All 50 questions from the West African Examinations Council (WAEC) Economics 2018 Objective paper, with the correct answer and a full explanation for each. Free, no signup needed.
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Economic problems arise in all societies because
Economic problems arise fundamentally because resources are scarce/limited relative to the unlimited wants they must satisfy.
Which of the following is not emphasized in a production possibility curve?
The production possibility curve (PPC) is concerned with resources, labour and output/efficiency — economic development itself is not directly addressed by the PPC.
The organisation of productive factors is the responsibility of the
The entrepreneur is the factor of production responsible for organising and bringing together the other factors of production.
Producers operating in a free market economy are more efficient as a result of
Competition is the bedrock of a free market, which pushes producers to be efficient in order to survive and succeed.
In a pie chart, the population of a city is represented by a sector of 45°. If the country has a population of 10 million people, then the city's population is
City population = (sector angle/360°) × total population = (45/360)×10,000,000 = 1,250,000 = 1.25 million.
A downward sloping demand curve means that
A downward-sloping demand curve shows that more is sold at lower prices — i.e. price must be lowered to sell more.
If the price of commodity X rises and consumers shift to commodity Y, then commodities X and Y are
Goods where a rise in the price of one causes consumers to switch to the other are substitute goods.
Goods whose demands vary directly with money income are called
Normal goods are those for which demand increases as income increases (varies directly with income).
An exceptional demand curve can result from
An exceptional (upward-sloping) demand curve can arise when consumers expect prices to rise further, prompting them to buy more now despite the current higher price.
Palm oil and palm kernel are in
Palm oil and palm kernel are produced together from the same source (the palm fruit), making them goods in joint supply.
Which of the following is true about supply of land? It
One of the key features of land as a factor of production is that its total supply is fixed (perfectly inelastic).
The backward bending supply curve of labour indicates
The backward-bending supply curve shows that beyond a certain wage rate, workers may prefer more leisure over more income, causing labour supply to fall as wages rise further — an unusual (abnormal) relationship.
A supply curve parallel to the x-axis indicates
A horizontal (parallel to the x-axis) supply curve represents perfectly (infinitely) elastic supply.
If the marginal utility of a commodity is equal to its price, then the consumer is in equilibrium if
Consumer equilibrium (utility-maximising condition) is reached when marginal utility of a commodity equals its price (MU=P).
A price floor is usually fixed
A price floor is set above the equilibrium price to guarantee a minimum price, which leads to excess supply (surpluses) since quantity supplied exceeds quantity demanded at that price.
A market is in equilibrium when
Market equilibrium occurs when the quantity demanded equals the quantity supplied at a given price.
A firm's average cost decreases in the long-run because of
In the long run, average cost falls as a firm expands operations and benefits from increasing returns to scale (economies of scale).
"The larger a firm, the lower its cost of production." This statement explains the
This statement describes economies of scale — as a firm grows larger, its average cost of production falls.
Use the table below to answer questions 19 and 20 (Quantity: 0,1,2,3,4,5,6,7; Total Cost: 20,25,28,30,38,55,92,135). The total fixed cost is
Fixed cost is the cost incurred at zero output. From the table, when quantity=0, total cost = $20.00, which is the fixed cost.
At output level 5, the total variable cost is
TC = FC + VC. At output 5, TC = $55, FC = $20, so VC = 55 − 20 = $35.00.
In the long-run, a firm must shut down if its average revenue is
A firm should shut down in the short run (and exit in the long run) if its average revenue falls below average variable cost, as it cannot even cover its variable costs.
Public limited liability companies are democratic in nature because
Public limited companies are democratic because shareholders vote to elect the board of directors, typically based on the number of shares each holder owns.
In the event of bankruptcy, owners of joint-stock companies lose
Joint-stock (limited liability) companies protect owners such that, if the company fails, owners only lose the capital they invested — their personal assets are protected.
Wholesalers play an important role in the distribution of goods and services because they
Wholesalers help finance both producers (by buying in bulk) and retailers (by offering credit sales), playing a key financing role in distribution.
If workers at the school canteen cannot sell during the holidays, this is an example of
This is seasonal unemployment, since the loss of work is tied to a particular season/period (school holidays).
Positive checks as envisaged by Thomas Malthus can be prevented if
Malthus proposed 'moral restraint' (delayed marriage, family planning) as a preventive check to avoid the harsher 'positive checks' (famine, disease, war) on population growth.
Which of the following factors is not a reason for farmer's unstable incomes?
Depending on too many (diverse) crops actually helps stabilise farmers' income by spreading risk; it is not a cause of instability.
Local firms can help in reducing unemployment in a country when
Reducing imports of substitute goods encourages local firms to increase production to meet local demand, creating more local employment.
An industry is described as a group of firms
An industry consists of a group of firms producing similar (identical or closely related) products.
The largest component of national income in developing countries consists of
Wages and salaries typically form the largest component of national income in developing countries.
A baker bought flour and other ingredients for $250.00, spent $52.00 on distribution, sold the bread for $320.00. The value added by the baker is
Value added = selling price − (cost of materials + other costs) = $320 − ($250+$52) = $18.00.
In a country with a large population of full-time housewives, national income
Housewives' unpaid domestic services are not counted/valued in national income statistics, causing national income to be understated.
Demand-pull inflation is likely to be caused by
A large budget deficit increases the money supply/aggregate demand in the economy, which can pull prices up, causing demand-pull inflation.
Holding money to take care of contingencies is a
Holding money to meet unforeseen/unexpected expenses is the precautionary motive for holding money.
If a housewife has meat and wants to-matoes, she must find someone who has tomatoes and wants meat. This concept is described as a
This describes the double coincidence of wants — a key problem of the barter system, where each party must want what the other offers.
The stock exchange is an example of the
The stock exchange trades long-term securities (shares, bonds), making it a capital market.
What happens when the central bank increases the bank rate in an economy?
A higher bank rate raises the cost of borrowing, which discourages borrowing by commercial banks and, in turn, by their customers.
Income is redistributed when the rich
Progressive taxation of the rich (with proceeds used for public benefit) is a key mechanism for redistributing income.
In order to increase revenue, government should tax commodities for which demand is
Taxing a commodity with perfectly inelastic demand ensures the tax raises the maximum possible revenue, since quantity demanded doesn't fall in response to the resulting price rise.
Which of the following activities will not lead to economic growth?
Importing consumer goods (for immediate consumption) does not build productive capacity, unlike capital formation or technology adoption, so it does not directly lead to economic growth.
The poorer the country, the larger the percentage of labour force engaged in
In poorer, less industrialised countries, a larger share of the workforce is typically engaged in agriculture.
Which of the following measures can be adopted to stabilize the external value of the local currency?
Reducing the demand for imports lowers the outflow of foreign currency, helping to stabilise/strengthen the local currency's external value.
Which of the following is not a measure for reducing balance of payments deficits?
Reducing tariffs would tend to increase imports, worsening (not reducing) a balance of payments deficit.
Nations engage in external trade because of
Nations trade because of differences in comparative costs of production — the theory of comparative advantage.
One advantage of international trade is that it makes
International trade allows a country's citizens to consume a wider variety of goods, including those the country cannot itself produce.
Which of the following forms of economic integration is a member nation free to impose duty against non-members?
In a free trade area, members remove tariffs among themselves but each member remains free to set its own independent tariffs against non-member countries (unlike a customs union with a common external tariff).
The International Bank for Reconstruction and Development (IBRD) performs the following functions except
Reducing tariffs among member nations is not a function of the IBRD (World Bank); this is more the role of trade organisations like the WTO. The IBRD focuses on loans, technical assistance and development programmes.
An electrical engineer who is teaching Physics in a secondary school is said to be
The engineer is working below the level of his qualification/training, which is the definition of underemployment.
One benefit a country can derive from the extraction of crude oil is increase in
Crude oil extraction creates jobs directly in the industry and indirectly in supporting sectors, increasing employment (as seen in Nigeria).
Which of the following cannot be classified as a natural resource?
An iron rod is a manufactured product (processed from iron ore through industrial effort), so it is not a natural resource in its raw, naturally-occurring form.
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