Quiz 10 of 16

2017 Economics WAEC Theory Past Questions

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Question 1

A dealer in deep freezers increased the price of his product from $450 to $500 and sales dropped from 800 units to 600 units a week.

Use the information above to answer the questions that follow.

(a)(i) Calculate the price elasticity of demand

Solution

\( \scriptsize e_p = \left( \normalsize \frac{Q_0 \: – \: Q_1}{Q_0} \right) \: \div \:  \left( \normalsize \frac{P_0 \: – \: P_1}{P_0} \right) \)

Q0 = original quantity

Q1 = new quantity

P0 = original price

P1 = new price

Q0 = 800

Q1 = 600

P0 = $450

P1 = $500

\( \scriptsize e_p = \left( \normalsize \frac{800 \: – \: 600}{800} \right) \: \div \:  \left( \normalsize \frac{450 \: – \: 500}{500} \right) \)

= \( \frac{200}{800}  \: \div \:  \frac{-50}{450} \)

= \( \frac{200}{800}  \: \times \:  \frac{450}{-50} \)

= \( \frac{2}{8}  \: \times \:  \frac{45}{-5} \)

= \( –  \frac{9}{4}  \)

= -2.25

ep = 2.25

 

(ii) What type of elasticity is it? Explain your answer

Answer

The type of elasticity is fairly elastic demand (elastic demand). It is elastic demand because the coefficient is greater than one i.e ep  1

(b)Calculate the

(i) total revenue of the company before and after price increase;

Solution

Total Revenue = Price quantity

Total Revenue before = $450 x 800

                                             = $360000

Total Revenue after = $500 x  600

                                          =  $300000

(ii) change in total revenue.

   Change in Total Revenue  =  $360000 – $300000

                                                       =  $ 60000

(c) What is the effect of the increase in price on the total revenue?

Answer

The firm’s total revenue has reduced by $60000 after the price increase

 

(d) State two factors influencing the price elasticity of demand.

Answer

Price elasticity of demand is influenced by the following factors

(i) Possibility of substitute: If a commodity does not have an alternative within the same or a close price range, it is likely to be inelastic demand and vice-versa

(ii) Habit: Habit is easy to form but very difficult to leave. The demand for developing a strong habit in a particular good is usually inelastic

(iii) Consumer’s money income: The demand for the goods consumed  by higher-income earners is more elastic than that of low-income earners

(iv) Cheaper commodities: The demand for cheap goods is mostly likely to be inelastic because consumer’s income is not noticeably affected by its price change

(v) Degree of necessity: When a commodity is considered very necessary, its demand is more likely to be inelastic

(vi) Degree of durability: The more durable and maintainable a commodity is the more elastic will its demand become

Question 2

The market for apples is represented by the following demand and supply functions:

Qd = 30 – p;

Qs = 15 + 2p.

(a) Prepare a demand and supply schedule for the market, given the prices $2.00, $4.00, and $7.00.

Solution

Qd = 30 – p

When price = $2.00, Qd = 30 – 2 = 28 units

When price = $4.00, Qd = 30 – 4 = 26 units

When price = $7.00  Qd = 30 – 7 = 23 units

Qs = 15 + 2p

When price = $2.00, Qs = 15 + 2(2) = 19 units

When price = $4.00, Qs = 15 + 2(4) = 23 units

When price = $7.00, Qs = 15 + 2(7) = 29 units

Demand and supply schedule

Price ($) Demand (units) Supply (units)
2 28 19
4 26 23
7 23 29

 

(b) (i) Determine the equilibrium price and equilibrium quantity of apples in the market.

Solution

Qd = Qs

30 – p = 15 + 2p

30 – p = 2p + p

15 = 3p

p = \( \frac{15}{3} \)

Equilibrium price = $5

Substitute for p in equ(i) (ii)

Qd = 30 – p

Qd = 30 – 5 = 25 units

OR

Qs = 15 + 2p

Qs = 15 + 2(5)

Qs = 15 + 10

= 25 units

(ii) If the price of an apple is fixed at $3.00, what will be the excess demand or excess supply?

Solution

 If the price of is fixed at $3.00

Excess demand = Qd – Qs

Qd = 30 – 3 = 27 units

Qs = 15 + 2(3) => Qs = 15 + 6 = 21 units 

Excess demand = 27 – 21 = 6 units

 

(c) Suppose the demand function changed to Qd = 40 – p. Using the prices in (a) above

(i) prepare a new demand schedule;

Solution

Demand function changes to Qd = 40 – p

When price = $2, Qd = 40 – 2 = 38 unitS

When price = $4, Qd = 40 – 4 = 36 units

When price = $7, Qd = 40 – 7 = 33 units

 

Price ($) Demand (units)
2 38
4 36
7 33

 

(ii) does it represent an increase or a decrease in demand?

Answer

 It represents an increase in demand

(iii) explain your answer in (c) (ii) above. 

Answer

At the same prices, more quantities of apples are demanded

Question 3

(a) Define land as a factor of production.

Answer

Land is defined as a gift of nature. Land in economics includes all economic and non-economic resources provided by nature as distinct from manmade. This includes sun, rain, earth crust, forest, farmland, trees, fish ponds, and other mineral resources under the land like crude oil, gold e.t.c

 

(b) State three features of land.

Answer

The features of land are:

(i) Land is geographically immobile

(ii) The supply of land is relatively fixed

(iii) Land has no cost of production i.e it is a gift of nature

(iv) The reward of land is rent

(v) Land is subject to the law of diminishing returns

(vi) The quality and value of land depends on the location i.e its quality varies

 

(c) Explain four ways in which land contributes to the economic development of your country

Answer

The economic importance of land is:

(i) Land contains economic resources such as crude oil, precious commodities, tin e.t.c

(ii) Land is used for agriculture

(iii) Houses, factories, e.t.c are sited on land

(iv) Land is used for the construction of roads, bridges, and waterways necessary for the transportation of people and goods

(v) It is a source of income for landlords

(vi) Land is a source of fishing

(vii) Land is the source of raw materials for industry

(viii) Land is used for wildlife conservation and tourism

(ix) Adequate sunshine is the source of solar energy generation

(x) Land is a source of employment and income for those engaged in primary production

 

Question 4

(a) What is subsistence farming?

Answer

Subsistence Farming: This is a system of farming whereby the farmers produces for himself and his immediate family members. The farmer hardly has anything to be sold to other people

 

(b) Distinguish between crop farming and livestock farming with specific examples.

Answer

Crop farming involves the growing and harvesting of food and cash crops such as yams, cassava, rice, seed, cotton, vegetable, mangoes, groundnuts e.t.c for human consumption, while livestock farming involves the rearing of animals e.g fishery, poultry, piggery, cattle rearing e.t.c

 

(c) Identify four measures that the government of your country can adopt to boost agricultural production.

Answer

Measures that should be taken to boost agricultural production are

(i) The farmers should have more access to soft loans so as to increase their investment in agriculture

(ii) The income of the farmers should be improved

(iii) The farmers should be educated through formal and non-formal education

(iv) There should be an improvement in the provision of social amenities in the rural area

(v) Storage facilities should be provided for farmers at a cheap rate

(vi) Mechanized farming should be introduced

(vii) An adequate supply of farming input

(viii) The transportation of agricultural produce should be improved

(ix) The government should discourage rural-urban migration

Question 5

(a) State two features each of:

(i) perfect competition;

Answer

Features of perfect competition

(i) The commodities sold in a perfect market must be homogenous identical or simply the same

(ii) There are many buyers and sellers who cannot influence the price of goods

(iii) There is usually free entry and exit in the market

(iv) No preferential treatment in the market i.e everybody is treated in the same manner

(v) There should be an adequate and free flow of information

(vi) There is usually no transport cost

(vii) There is the mobility of factors of production

(viii) The commodities sold must be transferable

(ix) All the firms charge the same price in the market because the price is fixed by market forces

(x) There is no government interference in the free flow of goods and services

 

(ii) monopolistic competition.

Answer

Features of monopolist competition are:

(i) There are many producers or suppliers

(ii) Each producer sells products that are differentiated from others through the use of trademarks

(iii) Each firm has effective control of its price and output

(iv) A monopolist can make an abnormal profit in the short run and super-normal profit disappears in the market

(v) In the short run, the revenue curve is downward sloping

(vi) Price discrimination is prominent

(vii) Different prices rule the market i.e each firm is a price maker controlling a portion of the market

(viii) Any firm can enter with a variety and exit if it is not making profits

 

(b) What does it mean for a firm to be a

(i) price taker

Answer

A firm is a price taker if its output is only a small fraction of the total output of the industry and the price in the perfect competition is determined by market forces

(ii) price maker

Answer

A firm is a price maker if it controls the entire output or a major part of the output of the industry. Such firms have considerable control over the price of the product in the market. A monopolist is a price maker

 

(c) Explain the following sources of monopoly power:

(i) acts of parliament

Answer

This is the right given to an inventor to be the sole supplier or producer of a particular commodity

(ii) copyright

Answer

This occurs when the inventor enjoys monopoly power on the production and supply of items invented. It is also a legal right granted to a producer of a book, play firm, or song to be the sole seller for a specific period

(iii) natural monopoly

Answer

This is the type of monopoly caused by nature. It occurs when a country is endowed with certain natural resources which cannot be found in any other part of the world

(iv) cartel

Answer

This is a voluntary association of independent producers who came together to limit competition among its members by controlling price and output. A good example of a cartel is the Organization of Petroleum Exporting Countries (OPEC)

Question 6

(a) Define inflation.

Answer

Inflation is the persistent rise in the prices of goods and services without a corresponding increase in supply and it is a situation where too much money chases too few goods and services

 

(b) Identify any three causes of:

(i) demand-pull inflation

Answer

This occurs where there is excess demand oversupply. It may be due to an increase in personal income or a general increase in wages

(ii) cost-push inflation

Answer

This arises when cost increases or the rising cost of production pushes rise up. This may be due to an increase in the cost of raw materials and high wages e.t.c

The major causes of inflation are

(i) Excessive money in circulation

(ii) Population explosion resulting in excessive demand

(iii) The high cost of production

(iv) Neglect of agriculture

(v) Political instability such as war

(vi) Poor storage facility

(vii) Poor harvest resulting in a shortage in supply

(viii) Government policy

Question 7

(a) What is economic development?

Answer

Economic development is the process of growth plus change over a sustained period of time. Economic growth leads to economic development. It could be self-sustaining to a great extent. In order words, it is the persistent growth in real per capita income plus structural changes in the economy which bring about improvement in the standard of living.

 

(b) State three features of a developing country.

Answer

Features of a developing country are:

(i) Low per capita income: In undeveloped countries, the GNP per person is  usually very low

(ii) Low level of employment: A developing country experiences a high level of unemployment

(iii) A low standard of living: In a developing country, the citizens do not have easy access to the good things of life

(iv) Low capital rate formulation: Developing countries face a vicious circle of poverty

(v) Inadequate industries: There is usually acute storage of giant industries

(vi) Low productivity: The level of productivity in these countries is usually very low.

(vii) Low nation income: As a result of low productivity, the national income of developing countries is very low

(viii) Population explosion: The population of developing countries grows at a faster rate than those of developed countries

(ix) A high rate of illiteracy: Underdeveloped countries experience instability in the educational sector

(x) A wide gap between the poor and rich

 

(c) Explain any four factors that can speed up the economic development of your country.

Answer

Factors that can speed up economic development are:

(i) Diversification of the economy

(ii) Provision of infrastructural facilities

(iii) Encouraging a high rate of literacy

(iv) Efficient use of society’s resources

(v) Effective development plans

(vi) The stable and conducive political climate

(vii) Encouraging the set up of industries and survival of infant industries

(viii) Encouraging export and discouraging import (export promotion)

(ix) Taking a positive step to produce imported goods locally or at least find a local alternative for most imported goods

Question 8

(a) State two features each of

(i) free trade area;

Answer

Features of a free trade area

(I) Member nations remove all kinds of restrictions in trade among themselves

(II) Member nations have no common tariff policy in their trade with non-members. Each country determines its own tariff policy

(ii) common markets.

Answer

Features of the common market are

(I) Member countries remove all kinds of restrictions on trade among themselves

(II) Member countries have a common tariff policy against non-members

(III) Free movement of factors of production

 

(b) outline two advantages and two disadvantages of a common market.

Answer

Advantages of a common market

(i) Existence of large market such that firm have access to the market of member countries

(ii) Consumers have a wider market to choose from and at better prices

(iii) It fosters peace, unity, and understanding among members

(iv) Development may spread from more advanced countries to less-developed nations

(v) There is a more efficient allocation of resources since resources move about freely in the region

(vi) Large scale production with the possibility of regional specialization

Disadvantages of a common market

(i)There is a loss of revenue which affects the growth of the poorer members

(ii) Developed member nations may develop at the expense of the weak and poorer ones

(iii) Trade from cheaper sources outside the region is diverted i.e cheaper sources are prevented from entering the union.