Economics 2018 Past Questions | WAEC

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Economics 2018 Theory

The table below shows the composition of exports and imports of a hypothetical country. Use the information in the table to answer the questions that follow.

Exports	Amount $	Imports	Amounts $
Crude Oil	120,000,000	Rice and Flour	140,000,000
Groundnuts	40,000,000	Petroleum Product	80,000,000
Tourism	45,000,000	Vehicles and Accessories	50,000,000
Shipping & Insurance	60,000,000	Banking Services	60,000,000
Bauxite	80,000,000	Freight and Insurance	40,000,000

(a) Calculate the value of visible exports.

(b) Calculate the balance of trade for the country.

(d) Calculate the current account balance of the country.

(e) Is the country developed or developing? Give one reason for your answer.

Solution & Explanation:

(a) Value of visible exports = Crude Oil + Groundnut Oil + Bauxite

= $120,000,000 + $40,000,000 + $80,000,000

= $240,000,000

(b) Balance of trade = total value of visible exports – total value of visible imports

Visible exports = $240,000,000

Visible imports = rice and flour + petroleum product + vehicles and accessories

= $140,000,000 + $80,000,000 + $50,000,000

= $270,000,000

Therefore, Balance of trade = $240,000,000 – $270,000,000

= – $30,000,000

Invisible imports include banking services and freight and insurance

(d) Current account balance = value of total exports – value of total imports

= $345,000,000 – $370,000,000

= -$25,000,000

(e) The country is a developing one. This is because;

(i) Its exports are made up mainly of unprocessed primary products.
(ii) Its imports are made up mainly of finished goods.
(iii) The value of imports exceeds exports.

The cost and output schedule of a firm is shown in the table below.

Output (kg)	0	15	35	60	85
Variable cost ($)	0	30	55	75	90
Total cost ($)	15	45	70	90	105
Total revenue ($)	0	30	70	120	170

(a) Using the data in the table, at each level of output, calculate the firm’s
(i) marginal revenue
(ii) marginal cost.

(b) At what output level did the firm:
(i) break even
(ii) make the highest profit
(iii) attain equilibrium

Solution & Explanation:

(a) (i) The marginal revenue formula is calculated by dividing the change in total revenue by the change in quantity sold. In the case of the question asked, the output (kg) represents the quantity sold.

At output level 15, $MR = \frac{30 – 0}{15 – 0} = \frac{30}{15} = $2.00$

At output level 35, $MR = \frac{70 – 30}{35 – 15} = \frac{40}{20} = $2.00$

At output level 60, $MR = \frac{120 – 70}{60 – 35} = \frac{50}{25} = $2.00$

At output level 85, $MR = \frac{170 – 120}{85 – 65} = \frac{50}{25} = $2.00$

(ii) The Marginal Cost Formula is calculated by dividing the change in Total Cost by the change in quantity sold (or output as regards this question).

At output level 15, $MC = \frac{45 – 15}{15 – 0} = \frac{30}{15} = $2.00$

At output level 35, $MC = \frac{70 – 45}{35 – 15} = \frac{25}{20} = $1.25$

At output level 60, $MC = \frac{90 – 70}{60 – 35} = \frac{20}{25} = $0.80$

At output level 85, $MC = \frac{105 – 90}{85 – 65} = \frac{15}{25} = $0.60$

(b)(i) The firm’s break-even point is at output level 35.
(ii) The firm makes the highest profit at output level 85.
(iii) The firm attains equilibrium at output level 15.

(a) Define optimum population.

(b) In what three ways can rapid population growth slow down the rate of economic development?

Solution &

(a) Optimum population is the size of population which when combined with the available resources and level of technology will yield the highest output per head.

(b)(i) There is likely to be a high level of unemployment.
(ii) There will be a high dependency ratio.
(iii) There will be pressure on resources as government expenditure on provision of social amenities will be on the increase.
(iv) Per capita income will fall which may result in a low standard of living.
(v) There will be congestion on land which will affect productivity in agriculture.
(vi) There will be urban congestion with its attendant social vices.
(vii) There will be low savings and capital formation.
(viii) There may be balance of payment problems due to an increase in import bills to meet the shortfall in local production.

(c)(i) Family planning.
(ii) Education on the need of smaller family sizes.
(iii) Implementation of tighter immigration measures.
(iv) Discouraging early marriages.
(v) Encouraging girl’s education.
(vi) Discouraging polygamy.
(vii) Strengthening social security systems for the aged to forestall all the needs for large families.
(ix) Enactment and enforcement of laws to regulate family size.
(x) Making cost of child-raising high by abolishing free education.

(a) What are state-owned enterprises?

(b) State any three reasons for the establishment of state-owned enterprises.

Solution & Explanation:

(a) State-owned enterprises are business organizations established by law financed and controlled by the state for the benefit of society.

(b)(i) To provide social amenities such as water and electricity at affordable/reasonable prices.
(ii) Tp protect the people from exploitation by private firms through the establishment of similar firms.
(iii) To control private monopoly through nationalisation.
(iv) To raise revenue for government for developmental purposes.
(v) To provide public goods which are not normally provided by the private sector. E.g. Defense.
(vi) To create employment which helps to raise the standard of living of the citizens.
(vii) For strategic reasons since certain industries cannot be left in the hands of the private sector e.g ammunition production.
(viii) Where huge initial capital is involved, government steps in when the private sector cannot provide it.
(ix) To diversify the economy, leading to growth and development.
(x) To ensure even development across the country.

(c)(i) Red-tapeism/bureaucracy: There is a lot of bureaucracy and administrative difficulties in state enterprises which tend to make quick decision-making very difficult.
(ii) Lack of initiative: Bold and progressive policies are very important for the success of every business. This is however lacking in state-owned enterprises because they are to account to both the public and to parliament. The fear of failure may not allow them to take such decisions.
(iii) Less competition and inefficiency: Public corporation may not be competitive and efficient in their operations because they are usually monopolies without competitors, so they may not actually strive to be efficient.
(iv) Lack of personal interest: Management and workers of state corporations may not have the needed personal interest in the work since it belongs to the state.
(v) Loss of consumer sovereignty: Since most public corporation produce under monopolistic conditions, the consumers may not have wide variety of goods to choose from. Their sovereignty is lost.
(vi) Political influence: The appointment of managerial staff affects morale and efficiency where such appointments are not based on merit.
(vii) Corruption and misappropriation of resources result in inefficiency.
(viii) Inadequate funding of state enterprises poses a challenge to their ability to operate efficiently.
(ix) Pricing policy: Government often interfere in the pricing policy og goods and services in state-owned enterprises.
(x) Some management staff lacks the necessary managerial skills to handle large-scale operations.
(xi) There is tribalism and nepotism in the appointment and promotion of staff in state-owned enterprises.
(xii) Changes in policies due to changes in government affects the smooth operation od state-owned enterprises.

(a) Differentiate between unemployment and underemployment.

(b) With one example each, explain the following
(i) Seasonal unemployment
(ii) Structural unemployment
(iii) Frictional unemployment
(iv) Cyclical unemployment

Solution & Explanation:

(a) Unemployment is a situation where people who are able and willing to work at the existing wage rate are unable to find work OR a situation where factors of production such as capital lie idle or cannot be put to productive use. While underemployment exists when labour is engaged is any form of occupation/work below its full potential OR a situation where resources like capital is not optimally used.

(b)(i) Seasonal unemployment: This refers to a fall in demand for labour at certain times of the year due to seasonal changes e.g when schools are on vacation, sellers in the school canteen become unemployed; farmers become unemployed during the dry season.
(ii) Structural unemployment: This occurs when there is a fall in the demand for the product of an industry leading to workers being permanently laid off. OR Structural unemployment occurs when there is a fall in the demand for the process of production changes, such that some workers become redundant e.g the use of earthmoving equipment has rendered labourers who use pick axes and shovels redundant in the construction industry; counting machines and ATMs have resulted in less people being employed as cashiers.
(iii) Frictional unemployment: This is unemployment caused by workers changing jobs or school leavers searching for jobs e.g a fresh graduate looking for a job.
(iv) Cyclical unemployment: This is the unemployment caused by a deficiency in aggregate demand leading to a deflationary phase of the business cycle e.g when aggregate demand falls, firms need to cut down on labour

(a) What is commodity money?

(b) Identify any three problems associated with trade by barter.

Solution & Explanation:

(a)Commodity money is any product that can be used as a means of payment but which is valuable in its own right e.g beads

(b)(i) The problem of double coincidence of wants made trade difficult and time wasting.
(ii) Many goods used in barter trade cannot be divided into smaller units.
(iii) Problem of exchange rate makes it difficult to determine how many of one commodity was to be exchanged to another commodity.
(iv) Under barter, there was little room for borrowing and lending because exchange was based on need.
(v) Goods used were bulky and conveyance was difficult
(vi) Some goods are perishable and so savings was difficult, making storage of wealth difficult and discouraging large scale production.

(c)(i) Money has solved the problem of double coincidence of wants i.e with money you can buy all you want or sell what you have at any time.
(ii) With money, payment for a commodity can be deferred to a future date.
(iii) Money saves time and energy as you no longer have to search for somebody to exchange your commodity with.
(iv) With money, it is possible and easier to store wealth, making room for large scale production.
(v) Money has solved the problem of bulkiness since modern money can be carried around easily.
(vi) Money has created a standard unit of measurement making borrowing and lending easier in the economy.
(viii) Because money has several denominations, it has solved the problem of indivisibility associated with commodity money e.g cattle.

(a) What is a demand schedule?

(b) State the law of demand.

(c) Using appropriate examples, explain the following types of demand:
(i) Competitive demand
(ii) Derived demand
(iii) Joint demand
(iv) Composite demand

Solution & Explanation:

(a) A demand schedule is a table which shows the different quantities of a commodity which consumers are willing to buy at various prices at a particular time.

(b) The law of demand states that at a higher price, less is demanded and at a lower price, more is demanded, other things being equal.

(c)(i) Competitive demand: This applies to commodities which can be used interchangeably. Demand for substitute goods is thus competitive e.g Milo and bournvita, meat and fish, turkey and chicken e.t.c
(ii) Derived demand: This is demand for a commodity which is not needed for direct satisfaction, but rather for the production of other goods e.g the demand for labour and other factors of production.
(iii) Joint or complementary demand: This refers to demand for commodities which are needed to together to satisfy a want. There is joint demand for two commodities when they are such that without one, the other cannot satisfy a want e.g car and petrol, torch and batteries e.t.c.
(iv)Composite demand: This refers to the total or aggregate demand for a commodity which has several uses. The composite demand for cassava for instance comprises the demand for cassava for its various uses e.g making garri, for making industrial starch, for making fufu, e.t.c.

(a) What is a tax?

(b) Describe the following rates of taxation.
(i) Progressive tax
(ii) Proportional tax
(iii) Regressive tax

Solution & Explanation:

(a) A tax is a compulsory levy imposed by the government or its agency on individuals, companies or on goods and services.

(b)(i) A progressive tax is one in which as the level of income rises, tax rate also rises.
(ii) A tax is proportional when all tax payers pay the same percentage as tax irrespective of their levels of income.
(iii) A regressive tax is one in which as the level of income rises, the rate of tax rather falls, thus the higher the income earners are taxed at lower rates than lower income earners.

(c)(i) Equity: This means fairness and states that taxes should be based on ability to pay in order not to cause hardship to the payer.
(ii) Convenience: The payment of the tax should be convenient to the eax payer i.e time and method of payment should be convenient.
(iii) Economy: The cost of collecting the tax should be small in relation to the revenue obtained from the tax

Economics 2018 Past Questions | WAEC

Economics 2018 Theory

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