Practice gce model questions vol1 economics 2019 Past Questions

Question 1 View Details

A monopoly faces the inverse demand curve $ P = 120 - 2Q $ and total cost function $ TC = 20Q + 0.5Q^{2} $.\n(a) Determine the profit‑maximising output and price.\n(b) Under perfect competition the market would produce where price equals marginal cost. Compute the competitive equilibrium output and price.\n(c) Calculate the dead‑weight loss caused by the monopoly.

A. 150.00

B. 200.00

C. 125.45

Correct D. 177.78

Correct Answer: D

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Question 2 View Details

The market demand for a good is $ Q_{d}=200-4P $ and market supply is $ Q_{s}= -20+2P $, where $P$ is the price received by producers. The government imposes a specific tax of $\$5$ per unit on sellers.\n(a) Find the equilibrium price paid by consumers after the tax.\n(b) By how much does the consumer price increase compared with the pre‑tax equilibrium price? Express the increase in dollars.

A. 2.50

B. 3.33

C. 1.00

Correct D. 1.67

Correct Answer: D

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Question 3 View Details

In an economy the public holds currency equal to 30 % of bank deposits, banks are required to hold 8 % of deposits as reserves and keep an additional 2 % of deposits as excess reserves.\n(a) Compute the overall money multiplier.\n(b) If the central bank purchases securities worth $\$150$ million, what is the maximum possible increase in the money supply?

A. 500.0

B. 475.0

C. 450.0

Correct D. 487.5

Correct Answer: D

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Question 4 View Details

A country can produce either 100 units of wheat or 200 units of cloth if it devotes all resources to one good. Assuming a linear production possibility frontier, if the country produces 40 units of wheat, how many units of cloth can it produce simultaneously?

A. 80

B. 160

C. 140

Correct D. 120

Correct Answer: D

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Question 5 View Details

A market is currently a monopoly. Demand is given by $ P = 300 - Q $. The incumbent's total cost is $ TC = 200 + 20Q $ (fixed cost 200, marginal cost constant at 20). A potential entrant would have to pay an entry cost of $\$500$ before it can compete.\n(a) Calculate the monopoly's profit.\n(b) Will the entrant enter the market?\n(c) What is the highest price the incumbent could charge while still deterring entry (i.e., making the incumbent's profit equal to the entry cost)? Give the price to two decimal places.

A. 21.52

B. 23.52

Correct C. 22.52

D. 22.50

Correct Answer: C

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Question 6 View Details

A firm operates in a monopolistically competitive market. Its demand curve is $ P = 120 - 2Q $. Its marginal cost is $ MC = 20 + Q $. Fixed costs are ₦200. Determine (a) the profit‑maximising output and price, (b) the firm's profit, and (c) the Lerner index of market power at that output.

A. Output = 22 units, Price = ₦76, Profit = ₦880, Lerner index = 0.55

B. Output = 20 units, Price = ₦78, Profit = ₦600, Lerner index = 0.45

Correct C. Output = 20 units, Price = ₦80, Profit = ₦800, Lerner index = 0.5

D. Output = 18 units, Price = ₦84, Profit = ₦720, Lerner index = 0.45

Correct Answer: C

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Question 7 View Details

The domestic market for a good has demand $ Q_{d}=500-2P $ and supply $ Q_{s}=3P $. The world price is ₦40. The government introduces a specific tariff $ t $ per unit. (a) Find the tariff that yields government revenue of exactly ₦1,800. (b) Using that tariff, calculate the dead‑weight loss to the economy.

A. Tariff ≈ ₦5.50 per unit; Dead‑weight loss ≈ ₦150

B. Tariff ≈ ₦8.20 per unit; Dead‑weight loss ≈ ₦90

C. Tariff ≈ ₦7.00 per unit; Dead‑weight loss ≈ ₦130

Correct D. Tariff ≈ ₦6.76 per unit; Dead‑weight loss ≈ ₦114

Correct Answer: D

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Question 8 View Details

In an economy the currency‑to‑deposit ratio is $ c = 0.25 $ and the reserve‑to‑deposit ratio is $ r = 0.10 $. The initial monetary base is ₦500 million. (a) Compute the money multiplier. (b) If the central bank purchases securities worth ₦200 million, what is the resulting change in the money supply?

A. Money multiplier = 3.000; Increase in money supply ≈ ₦600 million

B. Money multiplier = 2.857; Increase in money supply ≈ ₦571 million

C. Money multiplier = 4.000; Increase in money supply ≈ ₦800 million

Correct D. Money multiplier = 3.571; Increase in money supply ≈ ₦714 million

Correct Answer: D

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Question 9 View Details

Using the income approach, the following components are given (in ₦ million): Compensation of employees 800, Gross operating surplus 300, Gross mixed income 150, Taxes less subsidies on production 120. Net factor income from abroad is -40 million. The population is 5 million. (a) Calculate GDP, (b) GNI, (c) GNI per capita.

A. GDP = ₦1,370 million; GNI = ₦1,370 million; GNI per capita = ₦274

Correct B. GDP = ₦1,370 million; GNI = ₦1,330 million; GNI per capita = ₦266

C. GDP = ₦1,370 million; GNI = ₦1,410 million; GNI per capita = ₦282

D. GDP = ₦1,250 million; GNI = ₦1,210 million; GNI per capita = ₦242

Correct Answer: B

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Question 10 View Details

In a closed economy with no net exports, consumption is $ C = 100 + 0.8(Y - T) $ where the tax rate is $ t = 0.25 $ so that $ T = tY $. Investment is autonomous at ₦150 million and government spending is ₦200 million. (a) Determine the equilibrium level of output. (b) If the government raises spending by ₦50 million and simultaneously increases taxes by ₦30 million, what is the new equilibrium output and the change in output?

A. Initial equilibrium Y = ₦1,150 million; New equilibrium Y = ₦1,210 million; Change = +₦60 million

B. Initial equilibrium Y = ₦1,125 million; New equilibrium Y = ₦1,180 million; Change = +₦55 million

Correct C. Initial equilibrium Y = ₦1,125 million; New equilibrium Y = ₦1,190 million; Change = +₦65 million

D. Initial equilibrium Y = ₦1,100 million; New equilibrium Y = ₦1,160 million; Change = +₦60 million

Correct Answer: C

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Question 11 View Details

The market for a particular manufactured good is described by the demand equation $ P = 200 - 2Q $ and the supply equation $ P = 20 + Q $, where $P$ is the price in dollars per unit and $Q$ is quantity in thousands of units. The government imposes a specific tax of $30 per unit on producers. Calculate the dead‑weight loss (in dollars) that results from this tax.

A. 120

B. 180

Correct C. 150

D. 200

Correct Answer: C

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Question 12 View Details

A country has a labour force of 10 million people and an unemployment rate of 8 %. Of this unemployment, 3 % of the labour force is structural and the remainder is frictional. A training programme reduces structural unemployment by 0.5 percentage points without affecting frictional unemployment. What is the new overall unemployment rate (as a percentage) after the programme?

A. 7

B. 8

C. 7.8

Correct D. 7.5

Correct Answer: D

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Question 13 View Details

A perfectly competitive firm faces a total cost function $ TC = 100 + 5Q + 0.5Q^{2} $, where $Q$ is output in units and costs are in dollars. The market price is constant at $ P = 20 $ dollars per unit. Determine the profit‑maximising level of output and the profit earned at that output.

Correct A. Output = 15 units; Profit = $12.5

B. Output = 10 units; Profit = $-25

C. Output = 12 units; Profit = $8.0

D. Output = 20 units; Profit = $5

Correct Answer: A

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Question 14 View Details

In an economy with a labour force of 12 million, the natural rate of unemployment is 5 % and the actual unemployment rate is 9 %. Calculate the cyclical unemployment rate as a percentage of the labour force.

A. 3

B. 5

C. 2

Correct D. 4

Correct Answer: D

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Question 15 View Details

If a rise in the real wage leads the unemployment rate to increase from 6 % to 7.2 %, and the wage itself rises by 10 %, what is the elasticity of unemployment with respect to the wage (expressed as a unit‑less number)?

A. 12

Correct B. 2

C. 1.2

D. 0.2

Correct Answer: B

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Question 16 View Details

A firm's total product (TP) from labour $L$ (with capital fixed) is given by $ TP = 10L - L^{2} + 0.1L^{3} $ for $0 \le L \le 10$. (i) Find the level of labour at which average product (AP) is maximised and state the maximum AP. (ii) Find the level of labour at which marginal product (MP) equals average product and give the AP at that level.

Correct A. L = 5 units, AP = 7.5

B. L = 4 units, AP = 7.6

C. L = 6 units, AP = 7.6

D. L = 8 units, AP = 8.4

Correct Answer: A

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Question 17 View Details

In year 1 the Consumer Price Index (CPI) was 120 and in year 2 it rose to 126. A government bond pays a nominal interest rate of 8 % per annum, and income tax of 20 % is levied on the interest earned. (a) Calculate the inflation rate between the two years. (b) Using the Fisher equation, determine the real interest rate before tax. (c) Determine the real interest rate after tax.

Correct A. Inflation = 5 %; real interest before tax ≈ 2.86 %; real interest after tax ≈ 1.33 %

B. Inflation = 4 %; real interest before tax ≈ 4.00 %; real interest after tax ≈ 2.40 %

C. Inflation = 6 %; real interest before tax ≈ 3.00 %; real interest after tax ≈ 1.80 %

D. Inflation = 5 %; real interest before tax ≈ 2.00 %; real interest after tax ≈ 0.80 %

Correct Answer: A

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Question 18 View Details

Country X had a population of 20 million in 2010. From 2010 to 2015 the population grew at a constant annual compound rate of 2.5 %. From 2015 onward the annual growth rate fell linearly each year, reaching 1.5 % in 2020, after which it remains constant at 1.5 %. (a) Calculate the population at the end of 2020 (to two decimal places). (b) Compute the average annual compound growth rate over the whole 2010‑2020 period (as a percentage to two decimal places). (c) Assuming the 1.5 % rate continues after 2020, in which calendar year will the population first exceed 30 million? Give the first year.

Correct Answer: D

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Question 19 View Details

The demand for a good is linear between the two observed points $P=10,\;Q=100$ and $P=12,\;Q=80$. Calculate the price elasticity of demand at the price $P=10$. Express your answer as a decimal (include the negative sign).

A. -1.2

Correct B. -1

C. -0.5

D. -0.8

Correct Answer: B

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Question 20 View Details

A worker earned a nominal weekly wage of ₦15 000 in 2022 when the Consumer Price Index (CPI) was 150. In 2023 the CPI rose to 157 and the nominal wage increased to ₦15 600. (a) Compute the inflation rate between 2022 and 2023. (b) Compute the percentage increase in the nominal wage. (c) Determine the percentage change in the real wage (using the CPI as the price index) and state whether the real wage rose or fell.

A. Inflation = 5.00 %; nominal wage increase = 4.00 %; real wage fell by 0.33 %

B. Inflation = 4.67 %; nominal wage increase = 4.00 %; real wage rose by 0.64 %

C. Inflation = 4.67 %; nominal wage increase = 3.75 %; real wage fell by 0.92 %

Correct D. Inflation = 4.67 %; nominal wage increase = 4.00 %; real wage fell by 0.64 %

Correct Answer: D

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Question 21 View Details

A farmer can use his land to produce either $100$ kg of rice or $50$ kg of beans with the same resources. If he decides to produce rice, what is the opportunity cost of one kilogram of rice, expressed in kilograms of beans?

A. 2

B. 0.25

Correct C. 0.5

D. 1

Correct Answer: C

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Question 22 View Details

A firm operates two plants. Plant A has a fixed cost of $£200{,}000$ and a variable cost of $£5$ per unit, with a maximum capacity of $30{,}000$ units. Plant B has a fixed cost of $£120{,}000$ and a variable cost of $£8$ per unit (no capacity limit). The market demand is $50{,}000$ units.\n\n(a) Determine the production allocation between the two plants that minimises total cost and state the minimum total cost.\n(b) If a per‑unit environmental tax of $£2$ is imposed on output from Plant B only, re‑evaluate the optimal allocation and the new total cost.

A. Initial allocation: 5,000 units at Plant A, 45,000 units at Plant B; total cost £530,000. After tax: same allocation; total cost £630,000.

B. Initial allocation: 30,000 units at Plant A, 20,000 units at Plant B; total cost £560,000. After tax: same allocation; total cost £680,000.

Correct C. Initial allocation: 0 units at Plant A, 50,000 units at Plant B; total cost £520,000. After tax: same allocation; total cost £620,000.

D. Initial allocation: 10,000 units at Plant A, 40,000 units at Plant B; total cost £540,000. After tax: same allocation; total cost £660,000.

Correct Answer: C

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Question 23 View Details

A monopolist faces the demand curve $P = 120 - 0.5Q$ and has total cost $TC = 5{,}000 + 10Q + 0.02Q^{2}$.\n\n(a) Determine the profit‑maximising output, the corresponding price, and the profit.\n(b) If a per‑unit tax of $£5$ is imposed on the output, recompute the profit‑maximising output, price and profit.

Correct A. Without tax: output ≈105.77 units, price ≈£67.12, profit ≈£817.31. With £5 per‑unit tax: output ≈100.96 units, price ≈£69.52, profit ≈£300.50.

B. Without tax: output ≈110.23 units, price ≈£65.00, profit ≈£750.00. With £5 per‑unit tax: output ≈95.40 units, price ≈£71.20, profit ≈£250.00.

C. Without tax: output ≈100.00 units, price ≈£68.50, profit ≈£800.00. With £5 per‑unit tax: output ≈98.00 units, price ≈£68.00, profit ≈£350.00.

D. Without tax: output ≈108.50 units, price ≈£66.00, profit ≈£900.00. With £5 per‑unit tax: output ≈102.00 units, price ≈£70.00, profit ≈£280.00.

Correct Answer: A

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Question 24 View Details

A farm uses labour $L$ (workers) and capital $K$ (machines) to produce output according to the Cobb‑Douglas function $Q = 20L^{0.5}K^{0.5}$. Capital is fixed at $K=16$ units. The wage rate is $£50$ per worker per day, the rental rate of capital is $£200$ per unit per day, and the output price is $£12$ per unit.\n\n(a) Determine the number of workers that maximises profit and compute the maximum profit.\n(b) If a new technology doubles the effective productivity of capital (so the effective capital becomes $2K$), recompute the optimal labour input and the new maximum profit.

A. Initial optimum: about 80 workers, profit £1,200. After technology: about 160 workers, profit £2,400.

B. Initial optimum: about 85 workers, profit £1,300. After technology: about 170 workers, profit £2,600.

Correct C. Initial optimum: about 92 workers, profit £1,408. After technology: about 184 workers, profit £2,818.

D. Initial optimum: about 100 workers, profit £1,600. After technology: about 200 workers, profit £3,200.

Correct Answer: C

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Question 25 View Details

A company sells two products, A and B. Fixed costs are $£150{,}000$. Variable costs per unit are $£20$ for A and $£30$ for B. The selling price per unit is $£45$ for A and $£55$ for B. The firm expects to sell $4{,}000$ units of A and $3{,}000$ units of B.\n\nIf the firm can raise the price of A by 10 % provided it reduces the output of B by 500 units (the price of B stays unchanged), should it make this trade‑off? Calculate the change in total profit.

A. Profit rises by £4,500 (new profit £29,500 versus original £25,000).

B. Profit rises by £6,800 (new profit £31,800 versus original £25,000).

Correct C. Profit rises by £5,500 (new profit £30,500 versus original £25,000).

D. Profit falls by £1,200 (new profit £23,800 versus original £25,000).

Correct Answer: C

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