unemployment in which labour or other employable resources are not being used in their most efficient and effective ways. The marginal productivity of labour is very low.

(vi) Voluntary unemployment: This occurs when there is a job available but the unemployed person is not willing to accept it at the going wage rate. It is a type which is deliberately chosen by the person unemployed.

(vii) Residual unemployment: this occurs when some people are not employed because of mental and physical disabilities. No employer will want to employ them because of their low level of efficiency. This includes people who are mentally and physically retarded.

Hint

(a) Traditional financial institution: is a financial institution that was operated before the modern banking system, it involves the coming together of a group of people with a common interest in the same place of work or community who mutually agree to pool their resources together in order to save, lend and manage money. It takes the form of cooperative societies which are given different names such as ESUSU.

(b) Advantages of traditional financial institutions :

(i) It encourages savings: Members, through the pooling of their resources together are encouraged to save.

(ii) Assists members to borrow: Members who are in need of money for whatever reason are permitted to borrow at a reasonable interest rate.

(iii) Assistance to Members in times of need. They provide assistance to members when they are in financial difficulties.

(iv) Promotion of Investment: They may invest in viable businesses that can yield profit to the organization.

(b)(ii) Disadvantages of traditional financial institutions :

(i) Time: It consumes a lot of time as customers have to visit banks to carry out bank transactions like checking bank balances, transferring money from one account to another.

Accessibility: People have to visit banks only during working hours.

Expensive: Customers have to spend money on visiting banks.

Customer Service: ln traditional banks, the employees and clerical staff of the bank can attend only to a few customers at a time.

Contact: Customers can have face to face contact in traditional banking.

Hint

Factors that determine national Income:

(i) Abundant supply of natural resources: The size of the national income is determined by the quantity and quality of natural resources. If they are efficiently utilized, it will lead to an increase in national income e.g. mineral deposit.

(ii) Quantity and quality of human resources: Increase in the number of highly skilled professionals enhances the level of national income. This is because there will be high productivity which will increase national output.

(iii) Stock of Capital equipment: The larger the country’s stock of machinery and equipment needed for productive purposes, the greater the volume of production. This will lead to a higher level of national income.

(iv) Increase in foreign investment and loan: The national income of a country will receive a boost if there is increase in foreign interments, aids, and grants.

(v) Political and Social Stability: Enabling and conducive environment is a major impetus for rapid economic growth which will aid a higher level of national income

(vi) Well developed infrastructure facilities: Efficient and well developed infrastructural facilities such as power, roads, and ports helps in promoting interment needed to ensure rapid growth in an economy. This will increase the level of National Income.

Hint

(a) Economic integration:  is the process of combining separate economies of countries with common interest into a larger economic block so as to improve trade and ensure increase in their well-being. it is a form of international co-operation whose main objectives are to ensure free movement of goods and services, absence of trade restrictions, and perfect mobility of resources among member nations.

(b) Types of Regional Economic integration :

(i) Free Trade: This is an economic integration of a group of countries with free trade between them but retaining independent tariff systems on trade with non-member tariffs but maintain tariffs against non-members. Example, European Free Trade Area.

(ii) Custom Union: This is a form of economic integration in which member countries have free trade among themselves by removing tariffs and maintaining a common tariff rate on trade with non-members. It is a group of countries which have common arrangements among themselves and also common external arrangements with other countries.

(iii) Common Market: This is a form of integration in which there is complete freedom of trade through the removal of tariffs and adopting common external tariffs against non-member states. There is also free mobility of labour and capital and free movement of goods and services. It is a fully integrated market area e.g. the European Economic Community and European Common Market.

(iv) Economic Union: This is the highest form of economic integration. It is established when members adopt the same or uniform policies regarding monetary, fiscal, and financial policies. Under economic union members use the same currency.

Hint

Aims of organization of Petroleum Exporting Countries (OPEC) :

(i) To influence the price of oil: The stabilization of oil prices is done through the quota system being used.

(ii) Determination of Production levels of members to prevent glut in the market

(iii) To guarantee a fair return on capital to individuals and corporate bodies investing in the petroleum industry.

(iv)  To provide financial assistance to poor non-oil producing countries

(v) Encourage members to set up refinery and chemical industries

(vi) To co-ordinate petroleum policies in order to have a uniform front and safeguard their collective interest.

(v) Controlling the activities of Multinational companies: OPEC has a duty to control the activities of foreign multinational oil companies.

(vi) Encouragement of oil exploration and development. OPEC also encourages member nations to participate directly in the exploration and development of crude oil. This is intended to boost the production of member countries.