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WAEC: ECONOMICS

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2019 Economics WAEC Theory Past Questions

WAEC: ECONOMICS 2019 Economics WAEC Theory Past Questions

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Question 1

The diagram below represents the equilibrium position of a firm in a perfectly competitive industry. Study it carefully and answer the questions that follow

a (i) At what level of output and prices is the firm in equilibrium?

Solution

The firm is in equilibrium where MR = MC. Therefore, equilibrium output is 50kg and equilibrium price is $20.00

(ii) Calculate the firm’s profit in equilibrium

Firm’s profit (π) = TR – TC

Solution

 TR = Price × Quantity

 = $20 × 50kg = $1000

 TC = ATC    output (quantity)

 = $12  × 50 = $600

∴ Profit(π) = $1000 – $600 = $400

(iii) What type of profit is it? Explain your answer

Solution

Abnormal profit or supernormal profit. This is because the profit is earned at a point where price (AR) is greater than AC

 

(b) Why is the average revenue (AR) function horizontal

Solution

The average revenue function is horizontal because, in perfect competition, AR, which is also the price is constant or fixed

 

(c) State any two ways in which marginal cost (MC) and average total cost (ATC) are related

Solution

(i) When MC is less than ATC, ATC is falling 

(ii) When MC is equal to ATC, ATC is at minimum

(iii) When MC is greater than ATC, ATC is rising

Question 2

The extract from a country’s balance of payments account is shown below

                ITEMS IMPORT ($million)   EXPORT ($million)
  Agricultural products             –           200
  Mineral resources             –           300
  Consumer goods           250             –
  Capital goods           400             –
  Insurance             50             25
  Banking             75             30
  Transportation             85             25
  Loans           150             60

Using the table above, calculate the 

(a) balance of trade

Solution

Balance of trade = Visible exports – Visible imports

Visible Exports = Agricultural products + Mineral resources

= $200 + $300 = $500

Visible Imports = Consumer goods + Capital goods

= $250 + $400 = $650

∴Balance of trade = $500m – $650 =  -$150million  

 

(b) Invisible trade

Solution

Invisible Trade Balance = Invisible exports – Invisible  imports

Invisible exports = Insurance + Banking + Transportation + Loans

= $25 + $30 + $25 + $60 = $140

Invisible Imports = Insurance + Banking + Transportation + Loans

= $50+ $75 + $85 + $150 = $360

∴Invisible Trade Balance = $140 – $360

  = -$220million

 

(c) balance on current account

Balance on current account  = Balance of trade + Invisible trade balance

                            -$150million + (-$220 million)

                           = -$150m – $220 million

                          =  -$370 million

Question 3

a(i) Define distribution of goods

Solution

Distribution of goods refers to the processes or stages that manufactured goods pass before reaching the final consumers

(ii) Illustrate the normal chain of distribution of goods

Solution

 

(b) Describe a consumer’s cooperative society

Solution

Consumers’ cooperative society is a voluntary association of retailers or consumers who pool their resources together to buy goods in bulk directly from the manufacturers or distributors.

 

(c) Outline any four roles performed by a consumers’ cooperative society

(i)  They sell goods on credit to their members

(ii) They break the bulk by buying goods directly from the producers

(iii) They protect their members from exploitation by middlemen who may sell at exorbitant prices

(iv) They make a variety of goods available to their members

(v) They provide a store from where they make their purchases

(vi) Surplus is shared according to a member’s patronage

(vii) They educate and train their members

(viii) They act as agents to government agencies to market and distribute their products

Question 4

(a) What is an industry?

Answer

An industry is a collection of firms that are engaged in the same line of production or offering similar services

 

(b) Explain the following 

(i) Division of labour

Answer

Division of labour is the breaking down of work into different stages or processes so that each stage will be handled by an individual or units

(ii) Economies of scale

Answer

Economies of scale refer to the benefit that accrues to firms either individually or collectively when factors of production are effectively and efficiently employed

 

(c) Outline any four internal economies of scale

The main internal economies of scale include

(i) Technical economy: This is the economy enjoyed by a firm which engages in large scale production by utilizing all machinery to full advantage

(ii) Administrative or managerial economy: The cost per unit of management falls as the firm’s output increases

(iii) Market economy: A large scale firm buys raw materials in bulk and enjoys the economy of transportation of materials and finished goods in bulk

(iv) Risk bearing economy: Large scale firms are able to withstand risks that may arise from competition, maladministration e.t.c due to their strong financial foundation

(v) Research economy: In view of its size, a large scale firm can afford to establish a research and development center in order to improve its product

(vi) Welfare economy: a large scale firm can conveniently provide such welfare facilities as canteens, good medical services, housing schemes, transport, and other recreational facilities for its employees, better and cheaper

(vii) Financial economy: Larger firms can easily access loans from banks and other financial institutions at lower rates because they have collateral and are more creditworthy

Question 5

(a) Define a joint venture 

Answer

Joint venture is a form of venture which is jointly owned by two or more independent firms who continue in their original business but pool their resources in another line of business

 

(b) Identify any three merits of a private company over a partnership 

Answer

(i) Limited liability: The liability of the shareholders cannot exceed the amount they invested into the company

(ii) Perpetual existence unlike partnership private company is an artificial personality whose existence is maintained by the constant succession of new individuals who replace those that die or are removed

(iii) Separate legal entity: A company is distinct from the owner. It can sue or be sued under its registered name

(iv) Large capital: A company is an association of people whose resources are lumped together

(v) Much room for expansion: Due to large capital of the company, there is no limit to which the company can expand

(vi) Investment opportunity for small investors: Private company creates investment opportunities for individuals who cannot own their own businesses because of their limited resources

(vii) Separate control of ownership: The management of the company is left in the hands of a skillful board of directors

(viii) Advantage of large scale production: As the company has a solid capital base, it can afford to benefit from large scale production

(ix) Access to bank loan: Due to the large assets of the company, it can easily have access to bank loans and at a reduced cost of capital

 

(c) State any three sources of finance to a public enterprise

Answer

(i) They are financed by taxpayers’ money

(ii) They can borrow money from the financial institutions in the country

(iii) They can borrow from international financial institutions like the world bank, African Development Bank e.t.c

(iv) They receive financial grants from organizations like the world bank, ADB e.t.c

(v) Government subvention

(vi) Plough back profits

(vii) Grants and subsidies from the government

(viii) They can raise funds from the capital market by issuing bonds

Question 6

(a) Distinguish between the following pairs of concepts

Answer

(i) Elastic demand and Inelastic demand

Elastic demand: This is when a small percentage change in price leads to a bigger percentage change in demand. The coefficient is said to be greater than one i.e ep >1

Inelastic demand: This is when a percentage change in price leads to little or no change in quantity demanded. The coefficient is said to be less than one

(ii) Income elasticity of demand and cross elasticity of demand

Answer

Income elasticity of demand refers to the degree of responsiveness of demand to changes in the income of consumers. It is measured as:

EY = \( \frac{\% \: change \: in \: quantity \: demanded}{\% change \: in \: income} \)

 Cross elasticity of demand refers to the degree of responsiveness of demand for a commodity to changes in the price of another commodity. It is measured as

CED = \( \frac{\% \: change \: in \: quantity \: demanded\: of \: good \: X}{\% change \: in \: price \: of \: Y} \)

 

(b) Using diagrams, explain how an increase in demand will affect the total revenue of a producer if demand for his product is 

(i) Price elastic

Answer

From the diagram, the quantity demanded falls from 0Q1 to 0Q2 after the price increased from 0P1 to 0P2.

(ii) Price inelastic

Answer

As shown in the diagram, quantity demanded falls from 0Q1 to 0Q2, after the price increased from 0P1 to 0P2

Question 7

(a) Distinguish between 

(i) Growing population and a declining population

Answer

A growing population is one which has a large proportion of young people while a declining population is one with a large proportion of old or aged people in the country

(ii) Overpopulation and underpopulation

Answer

Overpopulation is the population that arises where there are too many people in a country in relation to the resources available while under population occurs where there are too few people in a country in relation to the resources available

 

(b) Explain any four disadvantages of a rapidly growing population in an economy

Answer

(i) High dependency ratio may result in low savings by the labour force and low capital accumulation in the country

(ii) Per capita income will fall which will lead to a low standard of living

(iii) There will be congestion in urban areas which will result in a high rate of social vices and accommodation problem

(iv) Government expenditure will rise due to an increase in demand for social amenities

(v) There will be pressure on the existing infrastructures such as water, electricity, health facilities e.t.c

(vi) There will be a high rate of unemployment due to the inability of the government to provide jobs

(vii) There will be high cost of living due to excess demand for goods and services

(viii) There will be high rate of rural-urban migration with its attendant problems

(ix) There will be a balance of payments problems due to increase in the importation of goods into the country

(x) It may lead to high environmental population

Question 8

(a) What is public debt?

Answer

Public debt refers to the total sum of money owed by the central government of one’s country. It is the total or accumulated deficits less accumulated surpluses

(b) Outline any three reasons why countries borrow

Answer

(i) Financing huge capital projects such as roads, bridges, dams, electricity e.t.c

(ii) Servicing loans borrowed from the world bank, IMF, AFDB e.t.c

(iii) Financing emergencies such as flood, war, earthquake e.t.c

(iv) Financing the countries budget

(v) Financing war and crises

(vi) Financing balance of payment problems

(vii) Financing agriculture in order to increase productivity

 

(c) Highlight any three effects of huge national debt on the economy of a country

Answer

(i) Servicing of debt will limit the government’s ability to provide social capital

(ii) It will reduce the availability of foreign exchange

(iii) The servicing of external debt will lead to capital flight and outflow of resources

(iv) Domestic debt will influence the distribution of income in a country

(v) A large internal debt with a high rate of interest will reduce private investments needed for economic growth and development

(vi) A large external debt will make a country to be enslaved by the external creditor

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