# ECONOMICS PAST QUESTIONS 1978

1. Suppose that the equilibrium price of an article is N5.00 but government fixes the price by law at N4.00, the supply will be A. The same as the equilibrium supply B. Greater than the equilibrium supply C. Less than the equilibrium supply D. Determined later by the government E. None of this The answer is C Note: The law of supply states that the higher the price the higher the quantity supplied and vice versa. So when price falls supply will also fall that make us pick option C because the supplier is willing to supply at a higher price rather than a lower price See the you tube link for understanding see the you tube link for proper understanding: 1978,Q1 https://youtu.be/p8MgO7WixpI
2. A budget deficit means A. that a country is buying more than it is selling B. that a country is selling more than it is buying C. a government is spending more than it takes in taxation D. a government is spending less than it takes in taxation E. a government is spending as much as it takes in taxation The correct answer is C Notes: This question is on public finance. There are three types of budget first is surplus budget this is when the revenue of the government is greater than the expenditure during a fiscal year. The question can be twisted as when the difference between government revenue and expenditure is positive what type of budget is the country operating? of course it is a budget surplus. Next is the budget deficit which is a type of budget in which government revenue is less that its expenditure or you say the difference between revenue and expenditure is negative. Finally the balance budget where revenue and expenditure are equal or the difference between revenue and expenditure is zero. so option D is budget surplus and option E is balance budget.
3. the answer is option B. 1978, copy/click the link: Q3 https://youtu.be/IsTphC7wqQw
4. When elasticity is zero, the demand curve is A. perfectly elastic B. Perfectly inelastic C. concave D. downward sloping E. Circular The answer is B This testing your knowledge of price elasticity of demand. Options C and E are out of it. Option D is the demand curve or you indifference curve. Perfectly elastic coefficient is infinity and the graph is a straight horizontal line which implies if price changes the consumers can clear the available unity of the commodity. Perfectly inelastic coefficient is zero. This implies that no matter how cheap the commodity is the consumers won’t change the units purchased and the graph is a vertical straight line.

5. The following is not a reason for the existence of small firms A. Scale of production is limited by market size B. Expansion bring diminishing returns C. large firms can cater for wide markets D. small firms can provide personal services E. All of the above

The correct answer is B. it is not all firms that witness diminishing returns. It is only firms in the agricultural sector that witness diminishing returns.

Notes: Diminishing returns holds in the short run. It is sometimes called the law of variable proportion. The law that holds in the long run is the law of return to scale.

The short run is a period where there is at least one fixed factor (Land) other factors of production are variable. The long run is a period where all factors of production are variable (This is when the firm is undergoing expansion)

6. Inferior goods are defined as in Economics as A. whose quality is low B. Consumed by the poor C. whose consumption fall when consumer income increases D. Which satisfy only the basic needs E. None of the above

The correct answer is C. Inferior goods are goods whose demand or consumption fall as income increases or you say commodities whose demand have negative relationship with the consumer’s income

Note: Interpretation of YED (income elasticity of demand) is as follows

Where:

1. Coefficient of YED is positive the commodity is a normal commodity. If the value of coefficient is less than 1 (E<1) the commodity is a necessity and if the coefficient is greater than 1 (E>1) the commodity is a luxury.
2. Coefficient of YED is negative the commodity is an inferior commodity. A normal commodity is a commodity whose demand increases as income increases

7.  Malthus became famous through his theory which may be stated as A. the death rate may become so high that people may not be able to produce B. population may outgrow sustenance C. People will eventually decide not to have children D. migration of people from one place to another may leave some parts of the world barren E. all of the above

The correct answer is B. According to the Malthusian theory population will grow at a geometric rate and food will grow at an arithmetic rate.

Quick reasoning: food will increase for example 2,4,6,8 …. and population will increase as 2,4,8,16,32 … food is increasing by an addition of two while population is increasing by a multiple of 2 (times 2)

8.  A commercial bank is unique in that it is the only institution that A. makes loan to private people and businessmen  B. accepts deposit C. can  store people’s valuables  D. can transfer money from one place to another for its customers  E. save money through the granting of credits

A is the correct answer. Although other options like B, C and D are likely answer but other financial institution perform those functions for example the central bank is a banker to the government and to the banks as well.

Notes:  commercial bank creates money by advancing loans this is what is known as the money multiplier which is given as A × 1/R where a is the initial deposit and R is the reserve requirement. For example if the initial deposit in a bank is 1000 NGN and the reserve ratio is 10% what is the total credit created by the bank from the initial deposit?

Find the multiplier 1/0.1 which give 10 (recall that 0.1 = 10/100)

Total money created is 10 × 1000 which 10,000 NGN

9. Which is an example of an invisible item in the trade account of Ghana   A. Export of cocoa from Ghana B. Import of oil from Nigeria   C. a gift of Peugeot 504 by a firm in Nigeria to another firm in Ghana D. Payment for shipping and insurance by Ghanaian company to companies outside Ghana   E. none of the above

The correct answer is D. Invisible trade includes those items that can’t be felt or touched this are service and insurance and shipping fall within this category.

10. Which is not a direct effort to increase agricultural production in Nigeria? A. operation feed the nation B. National youth service corps C. Increased loans to farmers and cooperatives D. Research in agriculture and extension services  E. mechanization of agriculture

The correct answer is B. NYSC was not a deliberate attempt to improve agriculture but to reintegrate Nigerians after the civil war. This was established by Gowon Regime in 1973. Other options are direct efforts and operation feed the nation was established by the Obasanjo regime in 1976.

11. if a company doubles all its inputs and discovers that its output more than double, we say that the company is experiencing  A. increasing marginal utility B. diseconomies of scale C. Increasing costs D. constant return to scale  E. increasing return to scale

The correct answer is E. This question is related to the return to scale which is divided in to increasing return to scale, this is when an increase in inputs leads to a greater change in output. Constant return to scale occurs when output changes as the same proportion of changes in inputs and finally decreasing return to scale occur when output changes  less proportionately than input  change.

12. Price control cannot work in Nigeria because A. population is too large B. the policemen hate to arrest people C. while it is fairly easy to control producers and importing firms, the small distributors are too many to be controlled  D. control cannot work under a military regime  E. too many things are produced in the country.

The correct answer is C. Price control is also called price legislation. This is the act of fixing prices of essential commodities by the government. However, this needs proper monitoring for people to comply which is practically difficult

13.   A country has a surplus in his its balance of visible trade if A. the value of imports exceeds the value of exports B. the value of exports exceed the value of imports of goods C. the value of goods exported is equal to the value of goods imported D. it is able to spend a lot on capital programme E. commercial banks assets increase

The correct option is B. the idea here is to see export as selling and you receive income and see import as buying and you pay money, then surplus as when the income earned is more than the money paid for goods.

14. The foreign exchange market is a market where A. graded commodities are like wheat, coffee etc are sold and bought B. Currencies are sold and bought C. treasury bills are bought and sold  D. government bonds are sold and bought E. Treasury certificate are sold

The correct option is B. This is usually called the forex market. Option A is the commodity exchange market, option D is related to the capital market and option C and E relates to the money market.

The capital market is a market where long term securities are sold and bought and the money market is a market where short term securities are sold and bought.

15. Which of the following financial assets consist the lowest rate of interest in Nigeria?  A. Commercial bills B. Call money C. Treasury bills D. Development loan stock E. Deposit with the federal government

The correct option is D. Note: Options A & B are money market instruments

16. The effects on the demand for product A caused by a change in the price of product B is called A. cross elasticity of demand B. elasticity of supply C. competitive demand D. composite demand E. joint demand

The correct option is A. Note: when you see a question about the response of demand/supply or the effect on demand/supply on of a change in a variable (price of the commodity, income or price of other commodities) it is most likely it is on elasticity. If the variable causing the change is the price of the commodity it is price elasticity of demand (PED), if it is income of the consumer it is income elasticity and if it is the price of another commodity then it is cross elasticity of demand (CED).

17. Which of the following can be regarded as a liability of the commercial bank? A. Advances B. Deposits C. Treasury bills D. over drafts E. cash

The answer is B. the deposits with commercial banks is not for the bank but for the public and if the bank cannot present it when requested by the account holder then the customer can sue the bank. This the reason why in accounting your bank statement usually record your income as credit, they have actually credited the money because it is not for them (Bank). Note advances are loans given by the bank.

18. Tax which takes a higher percentage from higher incomes is called A. a regressive tax B. a progressive tax C. a proportional tax D. an indirect tax E. a direct tax

The answer is B. this question is under the method of taxation. This include progressive tax where the higher you earn the higher your tax liability, the Pay As You Earn (PAYE)  system is a very good example. Next is the regressive tax where the tax liability of a person is lower for higher income earners and finally the proportional tax system which takes equal proportion from every person.

19. Which of the following statements is true? A. a proportional tax is one which takes from high income people a larger fraction of their income B. Taxes on commodities or services which can be shifted elsewhere are usually called direct taxes  C. the sole proprietor is a legal entity D. the influence of demand on price will be the smallest in the short run E. The cost of production is the most important determining factor of supply in the long run

The correct answer is E. option A is incorrect read the explanation in question 18, option B is indirect taxes and not direct taxes, option C is wrong, a sole proprietorship is not a legal entity in fact a major characteristics of sole proprietorship is no formality is require that is why people do not have to register before they start petty trading. Option D should have been the other way round, recall that demand is a function of price or you say it depends on price.

20. The largest liability appearing on the books of a commercial bank is A. Cash  B. deposits C. loans and advances D. Capital  and reserves  E. Treasury bill

The correct answer is B.  All other opsins represents capital and assets to the business but only deposit is a liability. See the explanation of question 17.

21. The Lagos clearing house is A. a commodity market B. an import licensing center C. another name for Nigeria Stock Exchange D. an insurance and underwriting center E. a cheque sorting center

The answer is E. A clearing house is an institution in which banks settle their indebtness to one another. Did you know that if you are issued a first bank cheque and you use GTB, you could cash the money in GTB and the cheque will be sorted out between the two banks

22. The biggest source of government revenue in Nigeria is A. mining, rents and royalties B. company tax C.  Import duties D. export duties E. petroleum profit tax

The answer is E. petroleum is the major source of income to the government. This is what is now called the driver of the Nigerian economy by contemporary literature.

23. An increase in liquidity reserve requirement by the CBN will result in A. a reduction in commercial banks excess reserve B. More commercial bank loan to members of the public C an increase in commercial banks excess reserve D. no change in commercial banks’ excess reseves E. a reduction central bank gold reserves

The correct option is A. the liquidity (cash) reserve ratio is the amount of the commercial bank’s deposits that must be banked with the central bank. This is a tight or contractionary monetary policy it is aimed at reducing the amount of cash available to the commercial bank for the, to lend the public

24. A distinguishing characteristics of a consumer cooperative is the fact that A. the customers are the owners B. the customers are the workers C. the customers are the managers D. the customers are low income earners D. the customers are high income earners

The correct option is A.

25.  Disposable income is the same thing as A. personal income minus personal savings  B. personal income minus taxes C. national income minus depreciation D. exports minus imports E. savings plus investment

The correct option is B. this is also defined as income viable for consumption and savings after deducting direct taxes

26. Marginal cost is  A. the lowest cost of producing goods B. the cost of production of the most efficient firm in an industry D. the cost of last or extra goods produced by a firm E. the cost of production at the Minimum profit obtained by the firm

The answer is D. The marginal cost is the extra cost of increasing output by one more unit. T is mathematically expressed as MC = ∆ in TC/ ∆ in Q

27. Which of the following is not a form of business organization A. sole proprietorship B. cartel C. partnership D. joint stock E. cooperative society

The correct option is B. a cartel is an association of producer selling similar commodity with an intention of obtaining favorable prices for its members.

28. As consumption of beer increases utility of the drinker will A. increase B. remain constant C. fluctuate D. decrease E. change proportionately

The answer is D. This is the based on the law of diminishing returns which states that as consumption increase utility will reduce because of successive units consumed.

29.  Which of the following sector of the economy is estimated to be the largest employer of labor in Nigeria A. Construction B. Agriculture C. Distribution D. Mining and petroleum E. Transport and communication

The correct option is B. Agriculture has always being the mainstay of the Nigeria economy because it employs many rural dwellers

30. The expression of terms of trade is used to describe A. the quality of exports B. the direction of foreign trade C. terms of purchase on deferred payment basis D. the rate at which a exports exchange for imports E. import licensing

The correct answer is D. terms of trade is given by the formula TOT = Index of export /index of import × 100%

31. if the demand for a product with a perfectly elastic supply increases, there will be A. an increase in price and quantity offered B. an increase in quantity offered but price will remain the same C. a reduction in price and quantity offered D. an increase in price but a reduction in quantity offered for sale E. an increase in quantity offered but a reduction in price

The answer is B. a perfectly elastic supply is said to have a fixed price while perfectly inelastic supply have a fixed quantity

32. which of these would not be included in the fundamental principles of a free enterprise economy A. private ownership of factors of production B. the right to organize factors for productive purposes C. the right to make private profit D. government’s control of the mobility  E. government efforts to encourage competitive capitalism within laws of the country

The answer is D.  The fundamental ideology behind capitalism is private ownership of property.

33. Economics is called a social science because it is A. a branch of the social studies B. a study of the ways man advises to satisfy his unlimited wants from limited resource C. a dismal science in Malthusian sense D. governed by scientific laws E. the study of human by means of scientific methods of observation

B is correct. The major reason why economics is important because it helps to allocate scarce resources. The study of economics involves how man faces economic problems and how this problems are resolved.

34. Opportunity cost is a term which describes   A. the initial cost of setting up a business venture B. cost of one product in terms of forgone production of others C. the monetary equivalent of utility of a commodity D. costs related to an optimum level of production E. implicit cost

The answer is B. these are the alternatives forgone, that is the wants left unsatisfied because of limited resources. Note that the opportunity cost is also called true cost or real cost. Also opportunity cost is the next best alternative. For example the opportunity cost of a pencil cannot be a house because the money of a pencil cannot buy a house.

35. If the consumer demand for product X increases as the price of product Y decreases, we can be fairly certain that A. X and Y are complementary goods B. X and Y are substitute goods C. X and Y are independent goods D. X and Y are jointly demanded supplied E. X and Y Rare inferior goods

The correct answer is A. The ideology here is to ascertain if the final answer will be negative or positive. The fact that the price decreases will give a negative sign (% change in price) and the numerator is positive because it increases. Therefore we have a negative sign at the bottom and a positive sign at the top.

Let us do some mathematics reminder

+ × – = –                          + ÷ – = –

– × + = –                          –  ÷ + = –

– × – = +                         +  ÷ + = +

+ × + = +                       –  ÷ – = +

Simple summary is that for multiplication and division give the same answer. Note if the signs are the same it will be plus and if the signs are different it will be minus.

Therefore from the interpretation of the coefficients of cross elasticity the commodities are complementary.

36. Which of the following items in the balance of payment account in an invisible transaction? A. import of cars B. export of cars C. export of crude oil D. tourism E. import of building materials

37. which of the following is a term used to describe a payment representing a surplus in excess of transfer costs? A. interest rates B. opportunity costs C. economic rent D. indirect cost E. wages

The answer is C. economic rent occur when a factor earns above his fair reward.

38. Less developed countries obtain foreign reserves mainly from export of A. manufactured goods B. processed and semi-finished goods C. invisible item D. primary products E. all the above

The answer D. African countries export raw materials which are unprocessed.

39. By ‘trade by barter’ we mean A. trade done by people in village B. exchange of goods for money International trade D. exchange of goods for goods E. the trade of middle ages

The answer is D. trade by barter is the exchange of goods for good and services for services

40. In order to build up its capital stock, the typical less developed country should ideally  A. increase total savings B. depend on handouts from foreigners C. nationalize all foreign concerns D. impose tariffs on imports E. none of above

The answer is A. in order for the capital stock to be built up, savings must be accumulated over time and this savings invested over time.

41. The advantage of sole proprorship is as follows A. it is always successful B continuity is no problem C. control and supervision is under one man D. funds are easy to obtain E. inter-generational equity is assured

The answer is C. option B is not correct because mist times the death of the sole proprietor will lead to the end of the business

42. Which of these should determine, in a planned economy, how the factors of production are to be allocated among different production activities? A. fairness B. the distribution of income and wealth C. public need, which is determined by the government D. private needs determined by the market E. the ability of an individual to make profit

The answer is C. planned economy is a socialist economy. This is an economy in which the government solves the basic economic problems

43. Which of the following activities of the government precludes the existence of a market economy? A. The imposition of taxes B. the control of location of industry C the central planning of all production D. the fixing of maximum prices for all necessities E. the establishment of laws requiring the registration of business firm.

The answer is C.  A centrally planned economy is controlled by the government

44.  Which of the following is not strictly included in the study of Economics A. The study of wants B. The study of choice C. whether a particular want satisfies a good or bad purpose D. the study of scarcity E. the study of substitution

The correct option is C. other options include the basic economic concepts

45. Which of these would not increase the population of a country? A. increase in death rate B. decrease in birth rate C. emigration D. migration E. better medical facilities

Option A is correct. Note death rate is mortality rate and birth rate is natality rate. Increase in  death will reduce the population

46. The optimum population of a country is reached when A. all factors of production have been fully employed B. the productive effort per man at its highest with a given volume of resources C. the total population of a country increases D. the natural resources of a country increases E. the working population of a country increases

The correct option is A. there are three categories of population first under population which is a type of population in which the resources in the country is more than the people or you say that the resources are underutilized or under employed. Next is the optimum population which is a type of population in which the resources can cater for the population of the country or equal to the resources available is equal to the population, and finally over population where the people are more than available resources

47. In economics, production is complete when A. goods are produced in the factory B. goods are sold to the wholesaler C. goods and services are produced by the government D. prices are fixed for goods and services E. goods and services finally reach the consumer

The correct option is E. the end of production is consumption i.e. the reason why goods and services are produced is to satisfy human need by consuming it. Invariably the goods must reach the final consumer before consumption can take place

48. A rational consumer will adjust his spending pattern so that A. he buys only the one item that gives him the most the most total satisfaction B. the marginal utility he gets from the last unit of each item is the same C. the marginal utility he gets from the last naira spent on each item is the same D. the total utility he gets from each item is the same E. the total amount of money spent on each item is the same

The answer C. This is the utility maximization condition. A rational consumer is a consumer that consumes goods that will give him the maximum satisfaction. For utility the extra satisfaction (marginal utility) must be equal to the last naira spent by the consumer. Therefore the utility maximization condition can be written mathematically as MUX  =  PX  this is when a consumer is consuming one commodity which is called monomania but if he is consuming two commodities the utility maximization condition becomes:

MUX =  MUY

PX          PY

49. Bondholder are treated more  favorably than shareholders because A. they are not liable for company’s losses B. they have a greater voice is electing board of directors C. they control the management D. they have a prior claim on the company’s assets E. none of the above

The answer is D. bondholders are creditors to the company and in the event of liquidation they are settled first and if the firm fails to settle them, they can lay claim on the assets of the business. A corporate bond is a means through which companies raise funds.

50.  The numerical measure of elasticity is

A. % ∆ in Q       B.  Change in Q       C.    % ∆ in P       D. Change in P      E. Change in P plus change in Q

% ∆ in P                Change in P              % ∆ in Q             Change in Q                     change in Q

The correct answer A. recall that the definition of elasticity is the degree of responsiveness of demand/supply to changes in factors affecting or determinants of demand. The fact that we have included degree we must put percentage. Note we can’t use 360 degree here because it relates more to temperature which is scientific but percentage is more appropriate for monetary comparison