The main reason for the existence of a market is to
Markets exist primarily to enable the exchange of goods and services between buyers and sellers, allowing specialization and efficient resource allocation in an economy.
Which of the following is a feature of a command economy?
In a command economy, the government centrally plans production, distribution, and pricing to achieve social and economic goals, contrasting with market-driven features like private ownership and competition.
An increase in the price of a substitute good will
Substitute goods can replace each other; a price increase in one shifts demand to the cheaper alternative, increasing demand for the related good, as measured by positive cross elasticity of demand.
A decrease in the supply of a good may be caused by
Higher input prices raise production costs, shifting the supply curve leftward and decreasing supply at every price level, unlike factors that expand supply like technology or subsidies.
Cross elasticity of demand measures the responsiveness of demand for one good to a change in the
Cross elasticity of demand is calculated as the percentage change in quantity demanded of good X divided by the percentage change in price of good Y, indicating substitutability or complementarity.
If the cross elasticity of demand is negative, the goods are
Negative cross elasticity means the demand for one good decreases when the price of the other rises, typical of complementary goods used together, like tea and sugar.
A firm will shut down in the short run if
In the short run, if total revenue cannot cover total costs (TR < TC), the firm minimizes losses by shutting down, as continuing operations would incur greater losses than fixed costs alone.
Which of the following is a renewable resource?
Forests are renewable because trees can be replanted and regrown naturally or through management, unlike non-renewable fossil fuels like coal, oil, and natural gas that deplete over time.
The sunk cost in production refers to
Sunk costs are irrecoverable expenditures already made, irrelevant to future decisions, such as research costs on a failed project, distinguishing them from recoverable fixed or variable costs.
In a monopolistic competition, firms differentiate their products through
Monopolistic competition features many firms selling differentiated products via advertising and branding to create perceived uniqueness, allowing some price control despite competition.
Deflation is a situation where
Deflation is a sustained decrease in the general price level, often leading to reduced spending and economic contraction, opposite to inflation where prices rise.
Which of the following is a tool of fiscal policy?
Fiscal policy involves government spending and taxation to influence the economy; government expenditure directly affects aggregate demand, unlike monetary tools like open market operations.
The current account in the balance of payments includes
The current account records transactions in goods (visible trade), services (invisible trade), income, and unilateral transfers, reflecting a country's trade performance.
A country experiences a trade surplus when
Trade surplus occurs when the value of exports exceeds imports, contributing positively to the current account and indicating a net inflow from trade.
Revaluation of a currency is likely to
Revaluation appreciates the domestic currency, making exports more expensive for foreigners and thus decreasing export volume, while imports become cheaper.
The largest component of government expenditure in most countries is
In many developing countries like Nigeria in 2018, infrastructure receives the largest capital allocation within government spending to support economic growth and development.
A regressive tax system is one where
Regressive taxes take a larger percentage of income from low-income earners as the rate or burden decreases with rising income, like sales taxes on essentials.
Which of the following is a demerit of direct taxes?
Direct taxes, such as income tax, are prone to evasion through underreporting, requiring costly administration, unlike indirect taxes embedded in purchases.
The benefits of large-scale production include
Large-scale production allows economies of scale, lowering average costs through specialization, bulk purchasing, and efficient resource use, enhancing competitiveness.
An oligopoly is a market structure with
Oligopoly features a small number of large firms dominating the market, leading to interdependence in pricing and output decisions, often with barriers to entry.
The Human Development Index (HDI) measures
HDI assesses standard of living through life expectancy, education, and per capita income, providing a broader measure of human development beyond just economic growth.
Frictional unemployment occurs due to
Frictional unemployment is short-term, arising from workers voluntarily moving between jobs or entering the labor market, reflecting normal labor market dynamics.
The accelerator principle relates to
The accelerator principle posits that investment levels accelerate with changes in output; a rise in output induces proportionally greater investment to meet future demand.
A balanced budget occurs when
A balanced budget is achieved when total government revenues (mainly taxes) equal total expenditures, avoiding deficits or surpluses.
The lender of last resort function is performed by the
The central bank acts as lender of last resort, providing emergency liquidity to solvent but illiquid commercial banks to prevent systemic financial crises.
Credit creation by banks is limited by the
The cash reserve ratio (CRR) mandates banks to hold a fraction of deposits as reserves, limiting the money multiplier effect and thus credit creation potential.
The exchange rate regime where the value is fixed by the government is called
In a fixed exchange rate regime, the government or central bank pegs the currency to another currency or asset, intervening to maintain the rate's stability.
An increase in foreign aid may lead to
Foreign aid inflows increase money supply without corresponding output growth, potentially causing demand-pull inflation, especially if not productively invested.
A common feature of developed economies is
Developed economies are characterized by advanced infrastructure supporting high productivity, technology, and services, contrasting with agriculture-heavy developing economies.
The main goal of the International Monetary Fund (IMF) is to
The IMF fosters global monetary cooperation, financial stability, and sustainable economic growth by promoting exchange rate stability and facilitating international trade.
A tariff is a
Tariffs are taxes imposed on imported goods to protect domestic industries, raise revenue, or influence trade balances, increasing import prices.
The law of increasing returns applies when
The law of increasing returns (diminishing marginal returns inverse) states that adding more variable inputs to fixed factors initially increases output more than proportionally due to specialization.
A duopoly market has
A duopoly is a special case of oligopoly with exactly two dominant sellers, leading to strategic interdependence in pricing and output.
Peak pricing is a strategy used to
Peak pricing charges higher prices during high-demand periods to reduce consumption at those times, allocate scarce resources efficiently, and shift demand to off-peak periods.
A firm’s profit is maximized when
Profit maximization occurs where marginal revenue (MR) equals marginal cost (MC), as producing beyond this point adds more cost than revenue, reducing profit.
An increase in the minimum wage is likely to
Minimum wage above equilibrium creates labor surplus, increasing unemployment among low-skilled workers, as firms hire fewer at higher wage costs.
An example of an intermediate good is
Intermediate goods like steel are used in producing final goods (e.g., cars), not sold directly to consumers, unlike consumer goods like bread or furniture.
The principle of consumer sovereignty implies that
Consumer sovereignty means consumers' preferences, expressed through demand, dictate what producers make and supply in a market economy.
A rise in interest rates will most likely
Higher interest rates raise borrowing costs, discouraging investment in capital projects, while encouraging savings; the investment effect is more pronounced in macroeconomic models.
Which of the following measures can be adopted to stabilize the external value of the local currency?
Reducing the demand for imports decreases the need for foreign exchange, thereby supporting the value of the local currency and stabilizing its external value in the foreign exchange market.
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