Practice gce model questions vol1 economics 2025 Past Questions

Question 1 View Details

A firm in the manufacturing sector has total cost $TC = 0.5Q^{2} + 20Q + 500$, where $Q$ is output in units. The market demand is given by the inverse demand function $P = 200 - Q$.\n\n(a) Determine the profit‑maximising output and the corresponding profit.\n(b) The government introduces a per‑unit tax of ₦5 on the firm's output. Assuming the tax is paid by the firm, find the new profit‑maximising output and the profit after the tax.

Correct A. Before tax: output = 60 units, profit = ₦4,900. After tax: output = 58.33 units (≈175/3), profit = ₦4,604.17 (≈82875/18).

B. Before tax: output = 60 units, profit = ₦5,000. After tax: output = 58 units (≈174/3), profit = ₦4,700 (≈84600/18).

C. Before tax: output = 65 units, profit = ₦5,200. After tax: output = 60 units (≈180/3), profit = ₦4,800 (≈86400/18).

D. Before tax: output = 55 units, profit = ₦4,500. After tax: output = 57 units (≈171/3), profit = ₦4,350 (≈78300/18).

Correct Answer: A

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Question 2 View Details

In the agricultural market for wheat, demand is $Q_{d}=500-2P$ and supply is $Q_{s}=3P-100$, where $P$ is the price per tonne in naira. The government introduces a per‑unit subsidy of ₦20 paid to producers. Calculate the net welfare loss to the economy resulting from this subsidy.

A. The subsidy creates a net welfare loss of ₦180.

Correct B. The subsidy creates a net welfare loss of ₦240.

C. The subsidy creates a net welfare loss of ₦200.

D. The subsidy creates a net welfare loss of ₦300.

Correct Answer: B

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Question 3 View Details

A small open economy imports a good. Domestic demand is $Q_{d}=800-4P$ and domestic supply is $Q_{s}=2P-200$, where $P$ is the price in naira. The world price of the good rises from ₦100 to ₦120.\n\n(i) Compute the quantity imported and the total import expenditure at each world price.\n(ii) Determine the change in consumer surplus resulting from the price increase.

Correct A. Imports fall from 400 units (expenditure ₦40,000) to 280 units (expenditure ₦33,600). Consumer surplus decreases by ₦7,200.

B. Imports fall from 400 units (expenditure ₦40,000) to 260 units (expenditure ₦31,200). Consumer surplus decreases by ₦7,800.

C. Imports fall from 420 units (expenditure ₦42,000) to 300 units (expenditure ₦36,000). Consumer surplus decreases by ₦6,800.

D. Imports fall from 380 units (expenditure ₦38,000) to 260 units (expenditure ₦31,200). Consumer surplus decreases by ₦8,400.

Correct Answer: A

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Question 4 View Details

A country can produce either wheat or cloth using all its resources. If it devotes all resources to wheat it can produce 100 units of wheat and 0 cloth; if it devotes all resources to cloth it can produce 0 wheat and 200 units of cloth. Currently the country produces 40 units of wheat and 80 units of cloth. What is the opportunity cost of producing one additional unit of wheat in terms of cloth?

Correct A. 2 units of cloth

B. 3 units of cloth

C. 1.5 units of cloth

D. 4 units of cloth

Correct Answer: A

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Question 5 View Details

The demand for a product is observed at two price‑quantity pairs: $(P_{1}=20,\; Q_{1}=500)$ and $(P_{2}=30,\; Q_{2}=350)$.\n\n(a) Calculate the price elasticity of demand between these two points using the midpoint formula.\n(b) Based on the elasticity, state whether total revenue will increase, decrease or remain unchanged when price rises from ₦20 to ₦30.

A. Elasticity ≈ -1.45 (elastic); total revenue decreases when price rises from ₦20 to ₦30.

B. Elasticity ≈ -2.10 (elastic); total revenue increases when price rises from ₦20 to ₦30.

C. Elasticity ≈ -0.30 (inelastic); total revenue remains unchanged when price rises from ₦20 to ₦30.

Correct D. Elasticity ≈ -0.88 (inelastic); total revenue increases when price rises from ₦20 to ₦30.

Correct Answer: D

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Question 6 View Details

A country's economy has the following aggregate data (in billions of naira): Consumption = 2,500, Investment = 800, Government spending = 1,200, Exports = 300, Imports = 400, Indirect taxes = 250, Subsidies = 50, Depreciation = 350, Net factor income from abroad = 80. The population is 50 million. Calculate the National Income per capita.

Correct A. 78,600

B. 71,400

C. 85,200

D. 92,800

Correct Answer: A

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Question 7 View Details

A firm incurs fixed costs of ₦120,000 and a variable cost of ₦45 per unit. It plans to sell 5,000 units of its product. The corporation tax rate is 30 %. The firm wishes to achieve an after‑tax profit of ₦150,000. What minimum price per unit must it charge?

A. 115.20

B. 108.45

C. 120.00

Correct D. 111.86

Correct Answer: D

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Question 8 View Details

In an economy the labour force is 20 million and the actual unemployment rate is 9 %. Structural unemployment is 2.5 % and frictional unemployment is 1.5 %. Determine the cyclical unemployment rate and the number of people unemployed cyclically.

A. 4% (800,000 people)

B. 3.5% (700,000 people)

Correct C. 5% (1,000,000 people)

D. 6% (1,200,000 people)

Correct Answer: C

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Question 9 View Details

A competitive firm has total cost given by $TC = 200{,}000 + 30Q + 0.02Q^{2}$, where $Q$ is output in units. (i) Find the output level at which marginal cost equals average total cost. (ii) If the market price is ₦80 per unit, calculate the firm's profit or loss at that output.

A. Output ≈ 2,800 units; Loss ≈ ₦210,000

B. Output ≈ 3,500 units; Loss ≈ ₦260,000

Correct C. Output ≈ 3,162 units; Loss ≈ ₦241,900

D. Output ≈ 2,900 units; Loss ≈ ₦230,500

Correct Answer: C

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Question 10 View Details

The nominal interest rate is 12 % per annum. Expected inflation is initially 8 % and later rises to 10 %. The investment function is $I = 500 - 5r$, where $r$ is the real interest rate (in percent). (a) Compute the expected level of investment when inflation is 8 %. (b) Compute the expected level of investment when inflation is 10 %. (c) By how much does investment change?

Correct A. Investment at 8 % inflation = 481.5; at 10 % inflation = 490.9; change ≈ +9.4

B. Investment at 8 % inflation = 480; at 10 % inflation = 485; change ≈ +5

C. Investment at 8 % inflation = 482; at 10 % inflation = 488; change ≈ -6

D. Investment at 8 % inflation = 475; at 10 % inflation = 492; change ≈ +17

Correct Answer: A

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Question 11 View Details

At a price of $£8$, the quantity demanded of Good Y is 200 units and the quantity supplied is 150 units. What is the market condition and by how many units does it differ from equilibrium?

A. Surplus of 30 units

Correct B. Shortage of 50 units

C. Surplus of 50 units

D. Shortage of 30 units

Correct Answer: B

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Question 12 View Details

A farmer can produce either 100 bushels of wheat or 50 tonnes of corn with the same resources. If the farmer chooses to produce wheat, what is the opportunity cost of one bushel of wheat in terms of corn?

Correct A. 0.5 tonnes of corn per bushel of wheat

B. 2.0 tonnes of corn per bushel of wheat

C. 0.25 tonnes of corn per bushel of wheat

D. 1.0 tonnes of corn per bushel of wheat

Correct Answer: A

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Question 13 View Details

Country A imports machinery and exports coffee. The world price of coffee rises from $\$2$ to $\$3$ per kg, while the price of machinery stays at $\$5$ per unit. Because of the price increase, coffee export quantity falls from 1,000 kg to 800 kg (price elasticity of export demand = $-0.5$). Import quantity of machinery remains 200 units. Calculate the change in Country A's trade balance (in dollars) and state the new terms of trade.

A. Trade balance unchanged; new terms of trade = 0.6

Correct B. Trade balance increases by $400; new terms of trade = 0.6

C. Trade balance increases by $600; new terms of trade = 0.75

D. Trade balance decreases by $200; new terms of trade = 0.5

Correct Answer: B

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Question 14 View Details

The government imposes a specific tax of $\$1$ per unit on a good whose demand and supply are given by $Q_d = 200 - 20P$ and $Q_s = 40 + 10P$ respectively, where $P$ is the price paid by consumers. Calculate (a) the new equilibrium price paid by consumers, (b) the price received by producers, and (c) the dead‑weight loss caused by the tax.

Correct A. Consumers pay £5.67, producers receive £4.67, dead‑weight loss ≈ £3.33

B. Consumers pay £5.67, producers receive £4.67, dead‑weight loss ≈ £4.50

C. Consumers pay £5.33, producers receive £4.33, dead‑weight loss ≈ £2.50

D. Consumers pay £6.00, producers receive £5.00, dead‑weight loss ≈ £4.00

Correct Answer: A

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Question 15 View Details

In an economy the required reserve ratio is 10 %, the excess‑reserve ratio is 2 %, and the public holds cash equal to 30 % of bank deposits. (a) Calculate the money multiplier. (b) If the central bank injects an additional $£50$ million of high‑powered money, what is the maximum possible increase in the money supply?

A. Money multiplier ≈ 3.50; maximum increase in money supply ≈ £170.0 million

B. Money multiplier ≈ 2.85; maximum increase in money supply ≈ £145.0 million

C. Money multiplier ≈ 4.00; maximum increase in money supply ≈ £200.0 million

Correct D. Money multiplier ≈ 3.10; maximum increase in money supply ≈ £154.8 million

Correct Answer: D

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Question 16 View Details

Country X had a population of 20 million in the year 2000. From 2000 to 2010 it grew at an annual rate of $2\%$. From 2010 to 2020 the annual growth rate fell to $1.5\%$. From 2020 onward the rate is $1\%$ per year. In which calendar year will the population first exceed 30 million? Give the year as a four‑digit number.

A. 2025

Correct B. 2026

C. 2024

D. 2028

Correct Answer: B

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Question 17 View Details

A farmer can produce either 100 kg of wheat or 50 kg of corn per day if he devotes all resources to one crop. Assuming a linear production possibility frontier, how many kilograms of corn can he produce if he decides to produce 40 kg of wheat per day? Give your answer in kilograms.

A. 40

B. 20

C. 35

Correct D. 30

Correct Answer: D

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Question 18 View Details

The market demand for a good is $P = 120 - 2Q$ where $P$ is price (in £) and $Q$ is quantity. The firm's total cost function is $TC = 20Q + 0.5Q^{2}$. (a) Determine the profit‑maximising output and price for a monopolist. (b) Calculate the dead‑weight loss compared with perfect competition. Express the dead‑weight loss as a fraction of £.

A. Q=20 units, P=£75, DWL=£900/3 (≈£300)

B. Q=15 units, P=£90, DWL=£600/3 (≈£200)

Correct C. Q=20 units, P=£80, DWL=£800/3 (≈£267)

D. Q=25 units, P=£70, DWL=£1000/3 (≈£333)

Correct Answer: C

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Question 19 View Details

In an economy the currency‑to‑deposit ratio is 0.20 and the required reserve ratio is 0.10. (a) Compute the money multiplier. (b) If the central bank purchases government securities worth £50 million, by how much does the total money supply change? Give the change in £ millions.

A. 250

B. 150

C. 100

Correct D. 200

Correct Answer: D

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Question 20 View Details

When the price of a product falls from £10 to £8, the quantity demanded rises from 200 units to 260 units. Using the midpoint (arc) method, calculate the price elasticity of demand over this range. Give your answer to two decimal places.

A. -0.85

B. -2.00

C. -1.50

Correct D. -1.17

Correct Answer: D

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Question 21 View Details

The market demand for a product is linear and can be expressed as $Q = a - bP$. When the price is £8, the quantity demanded is 500 units, and when the price is £12, the quantity demanded falls to 300 units. (a) Determine the price elasticity of demand at the price £10. (b) If the price is subsequently increased to £11, will total revenue increase or decrease? State your conclusion.

A. Elasticity = -1.75; total revenue will increase.

B. Elasticity = -0.80; total revenue will increase.

Correct C. Elasticity = -1.25; total revenue will decrease.

D. Elasticity = -1.00; total revenue will stay the same.

Correct Answer: C

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Question 22 View Details

The government introduces a specific tax of $2 per unit on a good. The pre‑tax market is described by the linear demand curve $Q_d = 120 - 4P$ and the linear supply curve $Q_s = -20 + 2P$, where $P$ is the price in dollars and $Q$ the quantity. (a) Find the equilibrium price and quantity before the tax. (b) After the tax, determine the price paid by consumers, the price received by producers, the new equilibrium quantity, and the dead‑weight loss caused by the tax (expressed in dollars, rounded to two decimal places).

A. Before tax: price $23.33, quantity 26.67. After tax: consumers pay $23.00, producers receive $21.00, quantity 25 units, dead‑weight loss $0.00.

Correct B. Before tax: price $23.33, quantity 26.67. After tax: consumers pay $24.00, producers receive $22.00, quantity 24 units, dead‑weight loss $2.67.

C. Before tax: price $22.50, quantity 27.00. After tax: consumers pay $25.00, producers receive $21.00, quantity 23 units, dead‑weight loss $3.20.

D. Before tax: price $24.00, quantity 25.00. After tax: consumers pay $23.50, producers receive $21.50, quantity 22 units, dead‑weight loss $1.80.

Correct Answer: B

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Question 23 View Details

In year 0 a consumer purchases a basket containing 2 units of good A at £5 each and 3 units of good B at £4 each. In year 2 the prices are £7 for A and £3.80 for B, and the consumer's actual consumption in year 2 changes to 1.5 units of A and 2.5 units of B. (a) Using the Laspeyres formula, calculate the inflation rate between year 0 and year 2 (expressed as a percentage, rounded to two decimal places). (b) Using the Paasche formula, calculate the inflation rate between year 0 and year 2 (percentage, rounded to two decimal places). (c) Which index indicates a higher rate of inflation?

A. Laspeyres inflation = 16.78 %; Paasche inflation = 15.10 %; Laspeyres shows the higher inflation.

Correct B. Laspeyres inflation = 15.45 %; Paasche inflation = 14.29 %; Laspeyres shows the higher inflation.

C. Laspeyres inflation = 13.20 %; Paasche inflation = 12.85 %; Paasche shows the higher inflation.

D. Laspeyres inflation = 14.00 %; Paasche inflation = 14.00 %; Both indices indicate the same inflation.

Correct Answer: B

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Question 24 View Details

A firm's total cost function for producing $Q$ units of output is $TC = 0.02Q^{3} - 0.3Q^{2} + 20Q + 100$. The market price of the product is constant at £30 per unit. (a) Determine the profit‑maximising level of output (to two decimal places). (b) Calculate the profit earned at this output level (to two decimal places).

A. Profit‑maximising output ≈ 18.84 units; profit ≈ £50.00.

B. Profit‑maximising output ≈ 22.10 units; profit ≈ £78.35.

Correct C. Profit‑maximising output ≈ 18.84 units; profit ≈ £61.14.

D. Profit‑maximising output ≈ 15.27 units; profit ≈ £45.60.

Correct Answer: C

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Question 25 View Details

The production function of a firm is $Q = L^{0.5}K^{0.5}$, where $L$ is labour input and $K$ is capital input. The firm currently employs $K = 36$ units of capital and produces $Q = 100$ units of output. (a) How much additional labour must be employed to raise output to $Q = 121$ units, assuming capital remains at 36 units? (b) At the initial input combination, compute the marginal rate of technical substitution (MRTS) of labour for capital (expressed as a decimal, rounded to two decimal places).

Correct A. Labour must increase by about 129 units; MRTS ≈ 0.13.

B. Labour must increase by about 140 units; MRTS ≈ 0.15.

C. Labour must increase by about 115 units; MRTS ≈ 0.12.

D. Labour must increase by about 100 units; MRTS ≈ 0.10.

Correct Answer: A

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