Quiz 14 of 16

2015 Economics WAEC Theory Past Questions

Responses

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Question 1

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

Solution

TC = FC + VC

VC = TC – FC

From the graph, FC = $40, while

TC at output level 2= $100

VC2= $100 – $40 = $60

At output level 4: FC = $40, TC = $140

VC4= $140 – $ 40 = $ 100

At output level 6, FC = $40, TC= $180

VC = $180 – $40 = $140

=$140

 

(ii) average total cost at output levels 2 and 3

Solution

ATC(AC) = \( \frac{TC}{Q} \)

At output level 2, TC = $100, Q = 2 units

At output level 2, TC = $120, Q = 3 units

ATC = \( \frac{$120}{3} \)

= $40

 

(iii) marginal cost at output levels 4 and 6

Solution

MC = \( \frac{\Delta TC}{Q} \)

At output level 4,

MC= \( \frac{ TC_4 \: – \: TC_2}{Q_4 \: – \: Q_3} \)

MC= \( \frac{ 140 \: – \: 120}{4 \: – \: 3} \)

= \( \frac{ 20}{1} \)

MC = $20

At output level 6,

MC6 = \( \frac{ TC_6 \: – \: TC_5}{Q_6 \: – \: Q_5} \)

MC6 = \( \frac{$180 \: – \: $160}{6 \: – \: 5} \)

MC6= $20

 

(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

Solution

 Profit( π) = TR – TC

                  TR = Total Revenue, TC = Total Cost

                  TR = Price × Quantity

                   At output level 2, TR = $40 × 2 = $80

                           TC = $100

                   PROFIT = $80  –  $100 = – $20 

                              Π = -$20 (loss)

(ii) 4 units

Solution

 At output level 4, TR = $40 × 4 = $160

                                                 TC = $140

                 PROFIT(π) = $160 – $140 = $20 ( profit)

Question 2

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 follow:

(a) Calculate the disposable incomes of the four individuals

Solution

Disposable income = Personal income – Tax

Doctor = ($8000) – (10% of $8000)

= $8000 – $800 = $7200

Engineer = $7000 – (12% of 7000)

= $7000 – $840 = $6160

Civil Servant = $5000 – (18% of $50000)

= $5000 – $900 = $4100

Nurse = $6000 – (15% 0f $6000)

= $6000 – $900 = $5100

 

(b) What system of taxation was employed?

Answer

Regressive system of taxation

 

(c) Give reasons for your answer in 2(b)

Answer

It is regressive tax because as income increases, the tax rate decreases i.e the higher the income the lower the tax rate.

 

(d) With the aid of a diagram, explain the system of taxation employed in 2(b)

Answer

The regressive tax system is the system of tax where a higher tax rate falls on the low-income earners than the high-income earners. That is as income increases, the tax rate decreases, and vice versa

Question 3

(a) What is a trade union?

Answer

Trade union is an organized body of employees set up to negotiate with their employers for better working conditions for its members.

 

(b) Describe any four functions of trade unions.

Answer

Functions of trade union

(i) To constitute a strong bargaining force

(ii) To promote higher wages and better working conditions for members

(iii) To form a solidarity movement for confronting monopsony power

(iv) The union disciplines its members for any irresponsible act

(v) To collect dues from union members which are used in financing the activities of the union.

(vi) To establish a more solid relationship between the union members, stakeholder,s and the management through union representatives

(vii) They organize labour seminars and symposiums

(viii) The activities of unions are based on democracy which ensures that the right

 

(c) Outline any two weapons used by trade unions to achieve their objectives.

Answer

Weapons used by trade unions to achieve their objectives are

(i) Strike: This is stoppage of work by employees to back their demand.

(ii) Collective Bargaining: It is an act of dealing with negotiation of pay and condition of service between workers’ representatives and employers

(iii) Demonstration/Protests: This involves workers organizing a rally, carrying placards, singing, and shouting to get the attention of management to address their concerns.

(iv) Picketing: This is a situation where representatives of the union prevent other workers from gaining access to the workplaces

(v)The threat of strike: This is giving employers notice of intention to embark on a strike action

(vi)  Work to Rule/ Go-Slow: Working slowly to reduce production so as to force employers to listen to the demand of workers.

Question 4

(a) Outline any four objectives of a price control policy.

Answer

Objectives of price control policy

(i) To curb or control inflation

(ii) To prevent price fluctuation of some products e.g agricultural produce

(iii) To prevent exploitation of consumers by producers and middlemen

(iv) To prevent a monopoly by reducing the profit of companies

(v) To assist low-income earners e.g minimum wage

(vi) To stabilize the income of the producers e.g farmers

(vii) To make possible output for future output

 

(b) Highlight any four effects of a maximum price control policy.

Answer

(i) It leads to rationing. Consumers are allocated a specific quantity irrespective of their needs

(ii) It encourages conditional sales. In this case, buyers are forced to buy what they do not need in addition to what they need

(iii) It leads to the creation of parallel markets or under-the-counter sales. In this case, the goods disappear from the open market

(iv) Shortages result in queues. People have to line up so as to obtain some of the available goods.

(v) Preferential treatment is encouraged. Here, sellers prefer to sell to regular customers, friends and relatives

(vi) It leads to hoarding of goods by sellers so as to sell above the maximum price

(vii) It leads to excess demand which cannot be satisfied i.e  shortages in the market

Question 5

(a) What are infant industries?

Answers

Infant industries are industries that produce goods and services locally which are growing but have not yet developed to compete with their foreign counterpart in the international market

 

(b) State any four reasons for protecting infant industries.

Answers

The reasons for protecting infant industries are as follow

(i)To protect the economy against dumping. Dumping refers to the selling of commodity at a cheaper price in the export market than in the home market where the commodity is produced

(ii) To generate revenue by way of increased tariff

(iii) To promote self-reliance

(iv) To correct the adverse balance of payment

(v) To create a large job opportunity in the country

(vi) To generate more foreign exchange and also conserve foreign exchange

(vii) To attract more foreign investments

(viii) To enable the government to have more effective control of the economy

(ix) To protect infant industries against undue competition with the giant ones in developed countries

(x) To encourage industrialization and diversification of the economy

 

(c) Outline any three ways by which industries can be financed in West Africa.

Answers

Industries can be financed in West Africa through

(i) Bank loans

(ii) Issuing of shares

(iii) Trade credit

(iv) Personal savings

(v) Sale of assets/properties

(vi) Ploughed back profit

(vii) Sales of debentures

(viii) Borrowing from other sources

(ix) Financial assistance from the government

Question 6

(a) What is a balance of payment disequilibrium?

Answer

Balance of payments disequilibrium is a situation where the total receipts of a country’s exports are not equal to the total payments on imports for a period of one year

 

(b) Explain the two types of balance of payment disequilibrium.

Answer

The two types of balance of payment disequilibrium are

(i) Balance of payment surplus: It occurs when a country’s receipts on current and capital accounts exceed its payment to other nations

(ii) Balance of payment deficit: It occurs when a country’s receipts from other countries on current and capital accounts are less than her payments to them

 

(c) Highlight any four reasons most West African countries are experiencing balance of payment problems.

Answer

The reasons why most West African countries are experiencing balance of payment problems are:

(i) Bad harvests resulting from poor agricultural productivity

(ii) A sharp fall in the demand for a country’s major export goods

(iii) High inflationary rate, which affects productivity as well as exports

(iv) High domestic demand for exported goods

(v) Low export drive

(vi) Unfavourable terms of trade

(vii) Currency devaluation

(viii) Poor infrastructural facilities which hinder production

(ix) Low level of agricultural production which reduces the volume of exports

(x) Servicing of foreign debts

(xi) Inadequate technical know-how

(xii) Excessive government expenditure on unproductive activities

 

Question 7

(a) What is deflation?

Answer

Deflation refers to a situation where there is a persistent fall in the general price level due to a rise in the value of money

 

(b) Outline any three positive effects of deflation.

Answer

The positive effects of deflation are:

(i)  It reduces inequality of income

(ii) Those that earn fixed income such as salary and pension earners gain

(iii) During a period of deflation, creditors gain

(iv) The value of money rises during deflation

(v) It reduces the balance of payment problem

(vi) The real value of assets like savings, insurance policy e.t.c rises

(vii) Fall in cost of living thereby leading to an increase in the standard of living

 

(c) Explain the ways by which inflation affects any three functions of money.

Answer

(i) Medium of exchange: During inflation, people are likely to lose confidence in money as a means of payment for goods and services because of a fall in its value

(ii) Store of value: Money is a poor measuring rod during inflation because its value is not stable. During inflation, the money saved loses its value

(iii) The standard for deferred payment: During inflation, money does not serve as an adequate standard for deferred payment because money loses value

(iv) Unit of account/measure of value: During inflation, money is not a reliable unit of account because its own value is not stable

Question 8

(a) What is protective tariff?

Answer

A protective tariff is a tax levied or imposed on imported goods or goods coming into the country. It is also known as import duties

 

(b) Outline any four reasons in favour of a protective tariff.

Answer

The reasons in favour of a protective tariff are:

(i) To protect infant industries or domestic industries against undue competition with the giant ones in developed countries

(ii) To protect the economy against dumping

(iii) To create a large job opportunity in the country

(iv) To promote self-reliance by encouraging mass local production

(v) To correct the balance of payments problems

(vi) To generate more revenue by way of increased tariff

(vii) To prevent the importation of dangerous goods into the country

(viii) To protect the custom and culture from being relegated to the background

 

(c) State any two reasons against the protective tariff.

Answer

The reasons against protective tariffs are:

(i) It could lead to an increase in the cost of living in the country

(ii) It may hinder economic growth and development

(iii) It leads to trade retaliation

(iv)  It may lead to inefficiency due to the overprotection of domestic industries

(v) It limits the level of a variety of goods available in the country

(vi) High taxes may lead to a fall in the standard of living