All 50 questions from the West African Examinations Council (WAEC) Economics 2020 Objective paper, with the correct answer and a full explanation for each. Free, no signup needed.
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Which of the following is central to the definition of Economics?
Scarcity is the central problem of every human, firm and organization, and it's the main reason that spurs the study of economics as a course.
When the production possibility curve shifts outwards, the economy experiences
An outward shift of the production possibility curve shows that more output combinations are attainable, indicating economic growth (e.g. from more resources or improved technology).
Land as a factor of production is made useful through the
Land, as a natural resource, becomes economically useful only when human effort (labour) is applied to it.
In a free market economy, resources are allocated through the
In a free market economy, the price mechanism (interaction of demand and supply) determines how resources are allocated, without government direction.
The diagram in figure 1 above depicts a
A component (compound) bar chart divides each bar into sub-sections representing different components of the total, as shown in Figure 1.
Which of the following caused the change in demand from D1D1 to D2D2?
A rise in the price of a substitute good increases demand for commodity X, shifting the demand curve rightward from D1D1 to D2D2.
The curves D0D0 and S0S0 are the initial demand and supply curves respectively. What happens when government provides subsidy to producers?
A government subsidy to producers reduces their cost of production, increasing supply and shifting the supply curve rightward from S0S0 to S1S1.
In figure 4 above, YZ represents
YZ represents the gap between quantity supplied and quantity demanded at a price above equilibrium, which is excess supply.
Goods are described as inferior if their demand
An inferior good is one whose demand decreases as consumer income increases, as consumers switch to superior substitutes.
A consumer is in equilibrium when
A consumer reaches equilibrium when they allocate their income across goods in a way that maximizes total satisfaction (utility).
Goods that are abundant in supply usually have low
When goods are abundant, the marginal utility (additional satisfaction from one more unit) tends to be low, since wants are already largely satisfied.
An increase in supply means that
An increase in supply (a rightward shift of the supply curve) means more quantity is offered for sale at the same price level.
If an increase in the price of crude oil led to an increase in the prices of kerosene and grease, then kerosene and grease are in
Kerosene and grease are joint products derived from crude oil; when the price of crude oil rises, the supply/prices of its joint products move together (joint supply).
A seller increased the quantity he offered for sale from 200 units to 250 units when price of his product increased by 12.5%. What is the price elasticity of supply of his product?
Percentage change in quantity supplied = (250-200)/200 x100 = 25%. Price elasticity of supply = %change in quantity / %change in price = 25% / 12.5% = 1.50.
If an increase in the supply of hides increased the supply of beef, then hides and beef are in
Hides and beef are by-products from the same source (cattle); an increase in one's supply is associated with an increase in the other's supply — joint supply.
If a beef market is in equilibrium at $4.00 per kg, and an increase in price to $6.00 per kg may cause
At a price above equilibrium, quantity supplied exceeds quantity demanded, resulting in a surplus (excess supply) in the market.
A large firm may experience diseconomies of scale if there is
As a firm grows very large, coordination and communication become difficult, leading to inefficiencies (diseconomies of scale) despite increased size.
Increasing returns to scale suggests that
Increasing returns to scale means that as output increases, cost per unit reduces; if the producer sells at the same price, more profit will be made by increasing output.
One feature of the average fixed cost (AFC) of production is that it
Average fixed cost continuously falls as output rises (since fixed costs are spread over more units), but never reaches zero because total fixed cost is constant and positive.
If the average fixed cost (AFC) of producing 5 bags of rice is $20.00, the average fixed cost of producing 10 bags will be
Total fixed cost = AFC x output = $20 x 5 = $100 (constant). At 10 units, AFC = $100/10 = $10.00... recompute: total fixed cost=$100, output=10, AFC=100/10=$10.00.
What is the unit price of the firm's output? (Table: Output 50, Total Revenue $85)
Price = Total Revenue / Output = $85 / 50 = $1.70 (using the table: Output(units) 50,60,70,80,90; Total revenue(TR)$ 85,102,119,136,153).
What is the firm's marginal revenue? (using output/TR table: 50,60,70,80,90 and 85,102,119,136,153)
Marginal revenue = change in total revenue / change in output = (102-85)/(60-50) = 17/10 = $1.70.
Organization and entrepreneurship are vested in different persons in a
In a public company, ownership (shareholders) is separated from management (professional managers/directors) who provide the organizational/entrepreneurial function.
The public sector in a mixed economy is not always efficient because of
Public sector enterprises are often characterized by bureaucratic red tape and inefficiency, unlike the profit-driven private sector.
Which function of the wholesaler enables him to stabilize prices?
By warehousing (storing) goods, the wholesaler can regulate supply to the market over time, helping to stabilize prices.
In the long run, as individuals receive higher wages, it causes
As wages rise substantially, workers may prefer more leisure time over additional income, reducing the supply of labour (backward-bending supply curve of labour).
Population growth rate can be calculated as
Population growth rate = natural growth rate (birth rate minus death rate) plus net migration rate (immigration rate minus emigration rate).
Labour productivity is defined as
Labour productivity is measured as output per unit of labour input, typically expressed as output per man hour.
Which of the following problems has the least effect on agricultural productivity in West Africa?
While pests/diseases, weather, and illiteracy directly reduce agricultural output, urban-rural migration (movement into rural areas) has comparatively the least negative effect on agricultural productivity.
The location of iron and steel industry at a place is due to
Iron and steel industries are typically located near sources of raw materials (iron ore, coal) due to the high cost/weight of transporting these bulky inputs.
Import substitution as a strategy of industrialization is the
Import substitution industrialization involves developing local firms to produce goods domestically that were previously imported, reducing reliance on imports.
Which of the following are intermediate products?
Intermediate products are goods used as inputs for further production rather than consumed directly, such as cement and steel, which is the case with cement and steel.
How is NNP at factor cost derived from GNP at market prices?
NNP at factor cost = GNP at market prices - Depreciation - Indirect taxes + Subsidies (removing depreciation to get NNP, then adjusting from market prices to factor cost).
Which of the following factors may lead to under-estimation of national income figures?
Subsistence production (goods produced and consumed within the household, not sold in the market) is typically not captured in national income accounts, leading to under-estimation.
Inflation may occur if
When wages increase without a corresponding increase in production/output, purchasing power rises while goods remain scarce, leading to inflation (too much money chasing few goods).
Money would cease to be a good store of value when
When prices rise rapidly (high inflation), money loses its value quickly, making it an unreliable store of value since it can't be used to serve that function.
Governments in West Africa can curtail inflation by
Selling securities in the open market (open market operations) reduces the money supply in circulation, helping to curb/curtail inflation.
The central bank can reduce the ability of commercial banks to give out loans by
Raising the bank rate makes it more expensive/less attractive for commercial banks to borrow and lend, reducing their capacity/willingness to give out loans.
Tools of monetary policy do not include
Tax and public expenditure are tools of fiscal policy, not monetary policy; monetary policy tools include open market operations, reserve requirements, and the bank rate.
During inflation, the appropriate fiscal measure to adopt is to
During inflation, increasing direct taxes reduces disposable income and spending power, helping to check inflation, unlike the other options which would worsen it.
Mr. X and Mrs. Y pay $500.00 and $1,400.00 as taxes on their earnings of $5,000.00 and $7,000.00 respectively. The system of taxation employed is
Mr X pays 500/5000=10%, while Mrs Y pays 1400/7000=20% — the tax rate increases as income increases, which is a progressive tax system.
Expenditure on food takes a large proportion of incomes of people in
In developing countries, investment and income levels are low, so consumption (especially on food, a basic necessity) takes up a larger proportion of income.
A country should embark on development planning to ensure that
Development planning helps manage a country's scarce resources by making appropriate forecasts for all resources and their efficient allocation/utilization.
A country is allowed to import just 50,000 tonnes of rice annually. This describes
A quota is a government-imposed limit on the quantity of a good that can be imported (or exported) within a given period, as described here.
Dumping is selling goods in a foreign market at a price
Dumping is the act of selling a product in a foreign country at a price lower than what is charged for the same product in the home/domestic market.
The principle of comparative advantage encourages a country to
The principle of comparative advantage states that a country should specialize in and trade goods it can produce at a relatively lower opportunity cost compared to other countries.
In order to discourage the importation of manufactured goods, a country should adopt
An import substitution strategy is aimed at encouraging local firms to produce goods domestically instead of importing them, thereby discouraging importation.
A free trade area is one in which
In a free trade area, trade barriers are removed among member countries, but each member retains and operates its own independent barriers/tariffs against non-member countries.
The foremost objective of the International Bank for Reconstruction and Development (IBRD) is to
The IBRD (World Bank)'s foremost objective is to help promote and facilitate private and public investment for reconstruction and development purposes.
The exploitation of mineral resources constitutes which form of production?
Primary production is the extraction of raw materials directly from their natural sources; thus, exploration/exploitation of mineral resources falls under primary production.
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