2024 - JAMB Economics Past Questions and Answers - page 5

When a maximum price (price ceiling) is set below the equilibrium (free market) price:

• A black market will be encouraged: Since the official price is below the equilibrium, demand exceeds supply. Some consumers are willing to pay more than the controlled price. This creates an incentive for suppliers to sell their goods illegally at a higher price in a black market.
• B. Excess demand will occur: The quantity demanded will exceed the quantity supplied because the price is artificially low.
• C. Excess supply will occur: This is incorrect. A price ceiling set below the equilibrium price leads to a shortage (excess demand), not a surplus (excess supply).
• D. Rationing of commodities will occur: Because there is more demand than supply, there is a need to distribute the limited available goods. This usually involves methods like queuing, favoritism, or other non-price mechanisms.

The correct answer is the indifference curve. Here's why:

• Indifference Curve: An indifference curve represents all combinations of two goods that provide a consumer with the same level of satisfaction (utility). The consumer is indifferent between any point on the curve.
• Opportunity Curve: This is not a standard term in economics. It could be confused with the Production Possibility Frontier (PPF), which illustrates the maximum output combinations of two goods that can be produced with available resources.
• Utility Curve: Utility curves typically show the relationship between the quantity of a good consumed and the level of satisfaction or utility derived. However, a curve showing combinations of two goods with equal satisfaction is specifically the indifference curve.
• Demand Curve: A demand curve shows the relationship between the price of a good and the quantity demanded by consumers.

The middle value of an array of figures arranged in descending order is the median.

• Median: The middle value in a sorted dataset.
• Mean: The average of a set of numbers.
• Mode: The value that appears most frequently in a dataset.
• Variance: A measure of the spread or dispersion of a dataset.

An exceptional demand curve (also known as a Giffen good or Veblen good) is one where the quantity demanded increases as the price increases, and decreases as the price decreases. This is the opposite of the normal law of demand.

• A. An increase in the price of raw materials affects supply, not demand.
• B. A change in consumer taste affects demand, but usually leads to a shift in the demand curve, not an exceptional demand curve.
• C. An increase in the population size generally shifts the demand curve to the right, but does not lead to an exceptional demand curve.
• D. Expectation of future price increases can lead to an increase in current demand as consumers try to purchase the good before the price increases. This can create an exceptional demand curve in the short run.

A balance of payment surplus means a country is earning more from its foreign transactions than it is spending. The best course of action in this scenario is to increase its foreign reserves. This can be done by accumulating the extra foreign currency earned. Devaluing the currency (A) would likely worsen the surplus. Borrowing from abroad (B) is not the best option as the country is already in a favorable financial position. Promoting imports (C) would reduce the surplus, which is the opposite of what the country might want to do.

The factors of production are land, labor, capital, and entrepreneurship. Each factor receives a reward for its contribution to the production process:

• Land receives rent.
• Labor receives wages.
• Capital receives interest.
• Entrepreneurship receives profit.

A subsidy, however, is a financial assistance provided by the government to producers, and is not a reward for a factor of production.

A deficit budget occurs when a government's spending exceeds its revenue in a fiscal year. This means the government is spending more money than it is taking in.

The price elasticity of demand (PED) measures the responsiveness of the quantity demanded of a good to a change in its price. It is calculated using the following formula:

Here's how to calculate it for this question:

1. Calculate the percentage change in quantity demanded:
   Change in quantity = 80 - 100 = -20
   Average quantity = (100 + 80) / 2 = 90
   % Change in Quantity Demanded = (-20 / 90) * 100 ≈ -22.22%
2. Calculate the percentage change in price:
   Change in price = 10 - 8 = 2
   Average price = (8 + 10) / 2 = 9
   % Change in Price = (2 / 9) * 100 ≈ 22.22%
3. Calculate the Price Elasticity of Demand (PED):
   PED = (-22.22%) / (22.22%) = -1
   The absolute value of PED is 1. Therefore, the answer is 1.

Wholesalers play a crucial role in the distribution chain by financing both producers and retailers.

• They often provide credit to retailers, enabling them to purchase goods.
• They may also provide financial support to producers.

The demand for factors of production (land, labor, capital, and entrepreneurship) is derived demand. This means the demand for these factors is dependent on the demand for the goods and services they produce. A firm will only demand a factor of production if there is a demand for the final product that factor helps create.

• Derived demand is the correct answer because it accurately reflects the relationship between factor demand and the demand for the goods/services they produce.
• Joint demand refers to when two or more goods are demanded together (e.g., cars and gasoline).
• Complementary demand is closely related to joint demand, emphasizing the usage of goods together.
• Composite demand refers to a good having multiple uses.