2014 WASSCE ECONOMICS THEORY SOLUTION

1
(a) balance of trade
Solution
Balance of Trade = visible import – visible export
: B.O.T = visible import – visible export
= $52,000 – $40,000
= $12,000

(b) balance on current account

Solution
Balance on current account = Receipt of items – payments of items
Receipt of (visible /invisible goods)
= $52,000 + 4,000 + 20,000 + 2,500 + 22,800
= $101300
Payment of (visible /invisible goods)
= $40,000 + 8,000 + 5,000 + 7,500 + 7,000
= $67,500
Balance on current A/C = $101300 – $67,500 = $33,800

(c) balance on capital account

Balance on capital account = Receipt of capital inflow – payment of capital outflow
Receipt of loan and investment = $50,000 + $254,000 + 221,000 = $525,000
Payment of loan and investment = $26,000 + $289,000 + $238,000 = $553,000
∴Balance on capital a/c = $525,000 – $553,000 = -$28,000

(d) balance of payment

Balance of payment = Balance on current a/c + Balance on capital a/c =
$33,800 + (-$28,000) = $5,000

2.
(b) Interpret your answer in question 2(a) above.
Answer
The supply of palm oil is elastic because the coefficient is greater than one. ep ˃ 1.

(c) Study the extract below and answer the following questions.
Answer
The price of palm oil remains at $6.00 per gallon and an increase in the price of a related product causes
an increase in the supply of palm oil:
(i) Give a graphical presentation to illustrate this change.
Answer

(ii) Indicate the type of supply for the two products.

Answer

These two products are jointly supplied (Complementary supply).

(d) State reasons that can cause a change in supply.
Answer
The reasons that can cause a change in supply are:
(i) A rise in the cost of production
(ii) Price of other commodities
(iii) Government’s policy
(iv) Technological development
(v) Weather
(vi) Natural disaster
(vii) Goal suppliers
(viii) Number of producers

3
(a) Define occupational mobility of labour
Answer
Occupational mobility of labour refers to the ease and willingness of labour to move from an occupation
or profession to another. There are two types namely:

(b) Identify any four barriers to occupational mobility of labour.

Answer
The barriers to occupational mobility of labour are:
(i) Age: Labour may be too old to learn new skills.
(ii) Remuneration: Differences in wages and salaries may prevent labour from moving from one job to
another.
(iii) Sex: Discrimination on account of male or female may prevent mobility.
(iv) Custom, culture and religion
(v) Length of time in training
(vi) Natural intelligence
(vii) The general condition of service
(viii) A trade union or professional association.

(c) State any two factors that will make labour efficient
Answer
The factors that will make labour efficient are:
(i) Improved standards of education and training
(ii) Improvement in the quality and amount of food, clothing, and shelter.
(iii) Higher wages and better method of payment
(iv) Provision of adequate social services e.g. constant supply of electricity
(v) Better working condition
(vi) Specialisation
(vii) Improvement in other factors of production
(viii) Optimum working hours/ days in a week

4
(a) What is crop farming?
Answer
Crop farming refers to the growing and harvesting of food and cash crops such as yams, cassava, rice,
seeds, cotton, vegetables, and groundnuts, among others for human consumption.

(b) Outline any four measures that can be adopted to increase crop production in your country.
Answer
The measures that can be adopted to increase crop production in Nigeria are:
(i) The farmers should have more access to soft loans so as to increase their investment in agriculture.
(ii) The income of the farmers should be improved
(iii) The farmers should be educated through formal and non-formal education.
(iv) There should be an improvement in the provision of social amenities in the rural areas.
(v) Storage facilities should be provided for farmers at a cheaper rate.
(vi) Mechanised farming should be introduced.
(vii) An adequate supply of farming input.
(viii) The transportation of agricultural produce should be improved.
(ix) The government should discourage rural-urban migration.

(c) State any two contributions of the industrial sector to agriculture in your country.
Answer
The contributions of the industrial sector to agriculture are:
(i) Industrial sector absorbs excess labour from the agricultural sector.
(ii) It provides ready markets for agricultural raw materials such as cocoa for beverage, cotton for
textile, etc
(iii) It manufactures fertilizers and agrochemicals
(iv) It manufactures farm implements such as hoes, cutlass, tractors, etc.
(v) Industrial sectors promote research and training in the use of their products.
(vi) It provides a variety of goods for the farmers to patronize
5
(a) Highlight any four differences between public limited liability company and a private limited liability
company.
Answer
Difference between public limited liability company and private limited liability company
Private limited liability
company
i. The minimum number of people
that can own a private company is
two (2) while the maximum
number is fifty (50)
ii. A Private company can only use
limited (LTD) after its name
iii. They don’t advertise its capital
to the public for subscription
iv. A member cannot freely
transfer his/her share capital to
another member without the
consent of other shareholders.
v. The share capital of a private
company is not quoted on the
stock exchange market
vi. The private company does not
publish its book of account for the
public to inspect
vii. The company does not require
a certificate of trade before it can
start business
Public limited liability company
The minimum number of people that
can own a public company is seven (7)
while the maximum is infinity
A Public company uses PLC after its
name
They openly advertise and invites the
member of the public to buy its share
capital
A member can freely transfer his/her
share capital to another person
without the consent of other
members.
The share capital of a public company
is normally quoted on the stock
exchange market.
The public company publishes its
affairs and book of accounts for the
public to inspect.
The company cannot commence trade
without a certificate of trade.

(b) Explain any four advantages of a limited liability company.

Answer
Advantages of Limited Liability Company:
(i) Limited liability: The liability of the shareholders cannot exceed the amount they invested in the
company.
(ii) Perpetual existence: The death of one of the shareholders cannot bring the company to an end.
(iii) Separate legal entity: A company is distinct from its owner.
(iv)Large capital: There is always room to increase the share capital of the company.
(v) Right to transfer capital: The shareholders can transfer their shares without restriction.
(vi) Much room for expansion: There is no limit to which the company can expand due to large capital.
(vii) Access to loans: The Company can easily have access to bank loans at a reduced cost of capital.
6
(a) Define gross national income.
Answer
Gross National Product (GNP): This refers to the value of goods and services produced within a country
during a year plus net income from abroad. GNP = C+I+G+(X-M).

(b) Using appropriate examples, distinguish between:

(i) Personal income and disposable income.
Answer
Personal Income: This refers to income earned by or that accrues to individuals who carry out economic
activities before allowances for personal income taxes and other deductions. While disposable income is
personal income less personal income taxes. It is the income that is left after the deduction of personal
income taxes.
(ii) Nominal income and real income.
Answer
Nominal income is the value of all goods and services produced expressed in terms of concurrent money
income received from their production. While real money is the income expressed in terms of what it
can buy. It is the nominal income deflated by the price level.

(c) Outline any three uses of national income statistics.

Answer
Uses of national income statistics:
▪ It helps us to determine the standard of living in the country.
▪ It is a measure of economic development
▪ It enables us to know the contribution made by the various sector of the economy.
▪ It is used for comparing the standard of living between two or more countries
▪ It helps in the calculation of per capita income and per capita output.
▪ It is used as an effective tool in the allocation of scarce resources.
▪ It is used to determine the pattern of expenditure in a country.

7
(a) What is the normal chain of distribution?
Answer
Chain of distribution is the process that manufactured goods pass before reaching the final consumers
e.g.
Manufacturer/ Producer → Wholesaler → Retailer → Final consumer
(b) State any three functions of middlemen in the chain of distribution.
Answer
Functions of middlemen:
i. Provision of warehouse: Wholesaler renders warehouse services to producers and retailers.
ii. Bulk breaking: He breaks the bulk by buying in large quantities from the producer and sell to the
retailer in smaller quantities.
iii. He gives credit facilities to the retailers’
iv. He advises the retailer on what to produce in order to meet market demand.
v. He provides after-sales services to the retailer.
vi. He assists the producers to advertise its products through handbills, etc.
vii. He passes useful information to the producer regarding the market situation
viii. He finances the producer through prompt cash payment.

(c) Highlight any four problems involved in the distribution of goods in West Africa.
Answer
The problem of distribution of goods in West Africa:
i. The presence of a poor transportation system does not allow for the free flow of goods.
ii. Lack of modern storage facilities to preserve the goods sold by middlemen.
iii. Hoarding: Hoarding is the deliberate attempt to withdraw goods from circulation thereby creating
artificial scarcity and forcing prices up.
iv. Absence of a large market makes it unwise for the long chain of distribution.
v. Absence of ineffective price control enables the middlemen to charge high prices.
vii. The activities of unions and trade associations hamper distribution.
vii. The administrative and distribution cost of middlemen tends to increase the price of products.

8
8a. The specific tax is a tax usually levied according to the units or items of a commodity.

b. Effect of a specific tax on a commodity that has:

(i) Perfectly inelastic demand:
When the tax was imposed, supply changed from S0 to S1, but demand did not change. The supplier
conveniently shifted the total tax to consumers as shown in the shaded area. If demand is perfectly
inelastic, the producer shifts the entire tax to the final consumers because demand will be unaffected.
(ii) Perfectly elastic demand: If demand is perfectly elastic, the producer bears the tax burden or else he
will be forced to close down due to stockpiling. The effect is a reduction in supply from S1S1 to S2S2 by
the amount of tax as shown in the diagram below:

b.

c. Difference between Direct Tax and Indirect Tax

s/no Direct Tax Indirect Tax
1 It is a tax levied on the It is a tax levied on goods and
income of the individual and services.
profit of the company
2. It is progressive in nature It is regressive in nature
3. The rate of evasion of direct The rate of the evasion of indirect
tax is high tax is low
4. It yields less revenue to the It yields more revenue to the
government government
5. The collection of direct tax is The collection of indirect tax is
not cost-effective cost-effective