Post-UTME Economics 2011 Past Questions & Answers

Economics is founded on the problem of unlimited human wants versus limited resources, which is known as scarcity. Because of scarcity, we are forced to make a choice. To make a rational choice, we arrange our needs in order of importance, creating a scale of preference, and the item we give up for another is the opportunity cost. Option B is the only one that completely lists all these fundamental and interconnected concepts.

Common mistake: Students often choose option C because it lists the three most famous concepts, but it is incomplete without the related ideas of scale of preference and opportunity cost which explain how choices are made and measured.

In economics, human wants are the desires for goods, services, and leisure that people have. A fundamental principle is that these wants are 'insatiable,' which means they are unlimited and can never be completely satisfied. Once one want is fulfilled, another one always emerges, creating a continuous cycle of desires.

Common mistake: Students may choose 'many' or 'numerous' because wants are indeed many, but 'insatiable' is the specific economic term that captures the idea that they are endless and cannot be fully satisfied.

Due to the problem of scarcity, every society must answer three fundamental economic questions: what goods and services to produce, how to produce them, and for whom they should be produced. These questions address the allocation of limited resources to satisfy unlimited wants. 'Where to produce' is a question about the location of production, which is important for businesses, but it is not considered one of the core economic problems facing an entire society.

Common mistake: Students might mistakenly believe 'where to produce' is a fundamental problem because location is an important business decision, but it is not one of the three core questions all societies must answer due to scarcity.

An economic system refers to the complete framework a society uses to manage its resources and answer fundamental economic questions like what, how, and for whom to produce. Option A is the best answer because it correctly identifies that an economic system is a comprehensive arrangement that controls both the production of goods and services and their eventual consumption. The other options only describe parts of what an economic system does, not the whole system.

Common mistake: Students often mistakenly choose options like D because they focus on just one part of the system, like how resources are used for production, forgetting that a complete economic system also governs consumption and distribution.

A free market economy, also known as capitalism, is an economic system where private individuals and businesses own resources and make decisions. Key features of this system include private ownership of property, competition among firms, and the goal of profit maximization. Joint decision-making by all citizens is a feature of a command or socialist economy, where the government or a central body makes economic decisions for the society, making it the correct exception.

Common mistake: Students may mistakenly choose options like A or C because they are true features of a free market economy, forgetting that the question asks for the option that is NOT a feature.

A capitalist society is a type of economic system where private individuals own and control the means of production. In this system, decisions about what to produce and what to consume are guided by the price system, which is the interaction of demand and supply. High prices signal to producers to make more and consumers to buy less, while low prices do the opposite, thereby regulating the market.

Common mistake: Students might mistakenly choose 'demand for the commodity' because demand is a key driver, but they forget that the price system also incorporates the equally important role of supply to fully regulate the market.

Socialism is an economic system where the government controls major resources to ensure fairness for all citizens. Therefore, equitable distribution of resources and income, and the absence of worker exploitation are seen as its main advantages. However, socialism often struggles to promote a high standard of living because the lack of competition and profit motive can lead to inefficiency and slower economic growth compared to market economies.

Common mistake: Students may mistakenly believe that the goal of equitable distribution in socialism automatically leads to a high standard of living for everyone, confusing fairness with high levels of wealth.

Marginal Product (MP) measures the additional output produced when one more unit of a variable input, like an extra worker, is added while other inputs are kept constant. The correct formula to calculate this is the change in total product divided by the change in the variable factor. Therefore, option B is the precise definition of Marginal Product.

Common mistake: Students often mistakenly choose option A, which defines Average Product (AP), confusing the concept of an 'average' with a 'marginal' or additional unit.

Division of labour is limited by factors like the size of the market, as you can't specialize to produce goods nobody will buy, and the nature of the product, as some jobs cannot be easily broken down. However, the availability of capital is not a limitation; in fact, capital (money for machines and tools) is necessary to make division of labour and specialization possible in the first place.

Common mistake: Students might mistakenly choose option C, thinking interdependence is a good thing, but it is considered a limitation because the absence or mistake of one worker can stop the entire production line.

Internal economies of scale are the cost advantages a single firm enjoys when it increases its production size. These include financial economies (getting cheaper loans), technical economies (using better machines), and marketing economies (bulk buying and advertising). 'Administrative economics' is not a recognized type of internal economy of scale; in fact, as a firm grows too large, it can suffer from administrative diseconomies, which are management problems that increase costs.

Common mistake: Students may mistakenly choose 'market economics' because the term sounds very broad, but it refers to marketing advantages like bulk buying and advertising, which are valid internal economies of scale.

Marginal cost is the additional cost a business incurs when it decides to produce one more unit of its product. Option B correctly states this definition, as it is the cost of producing one extra unit of a commodity. The other options are incorrect because they define different cost concepts: option C defines total cost, and option D is another name for fixed cost.

Common mistake: Students often mistakenly choose option C because they confuse marginal cost (the cost of one more unit) with total cost (the sum of all fixed and variable costs).

Variable costs are expenses that change directly with the level of production. For instance, the more goods a company makes, the more it spends on raw materials and electricity. A fixed cost, on the other hand, remains the same regardless of output, like rent or the cost of machinery. Since the cost of a machine does not change whether you produce a little or a lot, it is a fixed cost, not a variable one.

Common mistake: Students might mistakenly choose 'salaries and wages' because salaries can be fixed monthly payments, but they forget that wages for production workers often vary directly with the amount of work done or hours worked.

A market demand schedule shows the total quantity of a good that all consumers in a market are willing and able to buy at different prices. Option C describes an individual demand schedule, which focuses on the buying habits of just one single consumer. Since a market demand schedule is the sum of all individual demands, the statement describing a single consumer's purchases is the one that is not true for the entire market.

Common mistake: Students may fail to differentiate between a market demand schedule (for all consumers) and an individual demand schedule (for one consumer), leading them to overlook that option C perfectly describes an individual schedule, not a market one.

Elasticity of supply measures how responsive the quantity of a good supplied is to a change in its price. Supply is considered inelastic when a change in price leads to a smaller percentage change in the quantity supplied. This is represented by a coefficient of elasticity that is greater than 0 but less than 1. Therefore, 0.5 is the correct answer as it falls within this range.

Common mistake: Students often confuse inelastic supply with perfectly inelastic supply, leading them to incorrectly choose 'zero' which represents a situation where quantity supplied does not change at all regardless of price changes.

Price legislation refers to laws passed by the government to control the prices of goods and services, instead of letting market forces (demand and supply) decide. This is usually done by setting a maximum price (price ceiling) or a minimum price (price floor) for essential items. Therefore, the government fixing the prices of essential commodities is the correct definition of this concept.

Common mistake: Students might mistakenly choose option B, but 'price legislation' specifically refers to control by the government through law, not just any general form of price control that could exist in a market.