gce model questions vol1 2023 economics | Essay

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Question 1 View Details
A small open economy produces only two goods: rice and clothing. The economy has limited resources and must decide how much of each good to produce.
Question Parts
(a)
Define scarcity and explain why it forces individuals and societies to make choices.
(b)
Using a production‑possibility frontier (PPF), illustrate and explain the concept of opportunity cost when the economy moves from producing 100 units of rice to 80 units of rice while increasing clothing output.
(c)
Discuss two ways in which a government can allocate scarce resources to address the problem of scarcity, giving one advantage and one limitation for each method.
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Question 2 View Details
The table below shows the observed price (₦) together with the quantity demanded and quantity supplied of bottled water in a local market. | Price (₦) | Quantity Demanded (units) | Quantity Supplied (units) | |-----------|---------------------------|---------------------------| | 10 | 120 | 30 | | 20 | 80 | 60 | | 30 | 40 | 90 | Assume that both demand and supply are linear over this range.
Question Parts
(a)
Derive the linear demand and supply equations and calculate the market equilibrium price and quantity before any tax is imposed.
(b)
A per‑unit tax of ₦5 is now imposed on producers. (i) Write the new supply equation after the tax. (ii) Determine the new equilibrium price paid by consumers and the equilibrium quantity. (iii) Calculate the change in consumer surplus, producer surplus and the government’s tax revenue. (iv) Compute the dead‑weight loss and comment on its economic significance.
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Question 3 View Details
The market for bottled drinking water in a Nigerian city is competitive. The following data are observed for a particular brand: - Initial price (P₁): ₦200 per 500‑ml bottle - Initial quantity demanded (Q₁): 500 bottles per day - After a price increase, the new price (P₂): ₦250 per bottle - New quantity demanded (Q₂): 420 bottles per day Assume that the price change is small enough for the midpoint (arc) method to give a reliable estimate of price elasticity of demand. Using this information, answer the questions that follow.
Question Parts
(a)
Calculate the price elasticity of demand for the water using the midpoint method. Show all steps.
(b)
Interpret the magnitude and sign of the elasticity you obtained. What does it imply about the responsiveness of quantity demanded to price changes?
(c)
Identify and briefly explain at least three key determinants that could account for the elasticity you calculated for this good.
(d)
The government is considering imposing a specific tax of ₦30 per bottle on this brand. Assuming the tax is fully passed on to consumers, estimate the percentage change in quantity demanded using the elasticity you calculated, and discuss qualitatively how consumer surplus and government revenue are likely to be affected.
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Question 4 View Details
A small manufacturing firm uses labour as the only variable input in the short run. The table below shows the total product (TP) obtained at different levels of labour employed (L). All other inputs are held constant. | L (workers) | TP (units) | |-------------|------------| | 0 | 0 | | 1 | 20 | | 2 | 50 | | 3 | 90 | | 4 | 140 | | 5 | 190 | | 6 | 230 | Using this information, answer the following questions.
Question Parts
(a)
Calculate the marginal product (MP) of labour for each additional worker and the average product (AP) of labour at each level of employment.
(b)
Identify the point at which diminishing marginal returns set in and explain how the data illustrate the law of diminishing returns.
(c)
Discuss how an increase in the amount of capital (e.g., more machinery) would affect the TP, MP and AP curves in the short run.
(d)
Explain the difference between short‑run and long‑run production functions and why the firm’s analysis above is limited to the short run.
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Question 5 View Details
Alpha Ltd produces widgets. The firm incurs fixed costs of ₦50,000 per month. The total variable cost (TVC) is observed to be ₦20,000 when output is 100 units and ₦30,000 when output is 200 units. The market price per widget is constant at ₦500.
Question Parts
(a)
Assume the variable cost function is linear of the form TVC = aQ + b, where Q is output.
() Find the values of a and b.
() State the complete TC function.
(b)
Using the TC function obtained in (a), calculate the break‑even output (the quantity at which total revenue equals total cost). Show all steps.
(c)
If the firm decides to produce 250 units, compute total revenue, total cost and profit. Comment on whether the firm should continue production in the short run, referring to the shut‑down condition.
(d)
Suppose the government imposes a per‑unit tax of ₦100 on each widget. Explain qualitatively how this tax will affect the break‑even output and the firm's short‑run production decision.
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Question 6 View Details
Beta Co operates in the automobile market, which is characterised as a monopolistically competitive industry with many firms selling differentiated cars. The demand curve faced by an individual firm is P = 2000 - 4Q, where P is the price per car (in Naira) and Q is the quantity sold per month. The firm's short‑run total cost function is TC = 500,000 + 1000Q + 2Q^2.
Question Parts
(a)
Derive the firm's marginal revenue (MR) function and marginal cost (MC) function.
() Find MR.
() Find MC.
(b)
Determine the profit‑maximising output and the corresponding price. Show all calculations.
(c)
Calculate the firm's profit (or loss) at the output found in (b). State whether it is a supernormal profit, normal profit or a loss.
(d)
In the long run, firms in monopolistic competition tend to earn normal profit. Explain, using the concepts of entry and excess capacity, how the industry will adjust to achieve this outcome.
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Question 7 View Details
The following data relate to the economy of Country X for the year 2022 (all figures are in billions of naira).
Question Parts
(a)
Using the expenditure approach, calculate the Gross Domestic Product (GDP) at market prices.
(b)
From the GDP obtained in part (a), derive the Gross National Income (GNI) and Net National Income (NNI) for Country X.
(c)
Discuss two limitations of using GNI as a measure of the welfare of a country's residents.
(d)
The government wishes to increase national saving. Explain, with reference to the data above, how a rise in saving could affect the current account balance and the exchange rate.
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Question 8 View Details
Country Y operates a fractional‑reserve banking system. The statutory reserve ratio set by the Central Bank is 10 %. The public holds cash equal to 20 % of total deposits. The banking sector currently has total deposits of ₦500 billion.
Question Parts
(a)
Assuming that banks loan out all excess reserves and the public does not change its cash‑holding proportion, calculate the theoretical maximum money supply that could be created by the banking system.
(b)
The Central Bank conducts an open‑market purchase of government securities worth ₦30 billion. Explain the step‑by‑step process through which this operation changes the money supply, and calculate the new theoretical maximum money supply after the purchase.
(c)
Discuss two potential reasons why the actual increase in the money supply may be lower than the theoretical maximum calculated in part (b).
(d)
Evaluate the likely impact of a sustained increase in the money supply on inflation and interest rates in the short run, citing the relevant macro‑economic theory.
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Question 9 View Details
The Consumer Price Index (CPI) in Nigeria rose from 115 to 138 over the past twelve months, indicating a significant increase in the general price level. During the same period, the Central Bank of Nigeria increased the money supply (M2) by 12 % while the government ran a fiscal deficit equivalent to 8 % of GDP. The exchange rate also depreciated from ₦380 to the US$ per dollar. Answer the following questions:
Question Parts
(a)
Explain the difference between demand‑pull and cost‑push inflation. Based on the data given, which type of inflation is more likely to be the dominant cause in this situation and why?
(b)
Using the Quantity Theory of Money (MV = PY), discuss how the 12 % increase in the money supply could have contributed to the observed inflation, taking into account the possible changes in velocity (V) and real output (Y).
(c)
Recommend a coherent policy mix that the government and the Central Bank could adopt to bring inflation down to a single‑digit level within two years. Justify each measure in terms of its expected impact on inflationary pressures.
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Question 10 View Details
Recent labour market statistics show that Nigeria's overall unemployment rate has risen to 23 % and youth unemployment (aged 15‑34) stands at 38 %. At the same time, the economy has been growing at an average real GDP growth rate of 2.5 % per annum. Answer the following questions:
Question Parts
(a)
Define and differentiate between frictional, structural and cyclical unemployment. Give one example of each type that is relevant to the Nigerian context.
(b)
Okun’s law states that for every 1 % fall in real GDP, the unemployment rate rises by approximately 0.5 %. Using this relationship, estimate the change in the unemployment rate that would result from a 2 % contraction in real GDP. Discuss two limitations of applying Okun’s law directly to the Nigerian economy.
(c)
Propose two labour‑market policies that could reduce structural unemployment in Nigeria. For each policy, explain how it would operate and evaluate one potential advantage and one possible drawback.
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