WAEC Economics 2020 Theory Past Questions

Model answer

(a) Average product = Total product / number of workers. Thus, total product = average product x number of workers. For the 6th worker: X = 11.7 x 6 = 70.2, approximately 70 (whole number). Marginal product = (TPn - TPn-1)/(Ln - Ln-1). For the 4th worker: Y = (80-70)/(4-3) = 10. For the 6th worker: Z = (X-80)/(6-5) = (70-80)/1 = -10 (approx -9.8 to 2dp as given, confirming Z relates to the marginal product formula between the 5th and 6th worker). (b) (i) Increasing returns occur when total output increases as input (labour) increases — from the table, this occurs from the 1st to the 3rd labour employed. (ii) Decreasing returns occur when output increases at a decreasing rate as more variable input is added — occurs from the 4th labour employed (marginal product starts falling but remains positive). (iii) Negative returns occur when the marginal product becomes negative — this occurs when the 6th labour is employed (marginal product = -9.8, i.e. total output falls). (c) The law of diminishing returns states that as more units of a variable input (e.g. labour) are combined with a fixed factor (e.g. land/capital), the total output will initially increase at an increasing rate, then increase at a decreasing rate, and eventually decline, holding technology constant. (d)(i) [Graph: plot Total Product (TP) and Marginal Product (MP) against number of workers on the same axes — TP rises, reaches a maximum, then falls; MP rises, peaks earlier, crosses zero where TP is at its maximum, and becomes negative as TP falls.] (ii) Relationships between the curves: When the marginal product curve is positive, the total product curve is increasing. When the marginal product curve becomes negative, the total product curve starts decreasing (the TP curve reaches its maximum when MP = 0).

Model answer

(a)(i) The opportunity cost of producing 30 tons of cocoa is sacrificing 60 bales of textile. (ii) The opportunity cost of increasing textile production from 30 to 40 bales is reducing cocoa production by 5 tons (or from 25 to 20 tons). (b) (i) Point Y indicates under-utilization of resources (a point inside the curve). (ii) Point G is the optimum level (a point on the curve, showing efficient use of resources). (iii) Point X is impossible to achieve with current resources (a point outside/beyond the curve). (c) Conditions that can make a country produce at point X (any three): i. Improvement in technology. ii. External sourcing for inputs and/or capital. iii. Discovery of new natural resources. (d) Economic concepts illustrated in the diagram: the concept of opportunity cost; the concept of scarcity. (e)(i) Production Possibility Curve can be defined as a graph which shows the combination of two goods which an economy can produce using all the available resources in the economy optimally. (ii) The slope of the PPC indicates opportunity cost.

Model answer

(a) Consumer goods can be defined as goods which are not meant for further production but rather for consumption by the final consumers. (b)(i) Fixed capital can be defined as those types of asset which are used repeatedly in the process of production. It does not vary with the level of output and it is consumed over years. (ii) Social capital can be defined as the net worth of an organization in terms of its relationship with the environment. It is usually regarded as the goodwill. (iii) Circulating capital can be defined as those assets that are used from time to time; it changes value many times during the year. They are assets that are used up within a year. (c) Reasons for low level of savings in a country: i. Low level of income: if the level of income is low, definitely the savings will be low. ii. High level of consumption: in most developing countries and in any country where consumption is high, the savings will be low. iii. Low return on investment: majority of people save for the purpose of investment; if the return on investment is low, they will be put off and will tend to save less.

Model answer

(a)(i) Capital expenditure can be defined as the capital which does not repeat itself yearly; it is a one-off expenditure and it is usually huge in amount. It is usually channeled for development programmes. On the other hand, recurrent expenditures are expenditures which reoccur yearly. (ii) Fiscal policy is the use of government tools or public finance tools to regulate or manage the economy, such as tax and budget. Meanwhile, monetary policy is the instrument of monetary authority (Central Bank) used to regulate or manage the economy, such as interest rate, supply of money. (b) Reasons for imposition of tax (any four): i. To generate revenue for the government: the greatest source of income is tax; the government imposes tax so as to generate income to manage the economy. ii. To regulate the economy: also, the government imposes tax to regulate the economy. If there is too much money in circulation, the government can impose higher tax so as to reduce the volume of money in circulation. iii. To protect domestic and infant industry: also, the government can impose tax (discouraging one) on imports so as to make it expensive to import, so as to create demand for domestic firms. iv. To redistribute the income: the government imposes higher tax on the rich and used the income generated from it to provide facilities that will be used by all at the same time.

Model answer

(a) Tariff can be defined as the compulsory levy imposed on imported goods. It is the tax imposed by a country on goods imported from other countries. (b)(i) The Law of Absolute Cost Advantage states that a country should specialize in the production of a good or service that she can produce in a greater quantity without increasing cost, that is, the country can produce more and more of a commodity at same cost compared with other countries. (ii) The Law of Comparative Cost Advantage states that a country should specialize in the production of goods and/or service in which it has least opportunity cost compared with other countries. (c) Assumptions behind the law of comparative cost advantage (any four): i. it is assumed that the cost of production is constant all through. ii. it is also assumed that only labour cost is involved in production, thus non-labour costs are not considered. iii. it is also assumed that there is no transportation cost. iv. finally, it is assumed that two countries and two goods are involved.

Model answer

(a) Money can be defined as any medium of exchange that is generally acceptable and backed by law. Money can also refer to any documents that serve as a medium of exchange and that is generally acceptable. (b)(i) Value of money: this is the purchasing power of money. It is measured by the quantity of goods which a money can be exchanged for. (ii) Demand for money: this can be defined as the tendency or propensity of people to hold cash. It refers to the volume of asset which people will prefer to hold as cash. (c) Factors that determine transactionary demand for money (any four): i. the level of income of the individual. ii. the number of dependents of the individual. iii. investment opportunity that is available. iv. the level of credit facilities available.

Model answer

(a) Competitive demand is the type of demand when two products (say X and Y) are oppositely demanded. That is, if the demand for X increases for instance, the demand for Y will decrease and vice versa. Meanwhile, joint demand is the type of demand when two products are demanded together. In this case, the products cannot be separately demanded. An example of such demand is tin and milk. (b)(i) Effect of increase in price of complement: leads to a decrease in demand for the related good (since both goods are used together, a rise in the price of one reduces demand for both). (ii) Effect of increase in price of substitute: leads to an increase in demand for the related good (as consumers switch away from the now more expensive substitute). (iii) Effect of imposition of an indirect tax: increases the cost of production and price of the good, generally leading to a decrease in the quantity demanded/supplied.

Model answer

(a) Subsistence farming can be defined as the type of farming which involves farming for the immediate family consumption. In most cases, the farmer uses cutlass and hoe as tools of farming. Commercial farming, on the other hand, involves farming at a large scale with the intention of selling the farm product in the market. In most cases, the farmer uses mechanized farming tools and, in most cases, he goes into crop farming only. (b) Features of subsistence farming: i. It is meant for consumption of the immediate family. ii. Traditional farming tools are used in farming. iii. Farming is done on small land and thus, there is little landholding issues. iv. In most cases, he goes into crop farming only. (c) Positive effect of mining on the economy of West African countries: it serves as a source of revenue to the government; it provides employment opportunities to the citizens. Negative effect of mining on the economy of West African countries: different types of pollution of the environment due to the negligence of the mining firms; emergence of militancy in the countries.