2013 Economics WAEC Theory Past Questions
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Question 1 of 12
1. Question
The output and cost of production of rice (in bags) are presented in the table below. Use the information in the table to answer the questions that follow:
Output of rice (in bags) 0 1 2 3 4 Total Variable Cost (TVC) $ 0 5 7 10 20 Total Cost (TC) $ 7 12 14 17 27 Calculate the
i. Average Fixed Cost (AFC) at output levels 0, 2 and 4.
ii. Marginal Cost (MC) at all levels of output.2. If the price of a bag of rice were $ 10,
i. Calculate the profit/loss at all levels of output.
ii. At what output level(s) is the maximum profit made?3. Draw the marginal cost curve (the use of graph sheet is essential).
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This response will be reviewed and graded after submission.
Grading can be reviewed and adjusted.Grading can be reviewed and adjusted.Hint
(a)
(i) When output is O, the AVC = 7/0 =µ
When output is 2, AFC =7/2 = $3.5
When output is 4, AFC= 7/4 = $1.75
(ii) At output O, Marginal Cost (MC) = 7-0 = $7
At output 1, Marginal Cost (MC) = 12 – 7 = $5
At output 2, Marginal Cost (MC) =14 -12 = $2
At output 3, Marginal Cost (MC) = 17-14 = $3
At output 4, Marginal Cost (MC) = 27-17 = $10
(b) If price were to be $10 per bag,
Profit/ loss = Total revenue – Total Cost
Total Revenue = Price x Output
Total Cost = Fixed Cost + Variable Cost
(ii) Maximum profit is made when output is 3 bags and 4 bags.
(c) Draw the Marginal cost curve (the use of graph sheet is essential)
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Question 2 of 12
2. Question
The table below shows the scale of preference of a student – Mr. Smith whose disposable income is $ 7.00.
Use the information in the table below to answer the questions that follow:
Items Needed Price ($) Textbook 5.00 Shirt 2.00 Shoes 3.00 Trousers 3.00 Notebook 1.00 School fees 7.00 Mattress 10.00 (a) (i) What will Mr. Smith spend his money on?
(ii) Explain your answer in 2(a) (i).
(b) (i) What is the opportunity cost of Mr. Smith’s decision in 2(a)(i)?
(ii) Explain your answer in 2(b) (i).
(c) (i) If Mr. Smith’s disposable income increases to $ 10.00, what will he spend it on?
(ii) What is the opportunity cost of the decision in 2(c)(i)?
(d) Define “scale of preference” and “opportunity cost”.
(e) What is the importance of a scale of preference?
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This response will be reviewed and graded after submission.
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(a)(i) Textbook and shirt
(ii) Because the textbook and the shirt are the items at the top of his scale of preference which can be purchased with his $7.00(b)(i) The shoes, the trouser and the notebook
(ii) Because those three items are the next best alternatives, which can be purchased with $7.00
(c)(i) Textbook, shirt and shoes
(ii) Trouser, the notebook and pay $6.0 out of his school fees.
(d) A scale of preference is a list of wants arranged in order of importance. Opportunity cost is the alternative want or commodity forgone
(e) A scale of preference helps an individual, a firm or a government to make rational use of available resources to satisfy the most important wants.
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Question 3 of 12
3. Question
(a)What is:
(i) Peasant farming;
(ii) Commercial farming?(b)Describe five ways in which agriculture contributes to the economic development of your country
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(a)(i) Peasant farming: is a small scale farming involving the use of simple farm implements. It involves small farm holdings. Production is for both domestic consumption and for export.
(ii) Commercial farming: is the large scale farming involving the use of machinery and other forms of capital such as irrigation, improved seedlings, and fertilizers. Production is for both domestic and international markets.
(b) (i) Agriculture provides food and therefore reduces importation.
(ii) Agriculture exports provide foreign exchange for development.
(iii) Increased food production helps to keep down the rate of inflation.
(iv) It provides raw materials for industrial development
(v) It provides employment for the growing labour force
(vi) Tax on agricultural incomes yields revenue to the government for capital formation.
(vii) It provides employment for the growing labour force.
(viii) It helps to boost the nation’s GDP.
(ix) Agriculture provides a market for equipment and other agricultural inputs produced by the industrial sector.
(x) Agricultural incomes also create a market for manufactured consumer goods.
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Question 4 of 12
4. Question
(a)Distinguish between small scale production and large scale production.
(b)Describe any five internal economies of large scale production.
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(a) Small scale production involves small capital outlay and therefore results in a low level of output. On the other hand, large scale production involves a large scale capital outlay and therefore results in high level of output.
(b)Some of the internal economies of large scale production are :
(i) technical economies: a large firm has the advantage in the use of factor inputs which results in a lower cost per unit of output.(ii) financial economies: a large scale producer can borrow money from financial institutions at lower interest rate because it can offer better collateral security.
(iii) marketing economies: a large firm can buy inputs in bulk and possibly at discounts. It can also pay less on transportation and advertisement which result in lower operating cost.
(iv) managerial economies: when output is increasing, managerial cost increases at a slower rate. The number of managerial staff may increase with output. OR As output increases, specialists can be employed to take charge of the various processes e.g. marketing.
(v) Risk-bearing economies: a large firm is able to bear losses arising from its operations as it can provide insurance coverage. OR It can also diversify its product and its market.
(vi) welfare economies: a large firm can provide better conditions of service which may enhance the level of productivity and also attract highly qualified manpower.
(vii) Research economies: a large firm can invest a huge amount on research and thereby experience technical progress.
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Question 5 of 12
5. Question
(a) Explain four benefits of industrial development in an economy.
(b) Outline any four measures that will encourage industrial growth in your country.-
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(a) Benefits of industrial development in an economy:
(i) Provision of employment opportunities.
(ii) diversification of the economy.
(iii) saving and earning of foreign exchange.
(iv) A high standard of living.
(v) increased government revenue.
(vi) it reduces the country’s balance of payments problems.
(vii) it aids expansion in infrastructure.
(viii) technological progress.
(ix) increase in Gross Domestic Product.
(x) controls inflation.
(xi) encourages the agricultural sector to produce raw materials.
(b) (i) Development of infrastructure.
(ii) establishment of financial institutions to aid private enterprises.
(iii) tax incentives to industries.
(iv) training of manpower relevant to the industrial sector.
(v) sound economic policies.
(vi) direct government participation.
((vii) stable political environment.
(viii) removal of administrative bottlenecks which will hinder industrial growth.
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Question 6 of 12
6. Question
(a) Differentiate between direct and indirect taxation.
(b) Highlight any five advantages of indirect taxation to developing countries.
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(a) Direct taxation: refers to taxes on incomes and properties of individuals and organizations e.g. personal income tax, profit tax.
Indirect taxation: refers to taxes on goods and services e.g. excise duties, customs duties, etc.
(b) (i) In developing countries where incomes are generally low, indirect taxes yield more revenue to the government.
(ii) where unemployment is high, indirect taxes yield more revenue.
(iii) it is cheap and easy to collect, e.g. custom duties.
(iv) It has wider coverage than direct tax.
(v) it is not easy to evade. Consumers pay as they consume the commodities
(vi) it is not a disincentive to work.
(vii) it used to discourage the consumption of harmful goods.
(viii) it used to protect infant industries.
(ix) it used to correct balance of payments deficit.
(x) it used to prevent dumping.
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Question 7 of 12
7. Question
(a) What is competitive supply?
(b) With the aid of illustrations, differentiate between a supply schedule and a supply curve.
(c) Explain how the supply of a commodity is affected by the following:
(i) an improvement in technology;
(ii) a rise in input prices;
(iii) a rise in the prices of other commodities;
(iv) an increase in government subsidies on production
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This response will be reviewed and graded after submission.
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(a) Competitive supply is when two or more products are produced using the same resources such that an increase in the production of one leads to a reduction in the supply of the other.
(b) A supply schedule is a table showing the various prices and quantities of a commodity which sellers are willing to offer for sale at a given period.
Price ($) Quantity supplied (tones) 10 100 9 80 8 50 While a Supply curve is a graphical representation of various quantities of a commodity which sellers are willing to offer for sale at various prices.
Price.(c)(i) An improvement in technology would raise the productivity of inputs and increase production, all things being equal. As production increases, supply would increase.
(ii)A rise in input prices would increase the cost of production. All things being equal, production would decrease and supply would decrease.
(iii) A rise in the prices of other commodities would make their production more profitable, all things being equal, as a result, resources would shift into the production of these commodities and decrease the production and supply of the other commodity.
(iv) An increase in government subsidies on production will reduce the cost of production which will lead to an increase in the production and supply of a product.
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Question 8 of 12
8. Question
(a) State two characteristics of monopolistic competition
(b) With the aid of diagram(s), explain why a firm in monopolistic competition is unable to earn abnormal profits in the long run
(c) Differentiate between natural monopoly and legal monopoly
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This response will be reviewed and graded after submission.
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(a) Characteristics of monopolistic competition:
(i) a relatively large number of buyers and sellers
(ii) differentiate products: (through branding, etc.)
(iii) free entry and exit.
(iv) it has control over the price or output.
(b) in the short-run, a firm in monopolistic competition can earn abnormal profits as shown below.
As firms earn abnormal profits in the short run, more firms producing substitute goods will be attracted into the industry. As they do so, the demand facing the individual monopolistic competitor will fall. Demand will continue to fall until normal profit is earned in the long run. Graphically, this is illustrated as follows:
(c) Natural monopoly exists as a result of ownership of rare natural resources. While Legal monopoly exists as a result of special privilege or protection given by law to a new inventor or producer of literary works. e.g. patent and copyright.
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Question 9 of 12
9. Question
(a) Highlight the difference between creeping inflation and hyperinflation
(b) List any four negative effects of inflation
(c) Outline four ways in which the government of your country can control inflation
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This response will be reviewed and graded after submission.
Grading can be reviewed and adjusted.Grading can be reviewed and adjusted.Hint
(a)Creeping inflation is a slow but steady rise in the prices of goods and services in general. On the other hand, when the rise in the prices of goods and services, in general, is persistent and rapid, it is known as Hyperinflation.
(b) Negative effects of inflation:
(i) it discourages savings
(ii) it discourages production and encourages buying and selling
(iii) fixed income earners suffer
(iv) the value of money falls
(v) standard of living falls
(vi) it causes balance of payments problems.
(c) Ways by which the government can control inflation are:
(i)Government can use contractionary monetary policies to reduce money supply in order to reduce aggregate demand;
(ii) Government can use fiscal policy (tax policy) to reduce household and business incomes in order to reduce aggregate demand.
(iii) Government can reduce its expenditure in order to reduce aggregate demand.
(iv) Government can plan a surplus budget
(v) Government can grant subsidies to producers to increase production.
(vi) Government can discourage importation from countries suffering from inflation.
(vii) Government can improve infrastructure to stimulate production.
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Question 10 of 12
10. Question
(a) What is perfect competition?
(b) With the aid of diagrams, compare the short-run equilibrium positions of a perfect competitor and an imperfect competitor.
(c) State any two features of an imperfect market
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(a) Perfect competition is a market structure in which there are many buyers and sellers such that buyers or sellers cannot influence the price i.e. buyers or sellers are price takers
(b) Short-run equilibrium of a perfect competitor and an imperfect competitor.
The similarities and differences in equilibrium are as follows:
(i) Both the perfect competitor and the imperfect competitor are in equilibrium when MC = MR.
(ii) In each case, the market is in equilibrium when MC curve cuts the MR curve from below.
(iii) In the short-run, both the perfect competitor and the imperfect competitor can make abnormal profits
(iv) The firm in perfect competition is in short-run equilibrium when MC = AR = P > AC while a firm under imperfect competition is in short-run equilibrium when MC = MR < AR.
(c) Features of an imperfect market :
(i) only one or few buyer(s) and seller(s)
(ii) There is preferential treatment
(iii) There is transport cost
(iv) Goods sold are heterogeneous (not homogeneous).
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Question 11 of 12
11. Question
(a) Distinguish between cash ratio and special deposits
(b) Explain how cash ratio and special deposits are used as instruments of monetary policy
(c) Describe any two instruments of fiscal policy in West Africa.
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(a) The cash ratio is the minimum ratio between the cash reserves of the commercial banks and their deposit liabilities to customers. On the other hand, Special deposits are the additional cash reserves (over and above minimum cash requirement) that commercial banks are ordered to lodge with the central bank.
(b) Whenever it is desired to increase money supply, the cash ratio is reduced. On the other hand, whenever it is desired to reduce money supply, the cash ratio is raised. Whenever it is desired to increase money supply, the special deposits of the commercial banks are reduced. Likewise, whenever it is desired to reduce money supply, the central bank orders an increase in the commercial banks’ special deposit.
(c)(i) Taxation: This can be direct or indirect e.g. personal income tax and value-added tax
(ii) Government expenditure can be increased or reduced to affect aggregate demand.
(iii) The granting of subsidies can be used to increase production and investment.
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Question 12 of 12
12. Question
(a) Outline any four problems of barter economy
(b) How has the introduction of money solved the problems outlined in (a) above?
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This response will be reviewed and graded after submission.
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(a) Some problems encountered in a barter economy are:
(i) double coincidence of wants.
(ii) determining the exchange rate among goods.
(iii) Problem of indivisibility.
(iv) Some goods to be exchanged were not easily portable.
(v) Problem of saving commodities for future use.
(vi) the problem of borrowing and buying on credit.
(vii) lack of specialization and division of labour.
(b)The introduction of money has solved these problems in the following ways:
(i) It allows the rate of exchange to be easily determined.
(ii) It allows borrowing and buying on credit
(iii) modern money has several units and facilitates exchange in small and large units.
(iv) modern money facilitates easy transactions.
(v) It serves as a standard of deferred payments
(vi) It allows specialization and division of labour.
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