2023 JAMB ECONOMICS PAST QUESTIONS AND ANSWERS

A tariff is a tax levied on imported goods to protect domestic industries and generate revenue. It raises the cost of imports, making them less competitive compared to locally produced goods. Tariffs are not usually imposed on consumer or domestic goods within a country.

Price inelastic demand occurs when the quantity demanded does not change significantly with price changes, typically when price elasticity is less than one. Goods like necessities often exhibit inelastic demand, whereas luxury items are more elastic.

Free goods are abundant in nature and not scarce, meaning they do not have an opportunity cost. Water in the ocean is a free good because it is naturally available and not produced for sale. Items like free education and dinner require resources, making them economic goods.

The marginal propensity to consume (MPC) measures the ratio of change in consumption (ΔC) to change in income (ΔY), indicating how much of each additional dollar earned is spent. This concept is crucial in understanding spending behavior in an economy.

In the short run, at least one input is fixed, preventing firms from adjusting all resources freely. This differs from the long run, where all inputs are variable, allowing complete adjustment to output.

The velocity of money refers to the frequency with which one unit of currency circulates within the economy. It is calculated as the ratio of real GDP to the real money supply, illustrating how quickly money changes hands.

Saving is the portion of income remaining after tax and consumption, often set aside for future use or investment. It contrasts with capital investment, which involves purchasing assets, and nondurable goods, which are items used quickly.

An industry consists of firms producing related goods, such as all automobile manufacturers. These firms share similarities in production but may vary in size and structure. Unrelated goods would categorize firms into different industries.

Structural unemployment arises when skills no longer match job requirements due to technological advancements or shifts in demand, unlike cyclical unemployment, which is due to economic downturns.

Absolute advantage theory, introduced by Adam Smith, suggests that a country should produce goods where it is most efficient. This differs from comparative advantage, which focuses on lower opportunity costs.

The economic profit is calculated by subtracting total costs from revenue: N1,000,000 – N750,000 = N250,000. Economic profit reflects the firm’s profitability.

Financial constraints hamper West African development, as insufficient funds affect infrastructure, trade, and healthcare. Political integration and military relations, while relevant, are secondary concerns.

Deduction involves reasoning based on general principles to form hypotheses, contrasting with induction, which uses specific observations. Policy economics applies these ideas to decision-making.

Labor force quality, including education and skills, directly impacts productivity. Other factors like GDP growth or immigration affect the economy indirectly but are less specific to productivity improvements.

The Consumer Price Index (CPI) tracks price changes for a set basket of goods, serving as Nigeria’s primary inflation indicator. Wholesale indexes and GDP deflators measure price changes differently.

Scarcity of resources forces societies to prioritize needs, making resource allocation essential. This contrasts with establishing political frameworks or income distribution as secondary concerns.

Without access to the diagram, perfect competition is often depicted with a horizontal demand curve, reflecting many sellers and identical products. Monopoly has a downward-sloping demand curve.

In monopoly pricing, P2 typically reflects a price where marginal cost meets demand without incurring losses. Other prices would likely result in lower revenue.

Maximum prices in economic models are often represented as P2, reflecting the highest allowable price under constraints. Lower prices may be more accessible to consumers.

Real cost refers to opportunity cost, or the value of alternatives forgone when choosing an option. This differentiates it from nominal monetary cost.

The Authority of Head of State and Government is ECOWAS’s decision-making body, governing policy and leadership decisions for member states. Other bodies operate under its authority.

Governments do not use limited liability for redistribution. Instead, they implement tax policies, market interventions, and transfer payments to address income inequality.

Innovation and technological advancement play a crucial role in driving economic growth by improving efficiency, productivity, and creating new industries. While human capital, land, and natural resources are essential, they are most effective when paired with technological progress.

According to the law of diminishing returns, adding more of a variable input (e.g., labor) to a fixed input (e.g., land) results in a decrease in the marginal output of each additional unit, eventually causing the rate of increase to slow.

A budget deficit happens when a government’s expenditures exceed its revenue. To fund this gap, governments may borrow or increase debt rather than simply save.

Production lag refers to the delay between the manufacturing of goods and their availability for consumption. This interval impacts supply chain efficiency.

When production costs increase, producers are less inclined to supply the same quantity at previous prices, leading to a decrease in supply. This can result in higher prices if demand remains constant.

Monopolists can engage in price discrimination because they control market pricing, enabling them to charge different consumers different prices based on willingness to pay, unlike in competitive markets where prices are uniform.

A budget surplus happens when income exceeds government expenditure, enabling savings or debt reduction. This is the opposite of a budget deficit.

The main goal of fiscal policy is to stabilize the economy by influencing demand, controlling inflation, and reducing unemployment through government spending and tax adjustments.

For complementary goods (e.g., cars and fuel), a price increase in one decreases demand for the other, as both are typically consumed together. This is in contrast to substitutes, where a price increase raises demand for the alternative.

A growing population usually raises demand for goods and services, as more people require resources. This can boost economic growth if supply can keep up with demand.

Adam Smith coined the “invisible hand” metaphor to describe the self-regulating nature of markets, where individuals’ pursuit of self-interest leads to societal benefits. Keynes, Ricardo, and Marx contributed other economic theories.

A monopoly has significant market power, allowing it to set prices due to lack of competition. It contrasts with perfect competition, where firms face perfectly elastic demand and no single firm has market control.

Opportunity cost is the value of the next best alternative foregone when a choice is made, highlighting trade-offs. It differs from total cost, which includes all expenses of a decision.

Comparative advantage allows a country to produce goods at a lower opportunity cost than others, fostering efficient resource use in international trade. Absolute advantage focuses on efficiency alone.

Currency appreciation makes a country’s goods more expensive for foreign buyers, typically reducing export demand. It can make imports cheaper for domestic consumers.

A central bank stabilizes an economy by issuing currency, controlling inflation, and managing foreign reserves, promoting economic stability. These functions are broader than those of commercial banks.

The price mechanism allocates resources by adjusting prices according to supply and demand, directing resources to their most valued uses. It does not directly ensure equal wealth distribution or eliminate competition.

Joseph Schumpeter introduced creative destruction, describing how innovation replaces outdated industries, driving economic progress. This concept contrasts with Keynesian stability-focused theories.

A price ceiling below the equilibrium price can lead to shortages as demand exceeds supply at the controlled price, often seen in rent controls.

The GDP deflator adjusts nominal GDP for changes in price levels, serving as an inflation measure by comparing current prices to a base year. It complements the Consumer Price Index (CPI).

Law of demand posits that higher prices lead to lower quantity demanded, assuming all other factors remain constant. This inverse relationship is foundational to demand theory.

A market economy relies on supply and demand to allocate resources, with minimal government intervention, unlike centrally planned economies which rely on government control.

The goal of monetary policy is to control inflation and stabilize the currency by managing the money supply and interest rates, fostering a stable economic environment.