2022 NECO ECONOMICS THEORY ANSWERS
_INSTRUCTIONS: ANSWER 1 QUESTION FROM SECTION A AND 4 FROM SECTION B_
%∆ in Quantity dd/ %∆ in income = 100/150
%∆ in Qty dd = ∆ In Qty dd/ old Qty dd * 100/1
= 10/10 * 100/1
%∆ in income = ∆ in income * 100/1
= 3000/2000 * 100/1
Positive income elasticity: This is as a result of having more quantity demand for milk as income increases
(i) Change in price related commodity
(ii) Change in taste and fashion
(iii) Income of the consumer
Capital formation is a term used to describe the net capital accumulation during an accounting period for a particular country
(i) Low level of Natural income and per capital income; The root cause of capital deficiency in under-developed countries is low level of real national and per capita income which limits to the motives of savings and investments. Due to lack of desired investments, capital formation has no increase. Hence, due to low production, there is low national and per capita income and, in turn, this forces to low capital formation.
(ii) Lack in demand of capital; Another cause of low rate of capital formation in under-developed countries in lack of demand of capital. In the words of Prof. Nurkse, “Low productivity in under-developed countries, people have low real income and, thus, purchasing power is low and so due to low demand.
(iii) Lack in supply of capital;Like demand of capital, lack of supply of capital is responsible for low capital formation. However, due to lack of necessary supply of capital in under-developed countries, the process of capital formation is not boosted up. As a result, capital formation remains at low level.
(iv) Lack of Economic and social overheads; Basic overheads like roads, buildings, communication, education, water, health etc. are generally lacked in under-developed countries which react as improper atmosphere for the capital formation and slow process of capital formation.
(v) Lack of skilled entrepreneurs;Able and efficient entrepreneurs are not available in under-developed countries. It is the only reason for low rate of capital formation. Due to absence of risk-taking entrepreneurs, establishment of industries and expansion is quite limited and industrial diversification is not carried out and no balanced development of economy is possible.
(vi) Lack of effective fiscal policy;Lack of effective fiscal policy or financial policy in under-developed countries also retard capital formation to some extent. Burden of taxation is too much which is out of people’s capacity to bear as their income is quite low. Besides, inflationary circumstances accrue and prices soar extremely high.
A wholesaler is a person whose business is buying large quantities of goods and selling them in smaller amounts
(i)High price: Middlemen cause high price of goods by adding cost to the cost of goods
(ii) Increase in advertisement: The introduction of middlemen in the chain of distribution leads to high cost of creating awareness to the customer
(iii) Low profit: Middlemen will reduce the profit of the producer by increasing the cost of production for the producer
(iv) Decrease in production: Middlemen will lead to decrease in production of goods that will affect the price of the goods
money market are market for the lending and borrowing of short term loans. Eg the Central bank, the commercial banks, discount houses, etc while
This are market for the lending and borrowing of medium and long term loads. Eg development bank, the stock exchange etc
(Pick Any Five)
(i) Acceptance of deposit: Commercial banks accept deposit from the public for safe keeping. This is the oldest function of commercial banks, which helps in taking care of people’s money. Money can be kept in current, fixed and savings account. They accept money deposits from people and organisations for safe keeping. The amount deposited is credited to the customer’s account. In the performance of this function,three types of accounts can be kept with commercial banks.
(ii)Lending of money: This is perhaps the most profitable function of commercial banks . Deposits from different customers are pooled together and given out as loans and overdrafts with interest to people and firms for profitable investment. They can give direct loans to borrowers who have the necessary collateral security such as stock and share certificate, life insurance policies and landed property.
(iii)Agent of payment: Commercial banks can act as agent of payment on behalf of their customers. They encourage and permit customers to have current accounts in which they can draw by cheque without notice. They can also be transferred from one account to another eg credit transfer. A customer cab instruct his bank to pay his creditors . commercial banks also collect cheques, bill of exchange and other instrument of credit on behalf of their customers.
(iv)Provision of financial and technical advice : Commercial banks encourage and advise businessmen on the type of projects they should invest their money in. They could advise their business customers on how best to carry out their business operations, how to raise capital for business, whether to start a new business of to expand an existing one, etc By so doing, they are helping in the progress of the economy.
(v)Foreign exchange transaction: commercial banks make foreign currencies available to their customers. They participate in foreign exchange market and help in solving any problems relating to foreign exchange. They facilitate foreign trade by selling foreign currencies to importers. One who wishes to travel abroad could purchase travellers cheques from commercial banks. These enables people and businessmen to settle their international indebtedness.
(vi)Safe keeping of valuables: One of the functions of commercial banks is to keep customers valuables. such valuables include costly jewellery and important documents such as wills, share certificates and educational certificates. They are able to perform this function effectively because they have facilities for safe keeping such as safes and vaults.
Monopolistic competition: This characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes.
The last resort of the Government is that it should nationalise the business, in which monopoly exists and which the society is not willing to tolerate.
(ii) Effective Publicity:
Monopoly works with some serious irregularities, which usually do not come to the notice of the people. It is therefore, desirable that proper publicity should be given to these defects. There should be provision for public supervision of monopoly houses.
(iii) Organised Consumer’s Associations:
The monopoly fixes high prices because it knows it fully well that the consumer is not well organised and will take time to organise himself and till then suffer. One effective method of checking and controlling monopoly is that the Government should help in the formation of consumers associations.
(iv) Control over Prices:
Monopoly will always try to fix the highest possible price which it can obtain from the customers, so as to earn minimum profit. The state can control the monopoly by fixing the profits and the prices and ensure that the industry does not earn undue profit.
(v) Anti Trust Legislation:
One of the measures which is adopted by the monopoly is to form trusts. These trusts are of course voluntary, but all the evils of monopoly more or less creep into it, with the result that the State is forced to take legislative measures.
Thsi is the act of buying and selling of goods and services within a geographical area
Thiz is the buying and selling of goods and services between two or more countries
(i)They both engage in exchange of goods and services
(ii) They both engage in trade e
(iii) They both involve in the use of money to facilitate trade
(i) Buying and selling is between two or more countries
(ii) There is language barrier
(iii) It involves more documentation
(i) Buying and selling is within a country
(ii) There is no language barrier
(iii) It involves low documentation
Balance Of Payment (BOP) is a statement which records all the monetary transactions made between residents of a country and the rest of the world during any given period.
Expansion of rail, ocean and air transport, better means of refrigerationand preservation trade has experienced spatial expansion
(ii) Extent of foreign investment:
It boost trade in developing countries which lack in capital They develop capital intensive industries like mining, oil drilling, plantation agriculture etcThe industrial nations ensure import of food stuffs and minerals andcreate markets for their finished products
(iii) Stage of economic development Stage of economic development:
influence the nature of items traded In agriculturally important countries agro products are exchanged for manufactured goodsIndustrialized nations export machinery and finished products and importfood grains and other raw materials
(iv) Population factors:
Distinctive forms of art and craft develop in certain cultures which are valued world over, Ex. porcelains from china, carpets of Iran Densely populated countries have large volume of internal trade but littleexternal trade Standard of living of the population determines the demand for betterquality imported
(v) Difference in national resources:
National resources are unevenly distributed because of differences ingeology, relief, soil and climate Geology determines the mineral resource base and topographicaldifferences ensure diversity of crops and animals raised Climate influences the type of flora and fauna in a given region
(i)Source of revenue: To get most income into the government purse, taxes are imposed on goods coming in from other countries.
(ii)Reduction of unemployment: This discourages importation and encourage infant industries to survive which will create jobs for more unemployment people
(iii) To improve standard living: To help the citizens of a country to be self-sufficient and self reliant
(iv)Balance of payment deficit: It helps to correct a country’s balance of payment deficit in the long run
(v)Trade restriction: This enables the citizen to consume more locally made goods instead of foreign goods
(i)Manpower development: The exploration of petroleum has made it possible for Nigeria to develop some of its manpower needs, both in the oil and non-oil sectors of the economy.
(ii)Source of domestic energy: Petroleum is a source of internal energy requirement through the numerous petroleum products e.g gas, diesel, petrol and kerosene.
(iii)Rapid economic growth: Oil revenue has led to an increase in the size of a country’s national income and per capita income.
(i)Over – reliance on oil: There has been too much reliance on oil to the neglect of other sectors of the economy. E.g agriculture which was the MainStay of the Nigerian economy became neglected by the government after the discovery of crude oil. Moreover the increase in the Urban wage rate occasioned by increased revenue from oil has rendered agriculture unattractive to the youths
(ii)Inflation: Oil boom contributes to the inflationary trend of the Nigerian economy true government, corporate and individual spendings.