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2021 Economics NECO Theory Past Questions

NECO: ECONOMICS 2021 Economics NECO Theory Past Questions

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2021 NECO Economics Theory Question 1

QUESTION 1

The table below shows hypothetical marks scored by economics students in their promotion examination:

Marks 20 30 40 50 60 70
No of students (frequency) 10 8 20 13 6 3

 

(i)  Calculate the arithmetic mean.

(ii) Determine the variance and standard deviation.

(iii) State two disadvantages of standard deviation.

ANSWER

(i) To calculate Arithmetic mean

(ii) To calculate standard deviation

Standard deviation = 13.6

To calculate Variance

(iii)  Two disadvantages of standard deviation

  • Its calculation may pose a problem to mathematically not inclined minds.
  • It is generally more difficult to calculate because more processes are involved which makes it more difficult to comprehend.

 

 

2021 NECO Economics Theory Question 2

QUESTION 2

Given that the income of Mr. Dantani increases from 2,000 to 5,000 as a result of new minimum wage and his demand for milk increased from 10 to 20 tins.

ANSWER

(a) Calculate the coefficient of his income elasticity of demand.

(b) The nature of elasticity in (a) above is positive.

(c) The kind of good milk is to Mr. Dantani is a normal good.

(d)  Factors that affect change in demand are:

  • Fear or expectation of rise in price.
  • Tastes and preferences of consumers
  • Population
  • Age structure
  • Price of other commodities
  • Weather
  • Government policy i.e. taxation.
2021 NECO Economics Theory Question 3

QUESTION 3

(a) What is capital formation?

ANSWER

Capital Formation can be defined as addition of capital stock such as equipment, tools, transportation, assets and electricity i.e. increase in a country’s stock of real capital. It is a term used to describe the net capital accumulation during an accounting period for a particular country.

(b) Explain four reasons for low capital formation in Nigeria.

ANSWER

Reasons for Low Capital Formation in Nigeria

  • Inequitable Distribution of Income: Majority of the people in Nigeria are poor while just few people are rich as a result of inequalities in income. Since majorities are poor, this leads to generally very low capital accumulation.

The worse part of this is that the few rich people spend their money on prestigious projects and ostentations which are not productive in the economy.

  • Low Savings: The rate at which people save in Nigeria is very low because of low income. Even the few people that are rich spend their money on consumption. This in turn leads to decrease in investment and consequently low productivity. This therefore leads to low capital formation.
  • Higher Propensity to Consume: Propensity to consume is the proportion of total income or of an increase in income that consumer tends to spend on goods and services rather than to save. In Nigeria, there is high rate of propensity to consume while those countries are not producing goods and services. Therefore, this result in low capital formation in Nigeria.
  • High Rate of Unemployment of People: Most of the people in Nigeria who fall within the working age have no job. This means that there will be low productivity, thereby, leading to low capital formation. Others are:
  • Inefficient Utilization of Available Resources.
  • Existence of Vicious Cycle of Poverty.
  • Mismanagement of Funds by the Government.
2021 NECO Economics Theory Question 4

QUESTION 4

(a) Who is a wholesaler?

ANSWER

A wholesaler is the middleman between the manufacturer and the retailer who buys goods in large quantities from the producer and sells in small quantities to the retailer.

(b) Explain four disadvantages of middlemen in the chain of distribution.

ANSWER

Disadvantages of Middlemen in the Chain of Distribution

  • Too many middlemen in the channel of distribution pose problems in the distribution of goods.
  • Hoarding: Some selfish middlemen purposely hoard essential commodities such as flour, sugar, etc.
  • Longer Channel of Distribution will Affect Some Goods: Perishable goods like tomatoes can easily get spoilt in the hands of middlemen due to time wasted in chain of distribution through the middlemen.
  • High or Increase in Prices of Goods: Goods that pass the chain of distribution are usually expensive because the middlemen increase the prices before the goods get to the final consumer.
  • Misinformation: The middlemen sometimes misinform the consumers.
  • Disguised Unemployment: The presence of wholesalers could encourage large scale disguised unemployment.
2021 NECO Economics Theory Question 5

QUESTION 5

Discuss five ways agriculture can contribute to the economic development of Nigeria

ANSWER

Contribution of Agriculture to the Economic Development of Nigeria

  • Agriculture Provides Food to Feed the Population: It is the main source of food supply used in feeding the large population of Nigeria.
  • It Supplies Raw Materials to the Local Industries: Majority of the raw materials used in our industries are sourced from agriculture.
  • It Accounts for Employment of a Large Proportion of the Labour Force: Agriculture provides the unskilled labour which is available in large number of industries in Nigeria.
  • It Contributes Substantially to Foreign Exchange Earning: Agriculture serves as one of the major earners of foreign exchange because it constitutes the main bulk of exports of Nigeria.
  • It Contributes to the GDP: The revenue generated internally and externally through foreign exchange earnings through export duty forms a large proportion of our GDP. Others are:
  • Creation of Market for Industrial Products is Ensured.
  • It Provides Employment for the Citizenry.
  • Agriculture Conserves Foreign Exchange by Producing Imported Substitutes.
2021 NECO Economics Theory Question 6

QUESTION 6

Write short notes on the following:

(i)  Commercialization

(ii)  Privatization

(iii)  Nationalization

(iv)  Indigenization

(v)  Public corporation

ANSWER

(a) Commercialization: This can be defined as the process of making public enterprise which was originally established not for profit making but to become profit-oriented. This policy makes the public enterprise more viable and effective.

Some of the Advantages Include the Following:

  • It promotes efficiency in the production of goods and services.
  • It makes management more efficient.
  • It generates more revenue to the government.

Its Disadvantages Include:

  • It leads to increase in the prices.
  • It leads to increase in unemployment.
  • It leads to exploitation of the poor by the rich.

(b) Privatization:   This can be defined as the process by which the government, through a deliberate policy, transfers the ownership, control and the management of public enterprises to the individuals and firms. It could also be referred to as reduction of government monopoly. This can be full or partial transfer of ownership of public enterprise to individuals and firms.

Advantages

  • It increases participation of private individuals in the economic activities.
  • It discourages government monopoly.
  • It leads to reduction in government expenditure.

Disadvantages

  • It widens the gap between the rich and the poor.
  • It leads to unequal distribution of income among the citizens.
  • It leads to high standard of living.

(c) Nationalization:  This can be defined as the deliberate policy by which the government takes over the ownership, control and Management of an industry from private control and brings it under its own control for economic, social and political reasons.

Reasons for Nationalization include:

  • To prevent exploitation.
  • For political and economic reasons.
  • To create employment opportunities to the less-privileged.
  • To prevent unnecessary competition.
  • To encourage efficient use of resources.

Advantages

  • Prevention of foreign dominance.
  • Prevention of monopoly.
  • Provision of infrastructural facilities by the government.
  • Employment opportunity.
  • Fund mobilization.
  • Economic growth and development.
  • Elimination of unnecessary competition among companies.

 Disadvantages

  • Mismanagement of resources.
  • Discourages foreign investors.
  • Excessive government control.
  • Discouragement of competition
  • It may lead to government monopoly.

(d) Indigenization:  This is the process through the use of law in making indigenes of a country to participate actively in the industrial sectors of their country that were previously in the hands of foreigners. It is also a process of reducing the control of the economy by foreigners. The government transfers the ownership of business enterprises from foreigners to citizens in order to ensure greater participation of the citizens in the ownership, management and control of business enterprises.

In 1972, the Federal Government of Nigeria promulgated a decree called the Nigeria Enterprises Promotion Decree which was divided into stages.

Stage 1:      This covers businesses that are exclusively for Nigerian citizens and foreigners will not be allowed in this enterprise. This includes manufacturing of books, candles, printing and publishing of newspapers etc.

Stage 2:      This includes businesses which foreigners can venture into if Nigerian government takes up to 60% of their profit. It includes construction, banking, insurance, mining, brewery, etc.

Stage 3:      This involves businesses which foreigners are allowed to participate but the Nigerian government will take at least 40% of their profit. Such businesses include textile making, hotels, drug manufacturing tobacco, synthetic resins, etc.

Reasons for Indigenization are:

  • To promote income and standard of living of the people.
  • To secure employment opportunities for the citizens
  • To avoid over dependency on imported goods.
  • To ensure economic stability.
  • To prevent the country’s economy from foreign control.
  • To help industrialization.
  • To ensure that the country is self reliant.

 Disadvantages

  • It discourages foreign investors.
  • It will widen the gap between the rich and the poor because it will encourage unequal income distribution among the citizens.
  • It leads to exploitation of the poor by the rich among the citizens.
  • It leads to inexperienced and incompetent management.
  • It leads to low level of technology.
  • It may lead to reduction in foreign investment.

(e) Public Corporation:      These are the business enterprises which are owned, managed, financed and controlled by the government of a country in order not to maximize profit but to provide essential services to the citizens. The government finance public corporation through tax.

Features:

  • It is established, financed and controlled by the government.
  • It is a legal entity.
  • It is not profit-oriented.
  • It is managed through board of directors.
  • It is established to provide essential services to the citizens.
  • The employees who work in a public corporation are called public servants.

Advantages

  • It is not profit-oriented.
  • It has the ability to last for a long time.
  • There is availability of large capital since it is financed by the government.
  • It creates employment opportunities for the citizens.
  • It avoids consumer exploitation.
  • It caters for the interest of its workers.

Disadvantages

  • There is no privacy in public corporation because annual report will be presented to the public.
  • It leads to corruption and mismanagement of resources.
  • There may not be efficiency in operation as there is lack of competition.
  • It may lead to show decision making since it has pass through many stages and it involves many people.

 

2021 NECO Economics Theory Question 7

QUESTION 7

(a) Distinguish between Money and Capital Market.

(b) Discuss five functions of commercial banks.

ANSWER

(a)

  Money Market Capital Market
(i) It provides short term loans It provides long term loans.
(ii) It involves little risk The risk involved is heavy.
(iii) Loan given out has a little time to mature i.e. 3 months to 1 year. Loan given out has a long time of 5 to 10 years to mature.
(iv) There are relatively low return. There are relatively high returns.
(v) Instrument traded include treasury bill, certificates, etc. Instrument traded include shares, bonds debentures.

ANSWER

(b) Functions of Commercial Banks

  • Acceptance of Deposit: Commercial banks accept deposit from customers into Savings account, Current account and Fixed deposit which is also called time deposit in form of cash or cheque.
  • Safe Keeping of Valuables: Commercial banks also collect and keep valuables such as certificates, gold, jewelry.
  • Operating in the Foreign Exchange Market: Commercial banks buy and sell foreign currencies.
  • Lending of Money: The deposit from different customers are lent out as loans to other customers with which interest would be paid on.
  • Middlemen between the Lenders and Borrowers: The money that is lent out by the commercial banks belongs to some customers who are not making use of the money at present. Then the commercial banks lend out this money without the consent of the owners. Other functions include:
  • Agents of payments
  • They issue Traders cheques.
2021 NECO Economics Theory Question 8

QUESTION 8

(a) What is Monopolistic Competition?

ANSWER

Monopolistic Competition:   This is a market in between the two extremes of a perfect competition and monopoly. It is a market for rival sellers who are aware of each other’s existence and with each trying to differentiate his goods/services to make it unique from those others. Example of Monopolistic competitive firms includes furniture manufacturers, pharmaceutical shops, blocks and bricks industries, mechanic workshops, business centres, the Nigeria brewery, textiles, printing shops, etc.

(b) Discuss four ways Nigerian government can control Monopoly.

ANSWER

Four Ways of Controlling Monopoly by Nigeria Government

  • Price Control: This could be used to control monopolies by government so as to avoid exploitation of consumers.
  • The government could encourage competitors or growth of more producers by creating a good business atmosphere e.g. granting tax holidays to producers and giving incentives to infant industries.
  • Nationalization of Private Monopolistic Enterprises: Government can threaten to nationalize a monopolistic organization in the interest of the public. The enterprises can also be converted into a government corporation in order to provide goods and services at relatively lower prices to consumers.
2021 NECO Economics Theory Question 9

QUESTION 9

(a) What is Balance of Payments?

ANSWER

Balance of Payments can be defined as the statistical statement that shows the transaction in goods, services and income between a particular country and other countries of the world.

(b) Discuss five basis of international trade.

ANSWER

Five Basis of International Trade

  • Difference in Resource Endowment: National resources such as gold, crude oil etc. are not distributed evenly among countries of the world; while some countries are resource endowed, some have little or no resources at all. For instance, a country’s production process may require input of some natural resources which are unavailable in the country. Then, the country has to trade with the other country that is blessed with such resources.
  • Differences in Climate Condition: The variation in the climatic condition of the countries of different crops in different countries, thereby, leading to exchange.
  • Difference in Skill: One country may have special skills in the production of a commodity better than another country. This in turn will lead to exchange of such goods among countries of the world.
  • Difference in Level of Technology: The level of technology of a country is different from that of the other. In order to increase the level of technology, countries engage in international trade.
  • In Order to Create Enlarge Market for the Products: Countries engage in international trade in order to create large market for goods produced.
  • Desire to Improve the Standard of Living in a Particular Country: In order to improve the standard of living of the people, countries engage in international trade.
2021 NECO Economics Theory Question 10

QUESTION 10

(a) Distinguish between internal and external trade.

ANSWER

Internal Trade can be defined as the buying and selling of goods and services within a geographical area of a country. it can be called home trade or domestic trade. While

International Trade can be defined as foreign trade or external trade. It can be defined as the buying and selling of goods and services between two or more countries.

(b) Discuss three similarities and two differences between international and internal trade.

ANSWER

Similarities between International and Internal Trade

  • Both involve the exchange of goods and services for payment, normally between parties which participate voluntarily and believe that the trade makes them better.
  • Both of them satisfy the basic needs of consumers through buying and selling of their products.
  • The middlemen are involved in both of the trades.
  • Both of them make use of money to transit their businesses as a medium of exchange.

Differences between International and Internal Trade

  • The Use of Foreign Exchange or Currency: In international trade, it is necessary to use foreign currencies whereas, it is not so with internal trade which involves the use of the local currency.
  • Trade Restrictions: Trade restrictions through quotas, tariffs, bans, etc. are strongly applied in international trade but internal trade is free from such restrictions. Others are:
  • Transport Costs.
  • Mobility of Factors of Production.
  • Differences in system of measurement of weights, distances and capacity.
  • Differences in Languages and Customs.
  • Differences in Legal System i.e. laws and regulations
2021 NECO Economics Theory Question 11

QUESTION 11

Discuss five reasons for the imposition of tariffs.

ANSWER

Reasons for the Imposition of Tariffs

  • To Prevent Dumping: Some countries usually dump their product into foreign market so as to capture or control a large portion of foreign market. Dumping is an act of selling goods at a lower prices in the foreign market than in the home market, in order to prevent this, countries usually impose tariffs or quotas.
  • To control the consumption pattern of the people of the country. Some goods may be too expensive. The government may not want the consumptions of these items in the country so they are restricted from entering the country.
  • To Protect Infant Industries in the Country: The infant industries are young industries that cannot stand the competition from the well developed industries of the advanced countries. If they are not protected, they may die prematurely because the demand for their products will be lower than the imported goods.
  • To raise Revenue for the Government: Many developing countries have few sources of revenue and one of the major source of revenue is custom duties and other monies accruing from international trade.
  • To Correct Deficit Balance of Payment: In a country experiencing deficit balance of payment, may restrict trade either through tariff, so as to make the prices of import expensive and that will discourage importation of goods and correct any deficit in the balance of payment. Others are:
  • To make a country self-reliant in the production of certain essential goods and services.
  • To safeguard employment.
  • As a retaliatory measure.
2021 NECO Economics Theory Question 12

QUESTION 12

Discuss three positive and two negative effects of petroleum on Nigerian economy.

ANSWER

Positive Effects of Petroleum

  • Source of Revenue to Government: Petroleum generates huge amount of money to the government by selling petroleum products in the international market. Also, all the companies engaged in the operation of petroleum product pay profit tax to the government.
  • Creation of Employment opportunities: It creates employment opportunity for various categories of the people in the Economy.
  • Provision of Raw Materials: Some of the waste products of the oil sector serve as inputs for other sectors for production i.e. some sectors use the waste products in the oil sector as their own raw materials. Others are:
  • Improvement of Standard of Living.
  • Sources of foreign exchange.
  • Major source of energy.
  • Improvement in Balance of payment
  • Leads to Economic growth.
  • Gives Nigeria international recognition.
  • Provision of Non-Petroleum Products.
  • It helps the government in providing social amenities.
  • Manpower Development.

Negative Effects of Petroleum

  • Environmental Pollution: The exploration of crude oil has seriously polluted land, air, water, etc. especially in the Niger Delta region.
  • It Leads to Income Inequality: As the petroleum sector contributes greatly to government’s revenue, only few people in government or the rich people benefit from this revenue because the system is just that those who are rich are getting richer while those who are poor are getting poorer. Therefore, it creates a wide gap between the rich and the poor. Others are:
  • Neglect of Agriculture and other sectors.
  • Leads to Mono-Economy.
  • Leads to Rural-Urban Migration.
  • Leads to high rate of inflation.
  • Political unrest.
  • Over-dependence on goods.
  • Deprivation of means of livelihood.
  • Increase in social vices.

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