Quiz 2 of 14

2020 Economics WAEC Theory Past Questions

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Question 1

Table 1 below shows the number of workers engaged by an agricultural firm over a period of time. Study it and answer the questions that follow.

Table 1

Number of
workers
Total
Product
Marginal
product
Average
product
0 0 0 0
1 20 20 20
2 50 30 Z
3 70 20 23.3
4 80 Y 20
5 80 0 16
6 X -9.8 11.7

 


(a) Calculate the values of X, Y, and Z

Answer 

X = Total product which is yielded from all factors employed.

TP = AP x Q

TP6 = AP6 x Q6;

= 11.7 x 6

= 70.2

 

Y = Marginal product which is the addition to total product as a result of the employment of one additional worker or difference between two products.

Y = MP4 = \( \frac{TP_{4} \: - \: TP_{3}} {Q_{4} \: - \: Q_{3}} \)

= \( \frac{80 \: - \: 70} {4 \: - \: 3} \)

= \( \frac{10} {1} \)

MP4 = 10

∴ Y = 10

Z = Average product which is the total yield per worker; i.e. the total product divided by the number of workers employed. 

Z = AP2 = \( \frac{Total \: product}{Number \: of \: workers \: employed} \)

AP2 = \( \frac{TP_{2}}{Q_{2}} \)

AP2 = 25

∴  Z = 25

 

(b) At what level of employment of labour does the firm experience: 

(i) increasing returns 

Answer 

Increasing returns started when the number of workers employed increased from 1to 2 workers because marginal product increased from 20 to 30. 

(ii) decreasing returns 

Answer 

Decreasing returns started when 3 units and 4 units of labour were employed because marginal products decreased to 20 units and 10 units.

(iii) negative returns.  

Answer 

Negative returns happened when 6 units of labour were employed, the marginal product becomes -9.8.

 

(c) State the law of diminishing returns

 The law of diminishing returns states that “As more and more units of a variable factor are combined with fixed input, the marginal product increase and after a certain point, begins to decline.

 

(d) (i) On a graph sheet, draw the total product and the marginal product curve.

Answer 

(ii) State any two relationships between the two curves in (d)(i) above.

Answer 

From the above graph, as more labour was employed, both TP and MP increase at 2 units of labor. When 3 units of labour are employed, TP still increases, but MP reaches its maximum of 30 and begins to fall. TP reaches its maximum at 80 as MP falls to 5 units of  labour, when the TP falls to 70.2, MP becomes negative.

Question 2

Figure1 below represents the production possibility curve of a nation.

Use it to answer the questions that follow.

(a) What is the opportunity cost of: 

(i) producing 30 units of cocoa. 

Answer

The opportunity cost of producing 30 units of cocoa is 60 bales of textile forgone. In this case, a sacrifice of 60 bales of textiles has been made.

(ii) Increasing textile production from 30 to 40 bales? 

Answer

 The opportunity cost of increasing textile production from 30 to 40 bales is the reduction of cocoa production from 25 tonnes to 20 tonnes. In this case, 5 tonnes of cocoa has been sacrificed in order to increase the production of textiles from 30 to 40 bales.

 

(b) Interpret the following points as found in the graph:

(i) Point Y

Answer

Point Y represents underemployment of resources since it lies within the curve i.e. leaving some resources idle or that resources would be used inefficiently.

(ii) Point G

Answer

Point G represents full employment of resources or attainable points because resources are fully utilized since it lies on the production possibility curve or frontier.

(iii) Point X 

Answer

 Point X represents an unattainable point; there are not enough resources available to produce at this point, because it lies outside the production possibility curve or frontier.

 

(c) List three conditions that can enable the nation to produce at point X.

Answer

Three conditions that can enable the nation to produce at point X are: 

i) The use of advanced technology

ii) If the nation in question experiences economic growth

iii) New discovery of resources

iv). Research and investments

v.) Development of human resources

vi) Reduction in waste or misallocation of resources

 

(d) State two basic economic concepts illustrated in the diagram above.

Answer

The two basic economic concepts illustrated in the diagram are;

i) Scarcity of resources

ii) Opportunity cost

 

(e) (i) Define production possibility curve

Answer

The production possibility curve is a curve which shows the various combination of quantities of goods and services that a nation can produce using available resources fully and efficiently.

(ii) What does the slope of the production possibility curve indicate?

Answer

The downward slope of the curve indicates that there is an opportunity cost of producing more of one type of commodity i.e. cost being measured in terms of the quantity forgone of the other commodity. To produce more of one commodity (textiles), units of the other commodity (cocoa) must be sacrificed.

Question 3

(a) Define consumer goods.

Answer

Consumer goods are those goods which directly satisfy consumers' wants and are in the hands of the consumers, e.g. a loaf of bread, a table, a car, etc.

 

(b) Explain the following forms of capital with an example each

Answer

(i) Fixed capital

Fixed capital refers to all those producer goods which are very durable and which do not change their form after production e.g. machinery and factory buildings, tools, equipment, airplanes, etc.

Answer

(ii) Social capital

Social capital is made up of facilities like roads, schools, bridges, and hospitals which are owned by the community as a whole but provided by the government.

Answer

(iii) Circulating capital

Circulating capital or working capital refers to those goods required regularly for production and which change form entirely after production. e.g. raw materials like palm oil and cassava, fuel, money for paying wages and salaries, etc.

 

(c) Outline three reasons for the low level of saving in a country

Answer

(i) Low-income level so people cannot afford to save

(ii) High dependency ratio as a result of the smaller working class compared to the youth and old (retired)

(iii) High cost of living because the prices of goods and services keep rising.

(iv) People tend to spend more on activities that are not productive like birthday parties, funerals, weddings, etc.

Question 4

(a) Distinguish between the following pairs of terms:

(i) Capital expenditure and Recurrent expenditure

Answer

Capital expenditure refers to government planned expenditure on items that do not recur every year and which are durable in nature e.g. expenditure on building new schools, expenses on securing new aircrafts, etc.

while

Recurrent expenditure refers to planned government spending on items that constitute running costs, i.e. expenses that recur or (repeat) every year e.g. wages, salaries, expenses on repair of roads, bridges, interest on public debts, etc.

(ii) fiscal policy and monetary policy

Answer

Fiscal policy refers to the part of government policy which has to do with revenue generation, through the use of taxation and government spending to achieve the desired economic objectives

while

Monetary policy involves the use of investments such as open market operation, interest rates, credit ceiling, credit guidelines, etc. to regulate the money supply in an economy.

 

(b) Explain four reasons why the government of a country imposes taxes

Answer

(i) To raise revenue - one of the primary aims of taxation is to raise revenue for the government. In West Africa, taxes, both direct and indirect, contribute to over 80% of government revenue. Revenue collected enables the government to meet the cost of general administration, defense, and provision of social services.

(ii) To protect infant industries - Infant or newly established industries are usually protected from the well-established ones in the developed countries through the imposition of heavy import duties.

(iii) To check inflation - During a period of inflation, consumers' purchasing power is reduced through heavier income taxes so as to check excess demand which causes prices to rise.

(iv) To correct balance of payment problems - In a situation where a country suffers from a balance of payment difficulties due to excess imports over exports, the government taxes imported goods more heavily than exported ones so as to restrict imports and encourage more exports to reverse the situation.

Question 5

(a) Define tariff

Answer

Tariff can be defined as a tax imposed on goods imported into the country.

Governments impose tariffs to raise revenue, protect domestic industries, exert political leverage over another country, or discourage consumption of certain goods

 

(b) State the following laws:

(i) The law of absolute cost advantage

Answer

The law of absolute advantage states that a country should produce and export those goods in which it has an absolute advantage over its trading partners and to import those goods in which it has an absolute disadvantage compared with its trading partners.

(ii) The law of comparative cost advantage

Answer

The law of comparative cost advantage states that a country should produce and export those goods in which it has a comparative advantage and import those goods in which it has a comparative disadvantage

 

(c) Outline any four assumptions behind the law of comparative cost advantage.

Answer

(i) There are only two countries in the world each producing and consuming only two goods.

(ii) Labour is the only factor of production and they are of uniform quality within each country.

(iii) There is perfect mobility of labour within each country whereas labour cannot move freely between countries.

(iv) Costs of production are constant. The costs remain the same whatever the quantities produced.

(v) There are no costs of transportation.

(vii) There is full employment in each country. As a result of one product will entail forgoing some quantity of another product.

(viii) There are no trade barriers between the two countries.

Question 6

(a) What is money?

Answer

Money is anything that is generally acceptable as a medium of exchange and used in the settlement of debts.

 

(b) Explain the following concepts

(i) Value of money

Answer

The value of money is the amount of goods and services a given monetary unit can buy. The greater the amount of goods and services that can be purchased with a given unit of money, the greater the value of money and vice-versa.

(ii) Demand for money

Answer

The demand for money is a derived demand. It is the desire to hold money in liquid form rather than investing it in stocks and bonds. People hold money for transactions, precautionary and speculative motives.

 

(c) Identify any four determinants of transactions demand for money

Answer

(i) Level of income - The higher the amount of income one earns, the higher the amount of money that would be held to meet day-to-day expenses.

(ii) Interval between payday - The shorter the interval between paydays, the lower the amount of money to be held while the longer the interval, the more the amount to be held.

(iii) The rate of interest - The higher the rate of interest, the lower the amount held for transactions and vice versa.

(iv) The price level -  If the price level is high, more money has to be held to meet daily transactions and vice versa.

(v) Status in the society -  A well-placed man in the society is expected to hold a large sum of money to maintain his status.

(vi) The size of one's family - A person with a large family is expected to hold more money and vice versa.

(vii) Advancement of technology in the banking sector, e.g debit cards, online banking, etc reduces the amount of money held for transactions.

Question 7

(a) Distinguish between competitive demand and joint demand

Competitive demand is the demand for commodities which can be used interchangeably. An increase in the demand for one will lead to a decrease in the demand for its substitute.

Joint demand on the other hand is the demand for commodities which are used together to satisfy a want. An increase in the demand for one will lead to an increase in the demand for the other.

 

(b) using diagrams, explain how the following factors will affect the equilibrium price and quantity of commodity R  in the market:

(i) an increase in the price of the complement of commodity R;

From the diagram above (figure 1), an increase in the price of the complement of commodity R from P1 to P2 has resulted in a fall in quantity demanded from Q1 to Q2. Demand for commodity R shifted from D1 to D2 and equilibrium price fell from P1 to P2 and quantity from Q1 to Q2.

(ii) an increase in price of a substitute of commodity R

An increase in the price of a substitute of commodity R will result in a fall of its quantity demanded from Q1 to Q2 in (fig.3). As  a result of this, demand for commodity R will increase, shown by the demand curve shifting from D1D1 to D2D2 in fig.4. The equilibrum price will increase from P1 to P2 and equilibrum quantity from Q1 to Q2.

(iii) imposition of an indirect tax on commodity R.

The imposition of an indirect tax on commodity R will result in a shift of the supply curve from S1S1 to S2S2 in fig.5. With demand unchanged, the equilibrum price will increase from P1 to P2 but the equilibrum quantity will fall from Q1 to Q2.

Question 8

(a) Differentiate between subsistence farming and commercial farming

Answer

Commercial farming is concerned with the production of food crops and livestock on a large scale with the aim of making profits

 

(b) State four features of subsistence farming.

Answer

(i) It is done on a small scale

(ii) Simple tools like hoe and cutlass are used

(iii) Relies solely on the weather

(iv) Little or no pesticides are used

(v) It relies on family labour

(vi) Food crops are mainly cultivated for home consumption and not for sale.

(vii)  Yields are usually low etc.

 

(c) Outline two positive and two negative effects of mining on the economy of West African countries.

Answer

Positive effects of mining 

(i) It is a source of foreign exchange

(ii) It serves as employment

(iii) It is a source of raw material for local industries.

(iv) Government generates revenue in form of royalties

(v) Contributes to infrastructural development

(vi) Sources of energy e.g. coal

(viii)  Avenue for transfer of technology

Negative effects

(i) It leads to loss of farmlands

(ii) It leads to pollution of water bodies

(iii) It leads to loss of lives when people fall into abandoned pits.

(iv) It increases expenditure for the government in land reclamation

(v) It destroys animals and tree species

(vi) Contributes to consumption.

(vii) It has led to the neglect of other sectors

Question 1

Table 1 below shows the number of workers engaged by an agricultural firm over a period of time. Study it and answer the questions that follow.

Table 1

Number of
workers
Total
Product
Marginal
product
Average
product
0 0 0 0
1 20 20 20
2 50 30 Z
3 70 20 23.3
4 80 Y 20
5 80 0 16
6 X -9.8 11.7

 


(a) Calculate the values of X, Y, and Z

Answer 

X = Total product which is yielded from all factors employed.

TP = AP x Q

TP6 = AP6 x Q6;

= 11.7 x 6

= 70.2

 

Y = Marginal product which is the addition to total product as a result of the employment of one additional worker or difference between two products.

Y = MP4 = \( \frac{TP_{4} \: - \: TP_{3}} {Q_{4} \: - \: Q_{3}} \)

= \( \frac{80 \: - \: 70} {4 \: - \: 3} \)

= \( \frac{10} {1} \)

MP4 = 10

∴ Y = 10

Z = Average product which is the total yield per worker; i.e. the total product divided by the number of workers employed. 

Z = AP2 = \( \frac{Total \: product}{Number \: of \: workers \: employed} \)

AP2 = \( \frac{TP_{2}}{Q_{2}} \)

AP2 = 25

∴  Z = 25

 

(b) At what level of employment of labour does the firm experience: 

(i) increasing returns 

Answer 

Increasing returns started when the number of workers employed increased from 1to 2 workers because marginal product increased from 20 to 30. 

(ii) decreasing returns 

Answer 

Decreasing returns started when 3 units and 4 units of labour were employed because marginal products decreased to 20 units and 10 units.

(iii) negative returns.  

Answer 

Negative returns happened when 6 units of labour were employed, the marginal product becomes -9.8.

 

(c) State the law of diminishing returns

 The law of diminishing returns states that “As more and more units of a variable factor are combined with fixed input, the marginal product increase and after a certain point, begins to decline.

 

(d) (i) On a graph sheet, draw the total product and the marginal product curve.

Answer 

(ii) State any two relationships between the two curves in (d)(i) above.

Answer 

From the above graph, as more labour was employed, both TP and MP increase at 2 units of labor. When 3 units of labour are employed, TP still increases, but MP reaches its maximum of 30 and begins to fall. TP reaches its maximum at 80 as MP falls to 5 units of  labour, when the TP falls to 70.2, MP becomes negative.

Question 2

Figure1 below represents the production possibility curve of a nation.

Use it to answer the questions that follow.

(a) What is the opportunity cost of: 

(i) producing 30 units of cocoa. 

Answer

The opportunity cost of producing 30 units of cocoa is 60 bales of textile forgone. In this case, a sacrifice of 60 bales of textiles has been made.

(ii) Increasing textile production from 30 to 40 bales? 

Answer

 The opportunity cost of increasing textile production from 30 to 40 bales is the reduction of cocoa production from 25 tonnes to 20 tonnes. In this case, 5 tonnes of cocoa has been sacrificed in order to increase the production of textiles from 30 to 40 bales.

 

(b) Interpret the following points as found in the graph:

(i) Point Y

Answer

Point Y represents underemployment of resources since it lies within the curve i.e. leaving some resources idle or that resources would be used inefficiently.

(ii) Point G

Answer

Point G represents full employment of resources or attainable points because resources are fully utilized since it lies on the production possibility curve or frontier.

(iii) Point X 

Answer

 Point X represents an unattainable point; there are not enough resources available to produce at this point, because it lies outside the production possibility curve or frontier.

 

(c) List three conditions that can enable the nation to produce at point X.

Answer

Three conditions that can enable the nation to produce at point X are: 

i) The use of advanced technology

ii) If the nation in question experiences economic growth

iii) New discovery of resources

iv). Research and investments

v.) Development of human resources

vi) Reduction in waste or misallocation of resources

 

(d) State two basic economic concepts illustrated in the diagram above.

Answer

The two basic economic concepts illustrated in the diagram are;

i) Scarcity of resources

ii) Opportunity cost

 

(e) (i) Define production possibility curve

Answer

The production possibility curve is a curve which shows the various combination of quantities of goods and services that a nation can produce using available resources fully and efficiently.

(ii) What does the slope of the production possibility curve indicate?

Answer

The downward slope of the curve indicates that there is an opportunity cost of producing more of one type of commodity i.e. cost being measured in terms of the quantity forgone of the other commodity. To produce more of one commodity (textiles), units of the other commodity (cocoa) must be sacrificed.

Question 3

(a) Define consumer goods.

Answer

Consumer goods are those goods which directly satisfy consumers' wants and are in the hands of the consumers, e.g. a loaf of bread, a table, a car, etc.

 

(b) Explain the following forms of capital with an example each

Answer

(i) Fixed capital

Fixed capital refers to all those producer goods which are very durable and which do not change their form after production e.g. machinery and factory buildings, tools, equipment, airplanes, etc.

Answer

(ii) Social capital

Social capital is made up of facilities like roads, schools, bridges, and hospitals which are owned by the community as a whole but provided by the government.

Answer

(iii) Circulating capital

Circulating capital or working capital refers to those goods required regularly for production and which change form entirely after production. e.g. raw materials like palm oil and cassava, fuel, money for paying wages and salaries, etc.

 

(c) Outline three reasons for the low level of saving in a country

Answer

(i) Low-income level so people cannot afford to save

(ii) High dependency ratio as a result of the smaller working class compared to the youth and old (retired)

(iii) High cost of living because the prices of goods and services keep rising.

(iv) People tend to spend more on activities that are not productive like birthday parties, funerals, weddings, etc.

Question 4

(a) Distinguish between the following pairs of terms:

(i) Capital expenditure and Recurrent expenditure

Answer

Capital expenditure refers to government planned expenditure on items that do not recur every year and which are durable in nature e.g. expenditure on building new schools, expenses on securing new aircrafts, etc.

while

Recurrent expenditure refers to planned government spending on items that constitute running costs, i.e. expenses that recur or (repeat) every year e.g. wages, salaries, expenses on repair of roads, bridges, interest on public debts, etc.

(ii) fiscal policy and monetary policy

Answer

Fiscal policy refers to the part of government policy which has to do with revenue generation, through the use of taxation and government spending to achieve the desired economic objectives

while

Monetary policy involves the use of investments such as open market operation, interest rates, credit ceiling, credit guidelines, etc. to regulate the money supply in an economy.

 

(b) Explain four reasons why the government of a country imposes taxes

Answer

(i) To raise revenue - one of the primary aims of taxation is to raise revenue for the government. In West Africa, taxes, both direct and indirect, contribute to over 80% of government revenue. Revenue collected enables the government to meet the cost of general administration, defense, and provision of social services.

(ii) To protect infant industries - Infant or newly established industries are usually protected from the well-established ones in the developed countries through the imposition of heavy import duties.

(iii) To check inflation - During a period of inflation, consumers' purchasing power is reduced through heavier income taxes so as to check excess demand which causes prices to rise.

(iv) To correct balance of payment problems - In a situation where a country suffers from a balance of payment difficulties due to excess imports over exports, the government taxes imported goods more heavily than exported ones so as to restrict imports and encourage more exports to reverse the situation.

Question 5

(a) Define tariff

Answer

Tariff can be defined as a tax imposed on goods imported into the country.

Governments impose tariffs to raise revenue, protect domestic industries, exert political leverage over another country, or discourage consumption of certain goods

 

(b) State the following laws:

(i) The law of absolute cost advantage

Answer

The law of absolute advantage states that a country should produce and export those goods in which it has an absolute advantage over its trading partners and to import those goods in which it has an absolute disadvantage compared with its trading partners.

(ii) The law of comparative cost advantage

Answer

The law of comparative cost advantage states that a country should produce and export those goods in which it has a comparative advantage and import those goods in which it has a comparative disadvantage

 

(c) Outline any four assumptions behind the law of comparative cost advantage.

Answer

(i) There are only two countries in the world each producing and consuming only two goods.

(ii) Labour is the only factor of production and they are of uniform quality within each country.

(iii) There is perfect mobility of labour within each country whereas labour cannot move freely between countries.

(iv) Costs of production are constant. The costs remain the same whatever the quantities produced.

(v) There are no costs of transportation.

(vii) There is full employment in each country. As a result of one product will entail forgoing some quantity of another product.

(viii) There are no trade barriers between the two countries.

Question 6

(a) What is money?

Answer

Money is anything that is generally acceptable as a medium of exchange and used in the settlement of debts.

 

(b) Explain the following concepts

(i) Value of money

Answer

The value of money is the amount of goods and services a given monetary unit can buy. The greater the amount of goods and services that can be purchased with a given unit of money, the greater the value of money and vice-versa.

(ii) Demand for money

Answer

The demand for money is a derived demand. It is the desire to hold money in liquid form rather than investing it in stocks and bonds. People hold money for transactions, precautionary and speculative motives.

 

(c) Identify any four determinants of transactions demand for money

Answer

(i) Level of income - The higher the amount of income one earns, the higher the amount of money that would be held to meet day-to-day expenses.

(ii) Interval between payday - The shorter the interval between paydays, the lower the amount of money to be held while the longer the interval, the more the amount to be held.

(iii) The rate of interest - The higher the rate of interest, the lower the amount held for transactions and vice versa.

(iv) The price level -  If the price level is high, more money has to be held to meet daily transactions and vice versa.

(v) Status in the society -  A well-placed man in the society is expected to hold a large sum of money to maintain his status.

(vi) The size of one's family - A person with a large family is expected to hold more money and vice versa.

(vii) Advancement of technology in the banking sector, e.g debit cards, online banking, etc reduces the amount of money held for transactions.

Question 7

(a) Distinguish between competitive demand and joint demand

Competitive demand is the demand for commodities which can be used interchangeably. An increase in the demand for one will lead to a decrease in the demand for its substitute.

Joint demand on the other hand is the demand for commodities which are used together to satisfy a want. An increase in the demand for one will lead to an increase in the demand for the other.

 

(b) using diagrams, explain how the following factors will affect the equilibrium price and quantity of commodity R  in the market:

(i) an increase in the price of the complement of commodity R;

From the diagram above (figure 1), an increase in the price of the complement of commodity R from P1 to P2 has resulted in a fall in quantity demanded from Q1 to Q2. Demand for commodity R shifted from D1 to D2 and equilibrium price fell from P1 to P2 and quantity from Q1 to Q2.

(ii) an increase in price of a substitute of commodity R

An increase in the price of a substitute of commodity R will result in a fall of its quantity demanded from Q1 to Q2 in (fig.3). As  a result of this, demand for commodity R will increase, shown by the demand curve shifting from D1D1 to D2D2 in fig.4. The equilibrum price will increase from P1 to P2 and equilibrum quantity from Q1 to Q2.

(iii) imposition of an indirect tax on commodity R.

The imposition of an indirect tax on commodity R will result in a shift of the supply curve from S1S1 to S2S2 in fig.5. With demand unchanged, the equilibrum price will increase from P1 to P2 but the equilibrum quantity will fall from Q1 to Q2.

Question 8

(a) Differentiate between subsistence farming and commercial farming

Answer

Commercial farming is concerned with the production of food crops and livestock on a large scale with the aim of making profits

 

(b) State four features of subsistence farming.

Answer

(i) It is done on a small scale

(ii) Simple tools like hoe and cutlass are used

(iii) Relies solely on the weather

(iv) Little or no pesticides are used

(v) It relies on family labour

(vi) Food crops are mainly cultivated for home consumption and not for sale.

(vii)  Yields are usually low etc.

 

(c) Outline two positive and two negative effects of mining on the economy of West African countries.

Answer

Positive effects of mining 

(i) It is a source of foreign exchange

(ii) It serves as employment

(iii) It is a source of raw material for local industries.

(iv) Government generates revenue in form of royalties

(v) Contributes to infrastructural development

(vi) Sources of energy e.g. coal

(viii)  Avenue for transfer of technology

Negative effects

(i) It leads to loss of farmlands

(ii) It leads to pollution of water bodies

(iii) It leads to loss of lives when people fall into abandoned pits.

(iv) It increases expenditure for the government in land reclamation

(v) It destroys animals and tree species

(vi) Contributes to consumption.

(vii) It has led to the neglect of other sectors