Post-UTME Economics 2008 Past Questions & Answers

In economics, 'ends' refer to our unlimited human wants, needs, and desires, while 'means' are the limited or scarce resources (like money, time, and materials) available to satisfy these wants. The statement in option A is false because it incorrectly defines 'ends' as 'resources'. The correct definition is that ends are our goals, and we use resources (means) to try and achieve them.

Common mistake: Students might mistakenly choose option D as the false statement because its wording is confusing and grammatically awkward, leading them to think it must be incorrect without carefully checking the clear definitional error in option A.

The question provides the consumption function, which shows how consumption (C) changes with income (Y). To solve this, you substitute the given income (Y = N15,000) into the equation C = N7,500 + 0.2Y. This gives C = N7,500 + (0.2 * N15,000), which simplifies to C = N7,500 + N3,000, resulting in a total consumption of N10,500.

Common mistake: A common mistake is choosing option A, wrongly assuming that the decimal (0.2) means an inverse relationship, while the positive sign in front of it actually shows that consumption and income are directly related.

Perfectly inelastic demand occurs when the quantity people want to buy does not change at all, even when the price goes up or down. This means the quantity demanded is completely unresponsive or 'insensitive' to any change in price. For example, a diabetic patient will likely buy the same amount of insulin regardless of a price change, making its demand perfectly inelastic.

Common mistake: Students often confuse perfectly inelastic demand with perfectly elastic demand, mistakenly choosing option D which describes a horizontal demand curve (perfectly elastic).

The correct statement is C. Market equilibrium happens when the quantity of a good people want to buy (demand) is exactly equal to the quantity sellers want to sell (supply). When demand and supply are not equal, the market is unbalanced, which is called disequilibrium, leading to either a shortage or a surplus.

Common mistake: Students often mistakenly choose option A because they mix up the rules for elasticity; a negative cross-price elasticity indicates that the goods are complements, not substitutes.

The law of demand states that people buy more of a good when its price is low. This is best explained by diminishing marginal utility, which means the extra satisfaction you get from consuming one more unit of a good decreases. For example, the first bottle of water when you are thirsty is very satisfying, but the fifth bottle is not as enjoyable, so you would only be willing to buy that fifth bottle if its price was much lower.

Common mistake: Students might mistakenly choose 'the rationing function of price' because high prices do limit who can buy a product, but this describes what price does in a market, not the underlying consumer behaviour that explains the law of demand.

A pure monopolist is the only seller in the industry, so its demand curve is the same as the market demand curve. According to the law of demand, as the price of a good falls, the quantity demanded increases. Therefore, to sell more of its product, the monopolist must lower the price, which creates a downward-sloping demand curve.

Common mistake: Students often confuse the monopolist's demand curve with the perfectly elastic (horizontal) demand curve faced by a firm in a perfectly competitive market.

The Central Bank of a country, like the Central Bank of Nigeria (CBN), has the sole legal authority to issue currency (notes and coins) for circulation. This means it is the only body that can create and distribute the official money that is accepted as legal tender. This function is a key part of its role in managing the country's money supply and financial system.

Common mistake: Students often confuse 'printing' currency with 'issuing' it; while the Central Bank commissions the printing, its unique legal power is to issue the currency and put it into circulation.

The theory of consumer behaviour is built on key ideas about how people make decisions. These assumptions include that consumers are rational (they act logically to get the most satisfaction), they prefer more of a good to less, and their choices are consistent. Option D, 'choices', is not an assumption but the very thing the theory tries to explain; it's the outcome of the consumer's decision-making process, not a starting rule.

Common mistake: A common mistake is getting confused by the options, as they all relate to consumer behaviour, but 'choices' is the outcome the theory explains, not a foundational assumption like rationality or consistency.

Net National Product (NNP) measures the total value of goods and services produced by a country's citizens (GNP) after accounting for the value of capital equipment that has worn out during production. This 'wear and tear' on capital like machinery and buildings is called depreciation. Therefore, to find the 'Net' product, you must subtract the value of depreciation from the 'Gross' product, making the correct formula NNP = GNP - Depreciation.

Common mistake: Students often mistakenly choose option C, confusing Net National Product (NNP) with Net Domestic Product (NDP), which is correctly calculated as GDP minus depreciation.

The financial market is divided into two main parts based on the length of time for loans. The money market is where short-term borrowing and lending happen, for periods of less than one year, using instruments like Treasury Bills. The capital market is for raising long-term funds, for periods longer than a year, through instruments like stocks and bonds. Therefore, the key difference is the tenor or duration of the funds, making option A the correct answer.

Common mistake: Students might mistakenly choose option D, forgetting that both markets involve a cost for borrowing money, even if the returns are called different names like interest rates, yields, or dividends.

A Production Possibility Curve (PPC) is a graph that shows the maximum combinations of two goods an economy can produce with its available resources and technology. The curve itself represents all the different possible pairs of these two goods (e.g., 10 bags of rice and 20 bags of beans, or 15 bags of rice and 10 bags of beans). This is why option D, which describes 'the various combination of two commodities that can be produced', is the correct definition.

Common mistake: Students might mistakenly choose option A because the PPC is based on using resources, but the curve itself plots the resulting output of goods, not the quantity of resources used for one particular good.

A government's budget outlines its expected income (revenue) and spending (expenditure). When government spending is more than its revenue, it results in a shortfall known as a budget deficit. The question describes this exact scenario where spending 'excesses' revenue. The term 'budget difficult' in the option is a common typographical error for 'budget deficit'.

Common mistake: Students may mistakenly choose 'budget surplus', which is the opposite situation where government revenue is greater than its spending.

In economics, the entrepreneur is the factor of production responsible for organizing land, labour, and capital to create a business. The primary motivation for an entrepreneur to take on the risks of starting and running a business is to make a profit. Profit is the financial reward that the entrepreneur earns for their innovation, effort, and risk-taking.

Common mistake: Students might mistakenly choose 'consumers' because they are also key decision-makers, but consumers aim to maximize their personal satisfaction (utility), not financial profit.

A 'change in demand' refers to a shift of the entire demand curve, caused by factors like changes in income (A) or population (B). The quantity of a commodity is the amount people decide to buy as a result of these factors and price; it is the outcome, not a factor that causes the change. Therefore, the quantity of a commodity does not cause a change in demand.

Common mistake: Students often mistakenly choose 'price of the commodity itself' because they confuse a 'change in demand' (a shift of the curve) with a 'change in quantity demanded' (a movement along the curve).

Inelastic demand means that consumers' demand for a product does not change much when its price changes. If the price of such a commodity is reduced, the small increase in the quantity people buy is not enough to make up for the lower price per item. As a result, the total revenue, which is price multiplied by quantity, will decrease.

Common mistake: Students often mistakenly choose option A because they confuse the relationship; for inelastic goods, a price increase actually leads to a rise in total revenue, not a fall.

A capitalist economy is an economic system where private individuals and firms, not the government, own and control the means of production, which are also known as capital goods. The main goal in this system is to make a profit. The question describes this exact feature of private ownership of capital goods, making 'Capitalist economy' the correct answer.

Common mistake: Students might mistakenly choose 'Mixed economy' because most real-world economies have some government involvement, but the question's emphasis on 'most' capital goods being privately owned points specifically to the definition of a capitalist system.

Liquidity refers to how easily an asset can be converted into cash without losing its value. Cash is already money, so it is the most liquid asset because it does not need any conversion. A commercial bank can use its cash immediately to pay depositors or settle debts, making it the standard for perfect liquidity.

Common mistake: Students often confuse other 'near money' assets like Treasury Bills or money at call as the most liquid, but these still require a step to be converted into actual cash.

An indifference curve is a graph that shows different combinations of two goods that give a consumer the exact same level of satisfaction or utility. By definition, any point along a single indifference curve represents a constant level of utility. This is why the consumer is said to be 'indifferent' between any of the combinations on that curve.

Common mistake: Students might mistakenly choose option C because any point on an indifference curve does represent a state of satisfaction, but this misses the main point that all points on the *same* curve represent an *equal* level of satisfaction.

Government participation in distribution, for example through marketing boards, is intended to help the process, not block it. The goal is to ensure goods reach consumers, even if the execution is sometimes imperfect. In contrast, poor storage causes goods to spoil, lack of credit stops traders from operating, and hoarding or smuggling directly disrupts the legal and efficient supply of goods.

Common mistake: Students often misread the negative question and select an option that is a real hindrance, such as 'Inadequate storage facilities', because it is a well-known problem.

Wages are the reward for labour, and they often differ to compensate for the non-financial characteristics of a job. A job that is less attractive, for example because it is dangerous, dirty, or has inconvenient hours, must offer a higher wage to persuade people to do it. This extra payment, known as a compensating differential, is a fundamental reason for the wide variation in pay across different occupations.

Common mistake: Students often choose 'Length and cost of training' because it is a very obvious reason why professionals like doctors earn high salaries, but it doesn't explain wage differences in jobs that require similar skill levels but have different working conditions.

Tax incidence is the economic term for analysing who bears the final burden of a tax. For example, even if the government places a tax on a company, the company might pass this cost to customers through higher prices. Therefore, tax incidence determines who ultimately ends up paying for the tax, whether it's the producer, the consumer, or a combination of both.

Common mistake: Students often mistakenly choose option D, confusing the economic burden of a tax (incidence) with the administrative process of how the government gathers the money (collection).

Price discrimination is when a monopolist sells the same product at different prices to different customers. For this to be profitable, the markets must have different price elasticities of demand. The monopolist will charge a higher price in the market with more inelastic demand (where buyers are less sensitive to price) and a lower price in the market with more elastic demand (where buyers are very sensitive to price), thereby maximizing profit.

Common mistake: Students often mistakenly choose option D because a low cost of separating markets is also a necessary condition, but the fundamental reason and opportunity for price discrimination comes from the different elasticities of demand.

Fixed costs are expenses that do not change even when the level of production changes. A business must pay the rent for its land or building whether it produces 100 items or zero items, making it a fixed cost. In contrast, costs like raw materials, wages, and electricity are variable costs because they increase as the business produces more goods.

Common mistake: Students may confuse any production expense with a fixed cost, but the cost of raw materials is a classic variable cost because you need more materials to make more products.

To find the average cost, you first need to calculate the total cost of production. Total cost is the sum of fixed cost and variable cost, which is N500 + N1,500 = N2,000. Then, to get the average cost per unit, you divide the total cost by the number of units produced (output). So, N2,000 divided by 40 units gives you N50.00 per unit.

Common mistake: Students often make the mistake of calculating the Average Variable Cost $(N1,500 / 40 = N37.50)$ instead of the Average Total Cost, forgetting to add the fixed cost first.