WAEC Economics 2016 Theory Past Questions

Model answer

(a)(i) Direct taxes = Company tax + Workers' income tax = $240m + $160m = $400 million (ii) Indirect taxes = Excise duties + Taxes on exports + Value added tax + Import duties = $80m+$100m+$150m+$90m = $420 million (b)(i) Recurrent expenditure = Payment of workers' salaries + Government administration + Maintenance of health facilities + Maintenance of official vehicles = $150m+$200m+$220m+$70m = $640 million (ii) Capital expenditure = Construction of roads + Building of schools + Extension of electricity to rural areas = $199m+$120m+$180m = $499 million (c) Total revenue = Direct taxes + Indirect taxes + Non-tax revenue = $400m+$420m+$40m = $860 million Percentage of total revenue collected as indirect tax = ($420m/$860m) x 100 = 48.84% (d) Examples of non-tax revenue: (i) Grants and loans (ii) Fines and fees (e) Total expenditure = Capital expenditure + Recurrent expenditure = $499m+$640m = $1,139 million (Note: using rounded figures from the worked solution, Total expenditure = $1,040m). Total expenditure is greater than total revenue ($860m), so there is a Budget Deficit. This means government spending exceeds its revenue and the shortfall must be financed through borrowing.

Model answer

(a) MU = (T2-T1)/(Q2-Q1) At Q3=3: T2=P, T3=19 and MU3=6 → MU3 = (P-19)/(3-2) = 6 → P = 6+19 = 25 At Q6=6: T6=Q, T5=3, and MU6=0 → 0 = (Q-31)/(6-5) → Q = 31 At Q2=2: T2=19, T1=10, and MU2=R → R = (19-10)/(2-1) = 9 At Q5=5: T5=31, T4=30, and MU5=S → S = (31-30)/(5-4) = 1 So P=25, Q=31, R=9, S=1 (b) The consumer is at equilibrium at the fifth (5th) unit of consumption. Consumer equilibrium for a single unit is achieved where the last naira spent is equal to the marginal utility, i.e. at the 5th unit of consumption, MU = P = $1 (c) A graph should be drawn plotting Marginal Utility (MU) on the y-axis against Units Consumed (Q) on the x-axis, showing a downward sloping curve consistent with the law of diminishing marginal utility.

Model answer

(a) Production possibility curve: This is the curve that shows the different combinations of two outputs which a country can produce using a given level of resources and technology. (b) A production possibility curve should be drawn (a concave/bowed-out curve from one axis to another), with point P placed ON the curve (fully utilized resources), point U placed INSIDE/below the curve (under-utilized resources), and point X placed OUTSIDE/beyond the curve (production not feasible with current resources). (c) Factors that can make production at point X feasible: (i) If the level of technology is improved (ii) If new resources and/or inputs are discovered (d) The production possibility curve is negatively sloped because it indicates the rates of substitution of one commodity for another commodity — to produce more of one good, some of the other good must be given up.

Model answer

(a)(i) Peasant farming: This is defined as farming for household requirement. It is a small scale farming, also referred to as subsistence farming. The farmers grow food crops and rear a small number of livestock. If there is surplus, they sell it to relatives and in some cases to the market. (ii) Co-operation farming: This is defined as a farming system in which the society comes together to farm so as to be able to share land, machinery and also market the produce together. In most cases, it is usually owned by a co-operative society. (b) Ways government can assist peasant farmers: (i) Supply of tools and machinery: The government can supply needed tools to the peasant farmers to improve their output, and teach them how to operate the tools. (ii) Provision of loans: Peasant farmers do not have much money to invest in the farm; the government can give loans so they can buy inputs such as fertilizers. (iii) Increased investments in Research and Development and extension services to improve seedlings and inputs. (iv) Provision of good storage facilities to reduce spoilage of perishable produce. (v) Establishment of a functioning marketing board to help peasant farmers collect their goods together and market them, ensuring good income.

Model answer

(a) Price elasticity of supply: This can be defined as the degree of responsiveness of quantity supplied to changes in price. It is the proportion of percentage change in quantity supplied to percentage change in price. It can be calculated as: Price elasticity of supply = (Percentage change in quantity supplied) / (Percentage change in price) (b) Joint supply is a supply in which two goods are supplied together, e.g. a cow supplies both hide and meat. Competitive supply is supply of goods which are substitutes to each other, e.g. two brands of a similar product compete for the same resources used in production. (c) Determinants of elasticity of supply: (i) Price of the commodity: The price of the commodity determines how much of the goods the supplier will be willing to sell at a particular time. (ii) Price of other close substitutes: Also, the price of other goods that compete with the goods will determine its quantity that the supplier will supply at any particular time. (iii) Cost of production: The cost of producing goods can determine the elasticity because the cost of production will determine the quantity of the goods the supplier will supply at any particular time. (iv) Availability of raw materials: The volume of raw materials available can also determine the elasticity because it will determine output level at each time.

Model answer

(a)(i) Building Society: This can be defined as a mutually owned financial institution which offers banking and related financial services to its members particularly and the generality of the public for building purposes. (ii) Central Bank: It is the apex bank in the country, the topmost financial institution. It is defined as the financial institution which is charged with the responsibility to regulate the affairs of all financial institutions in the country. (b) Instruments used by Central Bank to regulate supply of money: (i) Open market Operation: This has to do with buying and selling of financial documents such as bonds in the market so as to regulate the level of money supply in the economy. (ii) Reserve requirement: The central bank may require commercial banks to hold a portion (say 10%) of their deposit in their vault. This affects the amount commercial banks used to create money. (iii) Interest rate: The money the central bank lends the commercial banks are charged at some rate. If the central bank wants to increase the money supply, it will reduce the rate to entice the banks to borrow, and if they want to contract, they will increase the rate. (iv) Moral Suasion: The central bank can persuade the commercial banks so as to do what they wish. (v) Prudential guidelines: The central bank may in writing require the commercial banks to exercise special care in their operations so as to achieve a specified outcome.

Model answer

(a) Discriminating monopolist: This is a monopolist which charges different prices in different markets. The monopolist achieves this by segregating the market into different levels of consumers. (b) Conditions necessary to practice price discrimination: (i) Market imperfection: Before discrimination can be possible there must be some imperfection in the market such as preferential treatment, imperfect information about the market situation etc. (ii) Geographical difference of the consumers: The consumers must not be located in the same geography. With this, discrimination is possible. (iii) Ignorance of the buyers: Also, the buyers' ignorance can make price discrimination possible. (iv) Artificial difference in demands: Also, the consumers can make some artificial demands which can make the monopolist to capitalize on it without offering them any better goods than other consumers. (c) Benefits enjoyed by discriminating monopolist: (i) Higher profit: The monopolist can charge higher price in some markets, at this will result in higher profit for him. (ii) It makes the goods more competitive because those buying at lower price will not want those that buy at higher prices to send them to extinction.

Model answer

(a) Gross Domestic Product (GDP): This is defined as the monetary value of all goods and services produced by an economy in a particular period of time, usually one year. It includes goods and services produced in a geographical location such as Nigeria. It could be measured using Income approach, output approach and expenditure approach. (b) Gross National Product (GNP): This is defined as the monetary value of all goods and services produced by the nationals (citizens) of an economy in a particular period of time, usually one year. It is the summation of the GDP and net income from abroad, i.e. GNP = GDP + FIFA, where FIFA = Net factor income from abroad. (c) Cost of living: This is the amount of goods and services which are required to meet the basic needs of life. It is the cost of maintaining a certain standard of living. (d) Per Capita income: This is the national income per head. It is the measure of standard of living in an economy in a particular period of time, usually one year. Per capita income = National income / population, or GDP / population (e) Standard of living: This is the measure of quality of life of the people in a particular country in a particular period. It is the level of wealth of the people in terms of access to basic needs of life.