gce model questions vol1 2018 economics | Essay

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Question 1 View Details
An economy produces only two goods, rice and cloth, using a fixed amount of land, labour and capital. The total resources are scarce.
Question Parts
(a)
Define scarcity and explain why it is regarded as the fundamental economic problem.
(b)
Using the above scenario, illustrate the concept of opportunity cost when the economy decides to produce an additional 100 tonnes of rice.
(c)
Discuss how the concept of choice is reflected in the allocation of resources between rice and cloth, and evaluate two possible allocation strategies.
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Question 2 View Details
The market for wheat is described by the following linear demand and supply equations: Demand: Qd = 8000 – 20P Supply (initial): Qs = 30P – 2000 where P is the price (₦ per kg) and Q is the quantity (kg). The government introduces a specific tax of ₦50 per kg on wheat producers. At the same time, a new production technology reduces producers’ marginal cost by ₦10 per kg, effectively shifting the supply curve downward. Assume the demand curve remains unchanged.
Question Parts
(a)
Derive the original equilibrium price and quantity before any tax or technological change.
(b)
Write the new supply equation that incorporates both the ₦50 tax and the ₦10 cost‑reduction, and determine the new equilibrium consumer price, producer price, and quantity.
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Question 3 View Details
A firm sells a single product. The following data show how the quantity demanded of the product varies with its price, assuming all other factors remain constant. | Price (₦ per unit) | Quantity demanded (units) | |--------------------|---------------------------| | 100 | 5,000 | | 150 | 3,500 | The firm is currently charging ₦120 per unit and is contemplating raising the price to ₦140 per unit. Answer the following:
Question Parts
(a)
Calculate the price elasticity of demand between the two price‑quantity points using the midpoint (arc) method. Show all steps.
(b)
Classify the demand as elastic, unit‑elastic or inelastic based on the elasticity calculated in part (a).
(c)
Using the elasticity obtained in part (a) and the linear demand relationship implied by the data, estimate the percentage change in total revenue if the price is increased from ₦120 to ₦140. State whether total revenue is likely to rise or fall and give a short justification.
(d)
Discuss two non‑price factors that could affect the price elasticity of demand for this product. For each factor, explain how a change would likely shift the elasticity towards a more elastic or a more inelastic response.
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Question 4 View Details
A manufacturing firm produces widgets. In the short run the amount of capital is fixed, while labour can be varied. The table below records the output obtained for different numbers of workers employed. | Labour (L) – workers | Output (Q) – units | |----------------------|--------------------| | 0 | 0 | | 1 | 20 | | 2 | 45 | | 3 | 65 | | 4 | 80 | | 5 | 90 | Answer the following:
Question Parts
(a)
Calculate the marginal product (MP) and average product (AP) of labour for each additional worker from L = 1 to L = 5. Present your results in a clear table.
(b)
Identify the range of labour input over which diminishing marginal returns set in and explain, using the law of variable proportions, why this occurs.
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Question 5 View Details
A small manufacturing firm produces a single product. The table below shows its total cost (TC) and total revenue (TR) at various levels of output. | Output (units) | Total Cost (₦) | Total Revenue (₦) | |----------------|----------------|-------------------| | 0 | 20,000 | 0 | | 100 | 35,000 | 30,000 | | 200 | 48,000 | 58,000 | | 300 | 60,000 | 84,000 | | 400 | 71,000 | 108,000 | Using the data above, answer the following: a) Calculate the average cost (AC) when output is 300 units. b) Determine the marginal cost (MC) of producing the 300th unit (i.e., the change in total cost when output rises from 200 to 300 units). c) Estimate the break‑even output level – the output at which total revenue equals total cost – by linearly interpolating between the two nearest output levels in the table. d) Despite the increase in marginal cost, a firm may choose to produce above the break‑even output. Discuss two economic reasons that could justify this decision.
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Question 6 View Details
The market for a homogeneous good is described by the inverse demand equation P = 200 – 0.5Q, where P is the price (₦ per unit) and Q is the total market output (units). Three firms – A, B and C – operate in this market. Each firm has the same total cost function TC = 20,000 + 30Qᵢ, where Qᵢ is the output of firm i. Answer the following: a) Identify the most appropriate market structure for this industry and justify your choice with two characteristic features. b) Assuming the firms compete à la Cournot (each chooses its output taking the others’ outputs as given), calculate the Cournot‑Nash equilibrium output of each firm and the resulting market price. Show the key steps of your derivation. c) If the three firms merged to become a single monopoly, determine the monopoly output and price. d) Briefly discuss two possible effects of collusion (the three firms coordinating their output) on consumer welfare and on the firms’ profits.
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Question 7 View Details
The table below shows selected macro‑economic data for Econland for the year 2022 (all figures in billions of naira).\n\n| Component | Value |\n|-------------------------------|-------|\n| Consumption (C) | 480 |\n| Investment (I) | 120 |\n| Government expenditure (G) | 200 |\n| Exports (X) | 150 |\n| Imports (M) | 130 |\n| Wages and salaries (W) | 300 |\n| Gross operating surplus (S) | 180 |\n| Indirect taxes less subsidies (T) | 70 |\n| Marginal propensity to consume (MPC) | 0.75 |\n\nUsing this information, answer the following questions.
Question Parts
(a)
Using the expenditure approach, calculate the Gross Domestic Product (GDP) for Econland in 2022. Show all steps.
(b)
Using the income approach, the following data are available: wages and salaries (W), gross operating surplus (S), and indirect taxes less subsidies (T). Mixed income (MIX) is not given directly but is known to equal 20 % of the sum of W and S.\n(i) Determine MIX.\n(ii) Calculate GDP by the income approach and comment on any difference with the result obtained in part (a).
(c)
The government is considering a policy to increase public investment by ₦15 billion, financed by borrowing. Discuss qualitatively how this policy is likely to affect (i) aggregate demand in the short run and (ii) the equilibrium level of national income in the medium term, assuming the marginal propensity to consume is 0.75.
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Question 8 View Details
The Central Bank of Econland currently requires commercial banks to hold a reserve ratio of 10 % of deposits. In practice, banks also keep excess reserves equal to 5 % of deposits. The existing money supply (M) is ₦200 billion. The marginal propensity to consume (MPC) is 0.8.\n\nThe Bank is contemplating two policy actions: (i) an open‑market purchase of government securities worth ₦30 billion, and (ii) a reduction of the statutory reserve requirement from 10 % to 8 %. Evaluate the likely impact of these actions on the money supply, interest rates and inflation.
Question Parts
(a)
Calculate the current money multiplier and the total amount of deposits that the banking system can support given the reserve requirement and excess reserves.
(b)
Assuming the central bank purchases ₦30 billion of securities and that the reserve requirement and excess reserves remain unchanged, calculate the new theoretical money supply.
(c)
Now suppose the reserve requirement is lowered to 8 % while the open‑market purchase of ₦30 billion is still carried out. Calculate the new money multiplier and the resulting money supply under this combined policy.
(d)
Discuss the potential short‑run effects of the combined policy on (i) interest rates, (ii) credit availability, and (iii) inflationary pressure, linking your answer to the liquidity effect and the expectations‑augmented Phillips curve.
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Question 9 View Details
The table below shows the Consumer Price Index (CPI) for a country over three consecutive years. The CPI is a price index with the base year 2010 = 100. Year CPI 2015 108 2016 ? 2017 115 It is known that the CPI increased by the same absolute amount each year between 2015 and 2017.
Question Parts
(a)
Determine the CPI for 2016.
(b)
Calculate the inflation rate (percentage change in CPI) for 2016 and for 2017.
(c)
If the average nominal wage grew from ₦250,000 in 2015 to ₦280,000 in 2017, calculate the average real wage growth over the period, using the CPI values you have found. Show all steps.
(d)
Discuss two monetary‑policy tools the central bank could use to curb inflation, and evaluate their likely effectiveness in the context of the data above.
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Question 10 View Details
The table below gives labour‑market statistics for a country over three years. Year | Labour Force (million) | Employed (million) | Unemployed (million) 2018 | 12.0 | 10.2 | 1.8 2019 | 12.5 | 10.6 | 1.9 2020 | 12.3 | 9.8 | 2.5 Youth (aged 15‑24) labour‑force figures are 3.0 million each year, with youth unemployment numbers of 0.6 million (2018), 0.7 million (2019) and 0.9 million (2020).
Question Parts
(a)
Compute the overall unemployment rate for each year and comment on the observed trend.
(b)
Calculate the youth unemployment rate for each year and compare it with the overall rate for the same year.
(c)
Using Okun’s law (Δ% GDP ≈ –2 × Δ% unemployment), estimate the change in real GDP growth between 2019 and 2020 based on the change in the overall unemployment rate.
(d)
Discuss two structural causes of unemployment in Nigeria and suggest one specific policy measure that could address each cause.
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