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2020 NABTEB ECONOMICS ANSWERS
INSTRUCTION: Answer five (5) Questions in all.
Answer one (1) Question from PART I And Any other Four (4) Questions from PART II
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(ii) Value and Price
(iv) Stocks and Flows
(i) Value:- Ordinarily, the concept of value is related to the concept of utility. Utility is the want satisfying quality of a thing when we use or consume it. Thus utility is the value-in-use of a commodity. For instance, water quenches our thirst. When we use water to quench our thirst, it is the value-in-use of water.
(ii) Value and Price:- In common language, the terms value and price are used as synonyms (i.e. the same). But in economics, the meaning of price is different from that of value. Price is value expressed in terms of money. Value is expressed in terms of other goods. If one pen is equal to two pencils and one pen can be had for Rs.10. Then the price of one pen is N100 and the price of one pencil is N50
In common use, the term ‘wealth’ means money, property, gold, etc. But in economics it is used to describe all things that have value. For a commodity to be called wealth, it must prossess utility, scarcity and transferability. If it lacks even one quality, it cannot be termed as wealth.
(iv) Stocks and Flows:- Distinction may be made here between a stock variable and a flow variable. A stock variable has no time dimension. Its value is ascertained at some point in time. A stock variable does not involve the specification of any particular length of time. On the other hand, a flow variable has a time dimension. It is related to a specified period of time.
(v) Optimisation:- Optimisation means the most efficient use of resources subject to certain constraints it is the choice from all possible uses of resources which gives the best results, it is the task of maximisation or minimisation of an objective function it is a technique which is used by a consumer and a producer as decision-maker.
(i) Supply and demand.
(iii) Opportunity cost.
(iv) Time value of money.
(v) Purchasing power.
(Pick any five)
(iii) level of technology
(iv) Cost of production
(v) Government policy
(vii) price of other commodities
(viii) Natural disasters
(Pick any five)
(i) Weather:- If the weather of a particular area is favourable at a particular period, More agricultural products will be produced and their supply to the market will increase.
(ii) Price:- The higher the price of any commodity, the higher the quantity that will be supplied and vice versa.
(iii) Level of technology:- Improved techniques reduce cost per unit of product and increase output or supply.
(iv) Cost of production:- If the cost of production increases, The producer tends to produce a less of a commodity.
(v) Government Policy:- Government policy such as subsidy given to farmers, in the form of free importation of equipment can lower the production cost and increase supply.
(vi) Taxation:- An increase in taxation or materials used in production may discourage proproduction, thereby leading to reduction in supply and vice versa.
(vii) Price of other commodities:- The supply of a commodity will be affected if the prices of other commodities rise. If the price of a substitute like maize increases, thr quantity of rice produced will fall.
(viii) Natural disasters:- A plague of insects, flood, war, drought or fire will negatively affect the supply of commodity.
– increase land productivity by facilitating timeliness and quality of cultivation;
– support opportunities that relieve the burden of labour shortages and enable households to withstand shocks better;
– decrease the environmental footprint of agriculture when combined with adequate conservation agriculture practices; and
– reduce poverty and achieve food security while improving people’s livelihoods.
The law of diminishing marginal returns states that we successive units of a variable factor(e.g Labour or capital) is applied to a given fixed factor (e.g Land), output will increase at first but it will get to a point at which the addition of one more unit of the variable factor will result in less additional units of output.
(i) When Average Product is rising, Marginal Product lies above Average Product.
(ii) When Average Product is declining, Marginal Product lies below Average Product.
(iii) At the maximum of Average Product, Marginal and Average Product equal each other.
(i) Proper combination of factorw of production:- The law of diminishing returns helps the entrepreneur to combine properly tbr factors of production to prevent wastage.
(ii) Changes in scale of production:- The law of diminishing returns helps entrepreneurs to change the scale of production through the variation of the quantities of all input.
(iii) It ensures efficiency:- As more and more variable factors are added to a fixed factor, it eventually comes to a profitable level and productivity and efficiency are maintained.
Monopoly Means a market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition As he is the sole seller of goods with no close substitute.
(i) Economies of Scale:- Economies of scale occur when increased output leads to lower average costs. Therefore new firms with relatively low output will find it difficult to compete because theirs average costs will be higher than the incumbent firms benefiting from economies of scale.
(ii) Natural/Geographical Barriers e.g Zimbabwe has 85% of the world supply of Chromium. If you don’t have oil in your country, you can’t enter the oil market. Geographical barriers could be more local. if you don’t have access to a good location for a theatre in say Covent Garden, It creates a barrier to entry.
(iii) Brand loyalty through advertising:- Developing consumer loyalty through establishing a strong brand image can deter entry. With a very strong brand image a new firm would have to spend a lot of money on advertising which is a sunk cost and a deterrent to entry. Some brands may be so strong that no amount of advertising may be able to dislodge the incumbent firm. For example, many firms have tried to enter the cola market, but none have been able to dislodge Coca-Cola and to a lesser extent Pepsi.
(iv) Limit Pricing:- This occurs when a firm sets price sufficiently low to deter entry. A monopoly may engage in limit pricing even though it means fewer profits, it prefers to keep prices lower to prevent competition. It is related to economies of scale.
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