Post-UTME Economics 2009 Past Questions & Answers

Gross elasticity, also known as cross elasticity of demand, measures how the quantity demanded of one good responds to a price change in another good. Substitute goods are alternatives, like Coke and Pepsi. If the price of Coke increases, consumers will buy more Pepsi, so the quantity demanded for Pepsi rises, resulting in a positive relationship and a positive elasticity value.

Common mistake: Students often mistakenly choose 'Negative' because they confuse substitute goods with complementary goods, for which the cross elasticity of demand is negative.

In economics, the payment to a factor of production has two parts: transfer earnings and economic rent. Transfer earnings is the minimum payment required to keep the factor in its current use. Any payment received above this minimum amount is called economic rent. Therefore, a wage higher than what is necessary to induce work is defined as economic rent.

Common mistake: Students often get confused because they associate the word 'rent' only with payment for land or housing, not with its technical meaning as a surplus payment to any factor of production.

Inflation is a general increase in the prices of goods and services. When workers' wages increase, they have more money to spend, which increases the demand for goods. If the supply of goods cannot meet this higher demand, sellers will raise their prices, causing what is known as demand-pull inflation. Also, businesses may raise prices to cover the higher cost of paying more in wages, which is called cost-push inflation.

Common mistake: Students might wrongly choose 'Tax increase' because they think taxes on goods directly raise prices, but a general tax increase actually reduces people's spending power, which tends to lower inflation.

A debenture is a type of long-term loan that a company takes from the public or financial institutions to raise capital. Because it is a loan, the company is legally required to pay a pre-agreed, fixed rate of interest to the debenture holders, regardless of whether it makes a profit or not. This fixed interest is the 'yield' for the person who lent the money.

Common mistake: Students often confuse debentures with shares and incorrectly choose option A, because they mix up the fixed interest paid to lenders (debenture holders) with the profit-based dividends paid to owners (shareholders).

National income, when measured using the income approach, sums up all the incomes earned from producing goods and services within a country. This includes wages, profits, and income from self-employment. However, student grants and scholarships are considered 'transfer payments' because they are not payments for any productive activity or service rendered. Since no goods or services were created to earn this money, it is excluded from the national income calculation.

Common mistake: Students might mistakenly choose 'Wages and salaries of public servants' because it involves the government, but these are payments for productive labour and are therefore included as factor income.

Total revenue is calculated by multiplying the price of a good by the quantity sold. The relationship between a price change and total revenue depends on the price elasticity of demand. The question and its correct answer imply that the demand for commodity X is inelastic, meaning consumers are not very responsive to the price change. Therefore, when the price falls, the increase in quantity sold is not enough to make up for the lower price, causing the seller's total revenue to fall.

Common mistake: Students often mistakenly choose 'increase' because they assume a lower price will always attract significantly more buyers, but this is only true when demand is elastic, not inelastic.

Deflation is a persistent fall in the general price level, which is the opposite of inflation. It is typically caused by a significant drop in total demand (also called aggregate demand) in the economy. When people, businesses, and the government collectively buy fewer goods and services, sellers are forced to lower their prices to clear their stock, leading to a general fall in prices.

Common mistake: Students often confuse the causes of deflation with inflation and might incorrectly choose 'An increase in aggregate demand', which actually leads to inflation (a rise in prices).

In a partnership, which is a type of business organization, there are different kinds of partners. A 'sleeping partner', also known as a silent partner, is an individual who provides capital (money) to the business but does not take part in the daily management or running of the organization. They still share in the profits and are liable for debts, but they are not actively involved.

Common mistake: Students may mistakenly choose 'Ordinary partners', but this is incorrect as ordinary or active partners are the ones who are fully involved in the day-to-day management of the business.

A sole proprietorship is a business owned and run by one person, which is why it is often called a 'one-man business'. Because there is only one owner, that single individual is responsible for providing the capital, managing the business, and making all the decisions. Therefore, the owner is the ultimate decision-maker.

Common mistake: Students might mistakenly choose 'Management' because they associate it with decision-making, but in a sole proprietorship, the owner and the management are the same person.

Taxes on essential goods, which everyone must buy, are a form of indirect tax. For lower-income earners, the money spent on these necessities makes up a very large portion of their total income. Therefore, the tax on these items takes a bigger percentage from their small income, making the burden heavier for them compared to the rich.

Common mistake: Students may mistakenly choose the 'Higher income group' because they generally associate paying more taxes with being wealthy, not realizing that for essential goods, the tax burden is proportionally greater on the poor.