HIDDEN FACTS

IN
SSCE
ECONOMICS

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 CONTENT PAGES
Preface ix
Chapter Three
Chapter One Economic System 33
Definition and Scope of Economics 1 Other Related Concepts 33
Scope of Economics 2 Review of Economic Problems of Society 33
Basic Concept of Economics 3 Importance of Economic System 33
Production Possibility Curve 5 Types of Economic System 34
Economic Activities 8 Capitalist or Free Market Economy or Laissez Faire 34
Channels of Distribution 8 Socialist/Controlled or Centrally Planned Economy 35
Classification of Economic Activities 8 Communism 36
Basic Economic Problems of Society 9 Mixed Economy 37
Efficiency of Resources Use 9 Chapter Four
Economic and Non-Economic Resources 10 Basic Tools of Economic Analysis 42
Approaches for Solving the Basic Economic Introduction 42
Problems Under Various Economic System 10 Mathematics, Statistics and their Uses in Economics 42
The Basic Economic Goals of the Society 10 Statistics 42
Importance of the Study of Economics 11 Uses of Mathematical Tools 42
Tables 42
Chapter Two
Uses and Advantages of Table in Economics 42
Factors of Production 19
Types of Production 19 Features of a Good Table 42
Factors of Production 20 Graphs 43
Guidelines on the Construction of Graphs 45
Land 20
Chart 45
Labour 20
General Hints on How to Construct Bar Chart 45
Characteristics of Labour 21
Importance of Labour 21 Pictograms 54
Efficiency of Labour 21 Histogram 54
Pie Chart 60
Factors Influencing the Efficiency of Labour 21
Formula for Calculating Pie Chart 60
Importance of Efficiency of Labour 22
Hints on how to Draw Pie Chart 60
Causes of Low Efficiency of Labour 22
Suggestion for Improving Efficiency 22 Characteristics of Pie Chart 60
Capital 22 Measures of Central Tendency (mean, median and mode) 63
Measures of Dispersion 72
Characteristics of Capital 22
The Range 72
Importance of Capital 22
The Mean Deviation 73
Types of Capital 22
Wealth 23 Standard Deviation 74
Poverty 23 Variance 74
Relationship Between Wealth and Capital 23 Chapter Five
Capital Formation and Accumulation 23 Demand 78
Process of Capital Formation 23 Demand Laws 78
Stages in Capital Formation 24 Demand Curve and Schedule 79
How the Problem of Viscious Circle can be solved Demand Schedule 80
(How Capital Can be Accumulated) 25 Types of Demand Schedule 80
Reasons for Low Capital Formation in West Africa 25 Preparation of a Demand Schedule 80
Capital Consumption 26 Types of Demand 82
Entrepreneur 26 Changes in the Quantity Demanded (Movement Along
Characteristics of Entrepreneur 26 A Demand Curve) 84
Functions of Entrepreneur 26 Factors Responsible for Expansion and Contraction of
Meaning of Products 27 Demand 84
Factors Determining the Level of Production 27 Changes in Demand (Shift in Demand Curve) 84
The Production Function 29 Factors Determining Demand 85
Isoquant 30 Elasticity of Demand 86
Characteristics of Isoquant Curve 30 Importance of Elasticity of Demand 89
Demand Function 90
Factors Determining Elasticity of Demand 95
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Chapter Six Effect of a change in Demand on Equilibrium Price 159
Supply 114 Effect of a Change in Supply on Equilibrium Price 158
Law of Supply 114 The Law of Demand and Supply 160
Supply Schedule 114 Price Control 160
Individual Supply Schedule 114 Price Rationing 161
Market Supply Schedule 114 How Rationing Works 161
Supply Curve 114 Black Markets (Parallel Markets) 161
Normal Supply Curve 115 Impact on the Economy 161
Abnormal (Exceptional) Supply Curve 115 Conditions Prompting Black Market 161
Types of Supply 116 Government Intervention 162
Factors Determining Supply 117 Reasons for Government Intervention 162
Changes in the Quantity Supplied and Changes in Supply 118 Determination of Equilibrium Price and Quantity
Elasticity of Supply 119 Using Functional Relationships 162
Types of Elasticity of Supply 119 Price Determination in Regulated or Imperfect Market 164
Coefficient of Price Elasticity of Supply 121 Functions of the Price System 164
Factors Determining Elasticity of Supply 122 Disadvantages of the Price System 164
Supply Function 123
Chapter Nine
Chapter Seven Theory of Production 177
Theory of Consumer Behaviour 135 Types of Goods 177
Factors which Influence Buying Behaviour of Consumers 135 Division of Labour and Specialization 177
Utility 135 Advantages or Merits of Division of Labour and
Types of Utility 135 Specialization 177
Approaches to the Study of Utility 135 Disadvantages or Merits of Division of Labour and
Concept of Utility 136 Specialization 178
Marginal Utility and the Derivation of The Demand Curve 141 Limitations to Division of Labour 178
Why most Demand Curve Slope Downward 141 Scale of Production 179
Utility Maximization 142 Factors that Affect Productivity 179
Conditions for Utility Maximization 142 The Reasons Why Firm Grow In Size 179
Graphical Representation of Utility Maximization 143 Factors that Determines the Sizes of Firms 179
Consumer’s Disequilibrium 143 Optimum Size of Firms 180
The Law of Diminishing Marginal Utility 144 Economies of Scale 180
Indifference Curve 145 Diseconomies of Scale 181
Characteristics of Indifference Curve 146 Advantages of Large Scale Production 181
Indifference Map 146 Disadvantages of Large Scale Production 181
Marginal Rate of Substitution (MRS) 146 Reasons for the Existence and Survival of Small firms 182
The Budget Line 147 Importance of Small Firms in Economic Development
Assumptions of Budget Line 147 of West Africa 183
Consumer’s Surplus 147 The Concept of Total, Average and marginal Productivity 183
Consumer Sovereignty 149 Stages of Production 184
Theory of Paradox of Value (Water and Diamond Law of Variable Proportions Or Diminishing Marginal
Paradox) 149 Productivity 187
Relationship Between Total, Average and Marginal
Chapter Eight Products 189
Theory of Price Determination 156 Importance of the Law of Diminishing Returns 189
Concept of the Market 156 Return to Scale 193
Methods of Price Determination in an Organised Market
Economy 156 Chapter Ten
Price Determination Under Free or Perfect Theory of Cost and Revenue 211
Competition Market 156 Importance of Cost Theory 211
Equilibrium Point 157 Distinction Between Economist’s and Accountant’s
The Equilibrium Quantity 157 View of Cost 211
Equilibrium Price 157 Difference Between Opportunity Cost and Money Cost 211
Equilibrium of Demand and Supply 157 Components/Elements Cost of Production 212
The Effect of Changes in Supply and Demand on Types of Cost 212
Equilibrium Price and Quantity 159 Relationship Between Marginal Cost and Average Cost 214
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Cost Period 216 Unlimited Liability Company 272
Output Per Period 217 Limited Liability Company 272
Cost as a Basis of Shutdown Decision 218 The Private Limited Company 273
Revenue 218 The Public Limited Company 273
Types of Revenue 218 Differences Between Private and Public Companies 274
Relationship Between Revenue and Production 219 The Cooperative 275
Types of Cooperative 275
Chapter Eleven Public Enterprises (Statutory Corporations 277
Market Structure 238 Difference Between Public and Private Enterprise 277
Market Concept 238 Joint Venture 278
Types of Market 238 Reasons for Forming Joint Ventures 278
Financial Market 239 Sources of Funds and Other Means of Financing A Business 278
Types of Market Structure 241 General and Basic Problems of Business Enterprise 279
Features of Perfect Competition 241 The Concept of Separate Legal Entity 279
Determination of Price and Output in Perfect Competition 242 Privatization and Commercialization 279
The Revenue Curve of a Firm Under Perfect Competition 243 Government’s Objectives of Privatization and
Advantages of Perfect Competition 245 Commercialization 279
Disadvantages of Perfect Competition 245 Benefits of Privatization and Commercialization 280
Barriers Against Entry into Competitive Industry 245 Indigenisation 280
Perfect Market 241 Objectives of Indigenisation Policy in Nigeria 281
Imperfect Market 246 Benefits of Indigenisation 281
Features of Imperfect Market 246 Problems of Indigenisation 281
Types of Imperfect Market 246 Nationalisation 281
Monopoly 248 Shares and Stocks 281
Types or Causes of Monopoly 248 Types of Shares 282
Advantages of Monopoly 249 Debenture 284
Disadvantages of Monopoly 249 Difference Between a Debenture and Ordinary Share 284
Control of Monopoly 249 Differences Between Private Limited Company and
Determination of Price and Output Under Monopoly 250 Public Limited Company 285
Loss Making Situation Under Monopoly 251
The Revenue Curve of a Monopolist 251 Chapter Thirteen
Comparison Between Perfect and Imperfect Distributive Trade 303
Competition Market 252 Process of Distribution 303
Price Discrimination 255 Channels of Distribution 303
Reasons for Price Discrimination 253 The Manufacturer/Producer 304
Factors that makes price discrimination possible 253 The Wholesaler 304
Price Differences not Representing Price The Retailer 306
Discrimination 253 The Role of the Consumers 307
Success of Price Discrimination 253 Cooperative Societies 307
Price Discrimination in Two Markets 253 Role of Government Distribution Agencies 308
Organisation Practicing Price Discrimination 253
Dumping 254 Chapter Fourteen
Population, Labour Market and Human Capital
Chapter Twelve Development 317
Business Organisations 269 Determination and Implication of Size and Growth of
Difference Between Private and Public Enterprises 269 Population 317
Types of Business Organisations 269 Birth Rate 317
Sole Proprietorship 269 Death Rate 318
Partnership 270 Migration 318
Types of Partnership 270 A Typical Study on the Rural-Urban Migration 320
Partners 270 Natural Growth Rate 322
Types of Partners 270 Population Growth Rate 322
Features of Partnership 270 Theories of Population 323
Differences Between Sole Proprietorship and Partnership 271 Types of Population 325
Joint Stock Company 272 Importance of Population Size 326
Characteristics of Company 272 Reasons for High Population Growth in West Africa 327
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Population Growth Control in West Africa 327 Chapter Sixteen
Consequences Of A Rapidly Growing Population 328 Industrialisation 402
Effects and Implications of an Ageing (or Declining Industry 402
Population) 328 Definition of Industrial Concepts 402
Population Distribution 329 Types of Industry 403
Concept of Dependency Ratio 329 Service Industries 405
Working Population 332 Commercial activities of the Service Industry 405
Geographical Distribution of Population 334 Commercial Occupation 406
Population Density 335 Types of Service Occupation 406
Population Census 336 Roles or contribution of the service industry to
Problems of Census in West Africa 337 economic development of Nigeria 406
Labour Market 338 Location of Industry 407
Concept of Labour Force 338 Factors that influence the Location of an Industry 407
The Efficiency of Labour 339 Reasons for Government Participation in the Location
Mobility of Labour 340 of Industries 407
Determinants of Labour Efficiency 339 Localisation of Industry 409
Occupational Mobility of Labour 340 Factors that encourages localization of Industry 409
Factors Affecting Occupational mobility of Labour 340 Local Craft Industry in Nigeria 412
Industrial Labour Mobility 342 Measures to Promote Indigenous Industry 412
Factors influencing Industrial Labour Mobility 343 Measures to Promote Industrialization 414
Government Measures to Encourage Labour Mobility 343 Role of Industrialization in the Economic
The Demand for Labour 343 Development of a Country 414
The Supply of Labour 344 Industrialization Strategies 415
The Concept of Employment, Underemployment and Problems of Industrialization in West Africa 415
Unemployment 345 Solutions to Problems of Industrialization in West Africa 416
Factors Influencing Level of Employment 345
Wages 349 Chapter Seventeen
Difference Between Wages and Salaries 349 National Income and Elementary Theory of Income
The Role of Government in Determining Wages 352 Determination 428
Trade Unions 353 National Income 428
Trade Disputes 354 National Income Accounting and Concepts 428
Employer’s Association 355 Other Related Terms 430
Human Capital Development 356 Measurement of National Income 431
Concept of Brain Drain 357 General Problems of National Income Accounting 434
Measures to reduce Brain Drain 358 Limitations in the use of National Income Estimates 435
Determination of the National Income 436
Chapter Fifteen Reasons for Measuring National Income 436
Agriculture 381 Structure and Trend of National Income 437
Component of Agriculture 381 Money Income and Real Income 438
System of Agriculture in West Africa 382 Standard of Living 438
Importance and Contribution of Agriculture to West Cost of Living 439
African Countries 384 The Relationship Between Standard of Living and
Problems of Agriculture in Nigeria 385 Cost of Living 439
Measures to Improve Agriculture 386 Elementary Theory of Income Determination 439
Agricultural Policies 388 How Resources, Income, Goods and Services Flow
Types of Agricultural Policies in Nigeria 388 From one Sector of the Economy to the Other 439
Achievement of Agricultural Policies in Nigeria 389 Saving, Investment and Consumption 440
Failures of Agricultural Policies in Nigeria 389 The Concept of Multiplier (K) 445
Government Policies at Improving Agricultural Types of Multiplier 446
Productivity in Nigeria 389 Fluctuation in National Income 447
Marketing Agricultural Commodities 391 Trade or Business Cycle 447
Functions of Marketing Board 391 Leakages and Injections in National Income 448
Commodity Boards 392 Equilibrium Level of National Income 448
How to Improve the Marketing of Agricultural Produce 393 The Saving and Investment Method 448
The Consumption and Investment Method 449

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Chapter Eighteen Classification of Securities 518
Money and Inflation 473 Financial Market 519
Trade by Barter 473 Regulatory Institution Within the Financial System 520
Types/Forms of Money 473
Characteristics/Qualities of Good Money 474 Chapter Twenty
Functions of Money 474 Public Finance 541
Reasons why Money Has Replaced Trade by Barter 474 Fiscal Policy 541
Monetization 475 Taxation 542
The Demand for Money 475 Introductory Tax Concept 542
Determinants of Demand for Money-Keynesian Types of Taxes 543
Approach or Reasons Why People Hold Money 476 The Incidence of Taxation 546
Factors Influencing Demand for Money 476 Principles of Taxation 547
The Supply of Money 476 Other Principles not Laid Down by Adam Smith 548
Value of Money 477 System of Direct Tax/Methods of Imposing Tax 548
Factors Influencing the Value of Money 477 Tax Rate 549
Intrinsic Value of Money 477 Effect of Taxes 549
Gresham’s Law 478 Objectives of Taxation 550
The Quantity Theory of Money 478 Problems of Tax Collection in West African Countries 550
Velocity of Money 479 Government/Public Expenditure 551
Inflation 479 Government/Public Revenue 553
Problems of Price Control 482 Revenue Allocation in Nigeria 554
Rate of Inflation 483 The National Budget 555
The Concept of Inflationary Gap, Stagflation, Debts Servicing 556
Inflationary Spiral and Inertial Inflation 483 Instruments/Items of Public Debt 557
Deflation 483
Deflationary Gap 485 Chapter Twenty One
Economic Growth, Development and Planning 580
Chapter Nineteen Elements and Features of Economic Development 580
Financial Institution 506 Distinction Between Economic Growth and Economic
Roles of Financial Institution in the Economic Development 580
Development of a Nation 506 Measurement of Economic Development 580
Traditional Financial Institution 506 Underdevelopment 581
The Central Bank 507 Problems of Economic Development in West Africa 582
West African Currency Board 507 Development Strategies for Developing Countries 583
Control of Commercial bank and Other Financial Economic Planning 583
Institutions by the Central Bank/Instrument of Monetary Policy 508 Problems of Development Planning in West Africa 585
The Role of Central Bank in Economic Development 508 Measures to Ensure Success of Development Plan 585
Commercial Bank (Joint Stock Bank) 509 History of Nigerian’s Development Plans 386
Why Commercial Banks Should Operate in Rural Areas 509 Sources of Funds for Financing Development Plans 386
Assets and Liabilities of Commercial Banks 509 Infrastructure 387
Problems of Commercial banks in Nigeria 510
Creation of Money by Bank 510 Chapter Twenty Two
Limitations/Factors Affecting the Ability of Banks to Economic Lessons From Asian Tigers, Japan,
Create Money/Credit 511 Europe and America 597
Difference Between A Central bank and A The Concept of Asian Tigers 597
Commercial Bank 511 Economic History of the Asian Tigers 1960-2012 597
Merchant Banks 512 Factors that account for the rapid development of these
Mortgage Bank 513 countries in South East Asia 597
The Development Bank 513 Economic History of Japan 598
Differences Between Development Bank and The Japanese Miracle and Lessons from Japan 599
Commercial Bank 513 Economic History of Europe 599
Bank Liquidation 514 Economic Lessons from Europe 600
Non-Bank or Non-Banking Financial Institution 514 Development Strategies of the Tiger Economies 601
Role of Insurance Companies in Economic Development 515 Lessons for the Nigerian Economy 601
Finance Houses 516
The Stock Exchange 516
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Chapter Twenty Three Chapter Twenty Five
Internal Trade, International Trade and Balance International Economic Organisations 654
of Payment 605 Organisaton of Petroleum Exporting Countries (OPEC) 654
Meaning of Internal Trade 605 United Nations Economic Commission for Africa 657
Problems of Internal Trade 605 International Monetary Fund (IMF) 657
Meaning of International Trade 606 International Bank for Reconstruction and
Barriers of International Trade 607 Development (IBRD)/World Bank 659
Difference Between International Trade and Internal The World Bank and Nigeria 659
(Domestic) Trade 608 African Development Bank (AFDB or ADB) 660
Principle of International Trade 609 West African Clearing House (WACH) 661
The Difference Between Absolute Advantage and United Nations Conference On Trade and
Comparative Advantage 609 Development (UNCTAD) 661
Assumptions of International Trade on the Basis of The Association of African Central Bank (AACB) 661
Comparative Advantage Theory 609 European Economic Community (EEC) 661
Imports and Exports 610 The European Bank for Reconstruction and
Structure, Trend and Directions of External Trade in Development (EBRD) 662
West Africa 610 Niger Basin Authority 662
Trends in the Composition of Trade (With particular Chad Basin Commission (CBC) 663
reference to Nigeria 610 General Agreement Tariff and Trade (GATT) 663
Direction of International Trade in West Africa 611
Trends in the Direction of Trade 611 Chapter Twenty Six
Reasons for Low Volume of Trade Between Nigeria Major Natural Resources 669
and other West African Countries 611 Petroleum 669
Terms of Trade (TOT) 611 NNPC and OPEC 669
Measures to Improve West African Countries Terms of Trade 612 The NNPC’s Role in the Production of Petroleum 670
Commercial Policy in International Trade 612 Upstream and Downsream 670
The Case for Protection 613 Importance of Petroleum 670
The Case Against Protection 613 Problems facing the Petroleum Industry 671
Free Trade 614 Coal 672
The Infant Industry 615 Gold 672
Balance of Trade 616 Copper 673
Balance of Payment 616 Diamond 674
Examples of Items in Current Account 616 Iron and Steel 674
Balance of Payment Equilibrium 618 Forest Resources 675
Balance of Payment Disequilibrium 618 Hydropower 675
Balance of Payment Adjustment 618 Contributions of Minerals to West African Economies 675
Depreciation (Currency Depreciation) 620 Environmental Consequences of Exploitation of
Differences Between Devaluation and Currency Depreciation 620 Natural Resources 676
Currency Redenomination 620
Nigeria Balance of Payments 620 Chapter Twenty Seven
The New International Economic Order 622 Applied Economics and Contemporary Economic
Need for a New International Economic 622 Organisations 679
International Liquidity 623 Current Economic Plan 679
Foreign Exchange 623 Millenium Development Goals (MDG’s) 679
The Foreign Exchange Market 623 The National Economic Empowerment and
Development Strategy (NEEDS) 680
Chapter Twenty Four Vision 20:2020 681
Economic Integration 645 Economic Development Challenges in Nigeria 683
Objectives of Economic Integration 645 Poverty 684
Types of Economic Integration 645 Poverty Alleviation Agencies 685
Features of Economic Integration 646 HIV/AIDS and the Economy 686
Problems of Economic Integration 646 Corruption and the Economy 687
The Economic Community of West African States Power and Energy Supply 688
(ECOWAS) 647 Resource Control 689
Reasons for Low Volume of Trade Between West
African Countries 649 Answer Page 691
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Hidden facts in SSCE Economics is a scholarly text which covers the entire SSCE
Economic syllabus. This work was borne to give synergy to the teacher-student
effort in the subject with a view of curbing examination malpractice by ensuring:
- Simplicity in the problem-solving approach.
- Indicating vital hints to help buttress the course work in view.
- Engaging in elaborate research work as pools of past question from NABTEB,
NECO, WAEC, UTME, POST-UTME are used as examples and some as exercise.

This is to ensure all learners irrespective of the intelligence quotient are adequately
carried along, as Hidden Facts in SSCE Economics is a “teach yourself
masterpiece textbook” with a focus of curbing examination malpractice.

iii
ix
 2023/1
The study of economics is mainly concerned with how to
DEFINITION AND SCOPE OF ECONOMICS A. rank individual’s wants given the abundant resources
There are many definitions of economics as there are
B. make choice when resources are inadequate
economists. Each economists see the subject from
C. satisfy every member of all societies
different points of view. They therefore, define the
D. produce all the goods needed by everyone
subject to reflect their interests. There is no definition of
Answer
economics which is all-embracing.
The study of economics is mainly concerned with how to
The following are definitions of economics given by
make choice when resources are inadequate (B)
some economists.
Names of Economists and their definitions
2022/1 Neco
1. J. S. Mill defines economics as the practical science The definition of Economics as a study of mankind in the
of production and distribution of wealth. ordinary business of life was given by
2. A. C. Pigou defines economics as the science of A. Adam Smith B. Alfred Marshall
material welfare. He studied economics on the C. David Ricardo D. John Stuart Mill.
basisof how total production could be increased so E. Lionel Robbins
that the standard of living of the people might be
Answer
improved. He also defines economics in terms of
Alfred Marshal defines economics as the study of
wealth.
mankind in the ordinary business of life. (B)
3. H. J. Davenport defines economics as a subject that
treats phenomenon from the stand point of price.
1994/1 UTME
This definition emphasizes exchange, and seeks to
The definition of Economics as “the science which
explain that economics deals with anything that have
studies human behaviour as a relationship between ends
a price value. This implies that for any commodity or
and scarce means which have alternative uses” was given
service to be of any economic importance, it must
by
have a price attached to it.
A. Adam Smith B. David Ricardo
4. Alfred Marshal defines economics as the study of
C. Lionel Robbins D. Thomas R. Malthus
mankind in the ordinary business of life. He
E. Robert Giffen
maintained that economics is that part of individual
Answer
and social action connected with the attainment of
Lionel Robbins (C)
the material requisites of wealth.
5. Adam Smith, the 18th century British economist
2021/2 Neco
defines economics as an inquiry into the nature and
The definition of economics as “the practical science of
causes of wealth of nations. To him economics is
production and distribution of wealth” was given by
concerned with wealth – making. He is regarded as
A. Adam Smith B. Alfred Marshall
‘the father of Economics’ for he laid the foundation
C. Irvin Fisher D. John S. Mill
of economics as a discipline.
E. Lionel .C. Robbins
From the foregoing, it is clear that there are many
Answer
definitions of economics. There is, however, one
The definition above was given by John S. Mill (D)
definition that is generally accepted, and it is given
by Prof. Lionel Robbins.
Economics as a subject of study is unique in the sense that
6. Prof. Lionel Robbins defines economics as a it can be classified as a science or as a social science.
science which studies human behaviour as a
relationship between ends and scarce means Science is regarded as a knowledge acquired through
which have alternative uses. observations of some facts, testing and using them as
Prof. Lionel Robbins gave the most embracing basis for generalization. That is, Economics is usually
definition of the subject as his definition is analytical
referred to as a science because it adopts scientific
and scientific methods to explain observed phenomena and to predict
7. This has become more popular and generally the outcome of future economic events.
accepted among all definitions. This scientific method involves the following:
Professor Robbins referred to economics as a social - Observation of events and their outcomes.
science. - Formulating a hypothesis
- Collecting data
NB: For any standard examination type (SSCE, NECO, - Organising/analysing the data
NABTEB, etc.) when asked to define economics, please - Formulating laws
use that of Prof. Lionel Robbins. - Testing the laws
- Making predictions on the basis of the laws.

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2019/2020/12 (NDU, BAYELSA) SCOPE OF ECONOMICS
A scientific approach in Economic analysis entails Economics is a social science which covers the actions of
A. a deductive method only individuals, households and firms in the area of
B. both inductive and normative only production, distribution and consumption.
C. a normative method only As a subject, economics is broadly divided into two parts
D. both inductive and deductive methods namely, microeconomics and macroeconomics. Both
Answer concept are closely related going by the fact that they are
Both inductive and deductive methods (D) both concerned with the determination of prices, incomes
Hints: A scientific approach in economic study involves and the use of resources, they can be studied separately as
both inductive and deductive reasoning methods. This follows:
implies economists make generalization about a situation
or problem. In order to make people to understand a Microeconomics: This is the study of individual
particular situation or problem, they make generalization components of the economy. It pertains to individual
about the situation based on facts. consumer, small group of people or firms and the
industries. It explains how the interactions of demand and
1990/1 Nov supply help to determine prices, wage rates, rental
Economics can best be defined as the study of charges and profit margins.
A. how to spend the family income efficiently The microeconomics is concerned with how an individual
B. how to find minimum cost of production consumer reacts to prices as well as his demand and not
C. the interruption of scarce resources and data the aggregate demand in the economy; the supply of a
D. how scarce resources can be used efficiently firm and not the aggregate supply in the economy.
E. why resources are scarce
Answer: D – how scarce resources can be used efficiently 2018/2019/67 (NDU, BAYELSA)
The study of the economic behaviour of individual
1997/1 Exercise 1.1 decision making units (consumers, resources owners and
Economics is often described as a science because it business firms) in a free enterprises economy is known as
A. adopts the use of laboratory experiments B. involves A. micro economics B. macro economies
accurate production of human beings C. indifference curve D. circular flow of income
C. makes the use of controlled experiments Answer: Micro economies (A)
D. uses scientific methods to explain observed
phenomena Macroeconomics: This relates to the economy of the
E. deals with observations and field work whole society. It takes into consideration the whole
economy from a national point of view.
1992/1 Exercise 1.2 Macroeconomics provides modern and rational
Economics is a social science because it explanations for such issues as total employment, total
A. deals with an aspect of human behaviour production output, general price level, economic growth
B. provides people with the commodity they want rate, consumption, investment, total exports and imports,
C. deals with limited resources which have alternative booms and slumps, rate of inflation and deflation, level of
uses national income and so on.
D. deals with the production of goods for present and
future consumption 2010/3 (OAU, IFE)
E. is related to how choice is made Macroeconomics can best be described as the
A. analysis of how a consumer tries to spend income
1978/33 UTME Exercise 1.3 B. study of the large aggregates of the economy or the
Economics is called a social science because it is economy as a whole
A. a branch of the social studies C. analysis of how firms attempt to maximize their profits
B. a study of the ways man devises to satisfy his D. study of how supply and demand determine prices in
unlimited wants from limited resources individual markets
C. a dismal science in the Malthusian sense Answer: Study of the large aggregates of the economy or
D. governed by scientific laws the economy as a whole (B)
E. the study of human wants by means of scientific
methods of observation 1991/4 UTME Exercise 1.4
Macroeconomics is a study of economic science from the
Robbins clearly points out the following basic point of view of
facts about man’s economic life. A. resource markets or production units
1. Economics is a social science because it studies B. individual producers or consumers
human behaviour. C. aggregate or general economy
2. Human wants are unlimited. D. companies or individual firms
3. There are limited resources with which to satisfy the
unlimited wants.
4. Scarce resources are capable of being put to
alternative uses.
2
2015/15 (OAU, IFE) Exercise 1.5 1. Food
Macro economics is concerned with 2. Clothes
A. the aggregate or total levels of income employment 3. Shelter
and output 4. Phone
B. a detailed examination of specific economic units that 5. Laptop
make up the economic system 6. Motor car
C. positive economics, but not normative economics 7. Marriage
D. the establishment of an overall view of the operation of 8. Business investment
the economic system 9. Education
10. Tourism
BASIC CONCEPTS OF ECONOMICS
1. Wants: Wants refers to those things we wish or The given table is a scale of preference of an
desire to have in life. They are our life objectives, industrious young lady. Scale of preferences is due
goals or ambition. to scarcity of resources and the desire for a good
Everybody wants one thing or the other at any given choice.
time. No matter how little or big our want is, we try
as much as possible to satisfy it. From the above list, it shows the most important
Wants represent claims on resources of production. want to this lady is food, the next is clothes. While
Human wants are insatiable. While human wants are the least desired one is tourism, which is the last
many, the resources to satisfy them are scarce. item on the list. Thus, the first thing she will buy
with her income is food, and whatever is left will be
Wants are ends or desires of human being. Human used for the purchase of clothes. From the foregoing
wants are insatiable because the means for satisfying therefore, the opportunity cost of the food is clothes,
them are limited i.e. scarce. for clothes is shelter and that of education is tourism.
2. Resources: This refers to the means or basic
Inconsistent scale of preference
instruments with which human wants can be
A scale of preference is inconsistent if there is a
satisfied. Resources include the productive
contradiction in the ranking (arrangement) of the
resources: land, labour, capital and entrepreneur. It
items. For example: food is preferred to clothes;
also includes time and money. Resources are scarce
clothes are preferred to shelter; shelter is preferred to
or limited relative to wants.
food. This ranking makes a scale of preference to be
3. Scarcity: Scarcity refers to the limited supply of inconsistent.
resources relative to the demand for them. It is the
6. Opportunity cost: The opportunity cost is also
central or basic economic problem. By scarcity, we
known as a “real cost”, “true cost,” or “real
mean that there are few resources compared to the
sacrifice” of anything. Opportunity cost is the
units required. it is impossible to satisfy all human
forgone alternative in order to acquire a particular
wants at any given time. For this reason, one is
commodity or to produce a particular commodity or
compelled to make a choice, therefore foregoing a
to produce a particular goods or services. The
want. All economic units in any economy face the
concept of opportunity cost is used in economics to
problems of scarcity.
express cost in terms of forgone or sacrificed
4. Choice: This involves the selection and satisfaction alternatives.
of the most pressing wants out of a range of
alternatives. Choice making reflects the alternative To a layman, the cost of anything is the amount of
uses of resources. Since human wants are unlimited money paid for it. He would regard the money he
and the resources available to satisfy them are uses to buy a sweet as the cost of the sweet. The
limited, choice is constantly made between economist will refer to the amount of money paid or
alternative wants. At all times, we have one spent for the acquisition or production of a
economic decision or the other to make that is, commodity as its “money cost”. The economist is
choosing to satisfy one want out of majority. This interested in the “relative cost” of a choice made.
problem is created by scarcity.
For example, you have N300.00 and wish to buy a
5. Scale of preference: This is a list of human wants in dress and an economics textbook, each costing
order of relative importance. It can also be defined as N300.00. If you decide to buy the economics
the ranking of human wants in order of priority. textbook, this will cost you the dress. The book
Such listing enables man to satisfy his wants from bought is your choice with a “money cost” of
the most important to the least important. Scale of N300.00, while the dress left unbought is the
preference helps the various economist to make opportunity cost. In order words, you sacrificed the
rational choices and to maximize utility since it dress in order to satisfy the want for the textbook.
would enable them to choose their most pressing
wants.

3
 The Relevance of Opportunity Cost 2020/1 Neco
The concept of opportunity cost underlines the basic The following are the basic concepts of Economics except
economic problems of scarcity and choice. Due to A. scarcity B. scale of preference
limited resources, it is relevant to the individuals, C. opportunity cost D. demand schedule E. choice.
firms and government as they cannot execute all Answer
their projects at the same time. Thus, they choose From the above option the exception is demand schedule (D)
one and forgo the others in a particular time. The
concept reveals that every human activity involving 2021/1 Neco
an economic decision entails some real cost Alternative forgone after choice was made is
measured in terms of forgone alternative. A. money cost B. opportunity cost
The individual is faced with the problem of scarcity C. scale of preference D. scarcity
of resources, and so he has to make a choice. This E. wants.
concept helps him in allocating their limited Answer
resources among competing needs. Opportunity cost. (B)
It helps firms or producers in allocating their scarce Hint: Opportunity cost is the forgone alternative in order
resources in deciding what to produce and what to acquire or to produce a particular goods or services.
methods or techniques to use.
The concept of opportunity cost is also relevant to 1996/2
the behaviour of the government because the The ranking of a consumer’s needs in order of importance
government has limited resources at its disposal and is termed.
so cannot carry out all the proposed project at the A. an opportunity cost B. economics of scale
same time. It therefore helps the government in C. a scale of preference D. the making of choice
making effective use of its resources in areas of E. direct production
activity it considers most important to the people. Answer
a scale of preference. (C)
Differences between Opportunity Cost and Money Cost
Opportunity cost Money cost 1997/2
1. It is a cost expressed in It is a cost expressed in Scarcity in economics means that
terms of alternative terms of amount of A the economy can scarcely produce anything
forgone. money spent in B. human wants are limitless
producing or acquiring C. the economy has very few resources
a commodity. D. human wants are limited, relative to resources
2. It is the real cost of It is the value of E. resources are limited, relative to wants
anything bought or done. money exchanged for a Answer
commodity or service. human wants are limited, relative to resources. (D)
3. It is expressed in a It is expressed in a
particular physical good particular 1997/27
or service, e.g. bag, book, denomination of The foregoing alternative in Economics is simply the
transport service. money, e.g. dollar, A. marginal cost B. cost of foregone product
pound sterling, naira C. total cost D. opportunity cost E. average cost
Answer: Opportunity cost (D)
4. Briefly, it is a real cost, Briefly, it is amount of
actual cost, etc. money spent.
1991/2
Choice is necessary because resources
2022/2 NECO
A. are available B. can be found everywhere
Human wants are insatiable because
C. are constant D. are scarce E. are limited
A. demand outweighs supply
Answer
B. government policies are inconsistent.
Resources are scarce, so choice is necessitated (D)
C. production is cheap
D. resources are scarce
2006/2007/39 (UNIZIK, AWKA)
E. resources are unlimited.
Scarcity in Economics means that resources
Answer
A. are not enough to share among the producers of goods
Human wants are insatiable because resources are scarce (D)
and services
B. needed to satisfy human wants are limited
1988/1
C. are never enough to share among consumers
Economics is a science which studies human behaviour as
D. require to meet our essential wants are limited
a relationship between ends and scarce means which have
E. can be managed if those who use them behave
alternative uses “Ends here refers to
rationally
A. resources B. wants C. choice
Answer
D. output E. factors
Needed to satisfy human wants are limited (B)
Answer
wants (B)
4
2011/2 (OAU, IFE) attainable and unattainable output combinations over a given
In Economics, human wants are usually described as period of time. The PPC is used to represent production
A. many B. insatiable C. limited possibility table i.e the graphical representation of the data in
D. numerous a PPC schedule (table) actually gives the production possible
Answer: Insatiable (B) curve. It shows the various possible or attainable and non
attainable combinations or maximum output a producer can
1989/1 Nov Exercise 1.6 produce with a given unit of economic resources, hence it is
Scarcity in economics means that resources also called production feasibility curve (PFC). The
A. are not enough to share among the producers of goods production possibility curve (PPC) is a practical application
of the principle of opportunity cost.
and services B. needed to satisfy human wants are
limited C. are never enough to share among consumers
of goods and services
D. required to meet our essential wants are unlimited
E. can be managed if those who use them behave
rationally

1992/2 Exercise 1.7

Scarcity in economics generally refers to:
A. a period of production B. hoarding of goods
C. monopolization of existing supply of resources
D. a period of farming E. resources being limited

1992/3 Exercise 1.8

Opportunity cost is defined as the
A. money cost B. cost of production C. real cost
D. variable cost E. fixed cost
Production Possibility Boundary Curve.
1990/1 UTME Exercise 1.9 NB: The slope of PPC is concave from point of origin.
If one orange costs 20k and one kilogram of beef costs
N10:00, the opportunity cost of one kilogram of beef is The Production Possibility Curve diagram shows an
A. 50 oranges B. 10 oranges C. 5 oranges imaginary PPC of Country Z in 1985. All goods and services
D. N9:80 produced in Country Z are classified into two major groups:
consumer goods and capital goods. The consumer goods is
1995/3 Nov Exercise 1.10 measured on the horizontal (X) axis; while the capital goods
Mr. Tiise wanted to buy a new tyre for his car and at the
are shown on the vertical (Y) axis.
same time wanted a transistor radio. He has only two
hundred naira on him which is the price of either a radio or a
The curve GBN (in thick black ink is the (original) PPC
tyre. If he decides to buy the tyre, what is the real cost of the
within which Country Z can operate in terms of possible
tyre he bought?
alternative combinations of consumer goods and capital
A. two hundred naira
goods. At point D, Country Z can produce ‘OL’ of consumer
B. two hundred naira and the radio he left unbought
goods and ‘OI’ of capital goods, if all the resources are
C. the radio he left unbought D. opportunity cost
efficiently used. While point E shows that it is only ‘OJ’ of
E. the market price of the tyre
consumer goods that could be made and a larger quantity of
2009/1 UTME Exercise 1.11 capital goods, ‘OH’, that can be manufactured.
Musa has a choice of buying a shirt, a book and a bag. What
is the opportunity cost of buying a book? Important discussion areas are point located:
A. a bag only B. a book and a bag i. Inside the curve
ii. On the curve
C. a shirt and a bag D. a shirt only
iii. Outside the curve as well as the shift of the curve either
2021/2 Exercise 1.12 inward or outward.
A consumer with $10 needs a dress, a pair of shoes, a 1. Point A – located inside the curve.
handbag and jewellery costing $20, $10, $7 and $3 2. Point B – located exactly on the curve and
respectively. The opportunity cost of buying the pair of 3. Point C – located outside the curve.
shoes is the They are clearly indicated on the diagram.
A. dress B. jewellery
C. handbag and jewellery D. dress and jewellery Point “A” located inside the curve
Point ‘A’ located inside the PPC implies that the country
is not able to make efficient use of all the existing
PRODUCTION POSSIBILITY CURVE (PPC)
resources. Thus she can only produce a lesser quantity of
Production Possibility Curve (PPC) is a curve which shows
goods and services than she would have been able to
the various alternatives or combination of two or more
commodities that can be produced or obtained if all available produce if all her resources were fully utilized.
productive resources are employed at their full intensity of Consequently, point A and any other point located inside
use. The production possibility boundary curve measures the the curve are termed as ‘Inefficient production
combinations’.
5
Such production combinations signify unemployment and Inward shift of PPC
underemployment of resources. This implies that all the It is not also impossible for the PPC to shift inward. A
country’s productive resources (factors of production) are serious decline in economic activity will make total
not fully utilized (not properly used); her firms operate at output to fall. This shifts the PPC inward from its original
half capacity and some resources are lying idle. position, GBN, to HAK. The major causes of the inward
shift of the PPC are as follow:
Point ‘B’ located on the curve 1. Less efficient use of resources: soil, raw materials,
The combination at point B is termed as an “Efficient and other capital goods, etc.
Production Combination” because it is located exactly on 2. A decrease in the size of the labour force especially
the curve. Any point located on the curve implies that all skilled labour.
the country’s available resources are efficiently and fully 3. A severe economic slump (a great fall in the level of
utilized. Thus such country is able to produce the largest economic activity).
quantities of the above two major goods consumer and 4. Declined productivity (a fall in output per person in
capital goods. Hence it is termed as a point of efficient an hour).
production combination. Such production combination 5. A rise in the rate of unemployment and under
implies full employment: all the productive resources are employment.
fully utilized – the country’s firms operate at fully 6. Exhaustion of mineral if any were discovered. For
capacity. instance, the exhaustion of the crude oil in Nigeria
may cause a fall in her output of goods and services.
Point ‘C’ located outside the curve
This is viewed as impossible or unattainable production The inward shift of the PPC makes the former attainable
combination because the country does not have such large production combination to become unattainable or
resources that could allow her to produce a larger impossible combination. This has severe consequences:
combination of consumer goods and capital goods than e.g. poverty (less income), a fall in the general standard of
the combination indicated on the curve, like point B. And living, a rise in the level of import, a fall in the level of
such production combination is termed as potential or export. Likelihood of indebtedness (borrowing), etc. Thus
anticipated production combination. much intensive effort to continuously moving (shifting)
Outward and inward shift of PPC the PPC outward is of great value to a nation.
The PPC is not static i.e. it is not in a fixed position. It is
quite possible for the curve to shift either inward or
outward. And both shifts are due to several reasons.

Outward shift of PPC Use the diagram below to answer questions 20 and 21
The outward shift of the PPC is mainly due to economic
growth and development, or it is due to the following:
1. More efficient use of resources; soil, raw material,
and other capital goods.
2. Increase in stock of capital goods.
3. Improved production technique.
4. Increased productivity (a rise in output per person in
an hour).
5. Increase in size of labour force, especially skilled
labour.
6. Discovery or extraction of more minerals, like more
crude oil in the oil producing states.
7. Establishment of more industries or a great economic
boom – a very high level of economic activity.
2021/ 20 Neco
Due to one or some of the above reasons, the original The point labelled F on the production possibility curve
production possibility curve, GBN, shifted outward to a above depicts
new position marked ‘FCM’. The outward shift of the A. feasible region
PPC makes a combination, like point C, which was B. over production of cash crops
hitherto (or previously) impossible to attain becomes a C. over production of food crops
possible or a rise in the output of both capital goods and D. production possibility frontier
consumer goods. E. unattainable point
Answer
Point F on the PPC above is termed the Unattainable
production combination. (E)

6
2021/21 Neco 1983/7 UTME
If a farmer is producing at point A, he can maximize the Production possibilities (alternatives)
production of beans by moving to point P Q R S T
A. A B. B C. C D. D E. E. Units of shelter 5 4 3 2 0
Answer Units of food 0 5 9 12 15
A farmer producing at point A will maximize the Based on the above production possibilities table, the real
production of food crop (beans) at point D on the cost of a unit of food when alternative R is selected is
production possibility curve. (D) A. one unit of shelter B. three units of shelter
C. one third of a unit of shelter D. six units of shelter
2020/7 Neco E. two units of shelter
The basic concept used in determining the production Answer
3 1
possibility boundary is One third of a unit of shelter, when R is selected = 9 = (C)
3
A. scarcity of resources B. scale of preference
C. opportunity cost D. choice of individual 1987/1 UTME Exercise 1.14
E availability of resources A production possibility curve shows
Answer A. how much of the resources of society are used to produce
The production possibility boundary curve is a practical a particular commodity B. the rate of inflation
application of the principle of opportunity cost. (C) C. the rate of unemployment in the economy
D. the various combinations of two commodities that can be
2020/21 Neco produced
The downward slope of the production possibility curve
indicates that 1989/3 UTME Exercise 1.15
A. there is total production A shift in the production possibility frontier could result from
A. unemployment
B. there is an opportunity cost of production
B. changes in the combination of goods produced
C. resources are not efficiently utilized
C. inflation D. changes in production techniques
D. resources and technology are limited
E. diminishing returns exist. 1991/1 Exercise 1.16
Answer If a society is operating on the production possibility curve,
The production possibilities curve is downward sloping or this implies that the resources are
bowed in shaped because of the law of increasing A. fully and efficiently utilized
opportunity cost, which explains the idea that the more B. fully but inefficiently utilized
units of a product are produced the less capability the C. efficiently but not fully utilized D. abundant
economic has of producing other products. (B)

1992/2 Exercise 1.17

2019/1 (PC2) Scale of preference refers to
A point Y outside the production possibility curve indicates A. consumers preference for luxurious goods
that B. the household monthly income
A. production is not attainable C. list of goods and services in order of priority
B. production is attainable D. budget preparation without paying due regard to
C. some resources have not been provided
priority
D. resources have not been effectively combined
Answer
A point outside the production possibility curve is viewed as
impossible or unattainable production combination. (A) 1998/1 UTME Exercise 1.18

2001/2
A production possibility curve shows the amount of
A. resources used to produce a particular commodity
C. various combinations of two commodities that can be
produced D. rate of inflation
Answer
Various combinations of two commodities that can be
produced (C).

1984/6 UTME Exercise 1.13

A rightward shift in the production possibility frontier may
be due to
A. use of inferior inputs B. inefficiency In the diagram above, full employment is indicated by
C. improvement in production techniques and practices A. L B. M C. N D. P
D. changes in the product mix
E. changes in consumer’s tastes and preference

7
1999/4 UTME Exercise 1.19 (B) Secondary economic activities: These are those
The shape of a production possibility frontier is activities that have to do with the processing of raw
determined by the materials earlier produced through primary
A. increasing relative cost B. returns to scale economic activities into finished products. That
C. diminishing returns to a fixed factor means more utility and hence more value is added to
D. increasing returns to a variable factor the produce of primary economic activities.
Examples are manufacturing, construction, food
ECONOMIC ACTIVITIES processing and oil refining industries, the
Economic activities are organized actions which people manufacturing of vehicle and machine parts,
participate in with the aim of earning their living through construction of buildings, making of biscuits, sweets,
the creation of goods and services cooking food for sale in restaurants, making of
beverages and fruit juices, making of clothes, bed
Production: Production is any activity that results in the sheets and other textile material(s), e.t.c.
creation of goods and services. This includes the creation
of tangible things, as well as services rendered to people The contributions of these secondary industries to
and paid for by them. For instance, the manufacturer that Nigeria’s GDP are not as significant as the
turns raw materials such as rubber into tyres is involved contribution of the primary or tertiary industries.
in economic activity that leads to production. (C) Tertiary economic activities: This refers to those
involved in the final delivery of the product to the
Similarly, the barber who cuts hair in a salon and a eventual consumer. They add more value and hence
teacher who teaches are all involved in production. Thus, more utility to the product. These are basically the
production is the creation of utility that is able to satisfy service industries such as transportation,
human wants. Production is not complete until the goods warehousing, communications, health, education,
get to the final consumers. legal services, hospitality, banking, insurance and
other financial industries.
Distribution: This is the physical flow of goods and
services from the producers to the consumers through People who sell goods in bulk (i.e. wholesalers) and
certain chains. those who sell in smaller quantities (called retailers)
NB: Kindly, refer to chapter 13(distributive trade), for as well as consultants who render professional
a thorough lesson on distribution. services are also involved in tertiary economic
activities. In the absence of services rendered by
CHANNELS OF DISTRIBUTION these industries, the final consumer cannot have
Goods can be produced at home or imported from other access to the products of the primary and secondary
countries. Similarly, they can be consumed at home or industries.
exported to other countries. For the home produced In Nigeria, the contribution of tertiary industries to
goods, the producer can the GDP has been steadily increasing over the recent
(i) Sell directly to the consumer or years.
(ii) Reach the consumer through the retailer.
Gross Domestic Product (GDP) is the total value of
Distribution of goods and services is made through the goods and services produced within a country’s
services of economy within a period of a year.
(i) the wholesalers and 1996/12
(ii) the retailers, collectively known as middlemen. Which of the following correctly illustrate the chain of
distribution?
A. manufacturer  wholesaler  retailer  consumer
Consumption: This refers to the process of using up B. consumer  manufacturer  wholesaler  manufacturer
products or resources in order to satisfy human wants. It C. wholesaler  manufacturer  retailer  consumer
includes eating food, wearing shoes, riding a bicycle, D. distributor consumer wholesaler manufacturer
  
reading a book, writing with a pen, e.t.c.
E. producer  manufacturer  wholesaler  retailer
Answer
CLASSIFICATION OF ECONOMIC ACTIVITIES
A – manufacturer  wholesaler  retailer  consumer.
(A) Primary economic activities: These are those
activities that have to do with the direct sourcing of 1997/4
raw material or other resource from land or sea. In Economics, production is complete when
Examples are mining of metals and fossil fuels, A. goods are manufactured in the factors
wood from forest, quarrying from rock formations, B. commodities are sold to the final consumers
farming and fishing at sea. C. goods and services are distributed by the governments
Primary economic activities are the predominant D. producers fix the price of the goods and services
productive activities in non-industrialized countries. produced E. goods and services get to the retailers.
Primary industries contribute the major percentage Answers - Commodities are sold to the final consumer (B)
of the Gross Domestic Product (GDP).
8
2023/2 In a capitalist state, what to produce is determined by the
Warehousing is an economic activity that falls under price system. In a mixed economy, both price system and
A. tertiary production B. intermediate production the government determine what to produce. But in a
C. secondary production D. primary production socialism, only government determines what to produce.
Answer
Warehousing is an economic activity that falls under How to produce
tertiary production (A) The society has to decide how goods are to be produced.
How to produce refers to which technique of production
1989/30 Nov Exercise 1.20 to adopt. Should it be labour intensive or capital
Distribution is part of production because it intensive? If it is capital intensive, more machines and
A. makes goods and services available to the final less labor will be used. If it is labour intensive, more
consumer labour and less machines will be used.
B. transports the goods from place to place
C. offers employment to people It has to solve such questions as who produces what?
D. encourages the provision of roads, water ways and What scale of production? Who works and where one
railways works? How to produce will also depend on the amount
E. links the consumers with the producers of each factor that is available. In summary, this
fundamental problem can be determined by factors such
1985/1 UTME Exercise 1.21 as:
One main quality of a goods is that it 1. Level of technology.
A. is sold in the market B. satisfies wants 2. Amount of available resources.
C. it is made in the factory D. is always tangible 3. Comparative cost of factor inputs.
E. is non perishable
For whom to produce
BASIC ECONOMIC PROBLEMS OF SOCIETY The producer and the government have to think of the
Every society faces basically the same economic sections of society to which their productions efforts
problems. The fundamental economic problems facing should be geared. The problem of “for whom to produce”
society is scarcity. The society is saddled with the task of is more or less the problem of distribution of income.
producing goods and services that necessitate the use of How should the national products (good and services
resources otherwise known as the factors of production. produced) be distributed or shared among the people?
These resources are scarce in relation to the unlimited and Should it be equitably shared among the people?
numerous wants of the people as a result, choice has to be
made. Choice is a decision necessary for the efficient Factors influencing this economic problem includes
allocation of scarce resources. So, choice itself arises out 1. Price system: The price system determines those
of scarcity. We make choice as the resources required to who receive the goods produced.
produce goods and services to meet the wants of people 2. Prevailing economic system: The practiced
are limited in supply as human wants are unlimited and economic system determines the method of sharing
insatiable. the goods to the people. In a socialist state, the
It is the way society organizes itself to solve these government determines the method of distributing
fundamental economic problems that determines the type the goods, this is not so far a mixed economy or
of economic system practiced. capitalist state as the price system dictates the
sharing of the goods.
What to produce 3. The urge for foreign currencies: Most product and
This question concerns the types of goods to produce and services are produced mainly to satisfy foreign needs
services to render and their quantities in a given period. in order to earn foreign currencies.
What to produce is indeed a great economic problem to
the society as the resources are relatively scarce and all Efficiency of Resources Use
things cannot be produced. Priorities must therefore be set There is no doubt that there is a fundamental problem of
to decide what to produce exactly. This can be determined scarcity of resources, but then, how best to use the little
by factors such as available resources calls for reasoning. The society has to
1. Available resources. ask the question: how efficiently are available resources
2. Level of available technology. being used? This therefore gives rise to the issue of
3. The needs of the people. efficiency in the allocation of resources. Each society tries
4. Cost of production. to allocate resources as efficiently as possible. If
5. Type of economic system being practiced. resources are efficiently used, then it would be possible to
increase the production of all goods and make everyone in
In economics, this question deals with the issue of the country better off.
resources allocation. How our limited resources should be NB: The question of the efficiency of production and the
efficiently allocated among the best alternatives and to efficient allocation of resources comes under Welfare
different economic sector in order to achieve the greatest Economic.
output of goods and services.

9
Economic and Non-economic Resources 2021/5 Neco
Economic resources are those goods or resources, which The basic economic problem concerned with production
are directly involved in carrying out economic activities. technique is
They are limited in supply relative to demand, thereby A. efficient use of resources B. for whom to produce
having an opportunity cost and price or market value. e.g. C. how to produce D. what to produce
land, labour, capital, goods and services E. where to produce
Non-economic resources are not directly involved in Answer
carrying out economic activity. They have value but they how to produce (B)
have either price or opportunity cost. e.g. air, water in the Hint: How to produce refers to which technique of
sea. production to adopt. Should it be labour intensive or
capital intensive?
Approaches for Solving the Basic Economic Problems
1995/2 Nov
under Various Economic System
A great number of economic problems result from
These fundamental problems are solved differently under
A. the reduction of poverty B. excessive supply of
different economic systems:
goods C. the availability of too many experts
(a) Capitalism: In a capital or free market economy, the
D. the failure of the price system
decision as to what to produce is taken by private
E. completely demands for scarce resources
individuals or investors based on price mechanism or
market forces. Answer
Completely demands for scarce resources (E)
(b) Socialist economy: In a socialist or centrally planned
economy, the government determines what goods to 2013/33 Neco
produce and distribute to the people according to Which of the following is a basic economic problem of a
their needs, or based on the principle of welfarism. society?
(c) Mixed economy: In a mixed economy, both the A. level of inflation B. price of commodity C. scarcity
government and private investors determine what to D. what to produce E. which resources are scarce
produce. Private investors determine the production Answer: What to produce (D)
of private goods, based on price mechanism, while
the government determines the production of public 1996/1 Exercise 1.22
goods based on welfarism. The basic problem that economics attempts to solve is the
A. ranking of goods and services
B. pricing of goods and services
2022/1 NABTEB C. scarcity of resources D. foregoing of alternatives
Economic efficiency as an economic concept means E. satisfaction of producers needs.
A. producing goods to satisfy consumers
B. producing goods for consumption. 1992/4 Exercise 1.23
C. producing maximum output at low cost The most basic concern of economists is to:
D. producing minimum output at high cost A. create human wants B. satisfy all human wants
Answer C. redistribute income so that it is used correctly
Economic efficiency as an economic concept means D. create perfect competition
producing maximum output at low cost (C) E. allocate scarce resources to satisfy human wants

2009/20 (OAU, IFE) THE BASIC ECONOMIC GOALS OF THE

The concept of economic efficiency refers to SOCIETY
A. obtaining the maximum output from available These basic economic goals includes
resources at the lowest possible cost 1. Stable pricing of goods and services: Strict
B. conservation of natural gas and oil deposit government regulations have to be in place to help
C. equity in the distribution of national resources check pricing policies. As high rate of inflation or
D. producing without waste extreme deflation is not good for the economy.
E. the limited wants unlimited resources dilemma 2. Stable economic growth and development: An
Answer improved standard of living of the citizenry of any
Obtaining the maximum output from available resources country must be reflected in the growth of country’s
at the lowest possible cost (A) economy. This economic growth and development
can be affected as a result of manpower,
2019/1 (PC2) technological know – how and resources
Economic problems arise because of improvement. This will help alleviate poverty,
A. the creation of artificial scarcity giving rise to a better standard of living.
B. corruption in high places C. inadequate resources 3. Employment for the citizens: For a sustained
D. the absence of skilled labour economic growth and development all the factors of
Answer production must not be kept idle. The government
The fundamental economic problems facing society is wants to ensure that her workforce and available
scarcity of resources (C). resources are gainfully employed into maximizing
profit via production capacity.
10
4. Equitable distribution of wealth: It is an obvious fact 2022/6 NABTEB (Dec)
that in the society, there are cases of some people living Scarcity refers to
in affluence and many living in poverty. This is a wrong A. the absence of goods in the market
signal in the rating of human development in the B. a period of production
country. It is therefore among the goals of the C. limited resources
government to ensure equitable wealth redistribution in D. the control of resources
the society. Answer
5. Efficiency of Resources use: Inefficiency in allocating limited resources (C)
resources will lead to gross mismanagement of the
societal wealth; the goal of every society therefore, is to
2022/7 NABTEB (Dec)
efficiently allocate resources. Economics is concerned with
A. how to make quick money
2022/1 NABTEB (Dec) B. finding solutions to problems
The need to construct a scale of preference is necessitated C. how to get the largest result from limited resources
by the D. the arts of buying and selling
A. change in production technique Answer
B. urge to satisfy wants how to get the largest result from limited resources (C)
C. scarcity of resources
D. real cost of production 2022/8 NABTEB (Dec)
Answer Bricklayers are engaged in
Scarcity of resources (C) A. primary production B. secondary production
C. tertiary production D. subsistence production
2022/2 NABTEB (Dec) Answer
The concept of opportunity cost is important to the firm Tertiary production (C)
because it
A. leads to maximum satisfaction of the consumers 2022/14 NABTEB (Dec)
B. guides firms in allocating scarce resources Opportunity cost is
C. increases the level of output of the firm A. the least cost to a person when he has the opportunity
D. determines the price of the firm's products to maximise profits
Answer B. cost of luxury goods
Guides firms in allocating scarce resources (B) C. alternative that is forgone in order to satisfy a want
D. cost of creating more job opportunities per people
2022/3 NABTEB (Dec) Answer
Means are scarce because alternative that is forgone in order to satisfy a want (C)
A. they are abundant in supply
B. they are unlimited in supply 1983/8 UTME
C. they have alternative uses The concept of economic efficiency primarily refers to
D. wants are limited A. obtaining the maximum output from available
Answer resources at the lowest possible cost
Means (Resources) are scarce because they are limited B. preservation of our petroleum resources
with alternative uses (C) C. equity in the distribution of the nation’s wealth
D. producing without waste
E. the limited wants – unlimited resources dilemma
2022/4 NABTEB (Dec) Answer
The type of production that involves tapping and Obtaining the maximum output from available resources
harnessing of natural resources is at the lowest possible cost (A)
A. primary production B. tertiary production
C. industrial production D. secondary production IMPORTANCE OF THE STUDY OF ECONOMICS
Answer There are so many reasons for the study of economics,
Primary production some of these are as follows
1. Allocation of resources: The study of economics
2022/5 NABTEB (Dec) helps us understand that our resources are limited in
Human wants are unlimited because supply, hence to meet human wants, they need to be
A. production is inadequate efficiently allocated.
B. resources have alternative uses 2. Human Wants: The study of economics enables us
C. resources are limited to identify people’s wants and how to satisfy them
D. new wants always arise accordingly with the limited available resources.
Answer 3. Rational decision making: The study of economics
New wants always arise (D) helps us in developing the ability to think such that
we do not accept things irrationally in the quest for
better decision making.

11
4. Problem Solving Ability: The study of economics 2001/3 Nov
instills in us the wealth of knowledge that will help The tool used by economists to make easy choices is
in understanding and solving the practical problems called
of the society. A. merging of priorities B. schedule of wants
5. Career: Economics is a unique discipline in its own C. opportunity cost D. scale of preference
right earning an individual a career as economist. It Answer: Scale of preference (D)
also produces professionals who can also be
employed across other disciplines. 1991/2
6. The study of economics equips us with the basic Choice is necessary because resources
tools for economic analysis. A. are available B. can be found everywhere
7. The study of economics enables us to understand the C. are constant D. are scarce E. are unlimited
complex nature of economic life. Answer: Of resources scarcity (D)
8. It helps government promote growth and
development and consequently improve the quality 1996/1
of life of its people. Which of the following statements is true of the concept
of scarcity?
1995/2 Exercise 1.24
A. wants are limited but the means to satisfy them are
Scarcity in economics means.
unlimited B. means and wants are limited
A. shortage of a commodity
C. demand is scarce relative to the goods available
B. unlimited demand for consumer goods
D. people’s wants are many and the resources to satisfy
C. limited supply of goods and services
them are unlimited
D. total absence of commodity in the market
E. means are limited but want are unlimited
E. high cost of a commodity
Answer
1994/1
means are limited but wants are unlimited(E)
The definition of economics as the science which studies
human behaviour as a relationship between ends and
2003/1 Neco Exercise 1.26
scarce means which have alternative uses was given by
The most generally accepted definition of economics is
A. Adam Smith B. David Ricardo C. Lionel Robins
A. An enquiry into the nature and causes of the wealth of
D. Thomas R. Malthus E. Robert Giffen
nations
Answer: Lionel Robbins(C)
B. the science of material welfare
1993/3 C. the science which studies human behaviour as a
The real cost of a commodity is relationship between ends and scarce means which have
A. the cost of the alternative that has to be sacrificed for it alternative uses
B. the alternative that has to be forgone in order to D. the science that treat phenomena from the stand point
purchase it C. its market price of price
D. the alternative cost involved when the opportunity of E. the practical science of production and distribution of
buying the commodity is missing wealth
E. the sacrifice that is made after buying the commodity
Answer 2003/2 Exercise 1.27
The alternative that has to be forgone in order to purchase The central problem of economics is
it (B). A. demand B. opportunity cost C. scarcity
D. supply E. tendency theory
2019/1 NABTEB
Choice arises because of 2014/1 Neco
A. scale of preference B. opportunity cost The generally accepted definition of economics was given
C. unlimited wants D. scarcity of resources by
Answer: scarcity of resources (D) A. Adam Smith B. Alfred Marshall C. Daven Port
D. David Ricardo E. Lionel Robins
2001/6 Nov Exercise 1.25 Answer
Opportunity cost means Lionel Robbins. (E)
A. money cost B. explicit cost C. marginal cost
D. real cost 2021/1
The study of economics is important to every society
2001/1 Nov because it
Production is best defined as the A. enables individuals to satisfy all their wants
A. manufacturing of goods by large factories B. helps in the utilization of scarce resources
B. use of two factors of production C. helps producers to know what to produce.
C. creation of utility D. restores equilibrium between producers and
D. rendering of service only consumers.
Answer: Creation of utility (C) Answer
D– helps in the utilization of scarce resources.

12
2014/12 Neco 1993/17
The arrangement of one’s need in order of importance is Production is not complete until the
referred to as A. goods get to the wholesalers
A. choice B. opportunity cost C. scale of preference B. goods reaches the final consumer
D. scarcity E. wants C. factors of production are combined
Answer: Scale of preference (C) D. goods are ready for transportation
E. wholesalers ask the firms to produce
1990/1 Exercise 1.28 Answer
Choices arises because B – goods reach the final consumer.
A. our wants are limited
2013/2
B. our marginal utility must be maximized
The table below shows the scale of preference of a student – Mr.
C. our resources are limited Smith whose disposable income is $7.00. Use the information in
D. people must make a choice the table to answer the questions that follows.
E. goods are unlimited in supply Items needed Price ($)
2006/1 Nov Textbook 5.00
Adam Smith defined Economics as an inquiry into the Shirt 2.00
A. nature and causes of formation of the United Nations Shoes 3.00
B. nature and causes of instability within nations Trousers 3.00
C. causes of disunity among nation Notebook 1.00
D. nature and causes of the wealth of nations School fees 7.00
Mattress 10.00
Answer
nature and causes of the wealth of nations (D)
(ai) What will Mr. Smith spend his money on?
(ii) Explain your answer in 2(ai).
2006/2 Nov (bi) What is the opportunity cost of Mr. Smith’s decision in
Economics is classified as a social science because it 2(bi)?
A. studies how prices are determined (ii) Explain your answer in 2(bi).
B. studies how resources are allocated c(i) If Mr. Smith’s disposable income increases $10.0, what
C. uses of scientific method in its study will he spend it on?
D. studies human behaviour (ii) What is the opportunity cost of the decision in 2(ci)?
Answer (d) Define “scale of preference” and “opportunity cost”.
studies human behaviour (D) (e) What is the importance of a scale of preference.
Answer
1993/1 Exercise 1.29 (ai) From Mr. Smith’s scale of reference above, given his
Economics is the study of how to disposable income of $7.00, he can spend it on textbook
A. choose between alternatives, given limited resources and shirt.
B. regulate the money that is in circulation in a country (ii) Given the scale of reference of Mr. Smith, the textbook
C. be prudent in the use of available resources and shirt tops his priority list amounting to his available
disposable income of $7.00.
D. improved the standard of living of the society at large
(bi) The opportunity cost which is the foregone alternative
E. arrange our needs in order of usefulness before
in purchasing the items in 2(ai) includes the shoes,
satisfying them trousers and notebook.
2014/42 (OAU, IFE) (ii) This is because the next best alternative that could be
The real cost of a commodity is purchased with the available disposable income of
A. the cost of the alternative that has to be sacrificed for it $7.00 include the aforementioned three items in 2(bi),
B. the alternative cost involved when the opportunity of which includes the shoes, trousers and notebook.
(ci) By increasing his disposable income to $10.00, he can
buying the commodities is mixed
now purchase the textbook, shirt and shoes.
C. its market price
(cii) The opportunity cost now includes the trouser, notebook
D. the alternative that has to be forgone in order to and the sum of $6.00 which would have been paid out
purchase it from his school fees.
Answer (d) A scale of preference is a list of human wants in order of
The alternative that has to be forgone in order to purchase relative importance. Such listing enables man to satisfy
it (D) his wants from the most important to the least
important.
1993/2 Opportunity cost is the forgone alternative in order to
Scarcity in Economics arises because acquire a particular commodity or to produce a
A. the resources available are adequate particular commodity or to produce a particular goods
B. individuals have limited time or services.
C. resources are limited in supply (e) A scale of preference helps an individual, firm or
D. human beings have limited wants government to make rational use of available resources
E. individuals wants are equal to the resources available to satisfy the most important wants.
Answer: resources are limited in supply (C)
13
1993/35 2000/1
A scale of preference is a list of Scarcity implies that
A. of consumer’s wants arranged in order of importance A. goods cannot be produced efficiently
B. that helps the individuals to make a rational choice B. human wants are unlimited
C. that enables the consumer to make a wise decision C. goods and services are limited in supply
about his choice D. commodities are evenly distributed within the
D. that is necessary because human beings are faced with economy.
competing wants Answers: Goods and services are limited in supply (C)
E. of all satisfied wants arranged in order of magnitude
Answer 2000/1
of consumer’s wants arranged in order of importance (B) Economic problems arise mainly as a result of
A. inaccurate statistical data in West Africa
2016/1 NABTEB Exercise 1.30 B. Excessive wastage of available resources
Opportunity cost is also known as C. lack of foresight on the part of resources users
A. money cost B. real cost C. accountant’s cost D. limitations in availability of resources
D. production cost Answers: Limitations in availability of resources (D).

2016/28 NABTEB 2000/3

Any production undertaken for the purpose of satisfying Basic extractive activities are classified as
human wants must have A. manufacturing production B. tertiary production
A. a price B. usefulness C. a nice quality D. utility C. secondary production D. primary production
Answer: Utility (D) Answer
primary production(D)
1983/43
Which of the following defines Economics most 2002/5
comprehensively? Opportunity cost is also known as
A. buying and selling B. organization of industries A. accountant’s cost B. money cost
C. study of human behaviour in the allotment, planning C. production cost D. real cost
and budgeting D. banking and insurance Answer: Real cost(D)
Answer
Study of human behaviour in the allocation of scarce 2002/6
resources (C). Teaching and banking can be classified as
A. commercial production B. primary production
2008/1 Exercise 1.31 C. secondary production D. tertiary production
The main concern of economists is to Answer: Tertiary production(D)
A. allocate scarce resources to satisfy human wants
B. satisfy all human wants 2020/1
C. redistribute income between the rich and the poor Human wants are insatiable because
D. control the growth of a population A. most people are greedy
B. new wants always emerge
2019/1 C. producers are efficient
Choice arises because of D. goods are not well advertised
A. scale of preference B. opportunity cost Answer
C. unlimited wants D. scarcity of resources New wants always emerge (B)
Answer: scarcity of resources (D)
2020/2
2018/1 Real cost is best explained as
Choice and opportunity cost are closely related because A. price of the commodity B. scarcity and choice
A. goods are of different prices C. unlimited wants D. alternative sacrificed
B. commodities gives different utilities Answer
C. available resources are inadequate to satisfy wants Alternative sacrificed (D)
D. wants are limited while resources are unlimited
Answer 2008/1 Neco
C – available resources are inadequate to satisfy wants The concept of opportunity cost helps the individual to
A. make rational choice B. maximize profit
2019/1 C. minimize cost D. produce goods
Economic problems arise because of E. redistribute wealth
A. the creation of artificial scarcity Answer
B. corruption in high places make rational choice(A)
C. inadequate resources
D. the absence of skilled labour
Answer: Inadequate resources (C)
14
2008/2 Neco Exercise 1.32 2002/16 Neco
The arrangement of an individual’s wants in orders of Which of the following represents a good channel of
importance is known as distribution?
A. choice B. needs C. opportunity costs A. consumer  retailer  wholesaler  producer
D. scale of preference E. scarcity B. producer  retailer  wholesaler  consumer
C. producer  wholesaler  consumer  retailer
2013/12 (OAU, IFE)
D. producer  wholesaler  retailer  consumer
In Economics, a commodity is said to have an opportunity
cost because E. wholesaler  retailer  consumer  producer
A. the price of the commodity is high Answer
B. the commodity is scarce Producer  wholesaler  retailer  consumer (D)
C. another may have been purchased instead of it
D. the commodity provides many benefits 2010/1
Answer The study of economics becomes inevitable because
Another good may have been purchased instead of it (C) A. human beings need to be economical in their spending
B. resources are numerous
2000/1 C. resources need to be evenly distributed
Which of the following best defines the subject D. the available resources are limited to human desires
economics? E. the society has basic economic problems
A. the study of how man make use of unlimited resources Answer
to satisfy unlimited wants The available resources are limited to human desires (D).
B. the study of how man makes use of limited resources
to satisfy unlimited wants 2010/2 Exercise 1.33
C. the study of how man arranges his wants in order of “MEANS” in Economics refers to
priority A. choice B. factors C. output D. resources
D. the study of how man makes use of available ends to E. wants
satisfy unlimited means
E. the study of how man makes choice as a result of 2009/1
unlimited resources In Economics alternative uses refers to
Answer A. input B. limited uses C. more than one use
The study of how man makes use of limited resources to D. output E. scarcity
satisfy unlimited wants (B) Answer: Scarcity (E)
2002/2 2009/2 Neco
The economist’s terms for expressing costs in terms of The concept of choice in Economic refers to
forgone alternatives is A. a decision between one thing and another
A. money cost B. overhead cost C. prime cost B. ranking of wants in ascending order
D. real cost E. total cost C. selection of most pressing wants out of a range of
Answer alternatives
Real cost (D) D. ranking of wants on a table of preference
E. separating defective commodities from non – defective
2002/3 Neco ones
Mr. Tiche prefers a bicycle to a radio cassette, but he Answer
prefers a radio cassette to TV set. What is his scale of Selection of most pressing wants out of a range of alternatives
preference. (C)
A. (i) bicycle (ii) radio (iii) TV set
B. (i) bicycle (ii) TV set (iii) radio cassette 2006/1
The main concern of economics is to
C. (i) radio cassette (ii) bicycle (iii) TV set
A. allocate scarce resources to satisfy human wants
D. (i) TV set (ii) bicycle (iii) radio cassette
B. create human wants C. create perfect competition
E. (i) TV set (ii) radio cassette (iii) bicycle
D. create scarce resources E. redistribute income
Answer
(i) bicycle (ii) radio cassette (iii) TV set [A] Answer
Allocate scarce resources to satisfy human wants (A)
2002/4
The study of economics is useful because it enables the 2003/1
individual to The study of economics enables individuals to
A. be miserly in the spending of his money A. accumulate huge wealth B. make rational decision
B. be rational in the application of scarce resources to C. assist the poor D. establish cottage industries
satisfy his unlimited wants Answer
C. determine the right market to visit Make rational decision (B)
D. obtain solutions to his problems
Answer
Be rational in the application of scarce resources to satisfy
his unlimited wants (B)
15
2018/3 NABTEB 2007/1 (OAU, IFE)
(a) What is scale of preference? Economics is founded on the principle that
(b) Explain the following basic economic concepts A. human wants are more than human wants
(i) Wants B. material things are more than human wants
(ii) Resources C. human wants are limitless while the means to satisfy
(iii) Scarcity them are limited
(iv) Choice D. human needs are easy to define
(v) Opportunity Answer
Answer Human wants are limitless while the means to satisfy
(a) Scale of preference: This is a list of human wants in them are limited (C)
order of relative importance. Such listing enables
man to satisfy his wants from the most important to 2011/1
the least important. Economics is concerned with the study of
(b) A. human behaviour B. man and his environment
(i) Wants: This refers to those things we wish or desire to C. man and his wealth D. productions and distribution
have in life. Human wants are insatiable. While human E. resources management
wants are many, the resources to satisfy them are Answer: Human behaviour (A)
scarce.
(ii) Resources: Resources refer to the means or basic 2007/1 Exercise 1.34
instruments with which human wants an be satisfied. Economics is described as a social science because it
Resources include land, labour, capital, entrepreneur, deals with
time and money. A. an aspect of human behaviour
(iii) Scarcity: Scarcity refers to the limited supply of B. the distribution of commodities
resources relative to demand. It means that there are
C. the production of goods
few resources compared to the units required.
D. limited resources which had alternative uses
(iv) Choice: It involves the selection and satisfaction of the
most pressing wants out of a range of alternatives.
Choice making reflects the alternative uses of resources 1997/1
since human wants are unlimited and the resources Economics is often described as a science because
available to satisfy them are limited. Choice is A. adopts the use of laboratory experiments
constantly made between alternative wants. B. involves accurate prediction of human beings
(v) Opportunity cost: This is the forgone alternative in C. make use of controlled experiment
order to acquire a particular commodity or to produce a D. use scientific method to explain observed phenomena
particular goods or services. Opportunity cost is used E. deals with observation and field work
in economics to express cost in terms of forgone or Ans: Use scientific methods to explain observed phenomena (D)
sacrificed alternatives.
2008/1 (OAU, IFE)
2009/1 Which of the following statement is false?
The study of economics becomes necessary because of the A. ends in economics are the resources with which it can
A. large population size of the world attain our goals
B. scarcity of resources B. tables and graphs are focused on arithmetic techniques
C. opportunity cost of goods and services used in economics to present ideas pictorially
D. need to satisfy every desire of man C. three basic questions every economy must answer are
Answer what to produce, how to produce and whom to produce
Scarcity of resources (B) D. A and B are substitutes of the supply of A increases,
2000/2
the price of B will tend to increase
The concept of opportunity cost is also referred to as Answer
A. social cost B. real cost C. fixed cost D. variable cost Ends in economics are the resources with which it can
Answer attain our goals (A)
Real cost (B)
2009/3 2014/2015/1 (UI., IBADAN)
Choice is necessitated by ____ in the terms that describes the cost of one product in
A. demand and supply terms of forgone production/acquisition of others
B. cost of production
A. marginal cost B. production/acquisition cost
C. production possibility curve D. scarcity of resources
Answer: Scarcity of resources (D) C. optimum cost D. opportunity cost
E. implicit cost
1984/1 UTME Answer
The main economic objective behind the production of Opportunity cost (D)
goods and services in any economy is to
A. maximize profits B. satisfy human wants
C. become self – reliant D. create job opportunities
E. make people wealthy
Answer: Satisfy human wants (B).
16
1997/2 2018/2 Neco
Scarcity in Economics means that Lionel Robbins, in his definition of Economics clearly
A. the economy can scarcely produce anything pointed the following basic facts about man’s economic
B. human wants are limitless life except
C. the economy has very few resources A. human wants are instiable
D. human wants are limited, relative to resources B. human wants are usually many
E. resources are limited, relative to wants C. human wants can be arranged in order of preference
Answer D. scarce means have no alternative uses
Resources are limited, relative to wants (E) Answer
Scarce means have no alternative uses (D)
2002/1 Neco
In economics, scarcity of petroleum products is the same
thing as 2005/1
A. absence of petroleum products in filling stations Scarcity refers to
B. absence of petroleum products in the refineries A. the absence of goods in the market
C. inadequate supply of petroleum products B. a period of production
D. lack of petroleum products C. limited resources D. the control of resources
E. selling of petroleum products on the black market Answer: Limited resources (C)
Answer
Inadequate supply of petroleum products (C) 2005/2
The consumer has to make a choice because wants are
2002/2 Neco
A. limited while means are unlimited
The economies costs in terms of opportunity cost, the
B. unlimited and means are also unlimited
account sees cost in terms of
C. unlimited while means are limited
A. marginal cost B. money cost C. opportunity cost
D. limited and means are also limited
D. social cost E. total cost
Answer: Unlimited while means are limited (C)
Answer
Money cost (B)
2001/2 Neco
2007/1 Neco Economics problems exist because of
Economics is regarded as a social science because it A. choice B. opportunity cost C. scarcity
A. helps people to be acceptable in the society D. scale of preference E. supply and demand
B. is associated with social clubs Answer: Scarcity (C)
C. is used by sociologists
D. studies human behaviour 2001/4
E. uses controlled experiment Economics is regarded as a science because
Answer A. Economics laws express precise relationships
Studies human behaviour (D) B. economics adopts scientific methods of investigation
C. it studies the behaviour of human beings
2013/1 Neco D. it predicts human behavior with precision
The concept of choice arises because E. universities award B.Sc Economics not B. A.
A. man needs varieties B. many things are produced Economics
C. resources are unlimited D. wants are many Answer
E. we prepare a scale of preference Economics adopts scientific methods of investigation (B)
Answer
Wants are many (D) 2003/1 Neco
2013/2 Neco The most generally accepted definition of economics is
Another name for opportunity cost is _____ cost A. an enquiry into the nature and causes of the wealth of
A. alternative B. money C. personal D. real nations
E. social B. the science of material welfare
Answer C. the science which studies human behaviour as a
Real cost (D) relationship between ends and scarce means which have
alternative uses
2018/1 Neco Exercise 1.35 D. the science that treats phenomena from the standpoint
Opportunity cost is a measure of the of price
A. forgone alternative B. money spent in the purchase E. the practical science of production and distribution of
of a commodity C. satisfaction derived from the wealth
purchase of a commodity Answer
D. value of commodity purchased The science which studies human behaviours as a
E. value of time used in the buying process relationship between ends and scarce means which have
alternative uses (C)

17
2003/2 Neco 1998/2 Nov
The central problem of economics is One way of solving the problem of scarcity that faces
A. demand B. opportunity cost C. scarcity D. supply individual is for
E. tendency theory A. the government to import goods massively so that the
Answer: Scarcity (C) citizens can get all they want
B. them to work very hard so that they are able to buy all
2019/1 their wants
The most widely accepted definition of economics was C. them to choose between alternatives since they cannot
given by meet all their wants
A. Adam Smith B. Alfred Marshall C. H. J. Davenport
D. the government to study personal behaviour in order to
D. J. S. Mil E. Lionel Robbins
know their wants
Answer: Lionel Robbins (E)
2012/3
E. them to use their resources as they want
Which of the following would guide a boy choosing between Answer
book costing $15 and a toy of equivalent value? Them to choose between alternatives since they cannot
A. returns of investment B. taste for toys meet all their wants (C)
C. scarcity and choice D. scale of preference
Answer 1990/3 Nov Exercise 1.38
Scale of preference (D) One main quality of a goods is that it
A. is sold in the market B. satisfies wants
2006/3 C. is made in the factory D. is always tangible
Economics is regarded as a/an E. is non – perishable
A. applied science B. art subject C. physical science
D. pure science E. social science 1990/8 Nov
Answer An economic problem exists whenever
Social science (E) A. there is scarcity and choice
B. they are no buyers for our goods
2000/1 C. there are too many sellers
Which of the following is a primary product? D. many people are out of work
A. electronics B. crude oil C. machineries E. raw materials are imported
D. furniture
Answer
Answer
there is scarcity and choice (A)
Crude oil (B)

2000/2 Exercise 1.36 2011/11 (OAU, IFE)

Human wants are unlimited but the resources to satisfy them The basic concepts of Economics are
are A. choice, scarcity, resources and efficiency
A. expensive B. limited C. mortgaged D. abundant B. wants, scarcity, choices, scale of preference and
opportunity cost
2004/2 Exercise 1.37 C. wants, scarcity and choice
Scarcity implies that D. wants, choice, scale of preference and opportunity cost
A. a commodity is not available Answer
B. the price of a commodity is low Wants, choice, scale of preference and opportunity cost (D)
C. demand exceeds supply
D. supply exceeds demand

2004/3
An arrangement of the individual’s unsatisfied desires in
their order of importance is called
A. scale of preference B. money cost
C. opportunity cost D. demand schedule
Answer
Scale of preference (A)

1998/1 Nov
The study of Economics enables the individual to
A. be miserly in the spending of his money
B. derive maximum satisfaction from the money he spends
C. determine the right market to visit
D. avoid the purchase of luxurious items
E. derive solution to all problems
Answer
Derive maximum satisfaction from the money he spends (B)

18
 1980/2 UTME Exercise 2.1
Production in economics occurs when
FACTORS OF PRODUCTION A. a commodity or service is sold
B. utility is created or added
Production is any activity that results in the creation of C. a commodity is manufactured
goods and services to satisfy human wants. D. raw materials are produced or extracted from mines
E. all of these
Production involves the creation of tangible things, as well
as services rendered to people and paid for by them. Thus 2018/2019/43 (NDU, BAYELSA) Exercise 2.2
production is the creation of utility that is able to satisfy The act of combining factor inputs in order to obtain
human wants. Utility is the satisfaction derived from the specific output is known as
use of a product. The purpose of all production is to satisfy A. factor procurement B. manufacturing
human wants. C. investment D. industrialization E. production

The main purpose of production is consumption. Materials TYPES OF PRODUCTION

are transformed from their raw state into useable form. (1) Direct production: This is a production process in
which a person undertakes the production of goods
Production is said not to be complete until the finished and services for personal and family needs. This
goods have actually reached the final consumer. type of production is characterized by low standard
of living as it is meant for self-subsistence. Direct
1986/6 UTME production can be found in areas of agriculture in
Production in Economics can be defined as the West Africa where many farmers are mainly
A. totality of producing, buying and consuming producing for themselves and their family use and
B. transformation of raw materials and services in order to not for exchange.
provide ultimate utility
(2) Indirect production: This is a sort of modern
C. transformation of raw materials and services in order to
production as it involves the production of goods
make maximum profit
and services which are later exchanged for money.
D. production of goods and services for consumption
The producer can use the money realized from the
Answer
sale of his product to satisfy his other wants. This
Production of goods and services for consumption (D).
type of production is characterized by exchange. In
modern days, almost all production activities are
2001/8
described as indirect. The indirect production may
What best defines the term production
be sub-divided into three stages or classes. These are
A. creation of utility yielding goods and services for human use
B. conversion of raw materials into finished goods (i) Primary Production
C. creation of goods for human consumption (ii) Secondary Production
D. delivery of finished goods to consumers (iii) Tertiary Production
E. rendering of services to customers
Primary Production: This primary stage is
Answer
Creation of utility yielding goods and services for human fundamental to all production activities as it entails the
use (A) tapping and harnessing of natural resources, e.g.
agricultural production, mining quarrying, fishing and
hunting.
1979/3 UTME
Production covers all but one of the following activities Primary production is also referred to as extractive
A. changing the position of a good in time as, for example industry as it is majorly concerned with the extraction
holding stock of goods until they are required of raw materials in their natural form from the land, air
B. the provision of some kind of service e.g. retailing or water.
C. changing the farm of a good from the raw materials to Secondary Production: This type of production
the finished product entails the processing of primary products or raw
D. changing the situation of a good as for example from a materials into finished goods that are acceptable to the
factory in Lagos to a retail shop in Port Harcourt consumers. It is further divided into two, namely:
E. the use of goods and services to satisfy individual wants (i) Manufacturing: This is the conversion of raw
Answer materials into finished products e.g. baking,
The use of goods and services to satisfy individual wants (E). brewing, etc.
(ii) Construction: It involves the fabrication and
assembly of goods, construction of roads and
bridges and other engineering works.

19
 Tertiary Production: This is the type of production petroleum, coal, etc. found within the earth and the various
that covers commercial and professional services. It environment.
involves all production processes which enables the Land earns rent as its reward or price for its use in
manufactured goods to reach the final consumers. production.
As said earlier production is not completed until the
goods manufactured get to the hands of the final CHARACTERISTICS OF LAND
consumers. This stage therefore completes the stages (1) It is a free gift of nature.
of production. (2) It is limited or fixed in supply.
People working in economic sectors such as hotel, (3) It is geographically immobile.
catering, education, health, entertainment, journalism, (4) It is an infinite resources.
telecommunications, sales and so forth are essentially (5) It is subject to wear and tear i.e through excessive
involved in tertiary production. usage or erosion
(6) It is subjected to the law of diminishing returns.
2011/6 (7) It is heterogeneous. i.e. It varies in quality and value
Methods of production can be broadly classified as ___ from one place to another.
and ____ methods
A. capital, labour, intensive B. capitalist, socialist IMPORTANCE OF LAND
C. industrial, agricultural D. crude, mechanized (1) Land provides the surface or site on which every
E. direct, indirect economic activity takes place.
Answer (2) It provides site for recreational purposes.
direct, indirect (E) (3) It provides the resources for various types of
minerals.
2018/28 NABTEB (4) It provides the source for food supply.
The type of production which involves mining is called (5) It provides the source for raw materials, which feed
A. primary production B. indirect production our industries.
C. secondary production D. tertiary production (6) It serves as site for transportation of people and goods
Answer from one place to another.
Primary production (A) (7) It is the source of residential and industrial building.
The reward for land is rent.
2006/5 Nov Exercise 2.3
Which of the following belongs to the primary stage of LABOUR
production? Labour is defined as human effort of any kind, manual or
A. producing soft drinks B. driving a cab mental, skilled or unskilled, scientific or artistic which is
C. drilling for crude oil E. road construction directed towards the production of goods and rendering of
services to satisfy human wants. Every human effort
FACTORS OF PRODUCTION contains both mental and physical aspects. Labour is a
The factors of production are the resources that are put variable factor of production. The quantity of labour
together and used for the production of goods and services. relates to the total supply of labour; the quality of labour
They are also described as agents of production or inputs has to do with the efficiency of labour.
which are combined in various proportions to get the The reward for labour is wage or salary.
goods and services produced.
Types of Labour
The factors of production are: Skilled Labour: This category of labour requires a long
(1) Land period of training through education in a special area
(2) Labour before one can perform a job.
(3) Capital Examples are lawyers, accountants, teachers, journalists,
(4) Entrepreneur. doctors, pilots, engineers etc.
Semi-Skilled Labour: This category needs a shorter period
LAND of training before an individual can perform a job.
Land is defined in economics, as the various non-human Examples are bricklayers, hairdressers, carpenters,
natural resources found anywhere on the earth. painters, cobblers, automobile mechanics, tailors, and so
It refers to all natural resources at the surface and on.
underneath the surface of the earth i.e. all free gift of Unskilled Labour: This belongs to the group who do not
nature. need any form of training before they can carry out their
It includes such resources as the land surface, the rivers, jobs. Examples are messengers, gardeners, janitors and
seas, oceans, forest and the atmosphere, as well as the cleaners. Much of the work of unskilled labour is physical
fishes, plants, chemicals and mineral deposits e.g. or manual.

20
 Skilled labour Unskilled labour EFFICIENCY OF LABOUR
1. Labour who has special He does not have any Efficiency of labour means the productive capacity of a
skill performing certain special skill in worker to do more or better work or both during a
tasks performing a particular specified period of time. It therefore implies the quality
task and quantity of goods and services which can be produced
2. He works in offices, He work in forest, open within a given time and under certain conditions by a
workshops, laboratories spaces like streets, worker.
as managers, physicians, wharfs, markets as
engineers, e.t.c. cleaners and carriers. For determining the efficiency of labour, the following
3. He is always employed He is often employed as three aspects are kept in view.
as permanent staff and casual worker; he is paid 1. The quantity or amount of a product which is produced
paid on monthly basis. on daily or weekly basis. by a worker.
4. His reward is called His reward is called 2. The quality of the product produced by a worker, and
“salary” “wages”. 3. The time spent by a worker in producing that product.
5. He is referred to as He is referred to as
mental labour and his manual labour, and his
job is called ‘white job is called ‘black- FACTORS INFLUENCING THE EFFICIENCY OF
collar job’. collar job or menial job’. LABOUR
6. His tools are pen, paper, His tools are cutlass, Factors influencing the efficiency of labour.
spanners, etc. shovel, hoe, axe, basin, General factors:
truck, e.t.c. (i) Racial characteristics: Each race has distinct
qualities of temperament, morality, disposition and
CHARACTERISTICS OF LABOUR intellectual ability in relation to labour. When such
(1) It is supplied by man. characteristics are positively channeled into
(2) It is geographically and occupationally mobile. labour, it increases the efficiency.
(3) It acquires skills through education. (ii) Climate conditions: Climatic differences affect
(4) It is variable in supply. The variability in supply is the efficiency of labour in production. For instance
determined by personal characteristics, training, hot and humid climate, in the Northern part of
environmental facilities and motivation. Nigeria is a major factor which prevents people
(5) It is perishable. A graduate who remains from doing more work and thus impedes the
unemployed for many years will lose productive ability to display high efficiency.
hours which can never be regained. Specific factors:
(6) Labour is heterogeneous factor – no two persons (i) General and technical education: Literacy is perhaps
possess the same quality of labour. Skills and the first priority to improve the efficiency of labour.
Therefore, adequate provisions for imparting training
efficiency differs from person to person. Some
to the workers will improve efficiency of labour.
workers are more efficient than others in the same
(ii) Personnel incentives and rewards: A part of the
job. profit earned by the organisation should be paid to
(7) Labour supply is inelastic in general – supply of workers as an incentive, more so, rewards should be
labour depends upon many factors like size of given to the best innovative and hardworking worker,
population, age, sex, quality of education e.t.c. this will motivate the other workers to put in their best
(8) Labour is a human capital – investment in labour is hence improving efficiency of labour.
in the form of education, health, training, et.c. This (iii) Experience: On the job experience improves
improves efficiency of labour. efficiency of labour. Hence, experienced personnel
should be given more opportunities to handle the
IMPORTANCE OF LABOUR affairs of the organisation for better productivity and
(1) Labour provides the necessary manpower or improved efficiency.
personnel required for the production of goods and (iv) Machinery and equipment: The available facilities at
services. the work place determine the labour efficiency to a
(2) Labour influences other factors of production great extent, for improved efficiency of labour,
passively. For without labour, other factors of technologically advanced machinery and equipment
production are useless. should be made available to the workers.
(3) Labour controls the other factors of production in (v) Factory environment: Good working environment
order to bring about production. and improved welfare of the workers help to improve
(4) Labour is still needed to operate machines even in the efficiency of labour.
industrialized countries. (vi) Duration of work: The total period of work per day
should not be more than eight hours, and cases of
overtime should be duly remunerated. This will greatly
improve the efficiency of labour.
21
(vii) Proper and prompt wages: Workers which are CAPITAL
fairly and promptly remunerated for their services Capital can be defined as man – made resources which are
are eager to put in their best at the work place which produced to aid the production of other goods and services.
yield better result, this greatly improves the It is a form of wealth set aside for the production of other
efficiency of labour. wealth.
(viii) Effective Management: The management practices They are also referred to as investment goods or producer
in place should be one that is free and fair. It should goods. They are goods which are wanted not because they
be focused, goal driven and inculcating effective give direct satisfaction but because they can assist in the
communication between employee’s and production of consumer goods, services and other capital
management. This improves efficiency of labour. goods. Examples of capital include machineries, tools or
(ix) Social and political conditions: Mob action, equipment, vehicles, buildings, raw materials, funds and so
banditry, sabotage, and other man – made disruptive on. The reward for capital is interest.
occurrences can interfere with an organisation
operations. These actions must be well curbed to CHARACTERISTICS OF CAPITAL
improve efficiency of labour. (1) Capital is man – made: All forms of capital are made
by man before they are used for production.
IMPORTANCE OF EFFICIENCY OF LABOUR (2) Capital takes different forms: Liquid cash, buildings,
The concept of efficiency of labour is extremely important machinery, vehicles, plants are all different forms of
in economics. There are several reasons for this. capital.
1. Determinant of the standard of living. (3) Capital can be stored up for future use e.g. saving
2. Determinant of the rate of economic growth. money for future investment.
3. Better maintenance of the capital stock. (4) Capital decreases with time, e.g. physical assets like
4. Increased profits. motor vehicles, buildings, plants and machinery.
5. Lower level of product price. (5) Capital can be transferred from one person to another.
CAUSES OF LOW EFFICIENCY OF LABOUR IMPORTANCE OF CAPITAL
The following are some of the causes of low efficiency of (1) Capital facilitates production. Without capital, raw
labour materials and other things needed for production will
1. Hot and enervating climate. not be available.
2. Low wages. (2) Capital improves the standard of living of the people.
3. Inadequacy of machinery, equipments and raw Acquisition of capital helps people to have higher
materials. purchasing power which will improve their standard
4. Uncongenial (unsuitable) factory environment. of living.
5. Inappropriate worker’s habit and socio-religious (3) Availability of capital makes division of labour
factors. possible, thereby providing high productivity.
6. Unhealthy Migratory character. (4) Higher qualities of goods are produced as the
7. Lack of education and training. availability of capital can enable firm to access
8. Inefficient management. modern machines used for production.
(5) Capital increases the efficiency of other factors of
SUGGESTION FOR IMPROVING EFFICIENCY production.
The followng are some suggestions, which will definitely
help in improving the efficiency of workers. TYPES OF CAPITAL
1. The payment of wages should be fair and prompt. (1) Fixed capital: These are assets which are not used up
2. Apart of profit earned by the organisation should be or do not change form in the course of production.
paid to workers as an incentive. Examples are land, building tools, motor vehicles,
3. Working conditions in the factories should be plants and machinery.
improved. (2) Circulating/working capital: These are assets which
4. The total period of work per day should not be more are used up in the process of production. They are
than eight hours, and cases of overtime should be duly required for the day to day running of the business.
remunerated. Examples are raw materials, cash (money) and fuel.
5. Social security network should be built up to protect (3) Social capital: These are the social infrastructure
the workers. provided by the government. Examples are
6. Benefits like housing facilities, medical aid, group electricity, road, water and telephone.
insurance, etc. should be provided to the workers.
Fixed capital also refers to durable capital goods which are
in production again and again till they wear out.

22
WEALTH Poverty is actually the lack of wealth.
Wealth is defined in economics as the total stock of goods There are two main classifications of poverty
and skills owned by a person, community, company or Absolute Poverty: This is also known as extreme poverty
country at a particular point in time. Essentially, wealth is or abject poverty, it involves the scarcity of basic food,
the accumulation of scarce economic resources that can be clean water, health, shelter, education and information.
measured in terms of either real goods or money value. Those who belong to absolute poverty tend to struggle to
Specific people, organisations, and nations are said to be live and they experience a lot of child deaths from
wealthy when they are able to accumulate many valuable preventable diseases like malaria, cholera and water
resources or goods. contamination related diseases. Absolute poverty is usually
uncommon in developed countries and each nation has its
Qualities of Wealth own threshold for absolute poverty line.
Before anything could be called wealth, it must possess Relative Poverty: It is defined from a social perspective
certain qualities among which are: that is, living standard compared to the economic
1. They must be limited in supply. standards of population living in surroundings. Hence it is
2. They must have money value. a measure of income inequality. For example, a family can
3. They must possess utility. be considered poor if it cannot afford vacations, or cannot
4. They must be marketable. In other words, they can be buy presents for children at Christmas, or cannot send its
bought or sold, but not necessarily offered for sale. young to the university.
5. It is possible to transfer their ownership from one
person to another. Relationship between wealth and capital
All capital is wealth. Capital is a type of business wealth.
The concept of wealth is usually applied to scarce
However, not all wealth is capital. This is because some
economic goods; goods that are abundant and free for
forms of wealth do not assist production. For example,
everyone provide no basis for relative comparisons across
personal wealth such as clothes, personal cards, and
individuals.
jewelry are not used directly in production and are
therefore not capital goods.
Types of ownership of wealth
1. Personal wealth: This comprises the personal
belongings of an individual such as clothes,
household furniture and equipment, jewelry, personal CAPITAL FORMATION AND ACCUMULATION
Capital formation or accumulation means increasing the
cars, books, etc.
stock of real capital in a country, that is making of more
2. Business wealth: This is also referred to as
capital goods such as machines, tools, factories, transport
producers’ wealth. It consist of all assets belonging to
equipment, materials, electricity etc. which are used for
business organisations which aid production. These
future production of goods.
include factory buildings, plants and machinery, raw
materials, motor vehicles, etc. Land is also part of
business wealth. Process of Capital Formation
The most important means of capital formation is
3. Community Wealth: This is made up of properties
‘waiting’. This require the sacrifices of past labour,
collectively owned by members of a community.
equipment or time. Capital formation and accumulation
Such properties may be owned as a result of joint
result from increase in investment or an increase in stock
effort. Community wealth include town hall, markets,
of real capital.It depends on saving. Saving involves
etc.
forgoing some present consumer goods. ‘Waiting’ simply
4. Social wealth: This refers to the wealth of a nation
means that capital takes time to be formed.
which is collectively owned by its citizens. For
example, schools, roads, public libraries, art galleries,
A country’s stock of capital at any given time is the result
museums government offices, general hospitals, etc.
of sacrifice made by the citizens in the past. Any further
Social wealth are usually provided and managed by
increase in its stock of capital can only be achieved by
government.
forgoing some present wants (consumer goods).
POVERTY
The production of capital goods, or additions to capital for
Poverty is a state or condition in which a person or
the purpose of production, is known as investment. This
community lacks the adequate resources and essentials for
investment depends on saving since it is the amount saved
a minimum standard of living. It means that the income
that can be invested.
level from employment is so low that basic human needs
cannot be met. Each nation may have its own threshold
that determines how many of its people are living in
poverty.

23
In all countries, in the early stages, the rate of capital Reasons for Low Capital Formation in West Africa
formation is usually slow. But once some stock of capital There are number of reasons for the rate of capital
has been formed, this can assist further capital formation in many African countries.
accumulation. Capital accumulation proceeds with 1. The existence of a vicious circle of poverty
cumulative effect (that is, it has a multiplier effect). Thus,
the provision of capital in developing countries is used to
speed up economic development.

Summarily, for making additions to the stock of capital,

saving and investment is essential.

In order to accumulate capital goods some current

consumption has to be sacrificed. The greater the extent to
which the people are willing to abstain from present
consumption, the greater the extent that society will devote
its resources to new capital formation. If the society There is a low income which results in low savings. Low
consumes all that it produces and saves nothing, future saving results in a shortage of capital for investment, and
productive capacity of the economy will fall as the present this in turn results in low investment. Low investment
capital equipment wears put. leads to low output, and consequently to low income.
Low income results again in low savings, and the vicious
To cut down some of the present consumption and wait for circle continues. For this reason, capital formation
more consumption in the future require far sightedness on continues to be slow.
the part of the people. There is an old Chinese proverb, 2. Lack of investment incentives: In West Africa, the lack of
“He who cannot see beyond the dawn will have much investment incentives leads to low rate of productivity
good wine to drink at noon, much green wine to cure his which, in turn restricts capital formation.
headache at dark, and only rain water to drink for the rest 3. Lack in Supply of Capital: Like demand of capital, lack
of his days” of supply of capital is responsible for low capital
formation. However, due to lack of necessary supply of
In the economically advanced countries such as the United capital in West African countries which are mainly under
States of America and Japan, stocks of capital are high and developed, the supply of capital is not boosted up. As a
there are high rates of capital formation. The reverse is result, capital formation remains at low level.
true of many countries of Third World, including the 4. Small Market Size: The domestic market size of
countries of West Africa. In the Third World countries, West African countries are small, investment is
there are low stocks of capital and the rate of capital therefore hampered. It does not expand the work of
formation is slow. economic development and modern machines cannot
be used as extra quantity produced has no market
Stages in Capital Formation access.
In a modern free enterprise economy, the process of capital 5. Lack of Economic and Social Overheads: Basic
formation consists of the following three stages overheads like roads, buildings, communication,
(a) Creation of Savings: An increase in the volume of education, water, health etc. are generally lacked in
real savings so that resources, that would have been West Africa which is under developed, this react as
devoted to the production of consumption goods, improper atmosphere for the capital formation and
should be released for purposes of capital formation. slow process of capital formation.
(b) Mobilization of Savings: A finance and credit 6. Lack of Skilled Entrepreneurs: In West Africa there
mechanism, so that the available resources are exist a short fall of able and efficient entrepreneurs. It
obtained by private investors or government for is a major reason for low rate of capital formation.
capital formation. Due to absence of risk-taking entrepreneur,
(c) Investment of Savings: The act of investment itself establishment of industries and expansion is quite
so that resources are actually used for the production limited and industrial diversification is not carried out
of capital goods. and no balanced development of economy is possible
7. Unequal distribution of Income and wealth: In West
Africa there exist an extreme unequal distribution of
income and wealth this keeps the rate of capital
formation relatively low. In fact, it restricts real
investment in the economy which greatly affects the
capital formation.

24
8. Immobility of Savings: Immobility of saving also 4. The government should encourage banks to give
causes low rate of capital formation, this is due to loans to borrowers who are willing to invest in
lack of banking and other credit institution. In many production ventures: Again, the government could
places, people do not know why they should save. In set up institutions which provide loans for investors.
other places, the facilities for saving are either not In Nigeria and some other countries, there are finance
available or else inadequate this creates the problem corporations which provide such loans.
of hoarding as saving is used for non-productive 5. High taxation on the rich could help to reduce their
purposes. disposable incomes: This would also reduce the
9. Demographic Reasons: In West Africa, the growth amount which they could spend on non – productive
rate of population is very high which keeps the rate of projects. More money would be made available to the
capital formation at a low level. It is because most government which could be channeled into
part of the income is spent on bringing up the productive ventures.
additional numbers. Thus, there is little scope of 6. Greater use of ploughed back profits: Firms could
saving and as a result, it aggravates the growth of re-invest part of their profits instead of sharing all of
capital formation it out to the owners who may spend them on
consumer goods. This is a form of saving for
How the Problem of Vicious Circle can be solved (How investment and it aids capital formation. The
capital can be accumulated) government can encourage this by reducing company
Many West African countries have tried to break the taxes in order to increase the retained earnings of
vicious circle of poverty in order to accumulate capital and entrepreneurs.
achieve economic development. To break the vicious 7. Capital can be accumulated by producing more
circle of poverty, any of the elements, in the vicious circle capital goods: The time and productive resources
can be attacked. The measures suggested below are used in producing consumer goods can be cut down.
already being taken by many countries. This would increase the amount of resources which
1. Countries could increase the stock of capital available for can be used for the production of capital goods. In
investment by depending on foreign capital in the form of addition, the time used for leisure could be reduced
aid, grants and loans: Loans tends to be more acceptable and more time devoted to production especially the
since aid from advanced countries usually have more production of capital goods.
‘strings’ attached; that is, it is usually given out on 8. The accumulation of capital can be facilitated by
conditions which will be advantageous to the donor decreasing self-consumption: The producer could
country. Loans could be raised from the International sell more of his products and use the money to
institutions such as the International Monetary Fund purchase capital goods. For example, a yam farmer
(I.M.F) and the World Bank. The loans, if used in who had been using only hoes and cutlasses could eat
productive ventures, help in capital formation. fewer of his yams and sell more of them. By so
2. Capital can be accumulated by saving money for doing, he would have more for sale to purchase
investment: It has been said earlier that capital formation machinery and fertilizer which could help further
depends on saving. Money which is saved can be used to production.
purchase capital goods. Saving should be encouraged by
the government through various ways. The people should Reasons for Low Personal Savings in West Africa
be reminded of the need to save through advertisements A number of factors account for the low level of savings in
in the mass media. The government should give West African countries.
incentives and encourage banks to establish branches in 1. Low level of income: In West Africa, income per capital
rural areas. The government could also encourage the use is small when compared with that of the economically
of mobile banks and saving post offices. Individuals advanced countries. Because of the relatively small
could save by cutting down on the amount spent on income of many people in West Africa, little or no
consumer items such as food, clothing and luxuries and money is left for savings after meeting the basic needs
of life. The small income per head is largely attributable
involving themselves less in frivolous spending. Money
to the existence of the vicious circle of poverty. There is
which is saved can then be harnessed for investment.
low productivity because a small amount of capital is
3. The government should spend less money on invested and most forms of production are still
prestigious but non – productive ventures and invest primitive. Large scale production and the use of modern
directly in the productive sectors of the economy techniques are not widespread. Since productivity is
(especially the production of capital goods) in order low, income is low.
to supplement private efforts. The government could 2. Inflation: Due to inflationary trend in West Africa,
set up government – owned enterprises or go into the prices of commodities go very high and the
joint – ownership with private individuals. In such middle class people find it difficult to save any
ventures, the government could own the majority amount
shares thereby helping to provide the much – needed
capital for investment.
25
3. High dependency ratio: The working population in Capital consumption can also occur due to a shift in
West Africa forms only about 35-40% of the total demand, e.g. rise in demand for computers made the
population. This suggests a relatively high investment in producing typewriters obsolete.
dependency ratio and therefore a heavy burden on the
income earners. From their meager incomes, many If further production is to take place and if progress is to
workers cater for children, brothers, sisters, parents, be maintained, worn-out and out-of-date capital have to be
and other relatives, who have little or no means of replaced. So funds have to be set aside for their
livelihood. This is a common phenomenon in West replacement and for the maintenance of machinery and
Africa because of the existence of the extended equipment. Such funds are called depreciation funds. A
family system. The meager resources of the average machine or any other forms of capital which has become
worker are therefore easily drained and he may even totally worn-out so that it is of no use at all is said to be
have to borrow money to make both ends meet. obsolete. A country that does not replace worn – out
4. Taxation Policy: In West Africa, the high levels of capital is said to be consuming capital. A country that
taxes on properties and facilities affects saving cannot maintain its living stock of capital goods is said to
ability. The businessmen and industrialists believe be living on capital. A person is said to be living on capital
that level of taxation should be reduced so that if he has to augment his present income by drawing of his
people’s capacity to save is improved. past savings in order to make both ends meet.
5. High propensity to spend and to consume: Many ENTREPRENEUR
people in West African countries have a higher An entrepreneur organizes human and material resources for
propensity to spend (and consume) than to save. the production of goods and services.
Many people want to live in style and exhibit their Entrepreneurship is a special sort of human effort that takes
wealth. Extravagant spending leads to low saving. on the risk of bringing labour, capital and land together to
Those with lower income would want to show off obtain maximum production of goods and services at
like richer people. They eventually find it difficult to minimum cost. Entrepreneurship is the factor that organizes
make both ends meet, and have little or no money to the other factors of production, for without someone to
save. They may even borrow from other people and organize production, the other three factors do not produce.
banks to make up, and may end up in perpetual An entrepreneur is concerned with the direction and control
indebtedness. of the business. The entrepreneur has to bear risks and
6. Inadequate Investment Channels: The value of uncertainties. For facing uncertainties he may get profit or
saving is yet to be realized by many people. Again, may incur loss. This is the “Risk Bearing Function” and the
facilities for saving are either lacking or inadequate in entrepreneur is the risk bearer.
many areas. In some places especially in rural areas,
there are no banks where people can save their CHARACTERISTICS OF ENTREPRENEURSHIP
money. There is, therefore, the tendency for many 1. The entrepreneur employs all other factors of
people to consume all their income or facilities. production including labour.
7. Low interest rates and high initial deposits: Until 2. His reward is profit or loss.
recently, the amount of interest paid by banks on 3. The risk he bears are not transferable
saving deposits was relatively small. Some people 4. He is very mobile.
were, therefore, not encouraged to save money in 5. He is subject to diminishing returns
banks. To complicate the issue many banks now 6. His functions regarding what and how to produce are
demand high initial deposits. This tends to discourage unique.
the small depositor. Since he may not be able to FUNCTIONS OF ENTREPRENEUR
afford such a relatively large initial deposit, he may 1. He bears all the risks involved in the business.
consume all his income and save nothing. 2. He organizes other factors of production into active
resources.
Capital Consumption 3. He is the major decision maker.
Capital consumption refers to using up existing capital 4. He is the overall controller
stock and not replacing worn-out and out-of-date capital 5. He is a provider of capital
goods. In these circumstances, there is a greater emphasis 6. He is an initiator of production ideas
of the consumption of consumer goods, and little or no 7. He manages the organization through his ability to
saving is made for replacing capital stock which has select and delegate tasks to the right caliber of
become worn-out. Little effort is made to produce or buy personnel and also his ability to supervise and
more capital equipment. coordinate their activities effectively.

With time, capital in the form of machines and other 2023/4 Neco Exercise 2.3*
equipment become less efficient. They gradually wear out, a. Who is an Entrepreneur?
or break down and lose their values. The gradual wearing b. Explain five importance of an Entrepreneur to business
out or loss of value of capital is termed Depreciation. growth.
26
MEANING OF PRODUCTS 2008/2
Products are outputs; that is, the end result of the production Productive resources can also be called
process. They are goods or services which result from the A. primary productive B. factors of production
combination of appropriate quantities of the factors of C. items of production D. labour and material resources
production. Examples of products are cassava, bread, beer, Answer: Factors of production (B)
cement, hair-cuts and services like teaching legal, etc.
2021/6 Neco
FACTORS DETERMINING THE LEVEL OF Which of the following is a feature of labour
PRODUCTION A. Fixed in supply B. Indestructible
The volume of output in any country is determined by: C. Its reward is interest D. Its reward is rent
1. The quantity and quality of the productive resources: E. Mobile
The greater the quantity and quality of the factors of Answer: Mobile (E)
production, (land, labour capital and entrepreneurship) Hint: A typical feature of labour is that, it is
which are available within a country with other things geographically and occupationally mobile.
remaining equal, the higher the level of productivity.
2. Favourable working condition and availability social 2021/7 Neco
amenities: The provision of a good working environment The reward for an entrepreneur in production is
and social amenities such as canteens, recreational A. commission B. interest C. profit D. salary E. wages
facilities, health services and well ventilated working Answer: Profit (D)
places help to improve the efficiency of labour. This in Hint: An entrepreneur organizes human and material resources
turn helps to increase the level of production. for the production of goods and services, with the aim of
3. Level of technical knowledge: The extent to which the making profit, but in some occasion he makes loss. The reward
available manpower and technical skills are developed for an entrepreneur is therefore a profit or loss.
affect the level of output In West Africa (Nigeria), a
major cause of low productivity is low level of
2021/3
technology or poorly developed manpower.
The distinguishing function of an entrepreneur is
4. Availability of infrastructural facilities: The
A. planning B. control
availability of good infrastructural facilities such as
C. risk – bearing D. management
housing, electricity, water supply, roads and other
Answer: risk – bearing (C)
means of transportation, telephone and other means of
communication help to increase productivity. These
2014/2015/38 (UI, IBADAN)
infrastructural facilities are basic for economic
In the study of economics land, labour, capital and
development and facilitate production. If they are
entrepreneur are referred to as factors of production. These
poorly developed, there will be low productivity.
factors produce commodities only if they are
5. Natural factors such as the effect of weather: This is
A. profitable to the production process
especially true of an agrarian country. Favourable
B. purchased for the purpose of production
weather conditions help to increase the level of
C. combined in the production process
production. But the volume of production will be low
D. produced adequately for the production process
if the weather is adverse, for example, if there is
E. brought into factory
drought for many months.
Answer
6. The type of economic policies undertaken by the
Combined in the production process (C)
government: To booster the level of production in a
country, government economic policies and reforms
1993/3
should be geared towards capital accumulation and
Which of the following is not a reward of any factor of
diversification rather than consumption practices.
production?
7. Efficiency in the use of factors of production: The
A. interest B. wage C. rent D. subsidy E. profit
extent to which available productive inputs are put into
Answer: Subsidy (D)
efficient uses determines the level of output. If
Hint: The rewards for the factors of production are:
productive resources are put to their best uses, the
The reward for land is rent.
level of output will be high. But productivity will be
The reward for labour is wage or salary.
low if factors of production are inefficiently allocated.
The reward for capital is interest.
8. Political and social stability in the country: The level
The reward for entrerpreneur is profit or loss.
of production will be higher in a country with a stable
government than in one which is prone to civil strife 2012/19
and political unrest. If there is political unrest, Interest is the payment made for the use of
investors will not be encouraged to make investments A. labour B. land C. capital D. enterprise
because the future is not certain. This hampers level of Answer: Capital (C)
production.

27
2023/3 2020/12 Neco Exercise 2.11
Which of the following items is not classified as working The reasons for low capital formation in Nigeria include
capital? the following except
A. equipment B. fuel A. lower propensity to consume than to save
C. money to pay wages D. semi-finished goods B. little incentives to save
Answer C. investment in unproductive ventures
Equipment is not classified as a working capital because it D. inequitable distribution of income
belongs to the category of fixed capital (A) E. existence of vicious circle of poverty

2019/3 (PC2) 2021/3 Neco

An example of circulating capital used by an entrepreneur is (a) What is capital formation?
A. factory building B. raw materials (b) Explain four reasons for low capital formation in
C. pipe-borne water D. electric power Nigeria.
Answer Answer
Raw materials (B) (a) Capital formation means increasing the stock of real
capital in a country, that is making of more capital
2021/49 (PC2) Exercise 2.4 goods such as machines, tools, factories, transport
Immobility of land in the geographical sense is applicable equipment, materials, electricity etc. which are used
only to for future production of goods.
A. all natural resources B. land as the earth’s surface
C. fishes in water bodies D. vegetation and its products (b) Four reasons for low capital formation in Nigeria
include:
i. Unequal distribution of Income and wealth: There
2010/15 Exercise 2.5 exist an extreme unequal distribution of income and
The reward to land as a factor of production is wealth in Nigeria. This keeps the rate of capital
A. profit B. rent C. interest D. wage formation relatively low. In fact, it restricts real
investment in the economy which greatly affects the
capital formation
2003/5 Exercise 2.6
The reward of labour is ii. Immobility of Savings: Immobility of saving also
A. wages B. profit C. rent D. dividends causes low rate of capital formation in Nigeria, this is
due to lack of banking and other credit institution. In
many places, people do not know why they should
2018/32 NABTEB Exercise 2.7 save. In other places, the facilities for saving are
Profit is the reward for either not available or else inadequate this creates the
A. capital B. entrepreneur C. land D. labour problem of hoarding as saving is used for non-
productive purposes.

2018/29 NABTEB Exercise 2.8 iii. The existence of a vicious circle of poverty: The
Land aids production through the following except income earned in Nigeria is low, which results in low
A. provision of natural resources B. the reward is rent savings. Low saving results in a shortage of capital for
C. facilitates the construction of buildings investment, and this in turn results in low investment.
D. risk bearing Low investment leads to low output, and consequently
to low income. Low income results again in low
savings, and the vicious circle continues. For this
2004/7 Exercise 2.9 reason, capital formation continues to be slow.
Land refers to all forms of natural resources that can attract
the payment of iv. Lack of Skilled Entrepreneurs: In Nigeria, there
A. wages B. royalties C. interest D. profit exist a short fall of able and efficient entrepreneurs. It
is a major reason for low rate of capital formation.
Due to absence of risk-taking entrepreneur,
2020/6 Neco Exercise 2.10 establishment of industries and expansion is quite
The factor of production that coordinate other factors of limited and industrial diversification is not carried out
production is and no balanced development of economy is possible.
A. wealth B. land C. labour
D. entrepreneur E. capital

28
2020/4 Neco labour (L) and land (K). We can write the production
(a) What is labour? function as: Q = f(K,L).
(b) State and explain four ways by which efficiency of Again, assuming the variable inputs are Zj, the production
labour can be improved function will be as follows.
Answer Q = f(Zj)
(a) Labour refers to all human effort, manual or mental, Also, assuming the variable inputs is labour which may be
skilled or unskilled, scientific or artistic which is a variable factor, the production function will be as
directed towards the production of goods and follows. Q = f (labour)
rendering of services to satisfy human wants. The indication is that the quantity of goods or services
produced is a function of the quantity of labour employed.
The idea is that the production function expresses the
(b) The efficiency of labour can be improved through the relationship between the quantity of input and the quantity
following ways: of output. Looking at it from a more technical perspective
(i) General and technical education: Literacy is such as in a situation where more than one inputs are
perhaps the first priority to improve the efficiency involved, the production function will take the form below.
of labour. Therefore, adequate provisions for Q = (f(Zj1, Zj2, …..Zjn)
imparting training to the workers will improve Where Q represents the quantity produced and at a
efficiency of labour. particular time and when Zj stands for the quantity of a
(ii) Personnel incentives and rewards: A part of the particular input.
profit earned by the organisation should be paid to For further illustration, consider the table below:
workers as an incentive, more so, rewards should Units of labour Units of capital Units of paper
be given to the best innovative and hardworking 60 12 30,000
worker, this will motivate the other workers to put 90 9 30,000
in their best hence improving efficiency of labour. 120 6 30,000
(iii) Experience: On the job experience improves
efficiency of labour. Hence, experienced personnel The table shows different combinations of inputs which
should be given more opportunities to handle the will produce the same quantity of paper. This can be
affairs of the organisation for better productivity presented in a curve as shown below.
and improved efficiency.
(iv) Machinery and equipment: The available
facilities at the work place determine the labour
efficiency to a great extent, for improved
efficiency of labour, technologically advanced
machinery and equipment should be made
available to the workers.

THE PRODUCTION FUNCTION

The production function is used to present the maximum
quantity of output produced at a time as a function of the
quantity of the variable inputs that are used. Let us Isoquant curve
presume for a farmer who utilizes only 2 inputs to
manufacture rice: labour and land. A production function The above is known as isoquant curve and it displays the
explains the utmost quantity of rice he can manufacture for different combinations of inputs that will give the same
a provided amount of land that he utilizes and a given units of output. The different combinations A, B and C.
hours of labour that he performs. Suppose that he uses 2 2001/23 UTME
hours of labour per day and 1 hectare of land to A production function relates
manufacture an utmost of 2 tonnes of rice. Then, a A. cost of output B. wages to profit C. cost of input
function that explains this association is called a D. output to input
‘Production Function’. One feasible instance of this form Answer: Cost of output (A).
could take is Q = K×L whereas, Q is the amount of rice
manufactured, K is the area of land in hectares, L is the 2007/18 UTME
number of hours of work performed in a day. The input A characteristics of the linear production function is that
that utilizes the production procedures are called factors of A. the percentage change in output is less than one
production. Production function, explains the utmost B. the percentage change in inputs exceeds output
quantity of output (Q) that can be manufactured by using C. output and all inputs change by the same percentage
different combinations of these two factors of production: D. the percentage change in output is greater than one
Answer
Output and inputs change by the same percentage (C).
29
ISOQUANT 2002/8
An isoquant is a contour line which shows the relationship A form of capital which is used up in the production process
between the various possible combinations of two factors is called
of production that can produce a given quantity or unit of a A. circulating capital B. fixed capital C. issued capital
commodity. This is also the locus of all technically D. liquid capital E. shared capital
efficient combinations of all factors of production for a Answer
given level of output. Circulating capital (A)
A series of isoquant from the same production function
and each isoquant relating to a given output level is known 2017/2018/27 (UNIZIK, AWKA)
Which of the following reward is associated with
as isoquant map.
entrepreneurship as a factor of production?
CHARACTERISTICS OF ISOQUANT CURVE A. salaries B. profits C. interests D. rents
1. An isoquant curve slope downward or negatively. Answer
2. An isoquant curve is usually convex to the origin. Profits (B)
3. All combinations on an isoquant gives the same
output level. 1992/7
4. Isoquant curves cannot intersect each other or else it Which of the following best describes production
become difficult to explain. A. creation of utility B. production of tangible goods
5. A series or collection of different produce desired C. rendering of services D. extraction of mineral ores
output levels. E. payment of services rendered
Answer
2022/29 NABTEB Creation of utility (A)
Land is different from other factors of production because
it is 1992/17
A. owned by landlords B. owned by government Mobility of labour means to
C. owned by individuals D. a free gift of nature A. ease with which labour can change place or occupation
Answer B. movement of labour
A free gift of nature (D) C. recruitment of mobile labour
D. availability of vehicles to convey labour from one place to
2022/3 NABTEB another
The total amount of goods and services produced in a E. movement of labour from place to place
country with available economic resources is known as Answer
A. production capacity B. volume of production Ease with which labour can change place or occupation (A)
C. secondary production D. indirect production
Answer
volume of production (B) 2006/7 Exercise 2.13
Which of these is a characteristic of land as a factor of
2022/4 NABTEB production?
Facilities and infrastructures owned by the society such as A. free gift of nature B. geographically immobile
road and electricity is referred to as C. has a high cost of production D. not fixed in supply
E. not subject to diminishing return
A. liquid capital B. circulating capital
C. current capital D. social capital
Answer 2009/16 UTME
Facilities and infrastructures owned by the society such as Production takes place when
road and electricity is referred to as social capital (D) A. output is transformed into input
B. machines replace human effort
2018/6 Neco Exercise 2.12 C. input is transformed into output
The following are features of land except that it is D. there is specialization and division of labour
A. a free gift of nature B. fixed in supply Answer
C. homogeneous D. immobile Input is transformed into output (C).
E. subject to diminishing returns
2011/7 Neco
2018/22 Neco Calculating capital refers to capital
The form of capital provided by the government in order to A. in monetary terms B. owned by individual
aid the production of other goods and services is referred to C. that has relatively long life – span
as ____ capital D. that is used up in the process of production
A. circulatory B. current C. fixed D. human E. which can be used for a specialized purpose
E. social Answer
Answer That is used up in the process of production (D)
Circulatory (A)
30
1987/9 UTME 2014/2015/37 (UI, IBADAN)
The residual of production which accrues to the ownership In Economics, production is complete when
of land after all other expenses have been met is called A. godos are produced in the factories
A. wages B. rent C. interest D. profit B. goods are sold to the wholesaler
Answer C. goods and services are produced by the government
Rent (B). D. prices are fixed for goods and services
E. goods and services finally reach the consumer
1987/11 UTME Answer
The form of capital which is usually consumed or Goods and services finally reach the consumer (E)
transformed into finished goods and services in the
2003/6
production process is called
Which of the following factors of production consists of man
A. industrial capital B. social capital C. fixed capital made goods?
D. circulating capital A. land B. labour C. capital D. entrepreneur
Answer: Circulating capital (D) Answer: Capital (C)

2011/28 Neco Exercise 2.14 2003/7

The reward for entrepreneurship is One major function of the entrepreneur is
A. interest B. profit C. rent D. salary E. wages A. bearing of risks B. maximizing profits
C. taking charge of day to day management
2014/16 Neco D. determining the selling price of his products
Production is said to be ____ if the goods and services do Answer: Bearing of risks (A)
not get to those who desire them.
A. direct B. incomplete C. primary D. secondary 2018/30 NABTEB
E. tertiary Which of the following is not regarded as labour?
Answer: Incomplete (B) A. immobility of labour B. mental effort
C. skillful effort D. physical effort
2014/17 Neco Exercise 2.15 Answer
The reward of land is Immobility of labour (A)
A. debenture B. interest C. profit D. rent E. wages
2018/5 NABTEB Exercise 2.17
1993/13 Exercise 2.16 (a) Define the term capital.
(b) Discuss four reasons why capital is an important factor
In economics, the reward for labour is in the form of
of production.
A. wages B. profit C. rent D. dividends E. interest
2016/6 NABTEB
1993/32 Which of the following factors of production is the most
Land is a most significant factor in terms of contribution to mobile?
the economy because A. land B. capital C. entrepreneur D. labour
A. it enables us to build industries Answer
B. we build houses on it Labour (D)
C. all our highways are constructed on it
D. we get a lot of fishes from it 2019/29 NABTEB
E. vital resources from it enrich the economy The factor which embraces all natural resources is
Answer: Vital resources from it enrich the economy (E) A. land B. rocks C. mineral deposits D. petroleum
Answer
1993/33 Land (A)
Capital as a factor of production is important because
A. it enables us to carry out tasks which cannot be done by 2019/31 NABTEB
human effort only Social capital belongs to
B. most tasks can be done with bare hands A. firms B. corporations C. communities
C. people can work without capital D. governments
D. without capital, all other factors are useless Answer
E. it provides money which is essential for the growth of Government (D)
business
2019/32 NABTEB Exercise 2.18
Answer The entrepreneur in any business venture is the
It enables us to carry out tasks which cannot be done by A. main risk bearer B. source of all decisions
human efforts only (A) C. efficient manager D. pivot of production

31
2009/2010/66 (NDU, BAYELSA) Exercise 2.19 1989/6 UTME
If a person receives a higher wage than would be necessary to If X represents the factor of production and Y represents the
induce him to work, he is said to be receiving factor price, which of the following sets of association is
A. rent B. profit C. interest D. surtax correct?
E. income A. (land, rent), (capital, wage), (labour, profit)
B. (land, interest), (capital, profit), (labour, wage)
1990/2 Nov C. (land, wage), (capital, interest), (labour, rent)
The more durable part of the capital that should require D. (land, rent), (capital, interest), (labour, wage)
renewal only at fairly long intervals is known as Answer
A. circulating capital B. liquid capital C. solid capital B –(land, interest), (capital, profit), (labour, wage).
D. fixed capital E. constant capital
Answer: Fixed capital (D) 1985/17 UTME
The amount of labour a producer hires relative to other factor
2002/8 inputs depends on the
Which of the following is not included in capital as a factor A. price of labour or its wage
of production? B. price of labour, machinery and other inputs
A. machinery and tools B. offices and factories C. price of machinery
C. physical effort by workers D. roads D. price of the other inputs E. type of machinery
Answer :Physical effort of workers (C) Answer
Price of labour, machinery and other inputs (B).
2005/6 Exercise 2.20
Under which of the factors of production lakes, rivers and 1985/45 UTME
minerals would be classified The act of combining factor inputs in order to obtain specific
A. labour B. capital C. land D. entrepreneur output is known as
A. factor procurement B. manufacturing C.investment
2004/8 D. industrialization E. production
A major function of the entrepreneur is to Answer
A. finance public projects B. donate to the needy Production (E)
C. bear risks D. discourage investors
Answer: Bear risks (C) 1987/34 UTME
2006/6 Exercise 2.21 The main reason for charging interest is to
For participating in production, the entrepreneur earns A. reward entrepreneurship effort B. redistribute profits
A. rent B. wage C. profit D. interest C. reward investors for present use of capital
D. mobilize more funds for development
2007/2 Answer
Who bears the risk of production? Redistribute profits (B).
A. production managers B. factory workers
C. entrepreneurs D. retailers 2022/16 NABTEB
Answer: Entrepreneurs (C) In what year was the land use decree promulgated?
A. 1965 B. 1975 C. 1978 D.1980
2007/6 Answer
The most immobile factors of production is The land use decree was promulgated in 1978 (C)
A. equipment B. land C. labour D. entrepreneur
Answer: Land (B) 2010/50 UTME Exercise 2.22
The amount of labour hired depends on the
1993/21 A. number of skilled labour available
Land is often distinguished as a factor of production because B. marginal production of labour C. skill of labour
it D. price of other inputs
A. is a free gift of nature
B. constitutes one third of the entire world
C. is limited in supply
D. is owned by individuals E. is owned by government
Answer
Is a free gift of nature (A)

32
 4. The Problem of Industrial Efficiency: How can we
organize the factors of production so as to get
ECONOMIC SYSTEM maximum output in proportion to the resources
employed? Here, both human and material waste and
Economy can be defined as a set of interrelated production costs, must reduce to a maximum.
and consumption activities in a country. 5. The Problem of Maintaining full Employment and
An economic system refers to the methods of organizing Economic Stability: Idle resources are an economic
production and consumption activities in a country. waste as well as a cause of human suffering and social
It could also be said to mean the system of producing and disorder.
distributing goods and services and allocating resources in
a society. It includes the combination of the various All of the above problems are fundamental to all
institutions, agencies, entities and consumers that comprise economics, but every economic system tries to solve them
the economic structure of a given community. in its own way. We shall, in this Chapter, deal with some
of the economic systems in the world and show how each
It is an organized way in which a state or nation allocates tries to solve the basic economic problems of the society in
the resources and apportions goods and services in the which it operates.
national community.

OTHER RELATED CONCEPTS IMPORTANCE OF ECONOMIC SYSTEM

1. Economic Sector: It is a sector that is mainly involved in 1. It helps us to know how scarce resources are allocated
economic activities: production of goods and rendering of i.e. whether by the private or public sector.
services. It is divided into two main sectors. Private sector 2. It can be used to determine the best economic system to
and Public sector. be adopted.
2. Private Sector: It is an economic sector in which the 3. It is an indicator of standard and cost of living.
means of production and distribution of goods are owned 4. It is used as a basis of decision-making regarding the
and controlled by individuals and private firms. Private allocation of resources.
firms are firms (business units) owned and controlled by 5. It helps in the measurement and comparison of
the ordinary citizens and not by the government. e.g. economic growth and development.
Dangote Industries Limited, Shell Nigeria Plc., United 6. It influences the consumption pattern of the people
Bank for Africa Plc.
3. Public Sector: It is an economic sector in which the 2023/4
organization or institutions (firms) responsible for An economic system is mainly concerned with
production and distribution of goods are owned and A. handling situations of abundant resources
controlled by the government or the state. Such firms are B. studying the relationship between ends and means
called state enterprises or public corporations. e.g Nigerian C. the establishment of the economic laws
National Petroleum Corporation (NNPC),Nigerian D. the allocation of scarce resources between alternative
Television Authority (NTA), Power Holding Company of ends
Nigeria (PHCN), Nigerian Ports authority (NPA), Answer
Nigerian Communications Commission (NCC), etc. An economic system is mainly concerned with the
allocation of scarce resources between alternative ends.
REVIEW OF ECONOMIC PROBLEMS OF SOCIETY (D)
The basic economic problems of societies, discussed in
Chapter 1, are summarized as follows: 2011/4 (OAU, IFE)
1. The Problem of Allocation of Scarce Resources: An economic system can be defined as an
Since we want, which wants shall have priority? How A. arrangement specifying how production and
do we allocate scarce resources in the production of consumption are controlled in a society
what we want or need? In other words, this is a B. arrangement whereby goods are distributed in a society
problem of resource allocation. It is really a problem C. arrangement where human wants are satisfied in a
of what to produce. society
2. The Problem of How to Produce: How shall the D. arrangement specifying how productive resources are
society’s goods be produced? Who shall produce distributed in a society
them? What resources are available and what Answer
techniques are to be used to produce them? How to Arrangement specifying how production and consumption
produce is a basic economic problem of any society. are controlled in a society (A)
3. The Problem of Product Distribution: For whom
goods shall be produced is a problem of distribution.
How will the goods produced be distributed? Should
everybody have an equal share of the social income, or
should inequality prevail?
33
TYPES OF ECONOMIC SYSTEM DISADVANTAGES OF CAPITALISM
(1) There is wide gap between the poor and the rich.
CAPITALISM OR FREE MARKET ECONOMY OR
(2) It may lead to private and foreign monopoly.
LAISSEZ–FAIRE
(3) The government fails to cater for the low – income
A capitalist economic system is one where most of the
earners.
means of production and distribution are owned and
(4) It promotes economic and political instability.
controlled by private individuals, and in which case
(5) The existence of competition may lead to wastages
government’s participation in economic activities is at
and duplication of human and material resources.
minimum.
(6) Profit orientation may lead to high cost of living.
In a capitalist economy, private individuals are allowed to
acquire and control wealth. Major decision in resources
allocation is taken by private individuals as they are 1999/8 UTME
allowed to acquire and control wealth. They determine A capitalist economy is one characterized by the
what to produce, where, how and for whom to produce and A. private ownership of factors of production
this is done through the price mechanism. The capitalist B. ownership of factors of production by rich members of
countries are USA, Canada, UK, etc. Laissez–faire means the society
“let’s do”. C. use of capital and labour in fixed proportions during
production
Capitalism is an economy which indicates the absence of
D. use of capital intensive methods of production
government intervention in a market economy. Capitalism
is also called market economy. Answer
Private ownership of factors of production (A).
FEATURES OF CAPITALISM
(1) The ownership and control of economic resources are 2019/4 (PC2)
A free market economy is one which
in the hand of private individuals.
A. both the private and public sectors co–exist
(2) It is a profit – oriented economy.
B. market forces determine what to produce
(3) There is extreme competition among capitalist.
C. there is total government control
(4) Prices are determined by the forces of demands and
D. government determine how to produce.
supply.
(5) Decision on resources allocation is usually taken by Answer
Market forces through price mechanism plays a major role
private individuals, based on price mechanism.
in a free market economy. (B)
(6) The government does not take active part in
NB: A free market economy is also known as a capitalist
production.
economy.
(7) Only private goods are produced.
2017/17 UTME
ADVANTAGES OF CAPITALISM
Freedom of consumption and production are
(1) The profit motive encourages people to develop the
characteristics of
spirit of hardwork and this leads to increase in
A. socialism B. feudalism C. capitalism
production.
D. communism
(2) The existence of competition makes room for the
Answer: Capitalism (C).
existence of many industries.
(3) The existence of many industries and the increase in
production help in raising the per capita income and 2018/5 UTME
In a capitalist economy, factors of production are owned
ultimately the standard of living of the people.
and controlled by the
(4) The capitalist system has helped in boosting
A. citizens B. businessmen C. government
entrepreneurial development. The desire for profit has
D. foreigners
helped recording an increased number of
Answer: Businessmen (B).
entrepreneurs who are highly needed for
organization, coordination and so on.
(5) It enhances self reliance. 1996/40 Nov
An economic system in which most capital goods are
(6) The emphasis of individualism helps in ensuring
owned by individual and private firm is known as a
equal opportunity for all.
A. mixed economy B. planned economy
(7) It eliminates monopolistic and dictatorial tendencies
C. community economy D. capitalist economy
of government.
Answer: Capitalist economy (D)

34
1978/32 UTME countries embrace socialism because of their quest for
Which of these would not be included in the fundamental rapid economic development and the desire to harness the
principles of free enterprise economy? meager resources they have for development purposes.
A. private ownership of factors of production
In centrally planned economy, almost all the productive
B. the right to organize factors for productive purposes
resources, production and distribution are generally owned
C. the right to make private profit
and controlled by the government. Examples of countries
D. government’s control of the mobility of factor of
that practice a socialist economy are Burkina Faso,
production
Mozambique, Poland, Hungary, Ethiopia, e.t.c.
E. government’s efforts to encourage competitive
capitalism within the laws of the country
FEATURES OF SOCIALISM
Answer
(1) It is a government controlled economy.
Government’s control of the mobility of factors of
(2) Collective ownership of productive resources.
production (D).
(3) The citizens work collectively for the advancement
of the economy.
1992/4 UTME Exercise 3.1 (4) Income distribution in a socialist economy are equal.
Which of the following is applicable in a wholly capitalist
(5) Only public goods are produced.
economy?
(6) It is not a profit oriented economy.
A. there is government intervention in price determination
(7) Private control of production and investment is at
B. consumer sovereignty does not exist
minimal level.
C. the price mechanism allocate resources
D. households cannot freely decide what to spend on
ADVANTAGES OF SOCIALISM
goods and services
(1) Socialism encourages more equitable distribution of
wealth.
1997/40 Exercise 3.2
(2) The general interest of the masses is better protected.
An economy in which factors of production are owned by
(3) It eliminates private monopoly.
individual is known as
(4) There is high level of job security.
A. planned economy B. controlled economy
(5) It reduces corruption, illegal and immoral activities.
C. capitalist economy D. mixed economy
(6) It ensures full employment for all able bodied men
E. socialist economy
and women.
(7) Artificial scarcity is eliminated since hoarding is not
1997/3 UTME Exercise 3.3
associated with centrally planned economy.
One of the features of a free market economy is that
A. resources are directed by the price mechanism DISADVANTAGES OF SOCIALISM
B. workers do not earn equal wages (1) It brings about lack of specialization.
C. the profit motive is severely constrained (2) It increases public or national debt as a result of
D. decisions on the economy are taken by bureaucratic excessive government’s expenditure.
structure (3) The absence of competition causes slow rate of
innovation.
2012/6 Exercise 3.4 (4) It promotes state monopoly.
The market economic system is also referred as a (5) It may bring about low standard of living.
A. capitalist economic system (6) It leads to under–utilization of human and material
B. command economic system resources.
C. mixed economic system (7) It may lead to serious corruption practices due to
D. perfectly competitive system bottlenecks created by bureaucracy in the system.
(8) It discourages foreign and indigenous investors from
SOCIALIST/CONTROLLED OR CENTRALLY contributing in the development of the country.
PLANNED ECONOMY
Socialism is based on the idea that the country’s resources 2021/5 Neco
belongs to the society and should be managed by the state The decision on how, what and for whom to produce in a
and wealth should be equally distributed to the citizens. socialist economy is determined by the
Socialism can also be called command economy. A. producers B. private sector
C. market sector D. government
Socialism is an economic system that advocates state E. banking sector
ownership, control and organization of the means of Answer
production and distribution. Socialism is more common in A socialist economy is a government controlled economy. (D)
the third world countries they lack basic needs which is
required for social and economic survival. The third world

35
2002/10 Bourgeois Capitalism
In a centrally planned economy, the economic problem of The word “bourgeoisie”, in the Marxist doctrine, refers to
deciding what to produce is dependent on the middle class in Capitalist societies. According to Karl
A. average profit B. state command C. average cost Marx, the co-author of the Communist Manifesto, the
D. relative prices exploitation of the proletariat or workers, by the
Answer bourgeoisie (Capitalists) would result in a class struggle,
State command (B). and he appealed to all workers to organize and prepare
themselves to triumph in the his struggle. The communists
2012/2 UTME must unite with all other collectivists in denouncing
A major disadvantage of a socialist economy is that bourgeois Capitalism and they must pledge to secure its
A. corruption is rampant overthrow wherever it has become established. The
B. consumers’ sovereignty is lost Communists believe that the overthrow of bourgeois
C. income inequality is entrenched Capitalism must be accomplished by a strong, determined,
D. there is high level of unemployment group of workers – the “class conscious” part of the
Answer proletariat – who will seize the reins of government when
Corruption is rampant (A). a favourable opportunity presents itself. This was actually
1993/36 done in Russia.
An economic system in which the states owns and controls
the means of production is known as Dictatorship of the Proletariat
A. free enterprise B. socialist economy The proletariat are the working class. The communists
C. mixed economy D. capitalist economy realize that the majority of workers are not collectivists,
E. welfare economy and that they would be incapable of managing the
Answer government and industry if these were placed in their
Socialist economy (B) hands. They must therefore, be prepared for them, through
a dictatorship by the intelligent minority. The intelligent
2002/50 Exercise 3.5 minority is the communist party. The majority must hold
The economy of most West African states can best be on to its power at any cost, and the people accept its ideals.
described as
A. socialist B. welfarist C. mixed D. developed Socialistic Society
The stage of dictatorship will give to socialistic society
1995/1 Nov Exercise 3.6 when the people are prepared for it. This stage –
A controlled economy is also known as a Socialism-is regarded as the lowest phase of Communism.
A. free market economy B. socialist economy The control of the industry will be in their hands. Wages
C. mixed economy D. decentralized economy will still be paid on the basis of efficiency or productivity;
E. mixed economy hence, some differences in wages will prevail. There will
be considerable centralization of economic and political
2002/5 Neco Exercise 3.7 power.
An economic system where private ownership of the
means of production is not allowed is known as Communistic Society
A. capitalism B. free enterprise economy The socialistic society will evolve into the communistic
C. mixed economy D. market economy E. socialism society. This is the higher phase of Communism and it is
the ultimate goal of the Communist Party. It is the final
COMMUNISM stage.
Communism is an economic system, which opposes any
form of private ownership of property. In this economy, all At this stage, the coercive power of the State will no
economic resources and properties are owned by the longer be needed, for everyone will now voluntarily
community as a whole and are applied for the benefit of all participate in the cooperative commonwealth. The society
the citizens irrespective of their greed. Examples of will now be “classless”. The communistic principle of
countries are China, Yugoslavia. “from each according to his ability, to each according to
his need” will prevail. This means that there will be no
Features of communism wage system, no price system, no money, and no free
The Communist theory is one of the social evolution. It exchange. Each will contribute his portion to the common
holds that society has to go through four stages of stream of income, and share in it according to his needs.
development. These stages are bourgeois Capitalism, Thus, Communism is an ideal which has not yet been
dictatorship of the proletariat, Socialism and eventually, attained. The Soviet Union is still in the socialistic stage of
Communism. evolution to Communism.

36
MIXED ECONOMY 1986/13 UTME
The mixed economic system is one in which economic Which of the following statements describes a mixed
decisions are made by both the private and public sectors economy?
of the economy. The decision as to how to allocate A. the government and the private sector interaction in
economic resources for production and distribution of solving the basic economic problems
goods and services are taken by both private individuals B. the invisible hand solves the basic economic problems
and the government. The decision as to what to produce, C. the government produces and distributes all goods and
where, how and for whom to produce is mostly taken by services
private entrepreneurs while the government is mostly D. society answers the “What”, “how” and “for whom”
concerned with regulation, management and control of question only through the market system
major economic activities. A mixed economy is a free Answer
market economy where prices are determined by market The government and the private sector interact in solving
forces with little intervention from the government. the basic economic problems (A).
Examples of countries are Nigeria, Britain, Western
Europe e.t.c. 2013/2 UTME
An economy in which both the public and private sectors
FEATURES OF MIXED ECONOMY contribute to economic growth is a
(1) It combines the features of capitalist and socialist A. feudal economy B. capitalist economy
systems. C. socialist economy D. mixed economy
(2) It encourages simultaneous private and government Answer: Mixed economy (D)
participation.
2003/26 Neco
(3) The private investors and the state own and control
An economic system where both the public and individual
the means of production at varying degrees.
own and control means of production is known as ____
(4) Most counties operating mixed economic system are
system.
found to be more of capitalism than socialism.
A. capitalist B. communist C. mixed D. socialist
(5) The basic aim of production is partly to make profit
E. welfarist
and partly to provide essential goods and services at a
Answer: Mixed (C)
reduced cost.
(6) It provide wide gap between the poor and the rich. 2001/32 Neco
(7) It promotes government intervention wherever there Nigerian economy is a good example of a
is market failure. A. capitalist economy B. communist economy
(8) It promotes competition. C. free market economy D. mixed economy
E. socialist economy
ADVANTAGES OF MIXED ECONOMY Answer: Mixed economy (D)
(1) It minimizes exploitative tendencies.
(2) Pure monopoly is minimized. 1992/28
(3) It ensures that high quality products are produced. An economy in which both the public and private sectors
(4) It creates a lot of job opportunities. contribute to the growth of output is a
(5) It minimses cost of living. A. peasant economy B. mechanized economy
(6) It does not depend entirely on a given sector. C. socialist economy D. capitalist economy
(7) It ensures high standard of living. E. mixed economy
(8) It is democratic in nature, and it also create room for Answer
both the government and private individuals on how Mixed economy (E)
to develop the country.
(9) The existence of competition brings about innovation. 2001/39
Mixed economy contains elements of
DISADVANTAGES OF MIXED ECONOMY A. capitalism and feudalism B. capitalism and socialism
(1) It may lead to inefficiency in resources allocation. C. socialism and communism D. planned economy only
(2) It encourages bottle neck competition or unhealthy Answer
rivalry. Capitalism and socialism (B)
(3) It creates much room for exploitation.
(4) It promotes economic and political instability. 2020/4
(5) It encourages government’s intervention. The economic system in which the price mechanism and
(6) It promote corruption, immoral and illegal activities state determine what to produce is referred to as
especially in the less developed countries. A. market economy B. planned economy
C. mixed economy D. capitalist economy
Answer
Mixed economy (C)
37
1993/36 Exercise 3.8 2002/7
An economic system in which the states owns and controls (a) What is a market economy?
the means of production is known as (b) Highlight the features of a market economy.
A. free enterprise B. socialist economy Answer
C. mixed economy D. capitalist economy (a) A market economy is an economic system in which
E. welfare economy most of the means of production are owned and
controlled by private individuals and in which the
2010/3 Exercise 3.9 economic activity of the government is minimal.
In which of the following economic systems do we have Also, in a market economy, resources are allocated
mostly private ownership of resources and individual through the price mechanism.
decision making (b) The features of a market economy are: (i) firms are
A. capitalist system B. socialist system motivated by profit and households or individuals
C. mixed system D. traditional system aim at getting maximum value for the money they
1996/40 spend (ii) the price mechanism is the key in the free
An economic system in which most means of production market system. The answer to the question what, how
are owned and controlled by the state is known as and for whom to produce lies in the price system (iii)
A. socialist economy B. capitalist economy There is consumer sovereignty. The wishes of the
C. mixed economy D. political economy consumer ultimately determine what to produce,
E. feudal economy when to produce and at what price to produce (iv)
Answer: Socialist economy (A) Resources are efficiently allocated (v) There is free
competition among economic units (vi) There exists
2001/2 private ownership of property.
The economic system in which resources are privately
owned is known as 1996/40 Nov Exercise 3.11
A. capitalism B. socialism C. communism An economic system in which most capital goods are
D. unitarism owned by individual and private firm is known as a
Answer: Capitalism (A) A. mixed economy B. planned economy
C. community economy D. capitalist economy
2007/3
When the means of production are controlled by private 2002/1
individuals, the economic system is called In a free market economy their location of the factors of
A. mixed economy B. capitalism C. socialism production is determined by the
D. welfarism A. workers B. needs of the economy C. price system
Answer: Capitalism (B) D. government
Answer
1997/40 Exercise 3.10 Price system (C)
An economy in which factors of production are owned by
individual is known as 2002/47
A. planned economy B. controlled economy In a capitalist economy, wealth is likely to be
C. capitalist economy D. mixed economy A. concentrated in a few hands
E. socialist economy B. owned by the government only C. evenly distributed
D. owned by the traders only
1999/21 Answer
A system in which major economic decisions are dictated Concentrated in a few hands (A)
by the price mechanism is known as
A. socialism B. mixed economy C. capitalism 1991/15 UTME
D. planned economy The price mechanism is more effective in achieving
Answer efficient performance of the economy than the planning
Capitalism (C) mechanism because of the
A. role of supply and demand B. role of material
2004/1 incentive
An economic system where all resources are allocated C. existence of buyers and sellers D. role of money
through the price mechanism is a Answer
A. socialist economy B. command economy Role of supply and demand (A).
C. market economy D. mixed economy
Answer
Market economy (C)

38
1980/33 UTME 2003/20
In a free – market economy, the rationing of scarce goods In a free market economy, wages are determined by
is done principally by A. the employees B. the employers C. trade unions
A. the government B. business organization D. interaction of demand and supply forces
C. the price mechanism D. consumers E. the government
E. both A and B above Answer
Answer The employers (B)
The price mechanism (C)
1992/28 Nov Exercise 3.13
1995/18 UTME An economy in which both the public and private sectors
In a free market economy available resources are more contribute to the growth of output is a
efficiently allocated by complete reliance on A. peasant economy B. mechanized economy
A. development planning B. strategic planning C. social economy D. capitalist economy
C. capital budgeting D. price system E. mixed economy
Answer
Price system (D) 2001/33 Neco Exercise 3.14
1999/8 UTME In a free market economy, available resources are more
A capitalist economy is one characterized by the efficiently allocated by
A. private ownership of factors of production A. capital budgeting B. development planning
B. ownership of factors of production by rich members of C. macro – economy planning D. price system
the society E. strategic planning
C. use of capital and labour in fixed proportions during Answer
production Price system (D)
D. use of capital intensive methods of production
Answer
2001/34 Neco Exercise 3.15
Private ownership of factors of production (A).
What is not a major disadvantage of the capitalist system?
A. creating of scarcity for profit motive
1995/18 UTME
B. gross disregard for external costs
In a free market economy available resources are more
C. give room for private initiative
efficiently allocated by complete reliance on
D. promotes income unequally
A. development planning B. strategic planning
E. promote wasteful competition
C. capital budgeting D. price system
Answer
Price system 2013/30
The economic system in which the market forces reign
2000/40 supreme is known as
The private ownership of property and the pursuit of profit A. capitalism B. communism C. feudalism
are visible in D. mixed economy E. socialism
A. capitalism B. socialism C. aristocracy Answer: Capitalism (A)
D. authoritarialism
Answer 2002/5 Neco
Capitalism (A) An economic system where private ownership of the
means of production is not allowed is known as
2000/43 A. capitalism B. free enterprise economy
Most West Africa economics can best be described as C. mixed economy D. market economy E. socialism
A. socialist economies B. capitalist economies Answer: Socialism (E)
C. planned economies D. mixed economies
Answer
Socialist economies (A) 2002/7 Neco
An economic system where individual resource owners
1995/1 Nov Exercise 3.12 decide what to produce, where to produce and how to
A controlled economy is also known as a produce is known as a
A. free market economy B. socialist economy A. capitalist system B. communist system
C. mixed economy D. decentralized economy C. centrally planned system D. mixed system
E. mixed economy E. socialist system
Answer
Capitalist system (A)

39
2008/4 Neco 2009/8 Exercise 3.18
An economic system whereby individuals own and control An economic system where the central planning authority
the means of production is known as determines what goods to produce and in what quality is
A. communism B. capitalism C. mixed economy known as
D. socialism E. welfarism A. market economy B. socialist economy
Answer C. welfare economy D. traditional economy
Capitalism (B)
2007/3 Exercise 3.19
(a) What is capitalism?
2000/34 Neco Exercise 3.16
(b) Explain five advantages of a capitalist economy
The free enterprise economy is better than the centrally
planned economy because in a free enterprise economy
A. everybody does what he likes
B. government decides what, how and for whom to 2009/2010/26 (UNIZIK, AWKA)
In a capitalist economy, the economic problem of what
produce
goods to produce is decided mainly by
C. goods and services are rationed by the central planning
A. shadow prices B. profit level C. a central planner
committee
D. relative prices
D. there is no monopoly
Answer: Relative prices (D)
E. the price mechanism saves the government from the
pains of distributing scarce goods and services
2009/2010/31 (UNIZIK, AWKA)
In a free market system, trading can only take place when
the
1998/39
A. equilibrium price is attained
The economic system in which the decisions about what to
B. market is not working efficiently
produce, how to produce and for whom to produce are
C. price of a commodity tends to attract consumers
made by private firms is called
D. consumer sovereignty is lacking
A. socialism B. welfarism C. communism
Answer: Equilibrium price is attained (A)
D. capitalism E. traditionalism
Answer
Capitalism (D) 1986/19 UTME
Which of the following is an important function of prices,
in a market economy?
A. ensuring that, resources are used in the most efficient manner
1998/40
B. ensuring an equitable distribution of goods and services
A major setback in any mixed economy is
C. ensuring that all industries are perfectly competitive in the long run
A. that it combines both the capitalist and socialist systems
D. equitting level of purchases with levels of needs
B. the freedom of choice in the production and
consumption of goods and services Answer
Equitting level of purchases with level of needs (D).
C. that the government intervenes to secure full utilization
of resources
D. that economic decisions are determined by market 1997/4 UTME Exercise 3.20
One of the fundamental differences between a capitalist
forces
and a socialist economy is that while
E. that the absence of profit motive in the public sector
A. the former is characterized by complete government
may reduce incentive for hard work
ownership of resources, the latter is characterized by
Answer
complete private ownership
That the absence of profit motive in the public sector may
B. in the former prices act as signals in the allocation of
reduce incentive for hardwork (E)
resources, it is the central authority that performs this
function in the latter
2009/6 Exercise 3.17
The economic system which relies mainly on the price C. taxes are levied in a capitalist economy there is not
mechanism for the allocation of scarce resources is known as taxation in a socialist economy
A. capitalist economic system D. income and wealth are equally distributed in a socialist
B. command economic system economy, this is not so in a capitalist economy
C. combined economic system
D. traditional economic system 1999/16 UTME Exercise 3.21
The main function of price in the economic system is to
A. allocate scarce resources among competing uses
B. ensure equitable distribution of income and wealth
C. determine the demand for and the supply of goods and services
D. remove all the constraints of production of goods and services
40
2015/34 UTME Exercise 3.22 2014/2015/24 (UNIZIK, AWKA)
In a free market economy, prices are determined by An economy in which both the public and the private
A. consumers B. producers contribute and the private contribute sustainably to the
C. the central government D. the forces of demand and supply growth of output is
A. a socialist economy B. a capitalist economy
2011/5 (OAU, IFE) C. a mixed economy D. an industrialized economy
The following are features of a free market economy E. a pleasant economy
except Answer
A. private ownership of properties A mixed economy (C)
B. existence of competition
C. high level of profit maximization 2014/2015/39 (UNIZIK, AWKA)
D. joint decision making by the citizens in a society The rationing of scarce goods in a free – market economy
Answer is done principally by
Joint decision making by the citizens in a society (D) A. the government B. business organizations
C. the price mechanism D. consumers
2008/9 (OAU, IFE) E. both A and B
An economic system in which most capital goods are owned Answer
by individuals and private firms is known as The price mechanism (C)
A. planned economy B. capitalist economy
C. mixed economy D. socialist economy 2012/21 (UNIZIK, AWKA)
Answer Which of the following is not true of price mechanism?
Capitalist economy (B) A. equilibrium price is determined by forces of demand
and supply
2018/10 (UNIBEN, BENIN) B. individual households and firms pursue personal
An economic system that permits free enterprises is called a interest
A. mixed economy B. socialist economy C. producers and consumers are rational in decision
C. communist economy D. capitalist economy making
Answer D. price control is prominent in the commodity and input
Capitalist economy (D) markets
Answer
2014/2015/22 ( UI, IBADAN) Price control is prominent in the commodity and input
In market economies, resources are allocated through the market (D)
A. government authorities B. price system
C. banking system D. central planning bureau 1978/42 UTME Exercise 3.23
E. revenue allocation formula Which of these should be determined in a planned
Answer economy, how the factors of production are to be allocated
Price system (B) among different production activities?
A. fairness B. the distribution of income and wealth
2014/2015/24 ( UI, IBADAN) C. public need, which is determined by the government
The basic feature of a market economy is D. private needs determined by the market
A. the reduction in the power of sellers E. the ability of an individual to make profit
B. the enthronement of consumer sovereignty
C. the dismantling of barriers to trade 1978/43 UTME Exercise 3.24
D. the perfectly elastic price for every transaction Which of the following activities of government precludes
E. the intersection of demand and supply curves the existence of a market economy?
Answer A. the imposition of taxes
The intersection of demand and supply curve (E) B. the control of the location of industry
C. the central planning of all production
1995/5 D. the fixing of maximum prices for all necessities
The active intervention of the central authorities in the E. the establishment of laws requiring the registration of
management of a country’s economy rests upon the business firms
A. failure of the market forces to produce satisfactory results
B. superiority of the centrally planned economy over the 2022/4 NABTEB (Dec) Exercise 3.25
private enterprise economy a. What is an economic system?
C. result – oriented nature of the private enterprise economy b. Define a mixed economy system.
D. cost – minimization strategy of a mixed economy c. Explain two merits and two demerits of a mixed
Answer economy system.
Failure of the market forces to produce satisfactory results (A).
41
 TABLES
A table is an orderly arranged list of information, facts or
data, usually set out in rows and columns with appropriate
BASIC TOOLS OF ECONOMIC ANALYSIS sub–headings and which attempts to summarize a large
INTRODUCTION
mass of data by presenting it in a condensed form, thereby
The subject, economics makes abundant use of
making data more comprehensible.
mathematics, particularly statistics to clarify concepts,
illustrate principles, explain examples and so forth to aid
USES AND ADVANTAGES OF TABLE IN ECONOMICS
the general understanding of the student.
(1) A table help to reveal at a glance, the information that
is being conveyed.
MATHEMATICS, STATISTICS AND THEIR USES (2) It helps to present the original data in an orderly or
IN ECONOMICS systematic manner.
Mathematics is the study of the sciences of numbers,
(3) It simplifies the process of analysis of a mass of data.
quantities, geometry and forms. It is so broad that it is
(4) Data tables make it easy to identify a particular trend
almost impossible to define its limits with certainty. It
in figures.
truly qualifies to be called the universal language of
(5) A table eases comparison between different classes of
science. The subject is composed of various branches, but
data and showcases relationship between them.
the one of present relevance in this discussion is statistics.
(6) A table is used to publish salient figures, which may
be used for further statistical studies.
STATISTICS (7) A table makes it possible for required figures to be
In simple terms, statistics is the science of collecting,
more easily located.
analysing, presenting, and interpretation of data.
FEATURES OF A GOOD TABLE
USES OF STATISTICS (i) A good table must have a good layout and the
(a) It is used for the purpose of describing an event or an
purpose for and objective of constructing it must be
outcome in order to economise time, money, efforts,
clearly understood.
etc.
(ii) A table must be clearly headed and this must conform
(b) It helps in analysing different economic problems
to the message it is desired to convey.
which needs immediate attention, such as:
(iii) A table contains several rows and columns which
(i) Serving as a raw material to the economists in
have sub–headings called stub and caption
making certain economic laws.
respectively.
(ii) Framing economic policies.
(iv) The rows and columns in a table are separated from
(iii) Making comparisons.
one another with bold lines.
(iv) Studying and calculating national income.
(v) It shows unit of measurement of data. The units could
be stated in hundreds, thousands, millions etc.
USES OF MATHEMATICAL TOOLS (vi) The sources of data, if known must be given at the
Economic relationships may be expressed in a number of
end of the table.
ways:
(a) Verbal Statement: This does not involve the use of
The below data are sourced from the monthly sales
mathematical techniques. For example, one could say, the
statistics in2005 and 2006 of a company’s subsidiary,
quantity of any given goods which a consumer will buy
Otumudia Publishers Limited based in Kano. The sales
will depend on its price.
figure for the various months are as follows:
(b) Mathematical Expressions:
2005: January 12000, February 14000, March 5000, April
(i) Symbolic Statement: This involves the use of
8000, May 10000, June 7000, July 9000, August
algebraic expressions to express functional
13000, September 5000, October 8000, November
relationships. For example, the proposition above
6000, December 15000.
could be put as: Q = f(P) which is read, ‘the 2006: January 18000, February 17000, March 7000, April
variable Q is a function of the variable P’. This is a 12000, May 14000 June 22000, July 14000, August
general equivalent of the verbal statement, where 18000, September 16000, October 12000, November
Q is the quantity demanded, P is the price of the 10000, December 20000.
goods. P here is referred to as “variable” because it The above information can now be represented on a table
is assumed it can vary. The sign f ( ) indicates that as shown next
Q is dependent on the values of the variable inside
the brackets, in the case P.
(ii) Geometric Expressions: This involves the use of
charts and graphs.
(iii) Arithmetical expressions: This involves the use
of tables etc.
42
 THE SALES FIGURE OF OTUMUDIA PUBLISHERS
LIMITED IN KANO IN 2005 AND 2006
MONTH SALES IN 2005 SALES IN 2006
January 12000 18000
February 14000 17000
March 5000 7000
April 8000 12000
May 10000 14000
June 7000 22000
July 9000 14000
August 13000 18000
September 5000 16000
October 8000 12000
November 6000 10000
December 15000 20000
From the foregoing, having represented the heterogeneous
figures in a table in a comparative form, it then becomes neater,
more suitable and can as well be observed at a glance.

GRAPHS
A graph is a diagrammatic presentation of data showing
the relationship between two or more things by means of
dots and lines. It can also be defined as a diagram showing
the relationship between two variables. While bar graphs,
pie graphs and pictographs are all graphs, they are more
often than not, referred to as “charts” or “diagrams”. The
opposite is true of line graphs and curves. These are more
generally referred to as “graphs”.

43
LINEAR GRAPH
A linear graph is made up of straight or curve line that
points towards the same direction and showing
relationship between variables.
Example
Below are the prices and quantities demanded of tin by a
consumer. Using the give data, plot a suitable linear graph
Qty(tin) 10 20 30 40 50 60 70 80 90 100
demanded
Price (naira 100 90 80 70 60 50 40 30 20 10
per unit)

44
CURVE GRAPHS 2012/4 Exercise 4.1
Curve graphs are also referred to as non–linear or curve – The sign of the slope of a graph in economic analysis is
linear graphs. For economic purpose, they are all known as important because it
curves eg. Demand curve, supply curve, revenue curve, A. shows whether a goods is normal or inferior
cost curve etc, whether linear or curve–linear. B. shows the relationship between variables
Examples of curved graphs are as shown below C. reveals the magnitude of the change between variables
D. helps to determine the unit of measurement of variables

2011/2 Neco
Which of these is not a graph?
A. bar chart B. frequency distribution C. frequency
polygon D. histogram E. pictogram
Answer
Frequency distribution (B)

CHART
A chart is a drawing or a diagrammatic presentation of
data or information. Information that is contained in
tabular form can as well be conveniently represented on a
chart without losing its meaning and value. A chart is just
GUIDELINES ON THE CONSTRUCTION OF a rough sketch of statistical information which also
GRAPHS presents the recipient with all he wishes to know about.
1. The graph must be headed or titled clearly. There are different form of chart but for the purpose of our
2. The vertical side of a graph is normally denoted as Y, study, we shall concentrate on bar chart, pie chart,
and read as Y-axis while the horizontal side denotes histogram and pictogram.
X-(read as X-axis).
3. A great care should be taken when selecting the scales, BAR CHART
otherwise the graph will not be accurate. Bar chart helps to show changes in the figures or sizes of
4. The lines of the graph should be labeled. variables in a simple manner. They are easier to construct
5. The variables on each axis must be clearly stated. and show data more accurately than pictograms.
6. The graph should state the sources of data, if known.
GENERAL HINTS ON HOW TO CONSTRUCT BAR
7. When drawing lines of graph, great care should be
CHARTS
taken to ensure that the lines match with the variables.
1. The vertical and the horizontal lines should meet at a
8. For easy identification, graphs should be numbered.
zero point.
2. The vertical line should represent the “Y” axis and the
ADVANTAGES OF GRAPHS
horizontal the “X”-axis.
(1) They quickly show the relationship between
3. The chart is usually made up of rectangular bars.
variables.
4. The width of the bars must be equal in size and must
(2) They help in giving pictorial presentation of the data
be marked at a regular interval.
contained in tables or schedules.
5. The height or length of the bars must be exactly equal
(3) They are used to show changes in variables.
to the data/information being represented.
(4) They are used to translate complex data into simple
6. On no condition must the bars touch each other,
visual presentation.
otherwise they will be presenting a histogram.
(5) Information on a graph can be obtained by mere
7. On the horizontal (x-axis) the data represented should
inspection.
fall within the width of the bar representing it.
(6) Every item is given due weight on a graph.
DISADVANTAGES OF GRAPHS TYPES OF BAR CHART
1. Graphs requires artistic drawing which many people There are different types of bar charts namely:
will not like to be associated with.
2. Graphs are not capable of being understood by (i) Simple bar chart
persons unversed in statistical mathematical methods. A simple bar chart represents data with evenly spaces
3. It requires extra carefulness and the procedures must bars separated by gaps with the length of the bars
be strictly adhered to. being proportional to the frequencies.
4. Graphs could be subjective.

45
Example BC 1
A woman went to the market and purchased the following items
at the prices indicated below.
Commodities Price (₦)
Millet 1000
Beans 1500
Sorghum 2000
Yam 2500
Rice 3000
Use the given data to plot a simple bar chart showing the prices
of commodities purchased.
Answer:

Simple bar chart

46
1992/2 Nov Exercise 4.2
The following figures represent the number of students that (ii) Component bar chart
offered economics in Lamb International School from 1980 – A component bar chart is used when the data involved are
1985. more than one. The bars are divided into component to
Year No of students show each aspect of the data. In drawing a component bar
1980 300 chart, the length of the bar must be proportional to the total
1981 180 value of each class of data being represented.
1982 450
1983 420
1984 250
1985 350
(a) Illustrate the above data with a bar chart
(b) Distinguish between a bar chart and a histogram.

2014/13 Neco
The diagram below shows the population of four towns in
a country.

The total population of town P is

A. 50,000 B. 65,000 C. 75,000 D. 100,000
E. 115,000
Answer 75,000 (C)

2018/2 NABTEB Exercise 4.3

Which of the following is useful for economic analysis
when the data contains more than one category?
A. line graph B. pie chart C. simple bar chart
D. histograph

2018/19 Neco
Use the information below to answer question 19.

The diagram above represents a

A. component bar chart B. frequency polygon
C. histogram D. multiple bar chart E. pie chart
Answer
Component bar chart (A)

47
Example CB 1
From 2010 to 2016, an orchard farmer produced the following
fruits and nuts. (The quantities are in tonnes for the period {2010
– 2016} as shown in the table below.)
Year Pears Cherries Walnuts Almonds Total(Tonnes)
2010 40 20 15 25 100
2011 30 15 20 25 90
2012 20 25 15 10 70
2013 15 20 15 25 75
2014 30 25 20 10 85
2015 25 15 20 10 70
2016 15 20 35 25 95
Use the given data to plot a component bar chart showing
quantity of fruits and nuts produced by an orchard farmer

Component bar chart

48
1993/1
The table below shows a farmer’s harvest of the crops in
standard bags for four years. Present the data in the form of
component bar chart.
Crops 1989 1990 1991 1992
Rice 120 200 160 180
Beans 100 100 120 110
Maize 60 55 80 85
Total 280 355 360 375
Answer

49
1992/1
The values of different types of accounts in Nigerian banks
for the period 1984 are as follows (Nm)
Year 1984 1985 1986 1987 1988
Savings 100 120 120 180 200
Current 65 75 70 100 130
Fixed deposit 40 45 60 145 50
Present the data above in the form of a component bar
chart.
Answer
Year 1984 1985 1986 1987 1988
Savings 100 120 120 180 200
Current 65 75 70 100 130
Fixed deposit 40 45 60 145 50
Total 205 240 250 425 380

50
Exercise 4.4
The table below shows the quantity in hundred kgs of
wheat, barley and oats produced in a certain form during
the years 1991 and 1994.

Years Wheat Barley Oats

1991 34 18 27
1992 43 14 24
1993 43 16 27
1994 45 13 34

(iii) Multiple bar chart

A multiple bar chart shows data which comprise two
or more variables, with a separate bar representing
each component part (variable) to show the total
value. A multiple bar chart showing expenses on rice,
beans and garri.

51
Example MB 1
The value of three brands of coca – cola products sold in the last
five months of an undisclosed year is presented in a table below

Sales (₦1000)
Year
Coke Fanta Sprite
2010 100 90 70
2011 75 85 70
2012 70 70 70
2013 70 70 70

Multiple bar chart: Value of three brands of coca–cola products

sold in the last five months of an undisclosed year.

52
2018/1 NABTEB
The money in three different accounts of a bank in four years is
shown below. Use the information to answer the questions that
follows.
Accounts 1980 1981 1982 1983
Savings 120 200 160 180
Current 100 100 120 110
Fixed deposit 60 55 80 85
(a) Draw a multiple bar chart for the four years.
(b) Calculate the total funds in each account for the four years.
(c) Which accounts has the highest fund in the four years?
Answer

(b)
Year 1980 1981 1982 1983 Total
Savings 120 200 160 180 660
Current 100 100 120 110 430
Fixed deposit 60 55 80 85 280
(c) Saving account has the highest fund in the four years.

53
Exercise 4. 5 HISTOGRAM
Draw a multiple bar chart to represent the imports and A histogram is the graph of a frequency distribution.
exports of Canada (values in $) for the years 1991 to 1995. A frequency distribution is a table which shows a set
Years Imports Exports of variables and the number of times they occur. It is
1991 7930 4260 noteworthy that for a histogram, the rectangular strips
1992 8850 5225 (bars) are not separated by spaces.
1993 9780 6150
1994 11720 7340
CHARACTERISTICS OF HISTOGRAM
1995 12150 8145
1. Histogram is prepared in bars or rectangles.
PICTOGRAMS 2. The bar in a histogram touches the bar that is next to it
Pictograms are charts in which pictures or drawings of and the one that is before it if any.
objects are used to represent items in the data. The pictures 3. The area of a given rectangle is proportional to the
or drawings are used in such a way as to show the frequency of the corresponding class.
magnitude of the variables or to convey other information. 4. The height of a rectangle is an indication of the
Some of the pictures may be regular standard shapes such magnitude of the data lying within each class interval.
as triangles, squares, rectangles, cylinders, cones, and 5. Each rectangle has its base on the horizontal axis.
pyramids for example. Others are non-standard shapes 6. Each rectangle has its centre on the class mark or the
designed to explain the relationship being considered. In mid-point of its class interval.
every case however, the size of the pictures used is 7. The histogram has a heading or a bottom note which
proportional to the size of the value or number being provides an insight on the data or information it
represented. conveys.

HINTS ON HOW TO DRAW AND USE PICTOGRAM

1. The symbols should be clear and simple to understand.
2. The attention of the user(s) should be drawn as to the
quantity each symbol represents.
3. Each quantity of value must be represented by a
definite symbol.
4. Large quantities are usually represented by a number
of symbols.
5. The size and quantity of the symbols should be equal.
6. The symbols should be divisible especially where odd
figures are involved in the data.

Example PI 1
Draw a pictogram to show the relative number of Toyota
Camry XLE cars imported into Nigeria in 2012 and 2018,
using the following information.
Year Number of cars (in thousands)
2012 500
2018 1000
Solutions
The picture must look like a car. The same scale is used to
show the relative sizes of both variables, in this case
Toyota Camry XLE cars. Let 1 picture represent 100,000
cars. So for 500,000 cars, we have 5 drawings of a car; and
for 1,000,000 cars we have 10 drawings of a car.
2012

2018

Pictogram showing number of imported Toyota Camry

XLE cars in Nigeria in 2012 and 2018
54
Example HG 1
Below is the revenue of a firm for a period of eight
months.
Months Revenue(₦)
January 500
February 800
March 4500
April 2000
May 3000
June 1500
July 2500
August 3500
Represent the information on a histogram

Solution
A histogram showing the revenue of a firm for a period of
eight months

55
Example HG 2
The table below shows the marks obtained by forty pupils
in a mathematics test.

Marks 0–9 10 – 19 20 – 29
Number of pupils 4 5 6

30 - 39 40 - 49 50 –59
12 8 5
Draw a histogram for the mark distribution.

56
Solution
We shall solve the problem by preparing a table for the
graph:
Marks Class Boundaries frequency
0 -9 0 – 9. 5 4
10 – 19 9.5 – 19 .5 5
20 – 29 19. 5 – 29 .5 6
30 - 39 29. 5 – 39 . 5 12
40 – 49 39. 5 – 49. 5 8
50 – 59 49. 5 –59 .5 5

(a) The required diagram is a graph showing class

boundaries plotted against frequency.

57
2018/3 Neco
Use the diagram to answer question 3

What is the total number of bags of rice harvested within

the first three years?
A. 20 B. 21 C. 22 D. 23 E. 24
Answer
23 (D)

2012/3 & 4 Neco Exercise 4.6

Use the table below to answer question 3 and 4

The above diagram represents

A. bar chart B. graph C. histogram
D. pictogram E. pie chart

Frequency Polygon
A frequency polygon is a line graph of class frequency
plotted against class mid-point. It can be obtained by
joining the mid-point of the tops of the rectangles in the
histogram. This visual form of data representation helps in
depicting the shape and trend of the data in an organized
and systematic manner. Frequency polygons through the
shape of the graph depict the number of occurrence of
class intervals, this type of graph is usually drawn with a
histogram but can be drawn without a histogram as well.

58
2007/2 Neco
The table below shows the birth rate in Gbokolo Local
Government Area of Kogi State from January – July 2002
Month Jan Feb Mar April May June July
Birth 23 25 28 35 30 25 20
rate
(a) Draw a histogram of the data above on a graph sheet.
(b) Construct the frequency polygon of the distribution.
(c) What is the difference between a bar chart and a
histogram?
Answer

(c) A bar chart helps to show changes in the figures or

sizes of variables in a simple manner while a
histogram is the graph of a frequency distribution. A
frequency distribution is a table which shows a set of
variables and the number of times they occur.
59
2014/15 Neco CHARACTERISTICS OF PIE CHARTS
(1) The pie chart is circular in shape.
(2) The use of degrees is a common feature.
(3) The pie chart has heading or bottom note which
provides an insight on the data or information it
conveys.

1994/14
The diagram below is a

From the frequency curve above, the number with the

highest point from x axis is
A. 4 B. 5 C. 6 D. 7 E. 8 A. bar chart B. pie chart C. ball chart
Answer D. histogram E. histo-chart
8 (E) Answer Pie chart (B)
2003/4 Neco Exercise 4.7
PIE CHART Data presented in a circular chart is known as
The pie chart is circular in shape and the use of degree is A. circular chart B. component chart C. histogram
apparently the case. It is a diagrammatic presentation of D. pictogram E. pie chart
data in which a circle is divided into parts (called sectors).
Just like the component bar chart, pie chart shows the
relationship between parts of the whole. Example PI 1
Pie chart is used on the mathematical facts which says that The distribution of junior workers in an institution is as
“Angles of a circle equals 360° and this is equivalent to follows:
100%.The circle is drawn with a compass and the sections Clerks 78
are carved out with the use of protractor. Drivers 36
Typists 44
FORMULA FOR CALCULATING PIE CHART Messengers 52
𝐸𝑎𝑐ℎ 𝑖𝑡𝑒𝑚 (𝑛) 100 Others 30
× =Answer in % Represent the above information by a pie chart.
𝑇𝑜𝑡𝑎𝑙 (𝑁) 1
Solution:
𝐸𝑎𝑐ℎ 𝑖𝑡𝑒𝑚 (𝑛) 360
𝑇𝑜𝑡𝑎𝑙 (𝑁)
× =Answer in degree Total number of junior workers = 240
1

Workers Numbers Sector angle(degrees)

HINTS ON HOW TO DRAW PIE CHART
1. The symbols should be clear and simple to understand. Clerks 78 78x 360 = 1170
2. The attention of the user(s) should be drawn as to the 240
quantity each symbol represents. Drivers 36 36x 360 = 540
3. Each quantity of value must be represented by a 240
definite symbol. Typist 44 44x 360 = 660
4. Again, multiply the quotient by 360° that makes a 240
circle, to get the angles equivalent of each part. Messengers 52 52x 360 = 780
5. Draw a large circle which could be divided into 240
sectors. Others 30 30x 360 = 450
6. The circles should be divided in the number of degrees 240
for each and all the parts. The required diagram is as shown below: it is drawn with
7. Each sector/part should be labelled with the the aid of a protractor to mark out the various angles.
description of the information it is representing, the
percentage as well as and the degrees it is
representing.
8. Determine and compare the relationship of each parts
to the total and to the other parts.
60
 Others

45o Clerks
o
78 117o
Messengers

66o
54o

Typists Drivers

(ii) Assuming, we have two set of class, A and B

𝐴
Dependency ratio = 𝐵 = A:B
Pie chart: The distribution of junior workers in an A= Dependent class (Age group: 0 – 17, 61 and above)
institution B= Independent class (Age group: 18 – 35, 36 – 60)
(15000+9000 24000
Dependency ratio = = = 2:3
(11000+25000) 36000
(iii) A high dependency ratio causes a fall in output of
goods and services. That is, with a high dependency
ratio such as the one above (ii), the labour force and
output of goods and services will be small.
𝑙𝑎𝑏𝑜𝑢𝑟 𝑓𝑜𝑟𝑐𝑒 100
2019/1 Neco (iv) % labour force = 𝑇𝑜𝑡𝑎𝑙 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 ×
1
The table below shows a hypothetical population (11000+25000) 100
distribution of a local government area with Niger state. = (15000+11000+25000+9000) × 1
Age group 0 – 17 18 – 35 36 – 60 61 and
above = 60%
Population 15,000 11,000 25,000 9,000 NB: Labour force (Age group: 18 – 35, 36 – 60)

(i) Represent the above data in a pie chart.

(ii) Determine the dependency ratio of the population. 2008/2 Exercise 4.8
(iii) What is the economic implication of your answer in The table below shows the budgetary allocation of a
(ii)? country to selected sectors of the economy in a particular
(iv) What percentage of the population constitutes the year. Study the table carefully and answer the question that
labour force? follows.
Answer Sector Amount ($ millions)
𝐸𝑎𝑐ℎ 𝑖𝑡𝑒𝑚 (𝑛) 360
(i) × 1 =Answer in degree Education 6,250
𝑇𝑜𝑡𝑎𝑙 (𝑁)
Total = 15,000 + 11,000 + 25,000 + 9,000 = 60,000 Mining 2,150
15,000 360 Agriculture 4,300
0 – 17 = × = 90°
60,000 1 Communications 2,400
11,000 360
18 – 35 = × = 66° Health 2,900
60,000 1
25,000 360
(a) Present the above information contained in the table
36 – 60 = × = 150° in the form of a pie chart (show your workings
60,000 1
9,000 360 clearly).
61 and above = 60,000 × 1 = 54° (b) Distinguish between a budget surplus and a budget deficit.

1998/2 Exercise 4.9

Sector Amount (N million)
Health 30
Education 25
Housing 15
Manufacturing 10
Agriculture 20

61
The table here shows the sectorial allocation of a country’s 2016/5and 6 Exercise 4.11
budget. Illustrate the data accurately with a pie chart. A country’s budget allocation to various sectors of the
Show your workings clearly. economy is shown in the pie chart below. Use it to answer
question 5 and 6.
More problems on degrees

2008/17 Neco
Given the total population of Lagos as 180million.
Calculate the population of the area marked A in the pie
chart below.

5.If the budget of the country was $7,200.00, how much is

allocated to Education?
A. $2,400.00 B. $2,000.00 C. $1,200.00
D. $1,000.00
A. 70m B. 80m C. 100m D. 110m E. 120m 6. What is the ratio of expenditure on health to Agriculture
Answer A. 2:3 B 3:4 C 4:3 D 5:4
Total Population = 180million
𝐴 180𝑀
Population of A = × 1 = x
360 More problems on percentages
360−(20+50+70) 180𝑀
= 360
× 1 2003/1 Neco
360−140 180𝑀 220 180𝑀 Below is a pie chart showing the number of states
= × = × = 110M (D) controlled by three political parties in Nigeria?
360 1 360 1

2001/1 Exercise 4.10

The pie chart below represents the hypothetical output of
farmers in a country in a particular year. The total output
of the crops was 72,000 tons.

(i) Calculate the percentage of states controlled by each

party.
(ii) If there are 20 states in Nigeria, calculate the number
of states controlled by each party.
Answer
(i) Percentage of states controlled by each party.
180 100 1800
NPN = × 1 = 360 = 50%
360
108 100 1080
UPN =
360
× 1
= 360 = 30%
(a) Calculate the quantity of each product. 72 100 7200
(b) (i) By what quantity are the export crops greater than NPP = 360
× 1
= 360 = 20%
the food crops?
180 20
(ii) Which crop contributed the least and by what (ii) NPN = × = 10
360 1
quantity?
108 20
(iii) Which crop has the highest output? UPN = 360 × 1
=6
72 20
NPP = 360 × 1
=4

62
2002/6 UTME MEASURES OF CENTRAL TENDENCY
These are measures of values which show the degree or
extent to which any given set of values are converged
towards the central point of the data. They are also known
as averages. An average is a representation of figure(s)
which give some impression of the size of all items in the
field. The measure of central tendency is also referred to
measurement of location or simply as location.
The basic measures of central tendency are:
(i) Mean (arithmetic mean)
(ii) Median and
In the pie chart below, the percentage for children is (iii) Mode.
equivalent to
A. 288° B. 720 C. 90° D.144° Mean (Arithmetic mean)
Answer This is the best known average and the commonly used.
𝐸𝑎𝑐ℎ 𝑖𝑡𝑒𝑚 (𝑛) 360
× 1 = Answer in degree The arithmetic mean is the sum total of all the items
100
divided by the number of items in the group
40 360
Children =
100
× =144° (D) The arithmetic mean can be determined for grouped and
1 ungrouped data;
2017/12 UTME
Advantages of Arithmetic Mean
1. Arithmetic mean is simple to compute.
2. It is capable of being understood by persons who are
not versed in mathematical calculation.
3. Every item in the series is given due weight.
4. The aggregate can be obtained when average and
number of items are known.
5. It can be applied in further mathematical treatment.
6. It provide a good measure for comparison.
7. It is the best known average and the most commonly used.
8. It gives a clear and precise answer for decision making.
From the pie chart above, the percentage contribution of
entrepreneur is Disadvantages of Arithmetic Mean
A. 2.77% B. 33.33% C. 27.70% D. 3.33% 1. The result cannot be obtained by inspection method.
Solution 2. Answer cannot be obtained without knowing the size
𝐸𝑎𝑐ℎ 𝑖𝑡𝑒𝑚 (𝑛) 100 of extreme values.
× 1 =Answer in percentage
360 3. Answers cannot be ascertained without calculation.
120 100 4. Results may be distorted.
Entrepreneur = 360 × 1
= 33.33% (B)
5. Arithmetic mean may not be easy to compute.
2014/5 and 6 UTME Exercise 4.12 6. Results cannot be obtained graphically

Mean for ungrouped data

ΣX
Mean (𝑋̅) =
N
Where
̅𝑋= arithmetic mean
ΣX= sum of the different scores
N= number of scores
5. What is the percentage contribution of services to the Example AM 1
national income? Given the set of numbers below, determine the mean
A. 15% B. 10% C. 54% D. 24% 5, 7, 10, 9, 3, 2
Σx 2+3+5+7+9+10
6. If the national income is ₦60m, the contribution of the Mean =
N
=
6
manufacturing sector is 36
= =6
A. ₦12m B. ₦9m C. ₦18m D. ₦17m 6

63
Example AM 2 1993/3
During a second term Examination a boy scored the The mean of the data 8, 10, 12, 20 and 10 is
following marks: Arithmetic 89%, English 60%, A. 8 B. 10 C. 12 D. 20
Yoruba 80%, General paper 96% and social studies 85%. Answer
Determine his mean score? Σ𝑥 8 +10+ 12+20+10 60
A.7% B.65% C.82% D.30% E.90%. x= =
n 5
=
5
= 12 (C)
Solution 2006/4 Neco
ΣX 89 + 60 + 80 + 96 + 85 410 Use the data below to answer questions 4 and 5.
(𝑋̅) = N
= = 5
= 82% (C)
5 26, 21, 28, 22, 23, 27, 27, 23, 23, 23
What is the mean score?
Example AM 3
A. 0.0243 B. 2.43 C. 23.4 D. 2430
The numbers of eggs collected by a poultry farmer from
Monday to Friday are 28, 40, 52, 27, and 13. Answer
Σ𝑥 26+21+28+22+23+27+27+23+23+23
Find the mean number the eggs collected. x = n
= 10
A.160 B.52 C.40 D.32 E.28
243
Solution = = 24.3 (C)
10
ΣX 28 + 40 + 52 + 27 + 13 160
(𝑋̅) = =
N
= = 32 (D) 5
5
2008/6 Neco joint
2022/2 NABTEB Which of the following is a measure of central tendency?
Statistical data which has not been processed is called A. arithmetic mean B. mean deviation C. range
A. numerical data B. interval data D. standard deviation E. variance
C. raw data D. basic data. Answer: Arithmetic mean (A)
Answer
Statistical data which has not been processed is called raw 2009/5 Neco
data (C) Data presented in tables are usually arranged
in _____ and _____
2021/3 Neco A. charts, tables B. graphs, rows C. maps, pie chart
Find the arithmetic mean of the following numbers; D. pictograms, columns E. rows, columns
5, 8, 6, 4, 9, 4, 3, 8, and 9 Answer
A. 5 B. 6 C. 7 D. 8 E. 9 Rows, columns (E)
Σx 5+8+6+4+9+4+3+8+9
Mean (𝑋̅) = N = 2013/2014/46 (UNIZIK, AWKA)
9
56
Find the mean of the data 7, -3, 4, -2, 5, -9, 4, 8, -6, 12
= = 6.22 ≈ 6 (B) A. 4 B. 3 C. 2 D. 1 E. 0
9
Answer
7+(−3)+ 4+(−2)+ 5+(−9)+ 4+8+(−6)+ 12
2007/3 Neco x = Σ𝑥
n
=
10
Find the arithmetic mean of the following set of scores
40−20 20
12, 4, 2, 8, 14 x = Σ𝑥
n
=
10
= 10 = 2 (C)
A. 8 B. 10 c. 12 D. 14 E. 30
Answer
Σ𝑥 12+4+2+8+14 40
Mean = = = = 8 (A) 2000/6 Neco
𝑛 5 5
In an economics test, a class had a total score of 375 and a
1996/3 & 4 Nov mean score of 5. How many students sat for the test?
Study and use the following table of annual sales (NNPC) A. 95 B. 75 C. 55 D. 35 E. 25
to answer 3 and 4. Answer
Σ𝑥
Annual sales Mean (𝑥̅ ) = ;
𝑛
Year Sales (₦ = billion) Σ𝑥 375
1 200 ∴n= = = 75 (B)
𝑥̅ 5
2 300
3 500 2011/4 UTME Exercise 4.13
4 800 A major disadvantage of the arithmetic mean is that
5 1200 A. not useful for large data
What is the mean annual sale for the 5 – year period? B. not suitable for further statistical analysis
A. 200 B. 300 C. 500 D. 750 C. cumbersome to determine actual value
Answer D. affected by extreme data
Σ𝑥 200 + 300 + 500 + 800 + 1200 3000
x= n
= 5
= 5
= 600 (D)
64
2019/5 Exercise 4.14 Example GD2
The wages of a group of workers in dollars are stated below: Find the mean of the distribution
40, 30, 70, 20, 60, 10, 10, 80, 30 and 10. What is the mean wage?
A. 35 B. 36 C. 37 E. 38 Scores 1 2 3 4 5 6 7 8
2019/3 Neco Exercise 4.15 Frequency 3 4 3 6 5 4 3 2
Find the arithmetic mean of the following numbers 4.0, 2.0, 2.8,
3.2, 6.0, 5.7, 6.2 and 2.1 A3 B 3.5 C 4.3 D 4.5 E5
A. 2.0 B. 3.0 C. 4.0 D. 4.3 E. 4.6 Solution
 fx
2019/5 Neco Exercise 4.16 Mean =
The formula for calculating mean for an ungrouped data is given f
as Table for mean showing x, f and fx
Σ𝑓𝑥 Σ𝑓𝑥 Σ𝑥
A. 𝑥̅ = B. 𝑥̅ = C. 𝑥̅ =
N Σ𝑓 n Scores(x) Frequency (f) fx
Σ𝑥 2
D. 𝑥̅ = Σ(𝑥 − 𝑥̅ )2 E. 𝑥̅ = 1 3 3
N
2 4 8
Mean for grouped data 3 3 9
 fx
Mean (𝑋̅)= 4 6 24
f 5 5 25
Where 6 4 24
(𝑋̅)= required mean
Σf = sum of the frequencies 7 3 21
Σfx = sum of the product of the scores and frequencies 8 2 16
f = 30 fx = 130
FREQUENCY & TALLY
Frequency is the number of occurrences of any value in a given Substituting
data while tally is the stroke representation of frequency. Mean = 130 i.e 4.3 (C)
30
Where:
Tally Frequency
Example GD3
I represents 1
The figure below shows the number of goals scored by a group of
II represents 2
players in a match
III represents 3
IIII represents 4
No of goals 0 1 2 3 4 5 6
IIII represents 5
IIII I represents 6 Frequency 26 29 14 15 5 6 3
IIII II represents 7 and so on.
Calculate the mean number of goals
Example GD1 Solution
Mean =  fx
The ages of 24 students in JSS I of Ibru college
Agbarha – Otor is given as follows; f
7 8 10 15 8 9 7 7 Table for mean showing x, f and fx
8 8 9 11 12 7 13 10
14 8 8 9 10 15 8 11 No of goals (x) Frequency (f) fx
Arrange the above data in a frequency table. 0 26 0
1 29 29
Solution 2 14 28
Arranging the above data in a frequency table.
3 15 45
Ages Tally No of students ( freq.)
4 5 20
7 IIII 4
5 6 30
8 IIII II 7
6 3 18
9 III 3
10 III 3  f = 98  fx = 170
11 II 2
12 I 1 Substituting
13 I 1 Mean = 170 = 1.73  2 goals
98
14 I 1
(There is nothing like 1.73 goals)
15 II 2
Total = 24

65
1999/2 UTME 2021/5
In a firm, three employees earn N5,500 each, four earn One way of obtaining the median of a given data is to
N3,300 each, two earn N5,000 each and one earns N7,000. A. sum the value and divide the number of items
The mean income of the employees is B. arrange the data in ascending order and subtract each
A. N5,200 B. N4,760 C. N4,670 D. N2,080 item from the mean.
Answer C. arrange the data in descending order and add each item
Σ𝑓𝑥 3(5,500) + 4(3,300) + 2(5,000) + 7,000 to the least.
=
𝑓 10 D. arrange the data in either ascending or descending
46,700 order and find what item divides he set into two equal
= parts.
10
= ₦4,670 (C). Answer
D – Arrange the data in either ascending or descending order
and find what item divides the set into two equal parts.
2007/39 Exercise 4.17
The table shows the wage distribution of workers.
Calculate the mean wage
A. N7.40 B. N4.00 C. N10.00 D. N14.80 2004/37 UTME
In any set of data, the median represents the
A. Value that is most represented of the data.
1992/2 Exercise 4.18
Days Bags of wheat produced daily B. Mid – position when the values are arranged in
ascending or descending order
1 4
C. mid – position when the values are arranged randomly
2 6
D. difference between the highest and the lowest values
3 7
when arranged in ascending order
4 9
Answer
5 13
Mid – position when the values are arranged in ascending
What is the mean of the data given above?
or descending order (B).
A. 13.0 B. 8.0 C. 7.8 D. 5.4 E. 2.6

2018/22 UTME Exercise 4.19

Example MD4
From the table, the mean of the distribution is
Determine the median of the set of numbers below;
A. 2.2 B. 2.5 C. 3.2 D. 4.5
12, 37, 15, 27, 10, 35, 13, 24, 33, 18, 11, 30, 25.
A. 24 B. 2 5 C. 35 D. 37
MEDIAN Solution
The median is the value which falls in the middle when Ascending order arrangement:
figures are arranged in ascending or descending order. 10, 11, 12, 13, 15, 18, 24, 25, 27, 30, 33, 35, 37
The median is a position average showing the value of the The number of figures is 13, odd
middle item. It has 50% of the items above and below it.
Thus median = middle number
ADVANTAGES OF MEDIAN = 24 (A)
1. It is easy to compute. NB: In an ungrouped ordered set of data, the median is the
2. It is capable of being understood by persons unversed in 𝑛+1
value of the ( 2 )th item, where n is the number of items
statistical or mathematical method.
3. The answer can be obtained by inspection. of discrete distribution. The formula applies strictly where
4. Results can be obtained without knowing size of extreme n is odd.
values.
5. The answer can always be ascertained. In the above example, n=13. So applying the formula, the
13+1
6. It can be obtained graphically. position of the median = 2 = 7th.
7. A clear and simple idea of the distribution of the data is The 7th item (number) when properly arranged in either
given. position (ascending or descending) is 24.
DISADVANTAGES OF MEDIAN
1. Median cannot be applied in further mathematical Activity task:
treatment. Determine the median of the above set of numbers by
2. The result may be biased by the size of extreme values. rearranging in descending order.
3. Every item in the series is not given due weight.
4. Median may not be calculated by a mathematical
formula.
5. The arrangement of large series of data in either
ascending, or descending order of magnitude could be
confusing and discouraging.
66
Example MD5: 2010/5
The scores obtained in a production test by 10 factory workers are Find the median of the following set of scores: 8, 9, 6, 5, 10
as given below: A. 9 B. 8 C. 6 D. 5
10, 8, 9, 6, 5, 10, 7, 4, 11, 3 Answer
Determine the median scores. Ascending order arrangement:
A. 6. 5 B. 7. 5 C. 8. 5 D. 9. 5 E.11. 5 5, 6, 8, 9, 10
Solution The number of figures is 5, odd
Arrangement in ascending order: Thus median = middle number = 8 (B)
3, 4, 5, 6, 7, 8, 9, 10, 10, 11
The number of figures is 10 (even) 2010/14 Neco Exercise 4.20
Thus, Median = Sum of two middle numbers Find the median of the following set of values.
2 2, 7, 5, 8, 2, 9, 11, 12, 3, 4
7+8 A. 6 B. 2 C. 7 D. 9 E. 11
= = 7.5 (B)
2
NB: In the example above, n is even as there are 10 items, so
2006/5 Neco Exercise 4.21
applying the median formula, the position of the median is
10+1 The median score of the marks is
= 5.5. Since there is no observation in the position 5.5, A. 21 B. 22 C. 23 D. 24 E. 46
2
the two items immediately before and after it are summed up
and divided by 2. 2000/6 Exercise 4.22
Which of the following is a measure of central tendency?
2023/5 A. percentage B. graph C. variance D. median
The marks obtained by 9 students in a class test are recorded
below: 9, 8, 7, 5, 7, 6, 8, 9 and 7. What is the median mark?
A. 7 B. 7.5 C. 8 D. 8.5 2011/9 (UTME) Exercise 4.23
Solution The median of an odd numbered set of scores is the
Arrangement in ascending order: A. middle value in the set B. highest value in the set
5, 6, 7, 7, 7, 8, 8, 9, 9 C. arithmetic means of the set
The number of figures is 9 (odd) D. most frequent occurring score
Thus median = middle number
= 7 (A) MEDIAN FROM CUMULATIVE TABLE
𝑛 𝑡ℎ
In a frequency, the median is given as( ) item. This can be
2019/5 (PC) 2
The data below shows marks scored by students in a class. Use it calculated from a cumulative frequency table.
to answer the question below
0, 40, 15, 25, 80, 40, 40, and 15. Example
A. 15 B. 25 C. 32.5 D. 40 Calculate the median from the following frequency distribution
Solution table
Arrangement in ascending order: x 4 6 7 9 14
0, 15, 15, 25, 40, 40, 40, 80 f 3 2 4 2 1
The number of figures is 8(even)
Thus, Median = Sum of two middle numbers
A.2 B.4 C.6 D.7 E.9
2
25+40 Solution
= = 32..5 (C)
2
NB: In the question, n is even as there are 8 item, so applying the x f Cumulative freq Position of x
𝑛+1
median formula, ( 2 )th item, the position of the median is 4 3 3 1, 2, 3
8+1 6 2 3+2=5 4, 5
2
= 4.5. Since there is no observation in the position 4.5,
7 4 5+4=9 6, 7, 8, 9
the two items immediately before and after it are summed up 9 2 9 + 2 = 11 10, 11
and divided by 2. 14 1 11 + 1 = 12 12
n=f=12
2002/3 Neco
Solution
In a class of 6 students, the following scores were obtained in a
𝑛 𝑡ℎ
mathematics test 10, 2, 6, 7, 1, 2. What is the median score of the Using the formula( 2) item
class? n= 12
A. 2 B. 4 C. 6 D. 7 E. 10 12 𝑡ℎ
Answer ∴ ( 2 ) =6th item = 7(D).
2+6 8
1, 2, 2, 6, 7, 10 = 2 = = 4 (B) NB: It should be noted that 7 occupies the following positions –
2
6th, 7th, 8th, and 9th.The median is therefore 7 as resolved above.

67
MEDIAN OF A GROUPED FREQUENCY DISTRIBUTION For median
The tabular arrangement of data by classes together with Median formula for grouped data is given as
their corresponding class frequency is called frequency  n  Cf b 
distribution or frequency table. Median = L1   2 C
 fm 
Example  
Mass (kg) Bags of flour Where
40 – 42 5 L1 = Lower class boundary of the median class
43 – 45 18 n = Total frequency
46 – 48 42 Cfb= Cumulative frequency before the median class
49 – 51 27 Fm= Frequency of median class
52 – 54 8 C = Size of the median class
Total = 100
The table above shows a frequency distribution of masses
(recorded to the nearest Kg) of 100 bags of flour. Example MF 1
Any data organised and summarized as in the above Find the median mark of the following distribution
frequency distribution are often called Group data. Class boundaries f cf
0.5 – 5.5 1 1
Class interval & Class limits 5.5 – 10.5 4 5
A symbol defining a class such as 40 – 42, 43 – 45 in the 10.5 – 15.5 6 11
above table is called a class interval – while the end 15.5 – 20.5 5 16
numbers 40 and 42, 43 and 45 are called class limits; the 20.5 – 25.5 9 25
smaller numbers 40, 43, ... are the lower class limits and 25.5 – 30.5 13 38
the bigger numbers: 42, 45; ... are the upper class limits 30.5 – 35.5 8 46
35.5 – 40.5 4 50
Class boundaries
If masses are recorded to the nearest kg, the class interval Solution
𝑛
40 – 42 theoretically includes all measurements from 39.5 − 𝐶𝑓𝑏
Median formula = L1 + [ 2 𝑓𝑚
]𝐶
to 42.5 kgs which are called class boundaries or True class
limits. The smaller number 39.5 is the lower class
boundary while the bigger number 42. 5 is the upper class First, we find n i.e 50 = 25 median position
2 2
boundary. Displaying the given table to reflect class
boundaries, we have
Next, we find the class boundary where the median lies
Class interval Class boundaries Frequency with the aid of cumulative frequency:
40 – 42 39. 5 – 42 .5 5 At cumulative frequency 25, the class boundary occurs at
43 – 45 42. 5 – 45 .5 18 20.5 – 25.5
46 – 48 45. 5 – 48 .5 42 L1 = 20.5, Cfb = 16, C = 5 i.e 25.5 – 20.5, Fmedian = 9
49 – 51 48.5 – 51. 5 27
𝑛
52 – 54 51.5 – 54 . 5 8 − 𝐶𝑓𝑏
Median formula = L1 + [ 2
]𝐶
𝑓𝑚
In practice, the class boundaries are obtained by adding
25  16 
the upper limit of one class interval to the lower limit of Median = 20.5 +  5
the next higher class interval and dividing by two  9 
i.e 43 + 42,46 + 45, 49 + 48 9
= 20.5 + 5
2 2 2 9
Class Size = 20.5 + 5 = 25.5
This is the difference between the lower and upper class
boundaries or the difference between two upper limits, or
two lower limits. The class size is also called the class
width or class strength. In this case 42.5 – 39.5 = 3 or 43 –
40 = 3 or 45 – 42 = 3

Class marks (Midpoints)

This is the midpoint of the class interval and is obtained by
adding the lower and upper class limits and dividing by
two (2). Thus the class mark of the interval 40 – 42 is
40 + 42 = 41
2
68
Example MF 2 DISADVANTAGES OF MODE
Find the median mark of the following distribution 1. Every item in the series is not given a due weight.
Class Boundary Frequency 2. It cannot be applied in further mathematical treatment.
59.5 – 64.5 2 3. The result may be biased by size of extreme values.
64.5– 69.5 3 4. Mode can give a very poor result.
69.5 – 74.5 6 5. If there is bi-modal or multi-modal, result cannot be
74.5– 79.5 11 ascertained.
79.5– 84.5 8 6. It may be unrepresented when the distribution is
84.5 – 89.5 7 irregular.
89.5– 94.5 2 7. It cannot be calculated by a mathematical formula.
94.5 – 99.5 1
Example ME 1
Solution Determine the mode of the distribution below
Class boundaries Frequencies Cumulative x 2 6 10 12 15
frequencies f 5 10 9 7 3
59.5 – 64.5 2 2
64.5– 69.5 3 5 A.15 B. 6 C. 9 D. 10
69.5 – 74.5 6 11 Solution
74.5– 79.5 11 22 Mode = number that occur most
79.5– 84.5 8 30 = 6 (B). It has highest frequency of 10
84.5 – 89.5 7 37 NB:
89.5– 94.5 2 39 i. Unimodal: This occurs where one group or data
94.5 – 99.5 1 40 has the highest frequency as above.
ii. Bi–modal: This arises when two distribution have
n=40
the same frequency. In this case, there is no mode.
𝑛 iii. Multi–modal: This arises when more than two
− 𝐶𝑓𝑏
Median formula = L1 + [ 2 ]𝐶 groups having the same highest frequency. When
𝑓𝑚 this occurs, then there is no mode.
n 40
First, we find 2
i.e 2
= 20 median position
Next, we find the class boundary where the median lies with the Example ME 2
aid of cumulative frequency: From the following information, determine the mode
At cumulative frequency 20, the class boundary is 74.5– 79.5 Marks Obtained 2 3 4 5 6 8 10
L1 = 74.5, Cfb = 11, C = 5 i.e 79.5 – 74.5, Fmedian = 11 Frequency 9 7 10 15 13 8 25
20− 11
Median = 74.5 + [ ]×5 Solution
11
9 Mode = number that occur most
= 74.5 +  5 = 74.5 + 4.10 = 78.6 = 10. It has highest frequency of 25
11
2012/18 Neco
2018/23 UTME Exercise 4.24 The basic tool for economic analysis that does not take
What is the median of the distribution? into consideration all values is referred to as
A. 5 B. 4 C. 3 D. 2 A. mean B. mean deviation C. median
D. mode E. range
Answer Mode (D)
MODE 2004/6
The mode is the number that appears or occurs the most in The most frequently occurring number in a set of data is
a set of data. It is the number with the highest frequency. referred to as the
The mode is the most easily measured of all measures of A. mode B. median C. mean D. range
central tendency. Answer Mode (A)

ADVANTAGES OF MODE 2002/2

1. Mode is easy to compute. The table below shows the scores of 40 students who took
2. It can be obtained by inspection. part in an economics test.
3. It is capable of being understood by persons unversed Score (x) 2 5 8 10 12 13 15
in statistical or mathematical method. Frequency (f) 2 4 6 12 8 5 3
4. It can be ascertained without knowing size of extreme (a) Find the mean score.
values. (b) Calculate the median score.
5. It can be obtained graphically. (c) What percentage of students scored 10 marks and above.
(d) Find the modal score.
69
 Answer 2007/40 Exercise 4.28
Score (𝑥) Frequency (f) F𝑥 What is the median wage?
2 2 4 A. ₦8.00 B. ₦5.00 C. ₦11.00 D. ₦6.50
5 4 20
8 6 48 GEOMETRIC MEAN
10 12 120 The geometric mean (G) is obtained from a set of numbers
12 8 96 of observations by taking the nth root of the product of the
13 5 65 numbers.
15 3 45 G = 𝑛√𝑥1 . 𝑥2 . 𝑥3 … 𝑥𝑛
Σfx 398
(a) 𝑥̅ = Σf = 40 = 9.95
𝑛 𝑡ℎ
Example GM1
(b) The median is given as( ) item. Find the geometric mean of 2, 3, 5, 7
2
40 Solution
i.e 2
= 20, and this falls on f(2+4+6+12) equals x= 10
G = 4√2 × 3 × 5 × 7 = 4√210 = 3.81
∴ Median = 10
(c) The percentage of students scored 10 marks and
Example GM2
above
Find the geometric mean of 16, 25, 36
Number of student =12 + 8 + 5 + 3 = 28
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠𝑡𝑢𝑑𝑒𝑛𝑡 100 Solution
%= × G = 3√16 × 25 × 36 = 3√14400 = 24.33
𝑡𝑜𝑡𝑎𝑙 1
28 100
= × = 70% ADVANTAGES OF GEOMETRIC MEAN
40 1
(d) The modal score is 10. (i.e. Highest frequency) (1) It is well useful in research work as it is used to
measure changes in the rate of growth.
2000/3 (2) All the data given are involved in its calculation.
Use the table below to answer question 3 and 4. (3) The information given on both sides of the
Scores (x) 0 3 6 7 8 9 10 distribution is a balanced one.
Frequency (f) 2 7 12 6 7 3 1 (4) It is easy to use for further statistical manipulations.
The modal score in the distribution is
A. 0 B. 3 C. 6 D. 12 DISADVANTAGES OF GEOMETRIC MEAN
Answer 6 (C) – Highest occurring frequency. (1) It is difficult to understand when a large volume of
2000/4 data is involved.
The median score in the distribution is (2) Computing it is an extremely difficult task.
A. 2 B. 3 C. 6 D. 8
Answer
𝑛 𝑡ℎ
Using the formula( ) item
2
n= 38 HARMONIC MEAN
38 𝑡ℎ The harmonic mean (H) of a set of numbers or
∴ (2) =19th item = 6(C). observations is defined as the reciprocal of the arithmetic
NB: It should be noted that 6 occupies the19thposition on the mean of the reciprocal of the numbers.
table, (2 + 7+ 12) i.e from the 10th item to 21st item are occupied 𝑛
by 6 which is that of the median number (19 th item). H= 1 1 1 1
𝑥1 + 𝑥2 + 𝑥3 +⋯𝑥𝑛
1996/2 Nov Exercise 4.25
The mode for the set of numbers 48.9, 51.6, 48.7, 50.3, Example
49.5, 48.9 is Find the harmonic mean of a set of numbers 10, 6.
A. 48.7 B. 48.9 C. 49.5 D. 50.3 E. 51.4 Solution
n = 2,𝑥1 = 10,𝑥2 = 6.
1995/3 Nov Exercise 4.26 2 4
(a) Explain the term mode. H= 1 1 = 2 ÷
+ 15
10 6
(b) What are the advantages and disadvantages of the 2 15
mode as a measure of central tendency? = × = 7.5
1 4

2007/39-40 Exercise 4.27 ADVANTAGES OF HARMONIC MEAN

Class mark (N) 2 5 8 11 14 (1) It doesn’t affect the extreme values.
Frequency 2 3 1 3 1 (2) All of the values in the observation are represented.
39. Calculate the mean wage (3) It is determinate.
A. ₦7.40 B. ₦4.00 C. ₦10.00 D. ₦14.80
70
DISADVANTAGES OF HARMONIC MEAN 2013/5 Exercise 4.31
(1) The scope of harmonic mean is somehow limited The median of the data is
(2) The principle is hard to understand A. 4 B. 4.5 C. 5.5 D. 6 E. 7
(3) The calculation involved is quite difficult.
2013/6
2010/3 Neco joint cases What is the mode?
Determine the mean and mode of the distribution below A. 4.0 B. 4.5 C. 5.5 D. 6.0 E. 7.0
5, 7, 4, 5, 8, 9, 4, 5, 6, 9, 7, 8 Answer
A. 6, 4 and 5 B. 3, 6 and 4 C. 12.8 and 8 4, 9, 8, 4, 4, 7, 5, 4, 4, 6
D. 5 and 6.4 E. 6 and 6.4
The highest occurring number is 4. (A)
Answer
4, 4, 5, 5, 5, 6, 7, 7, 8, 8, 8, 9, 9 2019/2020/1-4 (UI, IFE)
4+4+5+5+5+6+7+7+8+8+9+9 67
Mean = = 12 = 5.58 Use the information to answer question 1 – 4
12
Mean = 6 x 1 5 7 9 10
6.4 and 5 (A) f 5 3 4 6 2

2008/3 Neco Exercise 4.29 2019/2020/1 (UI, IFE)

What is the mode of the following scores, 15, 24, 14, 13, 11, What is the mode of the distribution?
10, 10, 10, 8, 5? A. 10 B. 6 C. 1 D. 9
A. 5 B. 8 C. 10 D. 15 E. 20 Answer
9 (D) – Highest occurring frequency
1999/6 Exercise 2.30
For a distribution of 75, 50, 20, 6, 5, 3 and 2 the best measure
of central tendency is the 2019/2020/2
A. mean B. median C. range D. mode How many observations are there?
A. 32 B. 42 C. 52 D. 20
1998/3 joint cases
Answer
Use the table below to answer question 3 and 4.
The number of observation is the sum of the frequency
Scores (𝑥) 0 2 4 5 6 7 8
5 + 3 + 4 + 6 + 2 = 20 (D)
Frequency (f) 7 11 6 7 7 4 3
In the distribution above, the mode is _____
2020/3
A. 2 B. 3 C. 4 D. 5 E. 6
Calculate the mean
Answer
The score with the highest occurring frequency (11) is 2. A. 6.0 B. 7.0 C. 7.1 D. 6.1
0, 0, 0, 0, 0, 0, 0, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2,2, 4, 4, 4, 4, 4, 4, 5, Answer
Σ𝑓𝑥
5, 5, 5, 5, 5, 5, 6, 6, 6, 6, 6, 6, 6, 6, 7, 7, 7, 7, 8, 8, 8. Mean = Σ𝑓
The most occurring number is 2 (A) x f fx
1998/4 1 5 5
The median is
5 3 15
A. 2 B. 3 C. 4 D. 5 E. 6
7 4 28
Answer
0, 0, 0, 0, 0, 0, 0, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 4, 4, 4, 4, 4, 4, 5, 9 6 54
5, 5, 5, 5, 5, 5, 6, 6, 6, 6, 6, 6, 6, 7, 7, 7, 7, 8, 8, 8. 10 2 20
The median = 4 (C) Σ𝑓 = 20 Σ𝑓𝑥 122

122
2007/40 Mean = = 6.1 (D)
20
What is the median wage?
A. N8.00 B. N5.00 C. N11.00 D. N6.50 2020/4
Answer What is the median observation?
2, 2, 5, 5, 5, 8, 11, 11, 11, 14 A. 7 B. 4 C. 8 D. 6
5+8 13
Median = = 6.5 (D) Answer
2 2
2013/4 – 6 Neco 1, 1, 1, 1, 1, 5, 5, 5, 7, 7, 7, 7, 9, 9, 9, 9, 9, 9, 10, 10
Use the data below to answer questions 4 – 6 7+7 14
Median = =
4, 9, 8, 4, 4, 7, 5, 4, 4, 6 2 2
Calculate the mean = 7 (A)
A.4 B. 4.5 C. 5.5 D. 6 E. 7 Or
𝑛 𝑡ℎ
Answer Using the formula( ) item n = 20
Σ𝑥 4+9+8+4+4+7+5+4++4+6 55 2
Mean = 𝑥̅ = n = = 10 = 5.5 (C) 20 𝑡ℎ
10
∴( ) =10th item = 7(A).
2
71
 x f cf Example R1
1 5 1,2,3,4,5 What is the range of the following set of numbers
5 3 6,7,8 - 2, -1, 5, 0, 2 ?
7 4 9,10,11,12 A. – 4 B. 7 C. 0 D. 4 E. 3
9 6 13,14,15,16,17,18 Solution
10 2 19,20 Range = Highest Value – Lowest value
NB: It should be noted that the 10th item on the cumulative Here the highest value is no problem but for the lowest
frequency standing is found when x = 7. value among – 2, – 1, and 0.
- 2 and –1 are smaller than 0.
1994/13 Exercise 4.32 And – 2 is smaller than – 1, making – 2 the lowest value.
Which of the following is not a set of measures of central Thus, Range = 5 – ( - 2)
tendency? =5+2
A. mode and median B. mean and median =7 (B)
C. mean and mode D. mean and percentage Example
E. mode, mean and median The table below shows the frequencies (f) of some
children of age x years.
2006/3 Exercise 4.33 x 1 2 3 5 6 7 8
Which of the following is a measure of central tendency? f 3 4 5 7 6 5 4
The Find the range of their ages
A. range B. bar chart C. mean D. graph A1 B3 C4 D7 E8
Solution
2006/4 Exercise 4.34 Range = Highest Value – Lowest value
A trader bought five oranges for two naira each and =8–1
another ten for thirty naira. The average price of the =7 (D)
orange is 2000/22 Neco Exercise 4.38
A. ₦2.67 B. ₦2.76 C. ₦20.67 D. ₦20.76 The scores of 8 students in an economics test were 25, 16,
2010/4 Exercise 4.35 30, 50, 49, 59, 58 and 25. What is the range?
The sum of items divided by the number of items is the A. 23 B. 34 C. 41 D. 43 E. 50
A. frequency B. mean C. median D. mode
Example
2019/2 NABTEB Exercise 4.36 What is the range of the following set of numbers?
If observations 6, 4, 1, 2, 5, 7, 4 are arranged in ascending 15, 8, 30, 13, 2, 42, 18, 10, 6?
order, the median will be the A. 42 B. 40 C . 36 D. 6 E. 2
A. 3rd observation B. 4th observation Solution
C. 5 observation D. 6th observation
th Range = Highest Value – Lowest value
= 42 – 2
2010/6 UTME Exercise 4.37 = 40 ( B )
The mean is the best measure of central tendency because 1999/2
it Which statistical measure is applied when a retailer wants
A. is not affected by extreme values in a data to know the difference between the highest and the lowest
B. is a balancing point in an observation monthly sales?
C. is a mid point value in an array of data A. range B. median C. mean E. mode
D. can be calculated from incomplete data Answer
Range (A)

MEASURES OF DISPERSION 1995/21 UTME

This is the degree to which data are scattered about its If Y represents the income earned by workers in a factory,
average value. The several measures of spread are the find the range of their income which satisfies the following
range, mean deviation, inter quartile range, variance and inequality: 4y – 3000 > 500
standard deviation. A. y > 3000 B. y > 250 C. y>200 D. y>150
Answer
The Range 4y – 300 > 500
The range is the simplest to determine and it is the 4y > 500 + 300
difference between the maximum or the highest value and 4y > 800
the minimum or the lowest value in a given data. 800
y>
4
y > 200 (C).

72
2010/7 UTME 2007/39 and 40 UTME
The most popular sizes of dresses and shoes are Use the table below to answer questions 39 and 40.
determined by the Class mark (N) 2 5 8 11 14
A. range B. mode C. mean D. median Frequency 2 3 1 3 1
Answer: Range (A)

2008/16 Neco Exercise 4.39 2009/4 Neco Exercise 4.41

Calculate the range of the following scores: The mean of the following scores 30, 32, 34, 36, 38, 40
10, 30, 60, 80, 20, 45, 90 and 42 is 36. What is the mean deviation?
A. 10 B. 30 C. 40 D. 70 E. 80 A. 3.41 B. 3.42 C. 3.43 D. 3.44 E. 3.45

2013/5 UTME Exercise 4.40

An advantage of the range as a measure of dispersion is
that, it 2011/3 Neco
A. can be used to calculate open ended distribution The following are measures of central tendency except
B. makes use of all values of observation in a distribution A. arithmetic mean B. harmonic mean C. mean
C. takes all values into consideration deviation D. median E. mode
D. is useful for further statistical calculation Answer
Mean deviation (C)

THE MEAN DEVIATION

The mean deviation is obtained by determining the
arithmetic mean of all absolute deviations from the mean. Example ME 1
The essence of mean is determined with an utter disregard Given the set of data below, determine the mean deviation.
for the sign. The sum of for both an ungrouped and a 20, 25, 30, 40, 50, 60, 65, 75, 90, 95
grouped data. Solution:
(𝑥1 −𝑥̅ )+(𝑥2 −𝑥̅ )….+ (𝑥𝑛 −𝑥̅ )
For an ungrouped data without frequencies, the formula Mean deviation =
𝑁
below is used First we solve for the arithmetic mean,
Mean Deviation (M.D) of ‘n’ numbers 20+25+30+40+50+60+65+75+90+95 550
̅
X= = = 55
(𝑥1 −𝑥̅ )+(𝑥2 −𝑥̅ )….+ (𝑥𝑛 −𝑥̅ ) 10 10
=
𝑁 (20−55)+(25−55)+(30−55)+(40−55)+(50−55)+(60−55)
MD =
10
For grouped data and also for an ungrouped data with
frequencies, the formula will be as follows: + (65 − 55) + (75 − 55) + (90 − 55) + (95 − 55)
𝑓 (𝑥 −𝑥̅ ) +𝑓2 (𝑥2 −𝑥̅ )…+𝑓𝑛 (𝑥𝑛 − 𝑥̅ ) 10
Mean Deviation (M.D) = 1 1 ∑𝑓
35+30+25+15+5+5 10+20+35+40
M.D =
∑ 𝑓(𝑥−𝑥̅ ) 10
(M.D) = 220
∑𝑓 M.D = 10
Mean deviation = 22

2018/4 Neco Example ME 2

Mean deviation is the Study the data in the table below:
A. absolute deviations from the mean Mark (%) Frequency
B. difference between the maximum and the minimum 20 1
values in a set 30 1
C. reciprocal of the arithmetic means 40 4
D. root of the product of the numbers 50 3
E. square root of the mean 60 6
Answer 70 5
Absolute deviations from the mean (A) Determine the mean deviation
Solution
∑ 𝑓(𝑥−𝑥̅ )
(M.D) = ∑ 𝑓

73
Preparing a table we have 2000/21 Neco
Mark (𝑥) Frequency 𝑓𝑥 Absolute 𝑓(𝑥 − 𝑥̅ ) If the variance of a distribution is 4, what is the standard
(𝑓) value deviation?
(𝑥 − 𝑥̅ ) A. 16 B. 8 C. 4 D. 3 E. 2
20 1 20 33.5 33.5 Answer
30 1 30 23.5 23.5 Simply, standard deviation =√𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒
40 4 160 13.5 54 √4 = 2 (E)
50 3 150 3.5 10.5
60 6 360 6.5 39 2009/3 Neco
70 5 350 16.5 82.5 In a given set of data, if the variance is 25, what is the
20 1070 243 standard deviation?
A. 4.5 B. 5 C. 5.5 D. 10 E. 12
∑ 𝑓𝑥 1070 Answer
The arithmetic mean (𝑥̅ ) = = = 53.5
∑𝑓 20 Standard deviation is the root of the variance i.e.
Hint: (x − x̅)= 20 – 53.5 = –33.5, but the absolute value
√variance = √25 = 5 (B)
(the numerical non – negative value of a real number
without regard to its sign)is needed, which is 33.5. Same
2010/5 UTME
procedure applies to all. The standard deviation of a set of data is
∑ 𝑓(𝑥−𝑥̅ ) 243
The mean deviation (M.D) = = = 12.15 A. always measured from the mode B. always measured
∑𝑓 20
from the median C. the most representative of averages
2016/8 UTME Exercise 4.42 D. a measure of dispersion
Given: 2, 4, 6, 8, 4 and 6, the absolute mean deviation is Answer A measure of dispersion (D)
A. 6.00 B. 1.67 C. 30.00 D. 0.60
1992/1 Nov Exercise 4.43
Which of the following is not a measure of central
STANDARD DEVIATION tendency?
Standard deviation is used in determining the extent to A. mean B. mode C. median D. weighted average
which data deviate or the extent to which data are different E. standard deviation
from their average. In other words, the standard deviation
is used to determine the degree to which data deviate from 2021/4 Neco Exercise 4.44
the standard or from the average. To calculate the standard Standard deviation can be determined by which of these
deviation for a set of data, the formula presented below is formulae?
used. ∑(𝑥̅ −𝑥)2 ̅)𝟐
∑ 𝒇(𝒙−𝒙 ∑ 𝑓(𝑥−𝑥̅ )2
∑(𝑥−𝑥̅ )2 A. B. √ ∑𝒇
C. ∑𝑓
𝑁
Standard Deviation = 𝑠 = 𝜎 = √
𝑁 ∑ 𝑓𝑥 √∑(𝑥̅ −𝑥)
For a grouped data with frequencies, the formula will take D. ∑ 𝑓 E. 𝑁
this form:
∑ 𝑓(𝑥−𝑥̅ )2 VARIANCE
Standard Deviation= 𝑠 = 𝜎 = √ ∑𝑓 The term variance refers to a statistical measurement of the
spread between numbers in a data set. More specifically,
ADVANTAGES OF STANDARD DEVIATION variance measures how far each number in the set is from
1. It is the most widely used measure of dispersion. the mean and thus from every other number in the set.
2. It is based on all the data (items) and is rigidly defined.
3. It shows how much data is clustered around a mean To determine the variance for an ungrouped data, the
value. formula will be
4. It gives a more accurate idea of how the data is ∑(𝑥−𝑥̅ )2
Variance = 𝜎 2 =
distributed. 𝑁
5. It is not as affected by extreme values For a grouped data, the formula is given as
∑ 𝑓(𝑥−𝑥̅ )2
Variance = 𝜎 2 = ∑𝑓
DISADVANTAGES OF STANDARD DEVIATION
1. It can be hard to calculate ADVANTAGES OF VARIANCE
2. It is not so good, if data are strongly skewed 1. All the given data value are used
3. It assumes a normal distribution pattern 2. It is used in many statistical procedures as it is a good
4. It does not give the full range of data measure.
5. It is only used with data where an independent variable 3. It can be very representative when data are fairly
is plotted against the frequency of it. symmetrical.

74
DISADVANTAGES OF VARIANCE ∑ 𝑓𝑥 1170
The Arithmetic Mean (𝑥̅ ) = ∑𝑓
= 60
= 19.5
1. The variance is measured in the original units squared
2. Extreme values or outliers affect the variance
∑ 𝑓(𝑥−𝑥̅ )2 2625
considerably. i. The variance = = = 43.75 years
∑𝑓 60
3. It is difficult to compute manually.
∑ 𝑓(𝑥−𝑥̅ )2
2019/19 Neco ii. The Standard Deviation = √ ∑𝑓
If the standard deviation of 10 students in a class is 16,
what is the variance? 2625
=√ 60
= √43.75 = 6.6 years
A. 4 B. 6 C. 16 D. 160 E. 256
Answer
To get the variance, simply square the standard deviation
given 2021/1 Neco Joint case
S.D (𝜎) = 16 The table below shows hypothetical marks scored by
Variance = 𝜎 2 = 162 economic student in their promotion examination
= 256 (E) Mark 20 30 40 50 60 70
No. of students(frequency) 10 8 20 13 4 3
2013/34 Neco i. Calculate the arithmetic mean.
If the standard deviation of a given data is 6, What is the ii. Determine the variance and standard deviation.
variance iii. State two disadvantages of standard deviation.
A. 12 B. 18 C. 24 D. 36 E. 40
Answer Solution
Standard deviation = 6 ∑ 𝑓𝑥
i. Arithmetic mean = ∑ 𝑓
Variance = square of standard deviation
= 62 = 36 (D) Mark (x) Frequency (f) fx
20 10 200
2008/4 Exercise 4.45 30 8 240
If the standard deviation of a given data is 8.2, find its 40 20 800
variance 50 13 650
A. 4.1 B. 67.2 C. 82.0 D. 91.8 60 6 360
70 3 210
Example SD1 joint Σf=60 Σfx=2460
The following data represent the ages of some selected
∑ 𝑓𝑥 2460
students who benefited from a scholarship award in a Arithmetic mean (𝑥̅ ) = =
∑𝑓 60
particular year.
Ages 10 – 14 15 – 19 20 – 24 25 – 29 30 – 34 ∴ 𝑥̅ = 41
(Years) ∑ 𝑓(𝑥−𝑥̅ )2 ∑ 𝑓(𝑥−𝑥̅ )2
ii. Variance = ∑𝑓
; Standard deviation = √ ∑𝑓

Number of 20 10 15 10 5 ̅𝑥 = 41 (from i. above)

students
̅)𝟐
̅ (𝒙 − 𝒙
Mark (x) Frequency (f) 𝒙 − 𝒙 ̅)𝟐
𝒇(𝒙 − 𝒙
20 10 -21 441 4410
Using the data, determine 30 8 -11 121 968
(i) The variance
40 20 -1 1 20
(ii) The standard deviation
50 13 9 81 1053
Solution 60 4 19 361 2166
Preparing a table for the solution, we have 70 3 29 841 2523
Ages Class 𝑓 𝑓𝑥 𝑥 − 𝑥̅ (𝑥 − 𝑥̅ )2 𝑓(𝑥 − 𝑥̅ )2
Σf = 60 Σ𝒇(𝒙 − 𝒙̅)𝟐= 11,140
(Years) Mark
(𝑥)
10 – 14 12 20 240 -7.5 56.25 1125 ∑ 𝑓(𝑥−𝑥̅ )2 11,140
Variance = = = 185.67
15 – 19 17 10 170 -2.5 6.25 62.5 ∑𝑓 60
20 – 24 22 15 330 2.5 6.25 93.75
∑ 𝑓(𝑥−𝑥̅ )2 11,140
25 – 29 27 10 270 7.5 56.25 562.5 Standard deviation = √ =√ = 13.63
∑𝑓 60
30 – 34 32 5 160 12.5 156.25 781.25
60 1170 2625
75
Disadvantages of standard deviation 2014/4 UTME Exercise 4.46
i. It can be hard to calculate. The best measure of dispersion to determine the tallest tree in
ii. It assumes a normal distribution pattern. a forest is
iii. It does not give the full range of the data. A. range B. variance C. standard deviation
iv. It is only used with data where an independent variable D. mean deviation
is plotted against the frequency of it.
v. It cannot be effectively used, if data are strongly 2010/4 Neco Exercise 4.47 joint cases
skewed. Which of the following is the measure of dispersion?
A. graph B. mean C. median D. table
E. variance
2013/19 Neco
Calculate the mean deviation of the following data
2010/5 Neco Exercise 4.48
2, 4, 6, 8, 10 The standard deviation of an ungrouped data is calculated by
A. 2.4 B. 3.0 C. 3.2 D. 5.3 E. 6.0 using the formula.
(𝑥1 −𝑥̅ )+(𝑥2 −𝑥̅ )….+ (𝑥𝑛 −𝑥̅ )
M.D = ∑(𝑥−𝑥̅ )2 Σ𝑓(𝑑) Σ𝑓𝑥 Σ(𝑑)
𝑁 A. √ 𝑁
B. Σ𝑓
C. Σ(𝑥̅ − 𝑥)2 D. n
E. n
Σ𝑥 2+4+6+8+10 30
Mean = 𝑥̅ = n = 5
= 5 =6
(𝑥 −𝑥̅ )+(𝑥2 −𝑥̅ )+ (𝑥3 −𝑥̅ )+(𝑥4 −𝑥̅ )+(𝑥5 −𝑥̅ ) 2010/28 Neco Exercise 4.49
MD = 1 𝑁 ∑(𝑥−𝑥̅ )2
(2−6)+(4−6)+ (6−6)+ (8−6)+ (10−6) The formula √ is used to determine the
MD = 𝑁
5 A. mean deviation B. mean C. standard deviation
4+2+0+2+4 12
MD = = == 2.4 (A) D. variance
5 5

2020/3 Neco
2000/23 Neco Discuss briefly the following
What is not a measure of dispersion? (i) Frequency distribution
A. arithmetic mean B. mean deviation C. orange (ii) Standard deviation
D. standard deviation E. variance (iii) Range
Answer (iv) Table
All are measure of dispersion except arithmetic mean Solution
which is a measures of central tendency (A) (i) Frequency distribution: A frequency distribution or
frequency table is a tabular arrangement of data by
2016/1 NABTEB classes together with their corresponding class
The quantity of packets of sugar sold by eight (8) market frequency.
women in a week is shown in a distribution as follows: (ii) Standard deviation: The standard deviation is used in
5, 7, 8, 10, 12, 14, 16 and 24. determining the extent to which data deviate or the
Calculate extent to which data are different from their average.
(a) The mean deviation. (iii) Range: This is the difference between the maximum
(b) Standard deviation. (the highest value) and the minimum (the lowest value)
(c) Variance of the distribution. in a given set of data. The range is the simplest measure
Answer of dispersion to determine.
Σx 5+7+8+10+12+14+16+24 96 (iv) Table: A table is an orderly arranged list of
(a) Mean x̅ = = n 8
= 8 = 12 information, facts or data, usually set out in rows and
columns with appropriate sub–headings and which
MD = attempts to summarize a large mass of data by
(x1 − x̅) + (x2 − x̅) + (x3 − x̅) + (𝑥4 − x̅) + (x5 − x̅) + (𝑥6 − x̅) + (𝑥7 − x̅) + (x8 − x̅)
presenting it in a condensed form, thereby making data
n
(5 − 12) + (7 − 12) + (8 − 12) + (10 − 12) + (12 − 12) + (14 − 12) + (16 − 12) + (24 − 12)
more comprehensible.
=
8
7+ 5 + 4 + 2 + 0 + 2 + 4 + 12 36 2009/6 UTME
MD = 8
= 8
= 4.5
A cumulative frequency graph is
A. a histogram B. an ogive C. a bar chart
Σ( 𝑥− x̅)2 D. a pie chart
(b) S.D = S = 𝜎 = √ 𝑁 Answer
(4.5)2 (20.25) An ogive (B)
𝜎=√ 8
=√ 8 Hint: An ogive sometimes called a cumulative frequency
= √2.53125 = 1.59 polygon, is a type of frequency polygon that shows
Σ( 𝑥− x̅)2 cumulative frequencies. In other words, the cumulative
c. Variance of the distribution 𝜎 2 = 𝑁 percent are added on the graph from left to right. An
ogive graph plots cumulative frequency on the y–axis
( 4.5)2
= = 2.53 and class boundaries along the x–axis.
8
76
2001/5 Neco 2001/1 Neco
Σfx The pie chart below shows the occupation distribution of
In the formula 𝑥̅ = ,Σfx stands for
Σf the workforce in Uba town. The town has a total force of
A. frequencies B. number of elements times frequencies
500,000.
C. sum of frequencies
D. sum of the frequencies times observations
E. total number of observations
Answer
Sum of the frequencies times observations (D)

2012/4 Neco
The total number of rice harvested in bags for 5 days is
A. 32 B. 42 C. 52 D. 62 E. 65
Answer
From the histogram given, the total bags of rice harvested
is given by 5 +8 + 6 + 10 + 3=32 (A)

2012/19 Neco Exercise 4.50 (a) Calculate the number of people in each of the four
The means of identifying the occurrence of values in a occupation.
distribution is referred to as (b) Based on your answer to 1(a), draw a simple bar chart
A. frequency B. mean C. quartile D. range to show the occupational distribution of the
E. variance workforce.
Answer
50 500,000
2016/2 Farming sector = × = 250,000
Which of the following economic tools will best illustrate 100 1
the relationship between price and quantity demanded of a 25 500,000
Driving sector = × = 125,000
commodity? 100 1
A. pie chart B. mean C. range D. graph 15 500,000
Answer Trading sector =
100
× = 75,000
1
Graph (D) 10 500,000
Public sector = × = 50,000
100 1
2003/3 Neco Exercise 4.51
The best way of presenting data in tabular form is in
A. bars and columns B. charts and lines
C. maps and rows D. pictograms and histograms
E. rows and columns

2000/5
A collection of data which has not been processed is
referred to as
A. disjointed data B. raw data C. class interval
D. frequency
Answer
Raw data (B)

2012/4 (UTME)
The sign of the slope of a graph in economic analysis is
important because it
A. shows whether a goods is normal or inferior
B. shows the relationship between variables
C. reveals the magnitude of the change between variables
D. helps to determine the unit of measurement of variables
Answer
Helps to determine the unit of measurement of variables (D)

77
 DEMAND LAWS
Demand laws are observed facts, which guide the study
DEMAND and understanding of the theory of demand. The basic
Demand is defined as the quantity of commodities that demand laws are as follows:
consumers are willing and able to buy at a given price and i. Normal Demand Law.
at a given period of time. Demand refers to how much ii. Abnormal or Exceptional Demand Law
(quantity) of a product or service is desired by buyers. The
quantity demanded is the amount of a product people are NORMAL DEMAND LAW
willing to buy at a certain price, hence demand is directly This is the first law of demand. It states that the higher the
related to price. price of a commodity, the lower the quantity demanded, or
Demand is not the same thing as want or need. While want vice versa, Cetris Paribus.
and need refer to the wish or desire and necessity to have a
commodity respectively, demand on the other hand occurs CENTRIS PARIBUS:
when the commodity has actually been bought. This brings This is the Latin word, which means “other things being
us to the difference between effective and ineffective equal”. This word is used in economics to mean that all
demand variable factors affecting demand are held constant except
Effective Demand: This means that a consumer must both the price of the commodity hence the demand function is
be willing and able to buy the goods or services. ‘Willing’ Qd = F(P). This is therefore the fundamental difference
means they want it; “able” means they have the money to between changes in demand and changes in quantity
buy it. An example of an effective demand would be if I demanded.
want to buy a bag that cost ₦500 and I have ₦500 to
spend. BASIC FACTS ABOUT THE NORMAL DEMAND
LAW
Ineffective Demand: This refers to the desire for a It is instructive to note the following concerning normal
commodity, which is not backed up or supported by the demand law.
ability and willingness to pay for it, ineffective demand is 1. The quantity demanded is inversely or indirectly
simply the same thing as want. related to the price of the commodity.
2. Price of the commodity is assumed to be the only
2000/38 factor that affects quantity demanded, hence Qd =
In Economics demand is effective when F(P).
A. a consumer desires a commodity at a particular period 3. The consumer is rational.
B. a consumer proposes to buy a commodity on credit 4. The law is derived from Marginal Utility (MU)
C. a consumer wishes to buy goods without having the theory. That is MU = P, and quantity consumed
ability to pay D. the desire for a commodity is backed equals quantity demanded.
by ability to pay E. the desire to consume goods is high 5. All the factors that affect demand other than the price
Answer of the commodity are held constant, hence centris
The desire for a commodity is backed by ability to pay (D) paribus.

2020/6 ABNORMAL OR EXCEPTIONAL DEMAND LAW:

The major distinguishing feature between effective This states that ‘The higher the price of a commodity, the
demand and want is in the higher the quantity demanded, or vice versa.
A. nature of the commodity B. desire for the In such cases, an increase in price will lead to an increase
commodity C. ability to pay for the commodity in demand or with increase in price, the same quantity may
D. cost of the commodity still be demanded.
Answer
Ability to pay for the commodity (C) BASIC FACTS TO NOTE ON THE ABNORMAL
DEMAND LAW
I. The quantity demanded is directly related to the price
2007/2008/70 (UNIZIK, AWKA) Exercise 5.1 of the commodity.
Demand in economics is synonymous with II. The consumer is irrational.
A. needs B. wants of the consumers III. Price of the commodity is held constant.
C. all goods demanded in the market IV. The law observes exceptional rules which even
D. want supported with ability to pay change prices.
E. all consumer goods

78
1998/8
An exceptional demand is one which the Normal Demand Curve: The normal demand curve
A. suppliers sells all that he takes to the market slopes downwards from left to right, reflecting the fact that
B. consumers do not buy the market the lower the price, the greater the quantity of the
C. quantity demanded falls as price falls commodity demanded. Below is an example of this curve.
D. purchase of services and not products is considered
E. quantity demanded and price move in opposite direction
Answer
Quantity demanded falls as price falls (C)

DEMAND CURVE AND SCHEDULE

Demand Curve
Demand curve is the graph showing the relationship
between the price of a commodity and the quantity
demanded. It is the graphical representation of demand
schedule. The quantity demanded of an item of goods,
usually is a strong function of its price.

The demand curve is a graph which shows the relationship

between the price and the quantity demanded of a product
at a particular time. Conventionally, the price of the
commodity is plotted on the vertical y – axis as the Normal Demand Curve
independent variable and quantity added on the horizontal 2003/21
x – axis as the dependent variable. A normal demand curve slopes
A. downwards from left to right
The demand curve may be normal or abnormal pertaining B. upwards from left to right
to the individual consumer as well as the market as a C. downwards from right to left
whole. The market demand curve is a combination of D. upwards from the origin
individual demand curves. All demand curves are drawn Answer Downwards from left to right (A)
from the demand schedule on a graph.
2007/2008/62 (UNIZIK, AWKA) Exercise 5.3
2019/45 Neco A normal demand curve
A diagrammatic representation of the relationship between A. is concave to the point of origin
price and quantity demanded is referred to as B. is convex to the point of origin
A. abnormal demand B. change in demand C. is parallel to x – axis
C. demand curve D. demand schedule D. is parallel to y – axis
E. derived demand E. slopes downward from left to right
Answer
Demand curve (C) 2012/32 (UNIZIK, AWKA)
In a normal (typical) demand schedule, the quantity
2020/9 demanded is
In demand analysis, the vertical axis of a curve represents A. directly related to price
the B. inversely related to price
A. dependent variable B. independent variable C. proportionally related to supply
C. statistical variable D. qualitative variable D. independently of price
Answer Answer Inversely related to price (B)
Independent variable (B)
Abnormal Demand Curve: An abnormal demand curve,
2006/31 Neco Exercise 5.2 also called exceptional demand curve, is one which does
A demand curve slopes downward because not slope downwards from left to right, reflecting the fact
A. consumers tend to buy less when price is falling that sometimes, a fall in price of a commodity may not be
B. consumers tend to buy more when price is falling followed by an increase in the quantity demanded. An
C. producers tends to substitute alternative resources abnormal demand curve is said to be regressive or
D. producers tends to substitutes high priced for low priced backward sloping. An example is given below
products
E. resource suppliers shift their human and property to
high paying employment

79
 2018/2019/64 (UNIZIK, AWKA)
Demand for inferior goods is an example of
A. expansion of demand B. contraction of demand
C. individual demand D. abnormal demand
Answer Abnormal demand (D)

2018/2019/64 (UNIZIK, AWKA)

Demand for inferior goods is an example of
A. expansion of demand B. contraction of demand
C. individual demand D. abnormal demand
Answer Abnormal demand (D)

1993/6 Exercise 5.4

An inferior good is one
Abnormal demand curves occurs because of the following: A. that is too bad for consumption
(a) Inferior/Giffen goods: These are goods that are B. whose price is lower than the prices of other goods
basically needed from time to time. They attract low C. that is easily perishable
prices and are usually demanded irrespective of their D. whose demands falls when the income of its consumers
costs. Examples of such goods are matches, salts, increases E. that is not durable
etc., their demand decreases with an increase in
income.
DEMAND SCHEDULE
(b) Goods of ostentation/Superior goods: These are Demand schedule is a table showing the quantity of a
luxury goods which people tend to demand and commodity that would be bought by consumers at various
increasingly demand even when the prices goes up. prices, at a particular time. It is used to represent the
The idea is that the people that patronize such goods demand laws e.g., normal law is represented using normal
believed that they command prestige by going for demand schedule, while abnormal demand law is
such costly goods. represented using abnormal demand schedule.
(c) Necessary goods: There are some goods without
substitute, e.g. Salt, this will create an abnormal
demand curve since any change in price, either rise or TYPES OF DEMAND SCHEDULE
fall, will not affect the quantity demanded. There exist two types of demand schedule:
(d) Variable antiquities: There are some goods or
objects that can be traced to the ancient times, they Individual Demand Schedule: This shows the quantity
are very rare commodities and are of historical demand by an individual consumer at any given price, and
importance. Some people may like to have them and at any point in time.
will be prepared to purchase them at all cost.
(e) Fear of future rise in price: These are situations
Preparation of a Demand Schedule
when people nurse the fear of future rise in price. For Let us consider a hypothetical demand schedule for a
instance, during the inflationary period, people consumer, Mr. Stephen Ehimen as he decides to spend
develop a tendency to harbor fear or have expectation only N4.80k a week on eggs for breakfast. If an egg costs
of further inflation or further rise in prices of goods 6k, then N4.80k will purchase 80 eggs, If the price of an
and services. They buy goods without any readiness egg goes for 10k, he will now buy 48 eggs with the same
to postpone purchase. The implication here is that the N4.80k.
consumers may buy more than they will ordinary buy
at a time when there is not inflation. If the price goes up again for 15k, he will then go home
(f) Epidemic/War period: Armament materials like gun, with 32 eggs. For the price of 20k an egg, he buys only 24
bombs, nuclear war heads and other sophisticated war eggs.
equipment tend to be in high demand amongst region
or countries in war irrespective of the soaring high Mr. Stephen Ehimen Demand Schedule for Eggs
prices. Also, during the period of an epidemic or Price per Egg No. of Eggs Purchased
pandemic outbreak, there is increased demand for (in kobo)
drugs in spite of the continuous rise in their prices. 6 80
(g) Ignorance of low prices: Some consumers especially 10 48
the wealthy, do not border to go round the market to 15 32
compare prices of goods before purchase. This 20 24
unawareness makes them to buy a larger quantity of 24 20
such goods at higher prices.
80
When price increases to 24k an egg, he buys 20 eggs – Hypothetical Market Demand Schedule for Packets of Sugar
since he is not prepared to pay more for the eggs and buy Price per Quantity demanded by Total
packet of Miss. Mrs. Mrs. quantity
less of other requirements. By collecting the quantities that
Indomie Adesua Etuajie Itohan bought per
would be purchased at different prices, we can prepare a (₦) month
schedule of quantities and prices as shown above. 10 11 6 13 30
20 8 5 12 25
From the schedule and the graph, we can learn two things 30 6 4 10 20
about Mr. Stephen Ehimen’s reaction to price changes. 40 4 3 8 15
50 3 2 5 10
First, we see that the higher the price, the smaller the
60 1 1 3 5
quantities of eggs he purchases. As price falls, he increases
his egg consumption. Using the total quantity of sugar bought per month as shown
prices in the table above, the market demand curve for
Here, the N4.80k budget sets a limit to the number of eggs packets of sugar is as shown below
that would be bought and consumed when price of eggs
rises. Income is, therefore, a constraint in expanding
purchases. If Mr. Stephen Ehimen for instance, had an
unlimited amount of money, his reaction to high prices
might be quite different, and thus, the quantity of eggs he
might purchase would vary accordingly.

Market demand curve for packets of sugar

To draw the market demand curve, we made use of the total

quantity purchased per month. This is arrived at by summing
up all the packets of sugar purchased by the three individuals
at various prices. The curve, like any other normal demand
(Demand Curve for Mr. Stephen Ehimen Weekly Egg curve, has a negative slope. This means it slopes down from
Consumption) the left to the right.
Also, we notice that the demand curve slopes downwards
2018/11 NABTEB
from left to right, showing that the higher the price of a
The table showing the various quantities of commodities will
commodity, other things being equal the smaller the
buy at different prices is known as
quantity that would be purchased. In other words, a lower A. supply schedule B. indifference curve
price induces a larger purchase. C. demand schedule D. demand curve
This general rule is recognized in economics as the first Answer
law of demand as earlier stated. Again, the law can be Demand schedule (C)
stated, “When the price of a commodity falls, the quantity
that is demanded increases, and when price rises, the 2011/18 (OAU, IFE)
quantity demanded normally falls”. Which of the following is NOT true of a market demand
Market or Aggregate Demand Schedule: This is also schedule?
referred to as an aggregate demand schedule, a total A. it is a schedule of all consumers of a commodity in a
demand schedule, or a composite demand schedule. market
A market demand schedule is a table which shows the total B. it is the aggregate demand schedule of all consumers of a
commodity in a market
quantities of a commodity which all consumers of that
C. it is table showing the different qualities of a commodity
commodity are willingly to buy at various prices, at a
which a consumer purchase at various prices
particular period of time. In theory, the market demand Answer
schedule is the summation of the various individual It is a table showing the different quantities of a commodity
demand at the respective prices. which a consumer would purchase at various prices (C).

81
 TYPES OF DEMAND This is a demand for commodities which are not
(1) Joint or complementary demand consumed with the aim of direct satisfaction of want
This occurs when two or more commodities are but because of the help they render in further
required to be used jointly or consumed together, but production of other commodities. These types of
not necessary supplied together. commodities are referred to as exhibiting derived
Examples are motor vehicle and tyres, car and petrol, demand. All factors of production e.g. land, labour,
sugar and tea/coffee, pen and paper, ink and pen, etc. capital, etc. exhibit derived demand in relation to
It implies that the more the quantity of a commodity their final products. Other examples include, iron ore,
consumed, the greater would be the demand for the flour and so on.
other.
Land is obtained so that it can be used for agricultural
purpose or in order to have residential buildings.
Labour is engaged because employers hope to obtain
a profit by selling the labour as output to the public.
The primary use of iron ore is in the production of
iron. Most of the iron produced is then used to make
steel. Steel is used to make automobiles (cars),
locomotives, ships, beams used in buildings,
furniture, paper clips, tools, reinforcing rods for
concrete, bicycles and thousands of other items.
Flour is needed because there is demand for bread
Joint/Complementary Demand and a host other bakery items. A decrease in the
(2) Competitive/substitute demand demand for iron ore will decrease the demand for
This type of demand occurs with commodities which are cars.
close substitutes. Substitutes are alternative commodities
which can satisfy the same want. i.e. they possess
identical utilities. Such commodities compete for use.
Examples are garri and semovita, tea and coffee,
margarine and butter, meat and chicken, branded
commodities like the various brands of beverages
(Bournvita, Milo, etc.) Milk (Peak, Loya etc.).
An increased demand for one will lead to a decrease
demand for the substitute. For instance if more butter
is bought, less margarine is likely to be bought. If the
price of margarine increases, less of it would be Derived or circuitous demand
bought and more consumers would buy butter if its
price is relatively low. (4) Composite demand
This occurs with commodities which are required for
several purposes. The total or aggregate for such a
commodity for its various uses constitute a composite
demand for the commodity. The demand for wood is
made up of the separate demands for the various uses
of woods for making furniture, for fuel (fire wood),
for building purposes, etc. The composite demand for
groundnut oil is made up of the over all demand for
soap, making margarine etc.

Competitive/substitute demand 2023/6

The demand for a factor input as a result of the demand for
(3) Derived or circuitous demand
This involves demand for a good not needed for its its output is known as
own sake but for the production of other goods. It A. complementary demand B. competitive demand
implies the demand for a good or a factor derived C. derived demand D. market demand
from the demand from the product which the good or Answer
the factor will help in producing. The demand for a factor input as a result of the demand for
its output is known as derived demand (C)
82
2021/7 1997/3 Exercise 5.6
The demand for wood and labour is an example of Which of the following has a derived demand?
A. effective demand B. complementary demand A. labour B. butter C. television set D. bread
C. derived demand D. competitive demand E. motor cars
Answer complementary demand (B) 1997/5 Exercise 5.7
Goods are said to be in competitive demand when they
2021/8
A. are substitutes B. are complementary to each other
What will be the reaction of consumers in a market if there
C. are jointly demanded
is a fall in the price of the substitute of commodity X.
D. have equal coefficients of elasticity E. are identical
A. Price of commodity X will increase
B. Demand for the substitute of commodity X will CHANGES IN THE QUANTITY DEMANDED
decrease. (MOVEMENT ALONG A DEMAND CURVE)
C. Demand for commodity X will decrease. When there is a change in the quantity demanded, the demand
D. Supply of both commodity X and its substitute will curve does not shift. There is a movement along a particular
increase. demand curve. The main determinant of a change in the
Answer quantity of a commodity demand is the price of the
Demand for commodity X will decrease. (C) commodity.
Hint: Substitute goods are two alternative goods which could A change in quantity demanded can be:
be used for same purpose. It is a product or service that (1) Increase in the quantity demanded: There is an
consumer sees as the same or similar to another product. For increase in the quantity demanded if the quantity bought
example, tea and coffee are substitute goods, an increase in the increases as a result of a decrease in the price of the
price of tea will increase the demand for the coffee. Reason commodity.
being that people take tea and coffee as substitute goods. If the
price of tea increases people will prefer coffee as it is cheaper
and can be taken as substitute of tea. Hence if the price of tea
falls, the demand of tea also falls.
2018/38 Neco
When a increase in demand for commodity A leads to an
increase in demand for commodity B. The commodities are
A. complementary B. composite C. necessities
D. not related E. substitutes
Answer Complementary (A)
2014/2015/14 (UI, IBADAN)
Demand for a factor of production is As shown in the figure above, with a fall in price of the
A. a composite demand B. a joint demand product from P2 to P1 , the quantity of it demanded increases
C. a derived demand D. an elasticity of demand from 𝑄2 to 𝑄1.
E. cross elasticity of demand
Answer A derived demand (C) (2) Decrease in the quantity demanded: There is a
decrease in the quantity demanded if the quantity of the
2010/37 commodity bought decreases as a result of an increase
When the price of commodity X increases the demand for in price.
commodity Y decreases. This means commodities X and Y are
A. close substitutes B. complementary goods
C. giffen goods D. luxurious goods
E. supplementary goods
Answer: Close substitutes (A)

1978/4 UTME Exercise 5.5

If two commodities are good substitutes for one another,
e.g. butter and margarine, an increase in the demand for
one will reduce the demand for the other. This type of
demand is called
A. composite demand B. elastic demand
C. derived demand D. competitive demand
As shown in the figure above, with a rise in price of the
E. inelastic demand
product from P1 –P2 , the quantity of it demanded reduces
from𝑄1–𝑄2.

83
NB: The term expansion or extension of demand refers to an A change in demand is determined by the factors affecting
increase in quantity demanded, while contraction to demand, other than price of the commodity.
demand mean decrease in quantity demanded.
(1) Increase in demand: If there is an increase in
2006/19 Nov demand, the demand curve will shift to the right
Movement along the same demand curve is otherwise indicating that at the old price more of the commodity
known as will be bought. An increase in demand is brought
A. change in average utility about by favourable changes in the factors affecting
B. change in quantity demanded C. increase in demand demand other than the price of the commodity.
D. shift in demand curve
Answer
Change in quantity demanded (B)

FACTORS RESPONSIBLE FOR EXPANSION AND

CONTRACTION OF DEMAND
When the price of a commodity falls, people usually buy
more of it, for the following reasons:
(1) Income Effect: When the price of a commodity falls,
it increases the purchasing power of the consumer,
called the real income. So he can now buy a higher
quantity than before. For example, if the price of a
tooth paste brand is decreased from N200 to N100,
then N200 can now purchase two of it instead of one.

(2) Substitution effect: When the price of a commodity

falls, that commodity becomes more attractive to
From the diagram above the demand curve shifts from the
consumers than its substitutes whose prices have not
position DD to𝐷1 𝐷1 on the right hand side whilethe priceP
fallen. More of it will therefore be bought instead of its
of the product remains unchanged. Therefore at the same
substitutes. With its price fallen, people who were
price P demand of the product has expanded from 𝑄1 to𝑄2 .
previously unable to buy it can now afford it, and so
Consumers are buying more of the product at a constant
the demand for it expands. Conversely, if the price of
price P.
that same commodity rises, less of it would be bought
and many consumers will switch over to its substitute.
(2) Decrease in demand: If there is a decrease in demand,
the demand curve will shift to the left, showing that at
(3) Diminishing Marginal Utility: Utility is the ability of the old price less of the commodity is being bought. A
a good to satisfy a human want. Marginal utility is the decrease in demand is brought about by an unfavourable
satisfaction which the consumer gets from consuming change in any of the factors affecting demand other than
one extra unit of the good. For example, an individual the price of the commodity.
who loves yoghurt will consume more and more of it,
the satisfaction derived from additional cans of it will
fall after some time, (as more cans of yoghurt are
consumed). The consumer will only buy a commodity
if he considers the satisfaction to be derived from it
more than, or at least, equal to the price. For him to
have more of it then, the price of the commodity must
be lower, so as to encourage him to buy it. Thus,
diminishing marginal utility is part of the explanation
for expansion and contraction of demand.

CHANGES IN DEMAND (SHIFT IN DEMAND CURVE)

There is a change in demand if the demand curve shifts to
an entirely new position. There is a completely new
From the diagram above, the demand curve shifts from position
demand schedule and demand curve showing that at the
DD to 𝐷3 𝐷3 on the left hand side while the quantity of the
old price, more or less of the commodity would be bought.
product has decreased from 𝑄1 to Q 3 . Consumers are buying
less of the product at a constant price P.

84
FACTORS DETERMINING DEMAND population size would bring about a change in the
A number of factors determine the demand for commodity. number of consumers. If the population increases,
(1) The price of the commodity: The price of a commodity there is likely to be an increase demand for food and
determines how much of it will be bought. More will be other essentials for life. While a decrease in
bought at lower prices than at higher prices. population size is likely to lead to a decrease in total
(2) The price of other commodities: Change in the price demand. The age structure of the population would
of other commodities may influence the demand for a determine the structure of the population for goods
commodity. This is true of goods with close and services. If the number of children increases due
substitutes and complementary goods. Examples of to a population explosion, the demand for children’s
goods which are close substitutes are margarine and food, clothing and entertainment will be higher.
butter, tea and coffee, e.t.c. If the price of one (9) Taxation on communities: Increased taxation on a
increases, the consumer may switch over to its commodity makes the commodity expensive to the
substitute. Complementary goods are goods which final consumer. If tax on a commodity is increased,
are required together to satisfy a particular want. this tends to discourage demand. The reason for
Examples are pen and ink, car and petrol. A decrease placing a high tax on some commodities such as
in the price of one will lead to an increase in demand alcohol is to discourage demand. On the other hand,
for it as well as to an increase in the demand for its reduction of price on a commodity makes the price of
complement. the commodity cheaper.
(3) Change in income: An increase in the income of a (10) The introduction of new commodities: Due to changes
consumer will motivate him to increase his demand in technique of production and inventions, new
for a particular commodity while a decrease will commodities are commonly being produced to replace
result to a decrease in demand. old ones. Ceteris paribus, there will be a high demand
(4) Government policy: This may affect demand either for the new commodity while the demand for old
adversely or favourably. Certain government policies commodity tends to fall.
may discourage demand while other may encourage (11) Advertisement: The consumer may be persuaded by
it. For example, government policy on smoking has effective advertisement to buy a new commodity or
discouraged the demand for cigarettes. increase his purchases, while poor advertisement could
discourage the consumer from purchasing the
(5) Taste, preference and fashion: Taste and preference
commodity.
differ from one person to another. The taste relates to
the likes of a consumer. A consumer would usually
purchase more of the commodity he likes or prefers.
Taste changes over time. If there is a change in taste 2018/2019/91 (NDU, BAYELSA)
in favour of a commodity, the demand for it will be The demand curve will shift to the left when there is a rise
high, while a change in taste against a commodity in A. the price of a substitute
will lead to a lower demand for it. if consumer now B. the price of a complement
prefer a particular commodity, the demand for it will C. income D. the supply of the common
increase. Fashion also changes with time. There is E. supply of the goods
usually a high demand for commodities which are in Answer Rise in the price of a complement (A)
vogue while demand for commodities which are out
of fashion tends to be low. 1997/16
(6) An expectation of future changes in prices: If person If the price of product k declines, the demand curve for the
anticipate future price changes, demand may be complementary product j will
affected. Consumers of a commodity may decrease A. remain unchanged B. shift to the right
their purchases now if they feel that prices will fall C. decrease D. shift to the left E. slope upwards
further in future. On the other hand, they may Answer Shift to the left (D)
increase their purchases now, if they fear that prices
will increase further in future. 2023/3 Neco Exercise 5.7*
(7) Variation in weather and climate: Weather and a. With the aid of diagrams, explain change in demand
climate are not fixed. They do change from time to and change in quantity demanded.
time in a society. The present weather and climate b. Discuss five factors that cause change in demand.
will determine the demand for certain commodities.
For example, during the rainy season, there is often
an increase in the demand for heater. Likewise,
during the dry season, there is usually an increase for
the demand for air conditioners, fans, etc.
(8) The size of the population and the age distribution
of population: The size of the population determines
the level of demand to a large extent. A change in
85
ELASTICITY OF DEMAND 1997/6
Elasticity of demand is the degree of responsiveness of the The formula for calculating price elasticity of demand
quantity demanded of a good to such forces as changes in coefficients is
price of the commodity, changes in income of the consumer Percentage change in price
A.
or changes in the prices of other commodities. It measures the Percentage change in quantity demanded

extent to which the quantity of a commodity demanded by Absolute decline in price

B.Absolute increase in quantity demanded
consumers changes as a result of a change in the price of the
commodity, a change in income or a change in the price of Percentage change in quantity demanded
another commodity. C. Percentage change in price
Absolute decline in quantity
TYPES OF ELASTICITY OF DEMAND D. Absolute increase in price
(1) Price elasticity of demand change in quantity demanded
This measures the degree of responsiveness of quantity E. decrease in price
of a commodity bought to a small change (i.e. increase
or decrease) in the price of that commodity. Price Answer
Percentage change in quantity demanded
elasticity of demand is also called elasticity of demand. (C)
Percentage change in Quantity Demanded Percentage change in price
𝐸𝑑 =
Percentage change in price
Or 1993/7 Exercise 5.8
Change in Quantity Demanded Change in price Price elasticity of demand is defined as the
𝐸𝑑 = ÷
Original Quantity Demanded Original price A. responsiveness of demand to changes in prices
Or B. responsiveness of price to change in demand
∆Q ∆P
𝐸𝑑 = Q
÷ C. increase in demand resulting from a rise in price
P
D. unit decrease in price resulting from a fall in demand
Where
E. unit increases when prices rise
∆Q= change in quantity demanded
Q= original quantity demanded
∆P= change in price Example Ed1
P = original price If the price of sugar per packet increased from ₦20.00 to
₦30.00, while the quantity bought decreased from 50 packets
It is important to note the following from elasticity of demand to 40 packets, the elasticity of demand can be measured as
(i) When elasticity of demand is larger than 1, the demand follows:
is elastic for the product concerned. Solution
(ii) When elasticity of demand is less than 1, the demand is Percentage change in Quantity Demanded
𝐸𝑑 =
inelastic for the product concerned. Percentage change in price
(iii) When elasticity of demand equal 1, the demand is Change in price = ₦30.00 - ₦20.00 = ₦10.00
10 100
unitary. % change in price = 20 × 1 = 50%
Change in quantity = 50 – 40 = 10 packets
10 100
% change in quantity = × = 20%
2022/14 NABTEB 50 1
20% 2
The percentage change in quantity demanded divided by= 𝐸𝑑 = = = 0.4
50% 5
the corresponding percentage change in price refers to The demand for sugar is price inelastic
A. equilibrium price B. elasticity of supply
C. exceptional demand D. elasticity of demand Example Ed2
Answer 50 copies of a textbook were demanded when the price was
𝐸𝑑 =
Percentage change in Quantity Demanded
(D) ₦100 per copy. However, when the price fell to ₦80 per
Percentage change in price copy, the quantity demanded jumped to 75 copies. What is
the price elasticity of demand for the book?
Solution
2003/15 Nov Percentage change in Quantity Demanded
𝐸𝑑 = Percentage change in price
The numerical measure of price elasticity is
% change in quantity change in income Change in quantity = 75 - 50 = 25
A. % change in price B.
change in price Percentage change in quantity demanded
25
% change in price change in price = 50 × 100= 50%
C. D.
% change in quantity change in quantity Change in price = ₦100.00 - ₦80.00 = ₦20.00
(100−80)
Answer Percentage change in price = × 100
100
% change in quantity 20 50 1 1
(A) = 100 × 100= 20%; Therefore 𝐸𝑑 = 20 = 2 2 = 2 2 = 2.5
% change in price
The price elasticity of demand of the book is 2.5, meaning the
co-efficient is elastic.

86
Exercise 5.9 Example Ed6
Assuming the quantity of eggs purchased by Ebeagbor Ebi became promoted in his place of work and his salary
decreased from 50 to 35 when the price rose from ₦10 to increased from ₦200 to ₦250 per month. As a result of
₦15; this, he now buys 7 loaves of bread instead of the usual 5
a. Determine the elasticity of demand for eggs. loaves per months.
b. What type of elasticity of demand is it? i. Find the income elasticity of demand.
ii. Is the demand for bread elastic or inelastic?
iii. Is bread a normal good or inferior good?
Example Ed4
Solution:
An increase in a family’s income from ₦1,500 to ₦2,000 led Percentage change in Quantity Demanded
to an increase demand of the kg of rice from 20kg to 30kg. i. Ei = Percentage change in Income
Determine the income elasticity of demand for this family.
Initial Quantity = 5 loaves of bread
Solution New Quantity = 7 loaves of bread
Percentage change in Quantity Demanded
Ei = Percentage change in income
Change in quantity demanded = 7 – 5 = 2
2 100
Change in income = ₦2,000 - ₦1,500 = ₦500.00 % change in quantity demanded = 5 × 1 = 40%
500 100 100 1
Initial income = ₦200
% change in income = 1500 × 1
= 3
= 33 3 % New income = ₦250
Change in income = ₦250 - ₦200 = ₦50
Change in quantity bought = 30kg – 20kg = 10kg % change in income = ×
50 100
= 25%
20 1
40%
% change in quantity =
10
×
100
= 50% ∴ E𝑖 = 25%
= 1.60
20 1

50% 50 3 3 ii The demand for bread is elastic since elasticity is

∴ E𝑖 = 1 = × = = 1.5 greater than one.
33 3 % 1 100 2
iii Bread is a normal good.
The demand for rice is therefore income elastic. Hint: Normal goods are any items (goods) for which
demand increases when income increases, in contrast,
inferior (giffen) goods are items (goods) whose demand
Example Ed5 drops (decreases) with an increase in income. Normal
The monthly income of a consumer increased from goods has a positive price elasticity of demand.
₦10,000 to ₦13,000 as a result of the implement of a Inferior goods do not necessarily mean they are inferior in
minimum wages law and the payment of a transport quality to normal goods; it simply means people tend to
allowance. If he now buys 35 tins of milk per month buy more of them when their income is lower and less
instead of 25 tins, determine the elasticity of demand for when their income is higher. Bread therefore, is a normal
milk for this consumer. good.
Solution (2) Cross elasticity of demand
Percentage change in Quantity Demanded
Ei = Percentage change in income
This measures the degrees of responsiveness of the
quantity of a commodity bought to little changes in
Change in quantity demanded = 35-25 = 10tins the price as of other commodities. It measures the
extent to which the demand for a commodity will
Percentage change in quantity of milk demanded change as a result of a change in the price of another
10 100 commodity.
= × = 40% Percentage change in Quantity of product x
25 1 Exy = Percentage change in price of product y
Change in monthly income = ₦13,000 - ₦10,000 = ₦3,000 Or
3,000 100 Change in Quantity Demanded of product x
%change in income = 10,000 × 1 = 30% Exy=
Original Quantity of x
÷
Change in price of y
40% Original price of y
∴ E𝑖 = = 1.33 ∆Qx ∆Py
30% = Qx
÷ Py
The demand for milk for the consumer is elastic because
the co-efficient is more than 1.

87
The cross elasticity of demand exists when we have only Example Ed8
two products. The two products may be substitutes or Given that the price of a commodity Y increase from ₦2,200 to
complements. We have different tooth paste brand, let’s ₦2,750 and that this results in an increase in the quantity
consider Oral B and Close Up, an increase in the price of demanded of another commodity X from 6,000 to 19,800 units,
calculate the cross elasticity of demand.
close up will intend to increase the quantity of Oral B (as
Solution:
its price remained unchanged). Exy will be positive as oral 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑎𝑚𝑛𝑑𝑒𝑑 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
B and close up will be described as substitute. 𝐸𝑥𝑦 = ÷
𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒

19,800−6,000 2,750−2,200
However, an increase in the price of stove will reduce the 𝐸𝑥𝑦 = ÷
6,000 2,200
quantity of kerosene that will be demanded even when the
price of kerosene remains constant. In this case, Exy is 13,800 550 13,800 2,200 138 220 138 × 220
= ÷ = × = × =
6,000 2,200 6,000 500 60 55 60 × 55
negative as Stove and Kerosene are said to be
complementary. 30,360
𝐸𝑥𝑦 = = 9.2 (elastic)
3,300
Cross elasticity of demand is therefore positive for close
substitutes but negative for complementary goods. Example Ed9
The quantity purchased of commodity A increase from 4 to 7
when the price of commodity B rose from ₦5 to ₦8. Calculate
2011/19 (OAU, IFE) the cross elasticity of demand.
Cross elasticity of demand can be measured using one of Solution:
the following formula %𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑
% Change in quantity demanded EAB=
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
A. % Change in cnsumers income
Initial Quantity of A = 4
% Change in quantity demanded New Quantity of A = 7
B. % Change in price
Change in quantity demanded of A = 7 – 4 = 3
3 100
%change in quantity of A = × = 75%
% Change in price of commodity Y 4 1
C. % Change in quantity demanded of commodity X Initial price of B = ₦5
New Price of B = ₦8
% Change in quantity demanded of commodity X Change in price of B = ₦8 – ₦5 = ₦3
D. 3 100
% Change in price of commodity Y % change in price of B = × = 60%
5 1
Answer EAB= = 1.25
75%
% Change in quantity demanded of commodity X 60%
(D) The co-efficient above is greater than 1 making it elastic.
% Change in price of commodity Y

Exercise 5.10
Example Ed7 The price of a commodity Y increased from ₦30 to ₦35 per unit
and the quantity of another commodity X bought increased from
Commodity B cost ₦20 when the demand for commodity
120 to 150.
A is 30. If the demand for A increases to 54 when the price a. What type of demand relationship does commodity X and
of B becomes ₦28, what is the cross-elasticity of demand commodity Y have?
between commodities A and B? b. Is the demand for commodity X elastic or inelastic?
Solution Explain your answer.
Percentage change in Quantity of product A
𝐸𝐴𝐵 = Percentage change in price of product B
DEGREES OF ELASTICITY OF DEMAND
Former demand for A = 30 (1) Elasticity of demand/fairly elastic demand
This occurs when a slight change or small proportion of
Later demand for A = 54
change brings about a large proportion of change in the
Percentage change in demand for A quantity demanded.
(54−30)
= × 100
30
24
= × 100
30
= 80%
Former price for B = ₦20
Later price for B = ₦28
(28 – 20)
= × 100 = 40%
20
80
Therefore 𝐸𝐴𝐵 = 40= 2 (elastic)
The cross-elasticity of demand is 2.

Fairly elastic demand

88
(2) Fairly inelastic demand/inelastic/relatively inelastic demand
This is the case when the proportion of change in the (5) Perfectly elastic demand/infinitely elastic demanded
quantity demanded is less than the proportion of change in This is the case when the consumers are willing to
the price. purchase any quantity or all that is offered for sale at
the prevailing price and none at a slightly higher
price.

Fairly inelastic demand

(3) Unitary/unity elasticity of demand

This is the case when the proportion of change in the Perfectly elastic demand
quantity demanded is equal to the proportion of change in
price.

IMPORTANCE OF ELASTICITY OF DEMAND

To the consumer
The elasticity of demand helps in getting the consumers
protected in many cases from the unscrupulous producers
and middlemen, who are out to cheat, exploit or
manipulate the consumers.

To the producers
The manufacturers and sellers take into consideration the
nature of demand for their goods before determining
whether to increase the price of goods or not. For instance,
if a product has high elasticity of demand, an increase in
Unitary elasticity of demand price will not be good because it will discourage
purchases. The summary of the point being made here is
(4) Perfectly inelastic demand/zero elasticity of demand that the elasticity of demand may be used by managers,
This occurs when a change in price does not affect producers and sellers in ascertaining the implications of
any change in quantity demanded. An example of policies.
goods that falls into this category is salt. An increase
in the price of salt will not occasion a change in what To the government
the consumer will demand. The fiscal policy of the government necessitates a proper
and adequate consideration of the elasticity of demand.
The government has got to know the commodities which
have elastic demand so that it will refrain from taxing
them. The government also needs to know the
commodities which have inelastic demand so that it can go
ahead and tax them when there is necessity for generating
greater revenue. If commodities with elastic demand are
taxed, their consumption will be discouraged. If
commodities with inelastic demand are taxed, their
consumption will not be significantly affected.

Perfectly inelastic demand

89
1981/23 UTME Example DF1
Elasticity of demand is given by Given the demand function: Qd= 20-2p
A. the percentage change in quantity demanded divided by Where
the corresponding percentage change in price Qd= quantity demanded (in kg)
B. the percentage change in price divided by the P= Price in Naira
corresponding percentage change in quantity demanded Determine the quantity demanded when prices was at
C. the percentage change in quantity demanded divided by i. ₦4 ii. ₦6 iii ₦8 iv ₦10
the corresponding price Solution:
D. the percentage change in price divided by the Qd= 20-2p
corresponding quantity demanded Given the demand function above, substitute for price (p)
E. none of the above to obtain the quantity demanded at each price levels.
Answer i. Qd= 20-2(4)= 12kg
The percentage change in quantity demanded divided by ii. Qd= 20-2(6)= 8kg
the corresponding percentage change in price (A). iii. Qd= 20-2(8)= 4kg
iv. Qd= 20-2(10)= 0kg
1994/23 UTME
Elasticity of demand is an effective tool in the hand of a
producer in that it enables him Example DF2
A. raise his profits and lower his costs The demand functions of a commodity is given as follows:
B. discourage buyers from cheating Qd = 40 – ½P where Qd is the quantity demanded and P is
C. determine what he produce the price of the commodity in naira (₦).
D. set his price to maximize his profit a. Find the quantity of the commodity demanded when
Answer price is
Set his price to maximize his profit (D) i. ₦10 ii. ₦22 iii. ₦56
b. State your observation in two sentences.
Solution:
The quantity of the commodity which is demanded at each
DEMAND FUNCTION price is found by substituting the respective price in the
A demand function is a mathematical equation which given equation as follows:
expresses the demand of a product or service as a function a. Qd = 40 – ½P
of its price and other factors such as the prices of the i. Substitute ₦10 for P
substitutes and complementary goods, income, etc. Qd = 40 - ½(10)
It is a statement which shows the relationship existing Qd = 40 – 5 ; Qd = 35
between the quantity of a commodity demanded and the
factors that determine or influence the quantity, this ii. Substitute ₦22 for P
therefore insinuates that a demand function can be Qd = 40 – ½(22)
presented as a function of the determinants of demand for Qd = 40 – 11 ; Qd = 29
a particular commodity. Such determinants could be
expenditure on advertisement, the income of the iii. Substitute ₦56 for P
consumers, tastes and preferences of the consumers, Qd = 40 – ½(56)
expectation of a change in price, the price of competing Qd = 40 – 28 ; Qd = 12
goods, the sizes of the population and so on.
b. It is observed that as the price P of the commodity
increases from ₦10 to ₦56, the quantity demanded
The demand function can be presented in different ways. reduces from 35 to 12 units. This satisfies the first
Technically, it can be presented as follows: law of demand which states that a smaller quantity
Qdx = F(P1, P2, T, I, W, E, A) of a product is demanded at a higher price.
Qdx = quantity demanded.
F = function of
P1 = Price of commodity x
P2 = Price of other commodity (which depends on the
nature of the commodity i.e. whether competitive or
complementary in nature).
T = Taste or fashion
I = Income of the consumer.
W = Weather or climatic condition
E = Expectation of future rise in prices.
A = Expenditure on advertisement
90
Example DF3
The demand function for a commodity is given as
Qd = 60 – 0.8p where Qd is the quantity demanded and P is the price
of the commodity.
(a) Use the demand function to complete the table below
P(N) 60 50 40 30 20 10 0
Qd (units)
(b) Draw the demand curve for the completed schedule
(c) Determine the maximum quantity the individual can buy of
commodity X per unit of time.
(d) State the relationship between quantity demanded and price in
the function Qd = f(p).

Solution
(a) Assuming that the price is in naira and the quantity is in units.
(i) When P =60
Qd = 60 – 0.8p
Qd = 60 – 0.8(60) = 12 units

(ii) When P = 50
Qd = 60 – 0.8(50)
Qd = 60 – 40 = 20 units

(iii) When P = 40
Qd = 60 – 0.8(40)
Qd = 60 – 32 = 28 units

(iv) When P = 30
Qd = 60 – 0.8(30)
Qd = 60 – 24 = 36 units

(v) When P = 20
Qd = 60 – 0.8(20)
Qd = 60 – 16
Qd = 44 units

(iv) When P = 10
Qd = 60 – 0.8(20)
Qd = 60 – 8
Qd = 52 units

(v) When P = 0
Qd = 60 – 0.8(0)
Qd = 60 – 0
Qd = 60 unis

91
 Completing the table, we have:
P(N) 60 50 40 30 20 10 0
Qd (units) 12 20 28 36 44 52 60

(b) The maximum quantity the individual can buy of commodity x

per unit of time is 52.
(c) The price determines the quantity demanded by the individual.

92
 FACTORS DETERMINING ELASTICITY OF 2023/2 Neco Exercise 5.10*
DEMAND Given that the demand for milk increased from 100 to 150
(1) Availability of substitutes: The extent to which it is tins due to reduction in its price from ₦200 to ₦80.
possible to substitute other commodities for a (a) Present the above information in a table.
particular commodity will determine the elasticity of (b) Calculate the co-efficient of price elasticity of demand.
demand for that commodity. Commodities that are (c) State the nature of elasticity in 'b' above and give two
close substitutes have an elastic demand. Examples of reasons.
close substitutes are garri and semovita, ovaltine and (d) State three factors that affect demand.
bournvita etc. If the price of garri rises, many
consumers may switch drastically to its close 2023/7
substitute. The reverse would be the case if the price If the demand for a commodity remains constant as price
of garri falls relative to semovita. Commodities increases, the commodity is said to be
without close substitutes have an inelastic demand. A. price elastic B. unit price C. price inelastic
An example is salt. D. perfectly price inelastic
(2) The percentage of consumer’s income expanded on Answer
the commodity: The smaller the proportion of total If the demand for a commodity remains constant as price
income spent on a commodity the more inelastic the increases, the commodity is said to be perfectly price
demand for it. Cheap commodities tend to have inelastic (D)
inelastic demand. Examples are salt, pepper, sweets,
etc. changes in the price of cheap commodities will 2023/8
mean very little to the consumer. When more of the tax on a product is borne by the buyer
An expensive goods stands to have an elastic than the seller, the commodity involved has
demand. If the prices increase, the demand would be A. elastic demand B. fairly inelastic demand
largely affected, since a lot of has money has to be C. perfectly elastic demand D. perfectly inelastic demand
spent on them. Answer
Luxury goods such as expensive cars, expensive When more of the tax on a product is borne by the buyer
jewelries e.t.c. tend to have elastic demand. If their than the seller, the commodity involved has fairly inelastic
prices increase, the demand for them will fall demand (B)
appreciably. While a fall in price may lead to a more
than proportionate increase in demand. 2023/9
(3) Degree of essentiality: The extent to which a A fall in the price of a normal commodity which has
commodity is regarded as being essential by elastic demand will result in
consumers will determine the elasticity of demand for A. a fall in quantity demanded B. an increase in revenue
it. necessity goods have inelastic demand. This is C. a fall in demand D. a decrease in revenue
because consumers will not decrease the quantity Answer
bought to any large extent if price increases. Some A fall in the price of a normal commodity which has
consumers cannot do without them. elastic demand will result in an increase in revenue (B)
(4) Habit: The extent to which a consumer has become
addicted to a commodity determines the elasticity of 2022/11 NABTEB
demand. If a consumer has become addicted to a A fall or decrease in demand is referred to as
commodity or has a strong taste for it, his demand for A. expansion B. elasticity.
it will tend to be inelastic. C. contraction D. substitution
(5) The consumer’s income: The income of the Answer
consumer will determine his responsiveness to price Contraction of demand (C)
changes. The larger the income of a consumer, the
more inelastic his demand for commodities. 2008/6
(6) The number of uses of the commodity: The greater Which of the following factors does not cause a change in
the number of uses to which a commodity is put, the demand?
more elastic the demand for it. If a commodity has A. taste and fashion B. vagaries of weather
varied uses, and its price falls, the overall demand for C. price of other commodities D. price of the commodity
it will increase. Commodities with one use or very Answer: Vagaries of weather (D)
few uses tend to have a more inelastic demand. An
increase or decrease in price may not lead to
appreciable changes in the quantity bought.
(7) The time period: The elasticity of demand is greater
in the long run than in the short run. In the long run,
spending habits could be changed and substitutes can
be found.
93
2008/7
If goods P and Q are jointly demanded, an increase in the
price of P will likely
A. leave the demand for Q constant but reduce the quantity
demanded of P
B. reduce the quantity demanded of P but increase the price of Q
C. increase the quantity supply of Q
D. decrease the quantity demanded of Q
Answer
Reduce the quantity demanded of P but increase the price of Q (B)

2008/11
If the co–efficient of elasticity of demand is 1.5, then the
demand is
A. fairly elastic B. perfectly elastic C. elastic
D. inelastic
Answer: Elastic (C)

2008/26
The employer’s demand curve for labour is represented by the
A. marginal product curve for labour
B. total product curve for labour
C. average product curve for labour
D. total cost curve of labour
Answer: Marginal product curve of labour (A)

2008/35
Since money is demanded for what it can buy, the demand
is said to be
A. derived B. joint C. composite
D. complementary
Answer: Derived (A)

2008/1
The demand function for a commodity is given as
Qd = 21 – 3p
(a) Use the demand function to complete the table below.
Price ($) 0 1 2 3 4 5 6
Quantity
demanded (kg)
(b) Draw the demand curve for the completed schedule in
1(a) (use of graph sheet is essential)
(c) Outline any three factors affecting demand.
Answer
(a) Qd = 21 – 3p When P = 4
When p = 0 Qd = 21 – 3(4)
Qd = 21 – 3(0) Qd = 21 – 12 = 9
Qd = 21 – 0 = 21 When P = 5
When P = 1
Qd = 21 – 3(5)
Qd = 21 – 3(1)
Qd = 21 – 15 = 6
Qd = 21 – 3 (18)
When P = 2
When P = 6
Qd = 21 – 3(2) Qd = 21 – 3(6)
Qd = 21 – 6 = 15 Qd = 21 – 18 = 3
When P = 3
Qd = 21 – 3(3)
Qd = 21 – 9 = 12

94
(b)
Price ($) 0 1 2 3 4 5 6
Quantity 21 18 15 12 9 6 3
demanded (kg)

(c) (i) Price of the commodity.

(ii) Income of consumers.
(iii) Price of other commodity

95
1992/2 (b) Articles of necessities: Some items are considered
(a) Define price elasticity. essential to the extent that people cannot do without
(b) If at ₦8.00 per tuber, twenty tubers were demanded them. Examples are garri, salt e.t.c. The low income
and when the price fell to ₦6.00 per tuber, thirty earners prefer sacrificing other items at the expense of
tubes were demanded, what is the elasticity? these ones. Therefore, the higher the price of these
Answer items, the higher would be the demand for them.
(a) Price elasticity measures the degree of responsiveness
of quantity of a commodity bought to a small change (c) Inferior/Giffen goods: These are goods that are
(i.e. increase or decrease) in the price of that basically needed from time to time. They attract low
commodity. prices and are usually demanded irrespective of their
(b) costs. Examples of such goods are matches, salts, etc.,
Price Quantity demanded their demand decreases with an increase in income.
₦8 20 tubers
2003/22
₦6 30 tubers If the quantity demanded of a commodity increases from 20
% change in quantity demanded
𝐸𝑑 = to 30 units when there is an increase in price from 4 naira to 5
% change in price
% change in quantity demanded naira, the elasticity of demand is
∆ in quantity demanded 100 A. 0 B. 1 C. 2 D. 5
= old quantity
× 1 Answer
% ∆ in quantity demanded
30−20 100 10 100 𝐸𝑑 =
= 20
× 1 = 20 × 1
= 50% % ∆ in price
30−20 100
% ∆ in quantity demanded = ×
20 1
∆ in price 100
% change in price = oldprice
× 1 % ∆ in quantity demanded =
10
×
100
= 50%
20 1
8−6 100 2 100
= 8 × 1 = × = 25% 5−4 100
8 1 % ∆ in price ×
4 1
% ∆ in quantity demanded
𝐸𝑑 = % ∆ in price
1
% ∆ in price = 4 ×
100
= 25%
1
50% 50%
𝐸𝑑 = =2 𝐸𝑑 = 𝐸𝑑 = 2 (C)
25% 25%
Demand is elastic because 2 > 1.
2003/31
The demand for money is
A. derived demand B. composite demand
C. joint demand D. complimentary demand
Answer
Derived demand (A)
2015/8 Exercise 5.11
1992/3 Which of the following is not a reason for abnormal demand?
A demand curve slopes downwards from left to right, but A. price of the commodity B. goods of ostentation
this may not always be so. Explain the statement. C. giffen goods D. rare commodity
Answer
The law of demand states that “the higher the price, the 2015/12
lower the quantity demanded” the demand curve slopes If a given change in price brings about a proportionately
downward from left to right. However, the exceptional larger change in quantity demanded, then
demand curve, is one which does not slope downwards A. demand is relatively price elastic
from left to right, reflecting the fact that sometimes, a fall B. demand is relatively price inelastic
in price of a commodity may not be followed by an C. price elasticity of demand is unitary
increase in the quantity demanded, and this may be due to D. price elasticity of demand is constant
the following reasons: Answer
(a) Goods of ostentation: These are luxury goods which Demand is relatively price elastic (A)
people tend to demand and increasingly demand even
when the prices goes up. The idea is that the people 2015/13
If the price of a commodity Z falls and a consumer buys less
that patronize such goods believed that they
of it, then commodity Z is a
command prestige by going for such costly goods.
A. necessity B. good of ostentation C. Giffen goods
Examples of ostentatious goods are expensive D. normal goods
jewelries, gold watches etc. Answer
C – Giffen goods.

96
1995/5 Nov (b) Relatively elastic/fairly demand
It occurs when a slight change or small proportion of
change occasions a large proportion of change
occasions a large proportion of change in the quantity
demanded.

The diagram above illustrates

A. an elastic demand B. an inelastic demand
C. a perfectly elastic demand
D. a perfectly inelastic demand
E. a unitary elastic demand (c) Perfectly inelastic demand/zero elasticity of
Answer demand: It occurs when a change in price does not
A perfectly elastic demand (C) effect any change in the quantity demanded.

1995/7 Nov
Which of the following is the correct formula for income
elasticity of demand?
Note % = percentage, I = income q = quantity
∆q
A. %∆I ÷ %∆q B. %∆I × %∆q C. ∆I
%∆q
D. ∆q × ∆I E. %∆I
Answer
%∆q
𝐸𝑖 = %∆I (E)

1996/3 Nov (d) Relative inelastic demand/fairly inelastic demand

Explain the following elasticities of demand, and state their It is also called inelastic demand. This is the case
coefficients. when the proportion of change in the quantity
(a) Perfectly elastic. demanded is less than the proportion of change in the
(b) Relatively elastic. price.
(c) Perfectly inelastic.
(d) Relatively inelastic.
(e) Unit elastic
Answer
(a) Perfectly elastic demand: This is also called infinitely
elastic demand. It is the case when the consumers are
willing to purchase any quantity or all that is offered for
sale at the prevailing price and none at all at a slightly
higher price.

97
(e) Unit elastic demand/unitary elasticity of demand 2000/3
It is the case when the proportion of change in the (a) State the laws of demand and supply.
quantity demanded is equal to the proportion of (b) With the aid of a diagram, explain the implications of
change in price. a change in the quantity demanded of a commodity.
Answer
(a) The law of demand states that all things being equal,
the lower the price, the larger the quantity demanded
or vice versa on the other hand, the law of supply
states that all things being equal, the lower the price,
the smaller the quantity supplied of a commodity or
vice versa.
(b)

2019/11 NABTEB
The type of demand where an increase in the demand for
butter reduces the demand for margarine is called
A. competitive demand B. derived demand
C. composite demand D. joint demand
Answer
A change in the quantity demanded of a commodity
Competitive demand (A)
means a movement from one point to another on a
demand curve. The cause of the change in the
quantity demanded is a change in the price of the
2018/13 NABTEB
product under consideration.
A change in the demand for commodity “A” due to a
For example, the price of maize falls from ₦150 to
change in the prices of commodity “B” is called
₦100. The quantity demanded increases from 200
A. price elasticity of demand B. competitive demand
bags to 300 bags. A change can either be an increase
C. derived demand D. cross elasticity
or a decrease.
Answer
Cross elasticity of demand (D)
2000/23
The movement along the same demand curve is a
A. change in demand B. change in quantity demanded
2000/2 Exercise 5.12
C. shift in demand D. market demand
(a) What is income elasticity of demand?
Answer
The table below shows the various incomes and
Change in quantity demanded (B)
demand for different commodities.
2000/27
Income (₦) Quantity demanded (kg)
The income elasticity of a normal good is
A20,000 120 A. positive B. negative C. zero D. fixed
B 36,000 96 Answer
C 40,000 160 Positive (A)
D 44,000 200
E 45,000 240
2000/28
F 47,000 252 The demand for a commodity that serve two or more
purposes is .
(b) Calculate the income elasticity between A. competitive demand B. complementary demand
(i) A and B. (ii)C and D. (iii) E and F. C. composite demand D. derived demand
(c) What kind of goods is between
Answer
(i) A and B? Composite demand (C)
(ii) C and D?

98
2003/16 Neco 2006/45 Neco
Using functional relationship in economics
Qx = f(px, po, T); stands for
A. level of income of the consumer B. price of X
C. prices of other commodities
D. production function of X E. price index
Answer
Prices of other commodities (C)

2003/3 Neco
A shift of the demand curve leftward from its original
position indicates
A. an increase in quantity demanded
B. a decrease in quantity demanded
The diagram above represents
C. an expansion of demand
A. change in quantity demanded B. constant demand
D. a fall in demand E. price effect on demand
C. decrease in demand D. equilibrium quantity
Answer
E. increase in demand
A decrease in quantity demanded (B)
Answer Decrease in demand (C).
2003/40 Neco Exercise 5.13
The demand for a commodity for the sake of what it will 2006/46 Neco
Given demand function Qd = 10 – 2p, where Qd =
yield is
Quantity demanded and p – price. What quantity of the
A. competitive demand B. composite demand
given commodity will be demanded where p = ₦2.50k.
C. derive demand D. effective demand
A. 2.5 units B. 5.0 units C. 15 units D. 20 units
E. joint demand
E. 25 units
Answer
2006/20 Nov
When price elasticity of demand is 1.5, demand is said to be Qd = 10 – 2p
A. inelastic B. infinite C. elastic D. unitary Qd = 10 – 2(2.50) = 10 – 5 = 5.0 units (B)
Answer Elastic (C)
2006/10 Neco
(a) Explain the following concepts.
1992/35 Nov (i) Income elasticity of demand.
Commodities for which the consumption decreases as (ii) Cross elasticity of demand.
income increases are referred to as (b) List five determinants of price elasticity of demand.
A. tangible goods B. consumer goods Answer
C. inferior goods D. capital goods E. luxury goods (ai) Income elasticity of demand measures the degree of
Answer responsiveness of quantity demanded to change in
Inferior goods (C) income. In other words, the income elasticity of demand
can be described as the percentage change in the
2006/33 Neco quantity which is resulting from the percentage change
If commodity A is demanded because it helps in producing in a consumer’s income.
commodity B, then the demand for commodity A is said to Percentage change in quantity demanded
𝐸𝑖 = Percentage change in income
be
(ii) Cross elasticity of demand measures the degrees of
A. competitive B. complementary C. composite
responsiveness of the quantity demanded of a given
D. derived E. precautionary
product to changes in the price of a related product.
Answer Cross elasticity demand is obtained by taking the
Derived (D) percentage change in the quantity of a given product (x)
and dividing it by the percentage change in the price of
2006/34 Neco another related product (y).
An inferior good is a commodity whose demand Percentage change in quantity demanded of product x
𝐸𝑥𝑦 =
A. decreases as income decreases Percentage change in price of product y
B. decreases as income increases (b) Determinants of price elasticity of demand.
C. has no monetary value (i) Availability of substitutes.
D. increases as income increases (ii) The percentage of consumer’s income expended on the
E. remains constant as income increases commodity.
Answer (iii) Habit.
(iv) The degree of essentiality.
Decreases as income increases (B)
(v) The number of uses of the commodity.
99
2010/6 2000/6 Nov
Which of the following causes the demand curve to shift to (a) What factors determine price elasticity of demand?
the right? (b) Explain the importance of price elasticity of demand to
A. a reduction in the size of the population (i) producers (ii) Governments
Answer
B. an increase in the income of the buyer
(a) The factors determining price elasticity of demand include:
C. the availability of substitute
i. Availability of substitutes: A product that has close
D. a decrease in price of the good substitutes will have an elastic demand while a product that
Answer has no close substitute will have an inelastic demand.
A decrease in price of the good (D) ii. The percentage of consumer’s income expanded on the
commodity: The proportion of the income of the consumer
2010/7 Exercise 5.14 that is spent on the product will determine the elasticity of
Goods for which demand rises as income rises are demand.
A. complementary goods B. inferior goods iii. Habit: The more habitual the consumption of a product, the
C. normal goods D. substitutes more inelastic the demand for such product.
1995/1 Nov Exercise 5.15 iv. The degree of essentiality: Some goods are very essential;
the demand for such goods for the consumers concerned
(a) Differentiate between demand and the elasticity of
will be inelastic.
demand.
v. The number of uses of the commodity: A commodity with
(b)
several uses will pose a high demand,
Price per unit Quantity vi. The time period: The elasticity of demand is greater in the
demanded long run than in the short run. In the long run, spending
Commodity Old New Old New habits could be changed and substitutes can be found.
Biscuits ₦1.00 80k 100 150
Sugar ₦4.00 ₦5.00 100 80 (b) Importance of price elasticity of demand to
Yam ₦5.00 ₦4.00 100 120 i. Producer: It helps him in deciding whether to increase
From the above table, calculate the coefficient of or decrease the prices of its commodities so as to
elasticity of demand for each of the three products. maximize profits.
(c) From your answer in (b) above determine the type of ii. Governments: It influences the taxation policy of the
elasticity of demand of any two of the commodities. government. The knowledge of the elasticity of demand
is important in fixing taxes on commodities.
1993/1 Nov
A commodity is said to have a derived demand when it 1997/11 Nov
A. has a joint demand with another commodity If the co-efficient of price elasticity of demand for a
B. has an inelastic demand C. has an elastic demand commodity is 0.5, then the elasticity for the commodity is
D. is demanded for immediate consumption A. elastic B. inelastic C. negative D. zero E. unitary
E. is demanded because of what it can help to produce Answer Inelastic (B)
Answer
Is demanded because of what it can help to produce (E)
2007/14
1999/16 Exercise 5.16
The law of demand states that the
Which of the following is true of inferior goods? A. higher the price, the higher the quantity demanded
A. the rich always buy more of such goods B. lower the price, the higher the quantity demanded
B. the rich only buy such goods as gift items C. quantity demanded remains the same at any time
C. their demand rises as income rises D. quantity demanded increases with income
D. their demand falls as income rises Answer
Lower the price, the higher the quantity demanded (B)
1999/18
When demand is elastic, a fall in price 2001/15 Nov
A. reduces total revenue B. increases total revenue
Goods for which quantity rises as income rises are
C. leaves total revenue unchanged
D. leads to a decrease in quantity demanded
A. complementary goods B. giffen goods
Answer This will cause total revenue to rise (D) C. normal goods D. substitute
NB: For inelastic demand, a fall in price reduces total Answer
revenue. Normal goods (C)

1999/20 2007/16 Nov Exercise 5.17

Co–efficient of an inelastic demand is Which of the following is not constant along a given
A. less than one B. greater than one C. unitary demand curve for bread?
D. infinity A. the price of bread B. the income of consumers
Answer Less than one (A)
C. the price of substitutes D. age distribution

100
2004/14 Nov 2012/2 Nov
Demand schedule is A vertical demand curve means that quantity demanded.
A. purchases at different prices A. decreases as price rises
B. the nature of a demand curve C. elasticity of demand B. remains unchanged even through price changes
D. the demand for composite goods C. increases while price remain unchanged
Answer D. increases as price decreases
Purchases at different prices (A) Answer
Remain unchanged even through price changes (B)

2004/15 Nov
Which of the following is true of a normal demand curve? 2000/8 Nov
A. slopes upwards from left to right The elasticity of demand for a commodity which has no
B. slopes downwards from left to right close substitute is
C. parallel to x – axis D. parallel to y – axis A. perfectly inelastic B. partially elastic
Answer C. unitarily elastic D. perfectly elastic
Slopes downwards from left to right (B) Answer
Perfectly inelastic (A)

1996/9 Nov Exercise 5.18

The output from a combination of factors of production is 2000/9 Exercise 5.19
referred to as When elasticity of demand is greater than one, demand is
A. commodities B. complementary goods said to be
C. inferior goods D. capital goods E. competitive goods A. fairly elastic B. inelastic C. unitary D. zero

2000/14 Nov Exercise 5.20

1996/16 Nov Substitute goods have
If the price of beef rises from N20.00 to N23.00 per A. derived demand B. complementary demand
kilogram, and the quantity demanded falls from 100 C. composite demand D. competitive demand
kilogram to 85 kilogram, then the elasticity of demand for
beef is
A. zero B. infinity C. unitary D. greater than one 2000/7 Nov
E. less than one The most important factor influencing the quantity
Answer demanded or supplied of any commodity at a point is the
% ∆ in quantity demanded A. state B. government policy C. taxes D. price
𝐸𝑑 = % ∆ in price Answer
∆ in qty demanded 100 Price (D)
% ∆ in quantity demanded = ×
Old qty 1
100−85 100
% ∆ in quantity demanded= 100
× 1
2012/37 Nov
15 100
% ∆ in quantity demanded= × = 15% When the price of commodity X increases and the demand
100 1
∆ in price 100
for commodity x and y are
% ∆ in price = Old price × A. normal goods B. inferior goods C. substitute goods
1
23−20 100 D. necessities
% ∆ in price = 20
× 1 Answer
3 100 Substitute goods (C)
= × = 15%
20 1
15%
𝐸𝑑 = = 1 i.e Unitary (C)
15%

1992/35 Nov
Commodities for which the consumption decreases as
income increases are referred to as
A. tangible goods B. consumer goods
C. inferior goods D. capital goods E. luxury goods
Answer
Inferior goods (C)

101
2000/5 Nov 1993/26
What factors determine the price elasticity of demand for a A situation in which an increase in the demand for certain
commodity? goods leads to a fall in the demand for other goods is
Answer known as
(1) Availability of substitutes: A product that has close A. joint supply B. derived demand
substitutes will have an elastic demand while a product C. competitive demand D. competitive supply
that has no close substitute will have an inelastic E. composite demand
demand. Answer Competitive demand (C)
(2) The percentage of consumer’s income expended on the 1995/7 Nov
commodity: The proportion of the income of the Which of the following is the correct formula for income
consumer that is spent on the product in question will elasticity of demand?
determine the elasticity of demand. Note: % = percentage, I = income; ∆ = change; q =
(3) Habit: The more habitual the consumption of a product,
quantity
the more inelastic the demand for such product will be ∆q
for a consumer. A. % ∆ ÷ ∆q B. %∆I × ∆q C. ∆I
D. ∆q × ∆I
(4) The degree of essentiality: Consumers will like to %∆q
E. %∆I
provide money for such good whatever the case may be
even if the expenditures on other products will suffer. Answer
%∆q
(5) The number of use of the commodity: When the
%∆I
(E)
number of uses of a particular product is high, the
demand for such product will be highly elastic. 2018/46 Neco
(6) The time period: It takes time for buyers to react to If the cross elasticity of demand for two commodities is –
changes in the prices of certain commodities.
2.5. The commodities are
A. complements B. composite C. luxuries
2002/17 Nov D. necessities E. substitutes
Demand for a factor of production is a Answer
A. composite demand B. joint demand Complements (A)
C. derived demand D. competitive demand
Answer Derived demand (C) 2002/5 Nov
(a) Define cross elasticity of demand
2002/19 Nov (b) Distinguish between cross elasticity of demand for
Which of the following economic tools will best illustrate substitute goods and complementary goods.
the relationship between price and quantity demanded of a (c)(i) Given that a 15% increase in the price of
commodity? commodity x results in 300% increase in the quantity
A. mean B. range C. graph D. pie – chart demanded of commodity y.
Answer Graph (C) (ii) State the relationship between commodities x and y.
Answer
2002/22 Nov (a) Cross elasticity of demand measures the degree of
The cross elasticity of demand when an increase in the responsiveness of the quantity demanded of a given
price of oranges from $0.50 to $0.75 results in an increase product to changes in the price of a related product.
in the quantity demanded of ice cream from 100 to 300 is Exy will be positive and maclean and closeup are said
A. 2 B. 4 C. 5 D. 6 to be substitutes.
Answer (b) Cross elasticity of demand for substitute goods
Percentage change in qty dded of product x
Exy = (maclean and close up), an increase in the price of
Percentage change in price of product y
maclean i.e. the price of close up remaining
% ∆ in qty dded of product x
Exy = unchanged will tend to increase the quantity of close
% ∆ in price of product y
∆ in qty 100 up demanded. While cross elasticity of
% ∆ in qty dded of ice cream (x) = × complementary goods (car and fuel) an increase in
Old qty 1
300−100 100 the price of car will reduce the quantity of fuel that
= × will be demanded even when the price of fuel
100 1
200 100 remains constant. in this case cross elasticity demand
% ∆ in qty dded = × 1 = 200% (Exy) is negative and car and fuel are said to be
100
∆ in price 100
% ∆ in price of orange (Y) = Old price × 1
complementary goods.
Percentage change in quantity demanded of product x
0.75−0.50 100 (ci) Exy =
= × = 50% Percentage change in price of product y
0.50 1 30%
200% Exy = =2
Exy = = 4 (B) 15%
50%
(ii) The relationship between commodity x and y = 2 > 1
It is elastic because 2 is greater than 1
102
 2018/1 Neco
2012/1 Nov If Oweh’s demand function is represented as follows:
The demand for a firm’s product is presented as Qd = 32 – p
2
3
Qd = 28 – 4p. Prices over the period are $2.50, $3.50,
(a) Calculate the various quantities demanded when the
$4.50, $5.50 and $7.00.
level of prices are ₦6, ₦12, ₦20, ₦27 and ₦32.
Calculate
(b) Use the result in (a) above to draw a demand curve.
(a) The quantity demanded at each price.
(c) State five factors that cause change in demand.
(b) The total revenue at each price.
Answer
(ci) What is the coefficient of price elasticity of demand 2
when price increased from $2.50 to 3.50? (a) Qd = 32 – p 3
(ii) Is the demand elastic or inelastic?
When price is ₦6.
(ii) State the reason for your answer in 1(c)(ii) 2
Qd = 32 – (6)
3
12
Answer When price $5.50 Qd = 32 – 3
(a) Qd = 28 – 4p Qd = 28 – 4(5.50)
Qd = 32 – 4
When price is $2.50 Qd = 28 – 22
Qd = 28
Qd = 28 – 4(2.50) Qd = 6
When price is ₦12 When price is ₦27
Qd = 28 – 10 = 18 2 2
When price is $7.00 Qd = 32 – (12)
3 Qd = 32 – 3(27)
When price is $3.50 Qd = 28 – 4(7.00) 24
Qd = 32 – 3 Qd = 32 – 3
54
Qd = 28 – 4(3.50) Qd = 28 – 28
Qd = 32 – 8 Qd = 32 – 18
Qd = 28 – 14 Qd = 0
Qd = 24 Qd = 14
Qd = 14
When price is $4.50 When price is ₦20 When price is ₦32
2
Qd = 28 – 4(4.50) Qd = 32 – 3(20) 2
Qd = 32 – 3(32)
Qd = 28 – 18 40 64
Qd = 10 Qd = 32 – Qd = 32 –
3 3
(c) Qd = 32 – 13.33 Qd = 32 – 21.33
Price Quantity demanded Qd = 18.67
2.5 18
3.5 14 (b)
% ∆ in quantity demanded
𝐸𝑑 = % ∆ in price
∆ in quantity demanded 100
%∆ in Qty dded = Old demand
× 1
18−14 100
%∆ in qty dded = 18 × 1
4 100 400
%∆ in qty dded = 18 × = 18 = 22.22%
1
∆ in price 100
%∆ in price = old price × 1
3.50−2.50 100
%∆ in price = ×
2.50 1
1 100
= 2.50 × 1 = 40%
22.22%
𝐸𝑑 = 40% = 0.5555
𝐸𝑑 = 0.6

(ii) The elasticity of demand is inelastic.

(iii) The elasticity of demand is inelastic because it is less

than one 0.6 < 1 (c) Factors that causes change in demand.
(1) The price of goods or services.
(2) Prices of other commodities.
(3) Changes in income.
(4) Changes in the size and structure of population.
(5) Taste, preference and fashion.

103
 110 100 11,000
2012/38 Neco % ∆ in qty dded of product X = 90
× 1 = 90
Elasticity is less than one when demand is
= 122.22%
A. elastic B. fairly elastic C. unitary elastic ∆ in price 100
D. inelastic E. infinitely elastic % ∆ in price Old price × 1
Answer 180,000−120,000 100
% ∆ in price ×
Inelastic (D) 120,000 1
60,000 100 6,000,000
% ∆ in price × =
120,000 1 120,000
2012/45 Neco % ∆ in price = 50%
Given the demand schedule of a commodity. 122.22%
Exy = = 2.4444
Price Quantity demanded 50%
50 20 Exy = 2.4
30 40 (b) The relationship between commodity X and Y is
Calculate the price elasticity of demand of the commodity positive (2.4) because the goods are substitute.
in absolute term. (c) Examples are peak milk and cowbell milk
A. –1.0 B. 0.1 C. 1.0 D. 2.0 E. 2.5
1993/1 Nov
Answer A commodity is said to have a derived demand when it
%∆ in qty dd A. has a joint demand with another commodity
Ed = %∆ in price B. has an inelastic demand C. has an elastic demand
∆ in qty 100 D. is demanded for immediate consumption
% ∆ in quantity demanded = Old qty × 1 E. is demanded because of what it can help to produce
40−20 100 Answer
% ∆ in quantity demanded= 20
× 1
Is demanded because of what it can help to produce (E)
20 100
% ∆ in quantity demanded = × = 100%
20 1 2001/42 Neco Exercise 5.21
50−30 100
% ∆ in price = 50 × 1 If the elasticity co-efficient for a commodity is 0.3, the
20 100
demand for the commodity can be said to be
% ∆ in price = × = 40% A. elastic B. inelastic C. perfectly inelastic
50 1
100% D. infinitely elastic E. unitary elastic
Ed = 40% = 2.5 (E) 2013/16 Neco
The income elasticity of demand for a normal good is
2012/46 Neco A. constant B. infinity C. negative D. positive
The cross elasticity of demand for substitute commodities is E. zero
A. downward sloping B. negative C. positive Answer Positive (D)
D. upward sloping E. zero Hint: Normal goods have a positive income elasticity of
Answer demand; as income rise, more goods are demanded at each
Positive (C) price level. In contrast, inferior goods have a negative income
elasticity of demand; as consumers’ income rises, they buy fewer
inferior goods.
2012/1 Neco
The table below shows Mr. Omewo’s demand for
commodity X as a result of a change in the price of 2013/37 Neco
commodity Y. The inverse relationship between price and quantity
Price of commodity Y Quantity demanded of demanded implies that
commodity X A. price falls as a result of diminishing utility
B. price falls as quantity bought increases
N120,000 90 cartons of milk
C. price increases in inverse direction
N180,000 200 cartons of milk
D. price of a commodity is affected by its substitute
(a) Calculate the cross elasticity of demand for the
E. price remains the same as more goods are brought
commodities.
Answer Price falls as quantity bought increases (B)
(b) What is the relationship between commodity X and
Y.
(c) Give appropriate examples of the commodity X and
Y.
2013/38 Neco
Answer A commodity whose quantity consumed falls as income of
% ∆ in quantity demanded of product X
(a) Exy = the consumer rises is an example of ______
% ∆ in price of product Y
∆ in dd 100 A. complementary B. giffen C. luxurious
% ∆ in qty dd of product X = Old × 1 D. necessity E. substitute
200−90 100
% ∆ in qty ddof product X = 90 × 1 Answer Giffen (B)
104
1992/22 33.33%
𝐸𝑑 = 60%
= 0.555 = 0.6
(ii) Income elasticity is less than 1 i.e. 0.6 < 1, that’s the
quantity demanded does not respond to change in
income.
(iii) Importance of elasticity of demand
(1) Elasticity of demand help in getting consumer
protected from the unscrupulous producers and
middlemen who are out to cheat, exploit and
manipulate consumers.
(2) Elasticity of demand helps the producer or seller
in deciding whether to increase or decrease the
The above diagram represents prices of his commodities.
A. an increase in demand B. an increase in quantity (3) It also helps the producer or seller to increase or
supplied C. a decrease in quantity demanded decrease the prices of his goods so as to
D. a decrease in demand E. a change in price maximize profit.
Answer An increase in demand (A) (4) Elasticity of demand helps the government to
influence the taxation policy of the government
2019/37 Neco i.e. in fixing taxes on commodities.
A demand backed – up by ability and willingness to pay 2019/6
for specific commodities within a given period of time is If the coefficient of price elasticity of demand of a product
referred to as ____ demand. is zero, then its demand curve will be
A. abnormal B. complimentary C. derived A. parallel to the quantity axis
D. effective E. market B. parallel to the price axis C. negatively sloped
Answer Effective (D) D. positively sloped
Answer Parallel to the price axis (B)

2019/7
2019/44 Neco Exercise 5.22
If the demand function is Qd = –0.5p + 20, calculate the
If in 2018 the price of bread increased from N40 to N50
quantity demanded when price is $15.00.
resulting to a decrease in quantity bought from 160 to 80
A. –$27.50 B. –$12.50 C. $12.50 D. $27.50
units, what is the price elasticity of demand?
Answer
A. –2 B. 0.1 C. 0.5 D. 2 E. 3
Qd = –0.5p + 20
2019/2 Neco When price is $15.00
Given that the income of Mr. Bellow increased from ₦10,000 to Qd = –0.5(15.00) + 20
₦16,000 and in response to change in income, his demand for tins Qd = –7.5 + 20
of milk per month also arose from 30 to 40 tins. Qd = $12.50 (C)
(i) Determine Mr. Bello’s income elasticity of demand.
(ii) What kind of good is milk to Mr. Bello and why?
(iii) State four importance of elasticity of demand. 2000/12 UTME Exercise 5.23
Answer Which of the following s an example is an example of
(a) Income Quantity demanded derived demand?
₦10,000 30 tins A. tax relief B. wage increase C. labour
₦16,000 40 tins E. entertainment
% ∆ in qty demanded
EI = % ∆ in income
∆ in qty 100
% ∆ in quantity demanded = × 2001/5
Old price 1
40−30 100 A normal good with close substitutes is likely to have its
% ∆ in quantity demanded= × price elasticity of demand
30 1
10 100 A. between zero and one B. equal to unity
% ∆ in quantity demanded= 30 × 1 = 33.33%
C. less than unity D. greater than unity
∆ in income 100 Answer greater than unity (D).
% ∆ in income = Old income ×
1
16,000−10,000 100
% ∆ in price = 10,000
× 1
6,000 100
% ∆ in price = 10,000 × 1 = 60%
105
2002/8 UTME 2009/16
One of the reasons for an exceptional demand curve is the If an increase in earnings leads to more of a commodity
A. expectation of future change in price being demanded, the good is said to have
B. availability of credit facilities A. positive income elasticity B. negative income
C. change in the price of the commodity elasticity C. positive cross elasticity D. negative
D. availability of substitutes cross elasticity
Answer Answer
Expectation of a future change in price (A) Positive income elasticity (A)

2003/4 UTME
If there is an increase demand without a corresponding 1997/7 Exercise 5.26
increase in supply, there will be a When the price of a given product is reduced from ₦100 to
A. fall in price B. rise in price C. shift in supply ₦90. The quantity demanded increases from 50 to 60
curve to the right D. shift in demand curve to the left units. From this we can conclude that the product’s
Answer Rise in price (B) A. demand is elastic B. demand is inelastic
C. demand is perfectly inelastic D. supply is not elastic
E. demand has declined
2019/8 Exercise 5.24
If less of a good is bought as one’s income increases, such 1998/5
a good is At what price will a trader be ready to sell 6 oranges using
A. a normal goods B. a luxury C. a necessity the equation below:
D. an inferior goods 1
P = 𝑄 + 2, where p is price and q is quantity.
2
A. ₦3:00 B. ₦4:00 C. ₦5:00 D. ₦6:00 E. ₦8:00
Answer
2019/9 1
The demand for coffee and tea is P = (6) + 2
2
6
A. joint B. competitive C. composite D. derived P=2+2
Answer P = 3 + 2 = ₦5
Competitive (B) ₦5:00 (C)
1998/7 2017/6
Which of the following will shift demand curve for milo to If the coefficient of cross elasticity of demand for goods Y
the right and Z is positive, the two goals are
A. an increase in consumer’s income A. complements B. substitutes C. luxuries
B. a rise in the price of milo D. inferior
C. a tax on cocoa producers Answer Substitutes (B)
D. a fall in the quantity demanded of milo
E. a fall in the price of milo 2017/8 Exercise 5.27
Answer A demand curve parallel to the y – axis indicates
A fall in the price of milo (E) A. fairly elastic demand B. perfectly elastic demand
C. perfectly inelastic demand
2009/11 Exercise 5.25 D. fairly inelastic demand
The type of demand that exists between torchlight and Answer Perfectly inelastic demand (C)
battery is
A. competitive demand B. complementary demand 2017/9
C. composite demand D. independent demand Which of the following is an example of derived demand
A. textbook B. labour
2009/12 C. staple food D. mobile phones
When the price of a commodity increases and the quantity Answer Labour (B)
demanded also increases, this is a case of
A. exceptional demand B. derived demand
C. competitive demand D. joint demand
Answer
Exceptional demand (A)

106
2009/38 2000/50 Neco
Use the table below to answer the question
Market demand Schedule for Rice
Price (₦) Quantity (’00s)
40 220
30 240
20 300
10 340
If the price of rice rises from ₦20 to ₦30. What is the price
elasticity demand?
A. 1.5 B. 2 C. 3 D. 4 E. 5.2
Answer
In the diagram above, the curve DD illustrates % ∆ in quantity demanded
A. elastic demand B. inelastic demand curve 𝐸𝑑 =
% ∆ in price
C. perfectly elastic demand D. perfectly inelastic demand ∆ in quantity 100
% ∆ in quantity demanded = ×
Old price 1
E. unitary elastic demand 300−240 100
Answer % ∆ in quantity demanded = ×
300 1
60 100
Perfectly inelastic demand (D) % ∆ in quantity demanded = × = 20%
300 1
∆ in price 100
% ∆ in price = ×
2000/36 and 37 Neco Old price 1
30−20 100
Use the figure below to answer question 36 and 37 % ∆ in price = ×
20 1
10 100
% ∆ in price = × = 50%
20 1
20%
𝐸𝑑 = = 0.4(no option is correct)
50%

2012/22 (OAU, IFE)

If the price of commodity X increases because of the increase in
the price vis-à-vis the increase in demand for other commodity
Y, the two commodities are likely to be
A. complimentary B. substitute C. composite
D. intermediate
Answer: Substitute (B)

2011/18 (OAU, IFE)

Movement from point ‘R’ to ‘T’ is caused by a Which of the following is NOT true of a market demand
A. change of income B. change in the price of goods x schedule?
C. change in taste D. change in the price of other goods A. it is a schedule of all consumers of a commodity in a market
E. change in population B. it is the aggregate demand schedule of all consumers of a
Answer Change in the price of goods x (B) commodity in a market
C. it is table showing the different quantities of a commodity
2000/37 Neco Exercise 5.28 which a consumer purchase at various prices
A shift from point ‘R’ to point ‘S’ is not caused by D. none of the above
A. population B. prices compliment C. prices of goods x Answer
D. prices of substitutes E. taste It is a table showing the different quantities of a commodity
which a consumer would purchase at various prices (C).
2000/41 Neco
If the demand function of Mallam Tumba’s bread is Qd = 500 –
2p, at what price can be sell 150 loaves?
1991/14
Solution A movement along the demand curve for some goods may
Qd = 500 – 2p be caused by a change in
150 = 500 – 2p A. consumer income B. the price of the goods
150 – 500 = –2p C. consumer taste D. the price of other goods
–350 = –2p E. population
Answer The price of the goods (B)
−350
P= = ₦175
−2
2020/7 (PC1)
When a greater change in price results in a smaller change
in quantity demanded, demand is
A. fairly elastic B. fairly inelastic C. unitary elastic
D. perfectly elastic
Answer Fairly inelastic (B)
107
2020/8(PC1) 1998/16 UTME
Use the diagram in figure 1 below to answer question The effect of 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
Answer
Cross elasticity of demand (A).

1978/35 UTME
If consumer’s 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
The shift demand curve for D0D0 to DxDx is caused by C. X and Y are independent goods
A. an increase in income B. a fall in the price of a D. X and Y are jointly supplied
substitute C. a fall in the price of the commodity E. X and Y are inferior commodities
D. a decrease in the price of its complement Answer
Answer An increase in income (A) X and Y are complementary goods (A).

2020/10 (PC1) 1979/6 UTME

A 5% increase in the price of sugar leads to a fall in the When the demand curve shifts to the right, indicates that a
quantity demanded by 15%. The demand for sugar is larger quantity is demanded at each price. This is caused
A. perfectly elastic B. fairly elastic C. inelastic by one of the following
D. perfectly inelastic A. a fall in income B. a rise in the price of a
Answer complement
Fairly elastic (B) C. a fall in the price of a substitute
D. a change in tastes against the commodity
2012/12 (OAU, IFE) E. none of the above
Change in demand and change in quantity demanded are not
Answer
the same because
None of the above (E).
A. all factors affecting change in demand also affect change
in quantity demanded except income
Hint: The demand curve shifts to the right, indicates an
B. all factors affecting change in demand are not affecting increaser in demand because of a number of a factors,
change in quantity demanded except income including a rise in income, a rise in the price of the
C. many factors leads to change in demand but only change substitute or a fall in the price of a complement.
in price affect change in quantity demanded
D. many factors leads to change in demand but only change 2014/2015/32 (UNIZIK, AWKA)
in income affect change in quantity demanded If a commodity has many substitutes, it is most likely that
Answer A. the demand curve is fairly inelastic
Many factors leads to change in demand but only change in B. the demand curve is fairly elastic
price affect change in quantity demanded (C) C. the demand curve is parallel to the quantity axis
D. the demand curve is positively sloped
2010/33 Neco E. the price of the commodity is too high
Goods whose demand varies inversely with change in income Answer
is known as The demand curve is fairly elastic (B)
A. consumer goods B. giffen goods C. ostentatious Hint: The demand for goods or services with many close
goods D. producer goods E. superior goods substitutes is highly price elastic, a small increase in the
Answer price levels of goods causes consumers to buy its
Giffen goods (B0 substitutes.
2014/58 Neco
The law of demand which states that quantity demanded is 2007/2008/62 (UNIZIK, AWKA)
inversely related to price can hold on the following except A normal demand curve
A. consumers habit remain unchanged A. is concave to the point of origin
B. income remains constant B. is convex to the point of origin
C. no change in taste and preference C. is parallel to x – axis
D. no change in the quantity of the product D. is parallel to y – axis
E. every close substitute of the commodity exist E. slopes downward from left to right
Answer Answer
Consumers habit remain unchanged (A) Slopes downward from left to right (E)
108
1980/23 UTME 2010/1 Neco Exercise 5.29
If the price of a commodity falls and the quantity Given that the income of Mr. Ajayi increases from ₦200
purchased of it does not rise, the commodity can be to ₦500 as a result of new wage rate, his demand for milo
described as increased from 100 to 200 tins.
A. normal B. abnormal C. inferior D. superior (a) Calculate the co – efficient of his income elasticity of
E. scarce demand.
Answer (b) Is the demand elastic or inelastic.
Inferior (C).
2012/5 (OAU, IFE)
2008/35 Neco Yam and palm oil are used together, therefore
When elasticity of demand is greater than one demand is A. yam is a substitute good while palm oil is a
A. elastic B. inelastic C. perfectly elastic D. unitary complementary goods
E. zero B. yam is complementary good while palm oil is a
Answer substitute goods
Elastic (A) C. yam and palm oil are complementary goods
D. yam and beans are substitute goods
Answer
2008/36Neco Yam and palm oil are complementary goods (C)

2012/8 (OAU, IFE)

A commodity is said to be price inelastic if
A. a change in the quantity purchased of a good is less than
proportionate change in its price
B. change in the quantity purchased of a good is proportional
to change in its price
C. changes in the quantity purchased of a good is proportional
to changes in its price
C. changes in the quantity purchased of a good is more than
proportionate changes in its prices
The above diagram represents D. the quantity purchased of a goods never responds to
A. elastic demand B. inelastic demand C. perfectly change in its price
elastic demand D. perfectly inelastic demand Answer
E. unitary elastic demand The quantity purchased of goods never responds to changes
Answer: Perfectly inelastic demand (D) in its price (D)

2008/42 Neco 1994/1

If Mrs. Audu supplied 500 tins of maizube milk at a price (a) What is meant by price elasticity of demand?
of ₦50 in 2004 and later in the year, the price increased to (b) The following figures are extracted from a schedule of
₦60 and she bought 300 tins, what is the elasticity of demand and supply.
demand? Price Quantity Quantity
A. 1 B. 2 C. 4 D. 6 E. 8 demanded supplied
₦9.00 1,050 850
Answer
₦10.00 1,000 1,000
Price qty
₦11.00 950 1,150
50 500
Calculate the elasticity of demand when price rises
60 300 from ₦10.00 to ₦11.00.
% ∆ in quantity demanded
𝐸𝑑 = % in price
(ii) State whether the demand in (i) above is elastic or
∆ in quantity 100 inelastic.
% ∆ in quantity demanded = × (iii) Calculate the elasticity of supply when price falls from
Old quantity 1
500−300 100 ₦10.00 to ₦9.00
% ∆ in quantity demanded = 500 × 1 (iv) State whether the supply in (iii) above is elastic or
200 100
% ∆ in quantity demanded = × = 40% inelastic.
500 1 Answer
∆ in price 100
% ∆ in price = × (a) Price elasticity of demand means the degree of
Old price 1
60−50 100 responsiveness of demand to little changes in price of
% ∆ in price = 50 × 1 goods and services.
10 100
% ∆ in price = 50 × 1 = 20%
40%
𝐸𝑑 = 20% = 2 (B)

109
 Percentage change in demand
(b) 𝐸𝑑 = (ii)
Percentage change in price
When price rises from N10 to N11.
∆ in quantity 100
% ∆ in quantity demanded = ×
Old quantity 1
1000−950 100
= ×
1000 1
50 100
% ∆ in quantity demanded = × = 5%
1000 1
∆ in price 100
% ∆ in price = ×
Old price 1
11−10 100
% ∆ in price = ×
10 1
1 100
% ∆ in price = × = 10%
10 1
5%
𝐸𝑑 = = 0.5
10%
(ii) The demand is inelastic because co–efficient is less than
one.
Percentage change in supply
(iii) Elasticity of supply =
Percentage change in price
When price rises from ₦10 to ₦11.
∆ in supply 100
% ∆ in quantity demanded = ×
Old supply 1

1000−850 100
% ∆ in quantity demanded = ×
1000 1

150 100
2017/1
% ∆ in quantity demanded = × = 15% A dealer in deep freezers increased the price of his product from $450 to
1000 1
$500 and sales dropped from 800 units to 600 units a week.
∆ in price 100
% ∆ in price = × Use the information above to answer the question that follows.
Old price 1
(ai) Calculate the price elasticity of demand.
10−9 100 (ii) What type of elasticity is it? Explain your answer.
% ∆ in price = × (b) Calculate the
10 1

1 100
(i) Total revenue of the company before and after the price
% ∆ in price = × = 10% increases.
10 1
(ii) Change in total revenue.
15%
𝐸𝑠 = = 1.5 (c) What is the effect of the increase in price on the total revenue?
10%
(d) State two factors influencing price elasticity of demand.
(iv) The elasticity of supply is elastic because the value is Answer
greater than one. (a) Price ($) Qty demanded per week
450 800
2009/1 Neco 500 600
The table below shows the price and quantity demanded of garri % ∆ in quantity demanded
𝐸𝑑 = % ∆ in price
by four consumers (A, B, C and D).
Price Quantity demanded (kg) ∆ quantity added 100
% ∆ in quantitydemanded = ×
N A B C D Old quantity 1
800−600 100
1.00 25 12 35 10 % ∆ in quantitydemanded = ×
800 1
2.00 23 9 31 10 200 100
3.00 21 7 29 10 % ∆ in quantity demanded = 800 × 1 = 25%
4.00 19 2 24 8 ∆ in price 100
5.00 14 8 18 7 % ∆ in price =Old price × 1
(i) Calculate the market demand for garri at various prices. 500−450 100
(ii) Draw the market demand curve.
% ∆ in price = 450 × 1
(iii) Calculate the total revenue from the market. 50 100
% ∆ in price 450 × 1 = 11.11%
Answer
25
Price Quantity demanded (kg) 𝐸𝑑 = = 2.25
N A B C D Total qty of garri 11.11
demanded (ii) Demand is price elastic because the coefficient is
1.00 25 12 35 10 82 greater than 1.
2.00 23 9 31 10 73 b(i) Total revenue before price increase = $450 × 800
3.00 21 7 29 10 67 = $360,000
4.00 19 2 24 8 53 Total revenue after price increase= $500 × 600
5.00 14 8 18 7 47 = $300,000
110
(ii) Change in total revenue = $360,000 - $300,000 1978/4 UTME
= $60,000 When elasticity is zero, the demand curve is
(c) The firm’s revenue has fallen by $60,000 after the A. perfectly elastic B. perfectly inelastic C. concave
price increase. D. downward sloping E. circular
(d) Factors influencing price elasticity of demand. Answer
(i) Availability of substitutes: Commodities with close Perfectly inelastic (B)
substitutes tend to have elastic demand while those without
close substitutes have inelastic demand. 2014/2015/13 (UNIZIK, AWKA)
(ii) Income of consumer: Very high income earners tend to A normal good with close substitutes is likely to have its
have inelastic demand for many goods while low income price elasticity of demand
earners have elastic demand for many commodities. A. between zero and one B. equal to unity
(iii) Number of uses of the commodity: If a commodity has C. greater than unity D. less than unity
several uses, demand is elastic, but if there is only one use
E. none of the above
demand is inelastic
(iv) Degree of necessity: Necessities tend to have inelastic Answer
demand while luxuries tend to have elastic demand. Greater than unity (C)
(v) Percentage of income spent on the commodity:
Commodities that take a very small percentage of
consumers’ incomes tend to be price inelastic while those 2018/2019/2 (UI, IBADAN)
that take a very large proportion of one’s income tend to An increase in income of a consumer will result to
have elastic demand. A. decrease in his demand B. increase in demand for
(vi) Habit or strength of consumer’s taste: Goods which are inferior goods C. decrease in demand for inferior goods
habit-forming tend to have inelastic demand and vice versa. D. increase in his demand
(vii) Scope of definition of the goods: The broader the definition
Answer
e.g. (food) demand is inelastic, but if the definition is narrow
e.g. (yam) demand is elastic. Increase in his demands (D)
(viii) Time factor: In the short-run, most goods do not have
substitutes and so demand is inelastic, but in the long-run 1981/40 UTME
when goods have substitutes, demand is elastic. An increase in the price of butter causes an increase in the
(ix) Degree of durability: If a commodity is durable, it has demand for margarine. This indicates that butter and
inelastic demand and vice versa. margarine are _____
A. substitute goods B. complementary goods
2014/2015/16 (UI, IBADAN) C. elastic goods D. elastic goods E. inferior goods
If an increase in the price of a commodity leads to an increase in Answer
total revenue, then it follows that the demand for the commodity
Substitute goods (A).
is
A. normal B. elastic C. inelastic D. abnormal Hint: A substitute good is a good that can be used in place
E. unitary of another. Formally, X and Y are substitute if, when the
Answer Normal (A) price of X rises, the demand for Y rises.

2014/2015/13 (UI, IBADAN) Exercise 5.30 1982/18 UTME

A normal good with close substitutes is likely to have its price The sloping downward of the demand curve implies that
elasticity of demand A. an increase in price leads to an increase in quantity
A. between zero and one B. equal to unity demanded
C. greater than unity D. less than unity B. an increase in price leaves the quantity demanded unchanged
E. none of the above
C. a decrease in price leads to a decrease in quantity demanded
2017/2 Exercise 5.31
D. a decrease in price leads to an increase in quantity
The market for apples is represented by the following demand demanded
and supply functions: E. suppliers respond by offering less commodities for sale
Qd = 30 – p; Answer
Qs = 15 + 2p A decrease in price leads to an increase in quantity
(a) Prepare a demand and supply schedule for the market, demanded (D).
given the prices $2.00, $4.00 and $7.00.
(bi) Determine the equilibrium price and equilibrium quantity 1982/36 UTME
of apples in the market. If income rises from ₦200 to ₦250.00 and the amount spent
(ii) If the price of apple is fixed at $3.00, what will be the
on goods X falls from ₦30.00 to ₦28.00, then good X is
excess demand or excess supply.
(c) Suppose the demand function changed to Qd = 40 – p. A. an income elastic good B. a normal goods
Using the prices in (a) above: C. an inferior good D. demand elastic
(i) Prepare a new demand schedule; E. supply elastic
(ii) does it represent an increase or a decrease in demand? Answer
(iv) explain your answer. An inferior good (C).
111
2010/22 (OAU, IFE) 2015/19 (OAU, IFE)
For a bicycle company, an economist predicted that, other Which of the following leads to an initial increase in the
things being equal, a rise in consumer incomes will aggregate demand of an economy?
increase the demand for bicycles. This prediction based on A. an increase in the price of energy
the assumption that B. a decrease in consumer wealth
A. there are many goods that are substitutes to bicycles C. an increase in investment
B. there are many goods that are complementary to D. an increase in the wage rate
bicycles Answer: An increase in the wage rate (D)
C. there are few goods that are substitutes for bicycles
D. bicycles are normal goods 1999/7 UTME
Answer The determinants of elasticity include
Bicycles are normal goods (D) A. price, time and availability of alternatives
B. technology and cost of production
1983/47 UTME C. time and availability of alternatives
When demand is elastic, it means that consumers D. price, time and technological changes
A. react more proportionally to price change Answer: Price, time and availability of alternatives (A).
B. are not sensitive to price change
C. will stop buying when prices increases 2003/9 UTME
D. react less proportionate to price changes For an inferior good, a decrease in real income with lead to
E. react equally to price changes A. an outward shift of the demand curve
Answer B. an inward shift of the demand
React more proportionately to price change (A). C. a low equilibrium price D. a change in quantity
demanded
1983/48 UTME Exercise 5.32 Answer
Demand for a factor of production is An outward shift of the demand curve (A).
A. a composite demand B. a joint demand
C. a derived demand D. an elasticity of demand 2016/11
E. cross elasticity of demand The demand curve for a normal good is negatively sloped
because
1986/15 UTME A. price is an incentive to producers
Given that beef and fish are substitutes, a rise in the price B. price is an incentive to consumers
of beef relative to that of fish will C. demand always exceeds supply
A. induce greater demand for beef D. price and quantity move in the same direction
B. induce her demand for fish Answer
C. induce lower demand for fish Price is an incentive to consumers (B)
D. adequate demands for beef and fish
Answer:Induce greater demand for fish (B). 2018/20 UTME
The type of demand that exists between torchlight and
1987/23 UTME battery is
If a good is an inferior good, then A. competitive demand B. complementary demand
A. its also necessarily a giffen good C. composite demand D. independent demand
B. the quantity of the goods demanded varies inversely Answer
with its price Complementary demand (B)
C. its income elasticity of demand is negative
D. the poor buy the goods only out of habit
Answer: It is also necessarily a giffen goods (A).

2013/5 (OAU, IFE)

If the cross elasticity of demand between X and Y is zero, then
A. X and Y are substitutes B. X and Y are complements
C. X and Y are dependent on each other
D. X and Y are independent of each other
Answer: X and Y are independent of each other (D)

112
2019/25 UTME 2018/2019/49 (NDU, BAYELSA) Exercise 5.33
Which of the following factor is an important determinant
of the magnitude of price elasticity of demand?
A. the production period B. cost of storage
C. durability of the product
D. availability of factors of production
E. perfect elasticity

Hint: Demand can decrease and cause a shift to the left of

the demand curve for a number of reasons, including a fall
in income, assuming a good is a normal good, a fall in the
price of a substitute and a rise in the price of a
complement. Conversely, increase in demand are shown
If the curve above shows the relationship between the
by a shift to the right in the demand curve. This could be
prices of commodity X and the quantity demanded of
caused by a number of factors, including a rise in income,
commodity Y, then X and Y are
a rise in the price of substitute or a fall in the price of
A. complementary goods B. substitutes
complement.
C. inferior goods D. luxury goods
Answer: Substitutes (B)
2011/2012/14 (NDU, BAYELSA)
For two substitute goods, the cross elasticity of demand is
2007/2008/70 (UNIZIK, AWKA)
A. greater than one but less than two B. zero
Demand in economics is synonymous with
C. negative D. positive
A. needs B. wants of the consumers
Answer
C. all goods demanded in the market
Positive (D)
D. want supported with ability to pay
E. all consumer goods
2008/17 (OAU, IFE)
Answer: Want supported with ability to pay (D)
Which of these factors does not cause a change in
demand?
2007/2008/79 (UNIZIK, AWKA)
A. income B. population C. price of other
Income elasticity responsiveness of
commodities
A. prices to changes income
D. price of the commodity itself
B. quantity demanded to changes income
Answer
C. changes in expenditure to changes in income
Price of the commodity (D)
D. changes in expenditure to changes in price of the
commodity
2007/5 (OAU, IFE) Exercise 5.34
Answer Quantity demanded to changes in income (B)
The demand curve for the pure monopolist is
A. perfectly price elastic B. perfectly price inelastic
2018/2019/44 (UNIZIK, AWKA)
C. downsloping D. unsloping
For two substitute goods, the cross elasticity of demand is
A. greater than one but less than two B. zero
C. negative D. positive
Answer Positive (D)

2007/2008/79 (UNIZIK, AWKA)

Income elasticity responsiveness of
A. prices to changes income
B. quantity demanded to changes income
C. changes in expenditure to changes in income
D. changes in expenditure to changes in price of the
commodity
Answer Quantity demanded to changes in income (B)

2018/2019/44 (UNIZIK, AWKA)

For two substitute goods, the cross elasticity of demand is
A. greater than one but less than two B. zero
C. negative D. positive
Answer
Positive (D)
113
 INDIVIDUAL SUPPLY SCHEDULE
This is a table which shows the various quantities of a
SUPPLY commodity which a seller of that commodity is willing to sell
Supply is defined as the quantity of a goods or services which a at different prices, at a particular period of time.
producer is willing and able to offer for sale at a particular
period of time and at a particular price. Chief Tony Supply Schedule for Bars of Soap
It is different from the total stock of that commodity in Price per soap (₦) Quantity supplied per
existence or the total output of that commodity produced. It is month
only that part of the total production actually offered for sale at 55 35
the ruling market price which constitutes the supply of that 50 28
commodity. For example if a cassava farmer produces 3000 45 21
cassava tubers but actually offered 2000 for sale at N350 each, 40 14
the supply of cassava by this farmer is 2000. 35 7

2020/13 MARKET SUPPLY SCHEDULE

The supply of a commodity refers to the This is a table which shows the total quantities of a
A. quantity of a product supplied at a particular price commodity which all the sellers of that commodity are
B. quantity of a product bought at a particular price willing to sell at various prices, at a particular period of time.
C. amount of a commodity that is supplied It is a combination of the individual supply schedules of all
D. amount of a commodity that is produced the sellers of a particular commodity.
Answer
Quantity of a product supplied at a particular price (A) Price Quantity supplied per month (N) Total
per bar Chief Mrs. Mr. Uche quantity
of soap Tony Aura supplied
2017/11 (₦)
Effective supply is the total amount of a commodity 55 35 36 38 109
A. from a single producer B. in the warehouses of
50 28 32 33 93
producers C. offered for sale at a market price
45 21 28 28 77
D. produced for the market
40 14 24 23 61
Answer Offered for sale at a market price (C)
35 7 20 18 45
LAW OF SUPPLY
Price is a function of cost of production. The suppliers are
highly profit oriented, especially in a free market SUPPLY CURVE
economy, hence, the basic law is that; for many A supply curve is one that shows how much of a goods will
be supplied per unit of time at any given price, assuming that
commodities
other factors affecting supply remain unchanged. The supply
“The higher the price of a commodity, the higher the
curve shows the way in which prices and quantity supplied
quantity supplied and the lower the prices, the lower the are related.
quantity supplied”. This is the normal law of supply.

The basic fact from this law of supply is that quantity A supply curve slopes upwards from left hand side to the
supplied is directly related to prices. right hand side. It is represented in a graph on which price is
In the case of abnormal supply law, the relationship is measured along the Y-axis and quantity supplied, along the X
inverse or indirect – axis. We can distinguish between the supply curve of an
Abnormal supply law states that: The lower the price of a individual and that of the general market. The individual
commodity, the higher the quantity supplied, or the higher supply curve is a graphical representation of the individual
the price of a commodity, the lower the quantity supplied. supply schedule. The market supply curve is the graphical
Abnormal supply is usually caused by either favourably or representation of the market supply schedule. It is obtained
unfavourably supply shock which may increase supply at a by adding together the amount that each individual supplier
reduced cost of production. will offer for sale at each price. The supply curve may be
normal or abnormal.
SUPPLY SCHEDULE
Supply schedule is a table that shows the various quantities
of goods supplied and the prices at which it is offered for
sale. A supply schedule may either be a schedule for single
producers which are referred to as an individual supply
schedule or to a group of producers which is referred to as
a market supply schedule.

114
NORMAL SUPPLY CURVE It refers to the categories of supply that do not follow the
A normal supply curve is one which slopes upwards, from law of supply that states the higher the price, the higher the
left to right, showing that the quantity supplied increases quantity supplied and lower the price, the lower the
as the price increases. quantity supplied. That is, a negative situation in which a
fall in price of the commodity leads to an expansion of its
(a) supply.

Chief Tony supply curve Regressive (backward sloping supply curve)

(b)
Abnormal supply curves occur because of the following:
Fixed Supply (Vertical Supply Curve)
In the case of fixed supply, the same quantity is supplied
irrespective of an increase in the price making the supply
curve parallel to the price axis. The following
circumstances may make the supply curve fixed:
(i) Short-run supply of agricultural products: In the
short run, it is not easy to increase the supply of most
agricultural products, no matter the price. For instance,
there is a fairly long interval between the planting and
harvesting of crops such as cocoa. So, if the price of
Market Supply Curve cocoa per ton rises, there is not much the producer of
cocoa can do to increase the supply of cocoa at
2010/8 present. The quantity already produced is fixed. For
The slope of a supply curve is him to produce more, he has to plant more cocoa
A. horizontal B. uniform C. positive D. vertical seedlings. It will take quite a number of years for them
Answer to grow to maturity.
Positive (C) (ii) Long-run supply of land: Though it may be possible
Hint: The slope of a normal supply curve is upward from to increase the supply of some types of land in the
bottom left to top right, graphically this represent a short run, (through land reclamation, irrigation,
positive slope. fertility improvement through the application of plant
nutrients), in the long run, the supply of land is fixed.
2003/18 UTME Land as an input is relatively fixed in quantity.
A normal supply curve is usually positively shaped
because the relationship between
A. demand and prices is positive
B. supply and price is negative
C. price and demand is negative
D. price and supply is positive
Answer
Price and supply is positive (D)

ABNORMAL (EXCEPTIONAL) SUPPLY CURVE

The abnormal or exceptional supply curve, also called
regressive or backward sloping supply curve, is one that
slopes downward from right to left. It disobeys the law of
supply.
Fixed Supply in a Situation of Increased Demand

115
Constant Cost Supply (Horizontal Supply Curve)
The constant cost supply is the case in a situation in which
the production cost does not vary with the output. In other
words, the constant cost supply is the case when the cost
per unit of a product does not change as output increases.
For instance, in a perfectly competitive market, the prices
of goods are fixed and they cannot be changed by the
actions of sellers and buyers. Secondly, prices of securities
(shares and stocks) tend to remain the same irrespective of
changes in quantity supplied. Thirdly, government also
fixes prices for certain selected goods through price
control. These fixed prices remain the same irrespective of
changes in supply. Therefore, their supply curve is
horizontal to the base. Consider the curve below
Backward Sloping Supply

Monopolistic Practices: The sole supplier of a product to

a market may hold back supplies even when prices are
rising, to push prices still higher up+.

2019/12
Supply of agricultural products is likely to be elastic in the
A. intermediate period B. long run C. market period
D. short run
Answer
Long run (B)
Hint: The elasticity of supply measures how changes in
the prices would affect supply. The supply of
Constant Cost Supply
agricultural products is most likely to be elastic in
the long run, (a period of time where all factors of
Constant cost supply – securities and price control (rent,
production and cost are variable). This means that in
wage rate and other essential items, e.g. petrol, whose
the long run, the cost of farm inputs and factors of
prices are fixed by the government).
production used in farming would be subject to
change, and farmers cannot as a matter of fact place
Backward Sloping Supply
a fixed cost on their estimated expenses.
The backward sloping supply has more than a slope. It is
used to describe a condition in which a higher price will
only end up in lower quantity being supplied. A very good
example of this is the supply of labour. When the wage of
TYPES OF SUPPLY
labour is increased, the contribution of labour might be (1) Joint supply
There is joint supply for commodities which are inevitably
increased at the outset but there comes a point when
further addition to the contribution of labour cannot be produced together from the same source. It occurs when
effected even in spite of increase in wage. The problem is two goods are produced together and at the same time. In
that labour may now begin to see a rationale or the need to the process of producing one commodity, the other
reduce the working hours and increase the leisure period commodities are automatically produced; example, cotton
and cotton seed, palm oil and palm kernel, hides and beef,
since greater wage is now being obtained and moreso,
petroleum products, petrol and kerosene, diesel, etc. An
since the worker is now richer, the worker feels greater
income could still be made even with reduction in the increased supply of one of the commodities which are
number of hours to spend in working. The backward jointly supplied will lead to an increase in the supply of
sloping could still be made even with reduction in the others, and a decreased supply of one will have reverse
effect. If the supply of cotton increases, their supply will in
number of hours to spend in working. The backward
sloping supply can be illustrated as depicted in the curve turn lead to an increase in the supply of cotton seed.
below.

116
When one products is a by – product of another, the 2020/5 PCI
increase in the supply of one of them will imply increase If light can be supplied from electricity or gas, then light
of the other. has a
A. joint supply B. composite supply C. normal supply
D. fixed supply
Answer: Composite supply (B)

2004/43 UTME
If an increase in the price of good X leads to an increase in
the supply of goods Y, X and Y are said to be
A. jointly supplied B. competitive C. composite
D. jointly demanded
Answer
Competitive (B)
Joint Supply
(2) Competitive supply 2018/12 NABTEB
Goods are said to have competitive supply if they are The production of two or more commodities through a
substitutes of one another. A commodity which has single process is called
alternative uses has a competitive supply. An increase in A. composite supply B. competitive supply
the supply of the commodity to one of its uses will reduce C. joint supply D. complementary supply
its supply to other uses. For example, land can be used for Answer
several purposes, for agriculture, for building recreational Joint supply (C)
centres, etc. An increase in the supply of land for building
purposes will reduce the amount of land devoted to 2002/18 Nov Exercise 6.1
agriculture. Another example is groundnut oil which can The supply of beef and hides can be described as
be used for cooking, making soap, making margarine etc. A. supplementary B. joint C. composite
An increase in its supply for the purpose of cooking will D. competitive
reduce its supply for manufacturing purposes.
2013/17 UTME Exercise 6.2
The supply of beverages by firms in a monopolistic market
is an example of
A. derived demand B. competitive demand
C. composite supply D. joint demand

FACTORS DETERMINING SUPPLY

1. Changes in the prices of inputs
The changes in the prices of other inputs or factors of
production affect the supply of any particular product.
The higher the price, the higher the quantity supplied and
Competitive supply
the lower the price, the lower the quantity supplied.
(3) Composite supply 2. Prices of other commodities: A change in the price
Composite supply exists in the case of a goods or service of one goods may affect the quantity supplied of its
that can fulfill two or more wants. The aggregate or total substitute.
supply of all commodities which satisfy the same want is
said to be composite. For example, the need for light could 3. Climatic weather condition: This factors is most
be met by using electricity, candles, lanterns; etc. the strongly associated with agricultural products.
overall supply of all these commodities for the purpose of Agricultural harvest implies a rightward shift of the
supplying light constitutes composite supply. The supply curve, while a poor harvest of the crop
composite supply of beverages is made up of the supply of concerned implies a leftward shift of the supply
tea, coffee, bournvita, ovaltine, milo, etc. curve.
2022/13 NABTEB (Adjusted) 4. Outbreak of disease, other natural occurrences as
The supply of a group of commodities that can serve the well as unexpected events: Epidermic, floods and
same purpose is referred to as earthquakes are unfriendly to farming and economic
A. joint supply B. competitive supply production generally. Whenever these occur they
C. composite supply D. complementary supply affect the supply of these products in such areas or
Answer regions.
Composite supply (C)
117
5. Technological change or advancement: Advances in As shown above, when price of the product moves
technology usually mean that a far larger number of upwards from 𝑃1 to 𝑃2 , the quantity supplied increases
units can be produced at markedly reduced unit cost. from 𝑄1 to𝑄2 .
The extra production must be released to the market by
the producer, thus boosting the supply of the goods or NB: Increase in quantity supplied is always
service concerned. represented by an upward movement from one price–
6. Future price expectation: When suppliers believe that quantity combination to another along an unchanging
the price of their goods or services is going to rise in the supply curve.
future, they often wait to sell their product, thereby
reducing the current supply of the product, thus shifting
2. Decrease in the quantity supplied: The quantity
the supply curve to the left. On the other hand, if they
believe that the price is going to fall in the future, they
supplied decreases as a result of a decrease in the
try to sell more presently, increasing the current supply, price of the commodity.
thus shifting the supply curve to the right.
7. Changes in taxation and subsidies: High taxes paid by People refer to decrease in quantity supplied as a
producer discourage supply in that the imposition of contraction of supply.
more taxes adds an extra cost to producers. To cover
this cost they have to raise prices and thus may not
necessarily be a wise business decision.
8. Changes in the number of producers in a market:
Markets with a larger number of sellers are more
competitive, all the competitors push their products into
the market continually. There is therefore a greater
supply of the products to be sold than what exists in
markets with fewer producers, this shifts the supply curve
to the right.
9. Government policies: Favourable government policies
help to increase supply of products.

CHANGES IN THE QUANTITY SUPPLIED AND Decrease in quantity supplied

CHANGES IN SUPPLY
A. Changes in the quantity supplied (movement along As shown above, when price of the product falls from
a supply curve) 𝑃1 to 𝑃2 , the quantity supplied also decreases from 𝑄1
With changes in the quantity supplied, the supply curve
to 𝑄2 .
does not shift. The movement is along a particular
supply curve. It is determined by the price of the
commodity. More of the commodity is supplied at
NB: Decrease in quantity supplied is always
higher prices than that at lower prices. It is of two types. represented by an downward movement from one
price–quantity combination to another along an
1. Increase in the quantity supplied unchanging supply curve.
With an increase in quantity supplied, the quantity
offered for sale increases as a result of an increase in the
price of the commodity. 2017/13
People refer to increase in quantity supplied as an Increase in the supply of a product can be caused by
expansion or extension of supply A. changes in tastes and fashion of consumers
B. increase incomes of consumers
C. a fall in the cost of production
D. increase in the price of a product
Answer Increase in the price of a product (D)

B. Change in supply (shifts of the supply curve)

With changes in supply, the supply curve shifts to an
entirely new position, indicating that at each of the
old prices, more or less of the commodity will be
supplied.

Increase in quantity supplied

118
A change in supply is of two types. 2017/10
1. Increase in supply: With an increase in supply, A rightward shift in the supply curve of a commodity is
the supply curve shifts to the right indicating that brought about by an increase
at each of the former prices, more of the A. the level of technology B. the price of the commodity
commodity will be supplied. C. cost of production D. taxation
Answer: The level of technology (A)
Hint: Supply curve shift is brought about by changes in
production cost and related factors can cause an entire
supply curve to shift right or left. This causes a higher
or lower quantity to be supplied at a given price. The
ceteris paribus assumption (with other things the same).
A change in supply (rightward shift) can occur as a
result of increased level of technology, such as one
leading to more efficient or less expensive production
processes.
A change in the cost of an input (cost of production)
will impact the cost of producing a good and will result
in a shift in supply; supply will shift outward
Increase in supply (rightward shift), if costs decreases and will shift
The supply curve shifted from SoSo to S1S1 and the quantity inward (backward shift) if the cost of inputs increases.
supplied increased from Qo to Q1 at the old price of P.
ELASTICITY OF SUPPLY
2. Decrease in supply: With a decrease in supply, the Elasticity of supply measures the degree of responsiveness
supply curve shifts to the left, showing that at each of the quantity of a commodity offered for sale to a little
of the old prices, less of the commodity will be change in the price of the commodity or to a change in the
supplied. It is brought about by an unfavourable cost of production. Hence, we have
change in the factors affecting supply other than (i) Price elasticity of supply: Price elasticity of supply
the price of the commodity. For example, if there measures the extent to which the quantity supplied
is increased taxation, there will be a reduction in changes as a result of a little change in the price of the
supply. commodity.
(ii) Cost elasticity of supply: Cost elasticity of supply
measures the degree of change in quantity supplied
due to a little change in the cost of production.

TYPES OF ELASTICITY OF SUPPLY

1. Elastic supply: Supply is elastic if a little change in
the price of the commodity or cost of production,
brings about a more than proportional change in the
quantity supplied. For example, a 2% increase in
price brings about a more than 2% increase in the
quantity offered for sale, or a 2% decrease in price
Decrease in supply brings about a more than 2% decrease in the quantity
The supply curve shifted from S1S1 to S2S2 and the supplied.
quantity supplied decreased from Q1 to Q2 at the old
price of P.

1992/29
A change in supply implies a
A. shift in the supply curve to the right and not to the left
B. shift in the supply curve to the left and not to the right
C. shift in the supply curve to the left or to the right
D. movement along the supply curve
E. decrease in price and quantity supplied
Answer: Shift in the supply curve to the left or the right (C)
` Elastic supply
NB: The numerical value of price elasticity of supply
in this case is greater than 1 but less than infinity.

119
2. Inelastic supply: Supply is inelastic if a little change 4. Perfectly elastic supply or infinitely elastic supply:
in the price or the cost of production brings about a In this case, the supply curve is parallel to the
less proportional change in the quantity of the quantity or x – axis. A little increase in the price of
commodity supplied. Supply is inelastic if any the commodity would result in the supply of all the
percentage change in the price of the product brings stock of that commodity available. On the other hand,
out a smaller percentage change in the quantity a little decrease in the price of the commodity would
supplied. For example, a 2% increase in price brings make the producers or sellers not to offer any of the
about a less than 2% increase in the quantity supplied commodities for sale. The quantity of a commodity
or a 2% decrease in price leads to a less than 2% which can be supplied at a price ranges from zero to
decrease in the quantity supplied. infinity.

Perfectly elastic supply

Inelastic supply
5. Perfectly inelastic supply or zero elasticity of supply:
In this case, the supply curve is perpendicular to the
quantity or x – axis. This indicates that changes in
price do not bring about any change in the quantity
3. Unitary elastic supply: Elasticity of supply is unitary supplied. The quantity supplied remain the same
or unity if a change in price or cost of production irrespective of price changes.
brings about a proportional change in the quantity of
the commodity sold. For example, a 2% increase in
price leads to an exactly 2% increase in the quantity
supplied. Elasticity of supply is equal to 1.

Perfectly inelastic supply

1992/6 Nov
Goods, the supply of which does not increase as price
Unitary elastic supply changes have
A. a perfectly elasticity of supply
B. an infinite price elasticity demand
C. a zero price elasticity of supply
D. a unitary price elasticity of supply
E. a perfect price elasticity of supply
Answer
A zero price elasticity of supply (C)

120
2014/2015/46 (UNIZIK, AWKA) Example
An increase in supply will lower price except If the price of sugar increased from ₦10.00 per packet to
A. supply is perfectly inelastic ₦15.00 and the quantity sold increased from 200 to 250
B. demand is perfectly inelastic packets per week. Determine the elasticity of supply.
C. it is followed by increase in demand Solution
D. demand is highly inelastic Percentage change in quantity supplied
𝐸𝑠 =
E. A and C Percentage change in price
Answer: Supply is perfectly inelastic (A)
Changes in quantity supplied = 250 – 200 = 50 packets
2014/8 (OAU, IFE) Exercise 6.3 50 100
Percentage change in quantity = × = 25%
Perfect price elastic supply means 200 1
Changes in price = ₦15.00 - ₦10.00 = ₦5.00
A. no change in supply as price changes ₦5.00 100
B. any change in price completely stops supply Percentage change in price = ₦10.00 × 1 = 50%
C. changes in price double supply 25%
∴Es = 50% = 0.5 (inelastic)
D. a change in price leads to proportionate changes in
supply Example
The price of a commodity changes from ₦10 to ₦16 and
the quantity supplied increases from 60 to 78. What is the
COEFFICIENT OF PRICE ELASTICITY OF SUPPLY
price elasticity of supply?
The elasticity of supply can be determined by calculating
the co-efficient of the elasticity of supply. It is found from Solution
Percentage change in quantity supplied
the formula 𝐸𝑠 = Percentage change in price
Percentage change in quantity supplied
𝐸𝑠 = Percentage change in price
Original quantity supplied = 60
Or Later quantity supplied = 78
Percentage change in quantity supplied
Change in Quantity Supplied Change in price (78−60)
𝐸𝑠 = Original Quantity
÷ = 60 × 100
Original price
18
Or = 60 × 100 = 30%
∆Q ∆P
𝐸𝑠 = ÷ Original price = ₦16
Q P
The same results are obtained in each case Later price = ₦10
Negative signs are ignored. Percentage change in price
(16−10)
Where = × 100
10
∆Q= change in quantity supplied 6
Q= original quantity supplied = 10
× 100 = 60%
30
∆P= change in price Therefore, Es = = 0.5 (inelastic)
60
P = original price
It is important to note the following coefficient from Example
elasticity of supply If the price of beer increased from ₦80 per bottle to ₦100
(i) When elasticity of supply is larger than 1, the supply and the seller increased the quantity offered for sale from
is elastic for the product concerned. 400 bottles to 500 bottles, what type of elasticity of supply
(ii) When elasticity of supply is less than 1, the supply is has beer?
inelastic for the product concerned. Solution
(iii) When elasticity of supply equal 1, the supply is Percentage change in quantity supplied
unitary. 𝐸𝑠 = Percentage change in price

2016/17 UTME Initial quantity supplied = 400 bottles

The co-efficient of price elasticity of supply is New quantity supplied = 500 bottles
A.
% change in supply
B.
% change in quantity supplied Change in quantity supplied = 500 – 400 = 100 bottles
% change in price % change in price 100 100
% change in quantity supplied = × = 25%
400 1
C.
% change in quantity supplied Initial price = ₦80
% change in income New Price = ₦100
% change in quantity demanded Change in price = ₦100 - ₦80 = ₦20
D. 20 100
% change in income % change in the price = × = 25%
80 1
25%
Answer 𝐸𝑠 = 25% = 1
% change in quantity supplied
% change in price
(B) The coefficient of price elasticity of supply of beer is
unitary.

121
 Example (3) The level of employment in the labour force: When
The following figures are extracted from a schedule of there is full employment of the labour force, the
demand and supply. workers are already producing as much as they can.
Price (₦) Quantity Quantity Therefore it will be difficult to make them to raise
demanded supplied production significantly in the short run. Supply of
(units) (units) the goods or service will therefore be inelastic as far
27 3,150 2,550 as the industry is concerned.
30 3,000 3,000 (4) Ease of substitution/specificity of factors: The ease
33 2,850 3,450 with which a producer can diversify production or
change from producing one commodity to another
(a) Calculate the elasticity of supply when price falls from determines the elasticity of supply. If it is possible to
₦30 to ₦27? change quickly from producing one commodity to
(b) State whether the supply in (a) above is elastic or inelastic. another, supply will tend to be elastic. If it is not easy
(c) Calculate the elasticity of supply when price rises from
to switch productive resources (land, labour, capital)
₦30 to ₦33.
to other uses, supply would tend to be inelastic.
(d) State whether the supply in (c) above is elastic or inelastic.
Solution
(5) The cost structure of firms already in the industry
Change in Quantity Supplied Change in price (or the cost of acquiring more inputs): In order to
(a) 𝐸𝑠 = ÷ increase the scale of production, more inputs will be
Original Quantity Original price
required. If it is relatively cheap for the existing firms
Change in quantity supplied = 3000 – 2550 = 450 in the industry to obtain more inputs, supply will tend
Change in price (₦) = 30 – 27 = 3 to be inelastic.
450 3 450 3
𝐸𝑠 = ÷ = × = 1.5 (6) Ease of entry or exit of firms: If it is easy for new
3000 30 3000 30
(b) The supply in (a) above is elastic as the coefficient is firms to enter the industry either because of
greater than 1. unrestricted entry or the low cost of entry, supply will
(c) tend to be elastic if the price of a commodity is
Change in Quantity Supplied Change in price increasing, new firms can easily start producing it,
𝐸𝑠 = ÷
Original Quantity Original price resulting in an increase in supply.
(7) Ability of individual firms in the industry to adjust
Change in quantity supplied = 3450 – 3000 = 450 supply to meet demand: If there is collusion
Change in price (₦) = 33 – 30 = 3 between the firms, there will be more inelastic supply
450 3 450 3 45 30
since response to price changes will be less on the
𝐸𝑠 = 3000 ÷ 30 = 3000 × 30 = 300 × 3
= 1.5 other hand, a higher level of competition between the
(d) The supply in (c) above is elastic firms will lead to a more elastic supply.
(8) Market differentiation (market discrimination or
Exercise 6.4 segmentation or the structure of the market: The
A farmer producing rice increased the quantity offered for extent to which it is possible for a seller to create
sale from 150,000kg to 180,00kg when the price of rice per different market for his commodity will determine the
kg increased from ₦100 to ₦120 per kg. What is the elasticity of supply for that commodity in different
elasticity of supply for rice? markets. If a seller sells his commodity in different
markets, the supply of the commodity will tend to be
FACTORS DETERMINING ELASTICITY OF SUPPLY elastic in the different markets. But if there is only
(1) The time factor: The supply of commodities tends to one market for the commodity, supply will tend to be
be more inelastic in the short run than in the long run. inelastic because the seller will continue to sell in that
Supply tends to be more elastic in the long run in market, irrespective of whether price is falling or
response to price changes, supply can be increased by rising.
employing more factors of production, when new firm (9) Durability or perishability of the products: Goods
enters the industry, there will be increase in total output
are durable if they can be stored for a relatively long
of the commodity over a long period of time.
time without getting spoilt. The supply of durable
(2) The nature of the production in relation to the time
required to produce it: The length of time required to
commodities tends to be elastic. If the price of
produce a particular commodity affects the elasticity of commodities falls, much of it can be stored and the
supply. The longer the time required, the more inelastic the supply to the market reduced. But if the price
supply, especially in the short run. For example increased, a large quantity will be brought to the
agricultural products have an inelastic supply in the short market for sale.
run, but in the long run, the can increase supply.
Manufactured products tend to have a more elastic supply
than agricultural products because they take a relatively
shorter time to produce.

122
IMPORTANCE OF ELASTICITY OF SUPPLY TO 2023/10
THE CONSUMER The supply of light could be met using a candle, lantern and
It assists the consumer in maximizing their welfare by gas lamp. This is an example of a
taking rational economic decisions as to which A. complementary supply B. joint supply
commodities they should increase their demand. C. composite supply D. abnormal supply
Answer
The supply of light could be met using a candle, lantern and
IMPORTANCE OF ELASTICITY OF SUPPLY TO gas lamp. This is an example of a complementary supply
THE PRODUCERS (A)
It enables them act rationally in the effort to maximize
2023/11
their revenue.
Petrol and kerosene are jointly obtained from crude oil. If the
supply of petrol increases, the
A. supply of kerosene will fall
IMPORTANCE OF ELASTICITY OF SUPPLY TO B. cost of crude oil production
THE GOVERNMENT OF A COUNTRY C. supply of kerosene will rise
In relation to taxation, subsidies and other policies relating D. supply of kerosene will remain unchanged
to production. Answer
Petrol and kerosene are jointly obtained from crude oil. If the
supply of petrol increases, the supply of kerosene will fall (A)
SUPPLY FUNCTION
Supply function is an expression of the relationship 2023/12
existing between supply and the factors that determines it. If the government stops subsidy on cocoa production, the
supply curve of cocoa will
The factors that stand as function of supply may include A. shift to the right B. become vertical
the cost of production, the prices of competing goods, the C. shift to the left D. remain unchanged
expenditure and advertisement, the sizes and structure or Answer
composition of the population, the policy of the If the government stops subsidy on cocoa production, the
government regarding certain issues such as taxation or tax supply curve of cocoa will shift to the left (C)
rates and others.
2021/9
An increase in market supply is caused by the following
The supply function may be as follows factors except
QSx = F(P1, P2, C, A, T) A. an improvement in innovation and technology
Where B. an increase in the price of the commodity
QSx = quantity supplied of commodity X C. a reduction in the cost of raw materials
F = function of D. a favorable weather conditions
P1 = price of commodity X Answer
P2 = price of other commodity a favourable weather condition (D)
A = Expenditure of other commodity
T = Government policy on the upward or downward 2021/10
review of taxation. The coefficient of price elasticity of supply of land is usually
A. one B. greater than one C. zero D. less than one
Answer
Example Less than one (D)
Given the Supply function of product X as Qs= 10+2P Hint: The supply of land is inelastic, which means is less
Determine the units supplied at the following market responsive to the changes in its price. This is because of its
prices limited availability. Thus, even when the price of land
i. ₦10 ii.₦12 iii ₦18 iv ₦20 increases, its supply cannot be increased.
Solution: 2021/11
Qs= 10+2P The price of soap rose from $10 to $20, causing a trader to
Given the supply function above, substitute for price (p) to increase her supply from 50 to 120 boxes per week. This
obtain the unit(s) supplied at each price levels. makes supply
i. Qs = 10+2(10) = 30 units A. unitary elastic B. perfectly inelastic
ii. Qs = 10+2(12) = 34- units C. fairly elastic D. inelastic
iii. Qs = 10+2(18) = 46 units Answer
iv. Qs = 10+2(20) = 50 units Fairly elastic (C)
Hint: Supply is fairly elastic if a little change in the price of
the commodity or cost of production, brings about a more
than proportional change in the quantity supplied.
123
2021/13 Exercise 6.5 1991/30
Market supply may increase if there is an increase in the
A. price of the product
B. prices of factors of production
C. tax paid on raw materials
D. subsidies on raw materials

2021/14
Government can increase farmers’ incomes by
A. fixing maximum price
B. fixing minimum prices
C. encouraging them to produce surplus output
D. increasing taxes on inputs
Answer: Fixing minimum prices (B) The diagram above shows that
A. supply is infinitely elastic
Hint: A minimum price is when the government do not B. the higher the price, the greater the quantity supplied
allow prices to go below a certain level. If minimum prices C. the higher the price, the lower the quantity supplied
are set above the equilibrium it will cause an increase in D. supply has a unitary elasticity
E. demand is completely inelastic
prices, hence to have any effect on the market, it must be
Answer
set above the equilibrium.
Supply is infinitely inelastic (A)
Minimum prices have been used to increase prices above
the equilibrium. This enables farmers to get a higher 2020/16
revenue. A supply curve shows that price and quantity supplied have
A. negative relationship B. positive relationship
2021/16 C. normal relationship D. abnormal relationship
The supply of mangoes is represented as P = 0.3Q, where Answer
P is the price ($) and Q is the quantity. What is P when Q Positive relationship (B)
is 50?
A. $1.50 B. $15.00 C. $150.03 D. $166.67 2020/17
Answer The supply of orange is represented as p = 0.3Q, where p is
P = 0.3Q the price and Q is the quantity. What is P when Q is 50?
When Q = 50, P = ? A. $1.50 B. $15.00 C. $50.03 D. $75.30
Substituting P = 0.3(50) Answer
P = 0.3Q
P = $15.00 (B)
P = 0.3(50)
2017/12 P = $15.00 (B)
Price elasticity of supply can be influenced by the
following factors except 2014/57 Neco
A. time period B. cost of production
C. size of consumer income D. nature of the product
Answer
Nature of the product (D)

2009/13
If a fall in price of one commodity leads to an increase in
the supply of another commodity, both commodities have
A. composite supply B. joint supply C. competitive
supply D. short run supply
Answer
Competitive supply (C)

2009/14
At a coefficient of price elasticity of supply of 0.5, supply The diagram above represents
is A. a decrease in supply B. a decrease in the quantity
supplied C. an equilibrium position D. an increase in
A. perfectly inelastic B. inelastic C. perfectly elastic
supply E. increase in the quantity supplied
D. elastic
Answer
Answer A decrease in supply (A)
Inelastic (B)
124
2009/45 Neco 2006/1 Nov
Price elasticity of supply measures the responsiveness of A farmer supplied different quantities of cocoa at various
quantity supplied to prices as shown below. Use the information in this table to
A. a change in the demand for the product answer the questions that follows.
B. a change in the price of the commodity Quantity supplied (in 100 150 250 300 350
C. change in consumers income units)
D. change in prices of other commodities Price (in dollars) 50 100 120 150 200
E change in suppliers income (a) Draw a graph to show the relationship between price
Answer and quantity supplied (use of graph sheet is essential).
A change in the price of commodities (B) (b) From the graph, determine the quantity of cocoa that
will be supplied at the following prices.
(i) 75 dollars
(ii) 175 dollars
2008/33 Neco (iii) 200 dollars
If the original price and quantity supplied of a good is N8 (c) State the law of supply
and 100kg respectively while the new price and quantity is
₦5 and 150kg respectively, calculate the price elasticity of Answer
supply. (a)

Answer
Price Qty
N8 100kg
N5 150kg

% ∆ in quantity supplied
𝐸𝑠 = % ∆ in price

∆ in ss 100
% ∆ in quantity supplied= old ss
× 1

150−100 100
% ∆ in quantity supplied= 100
× 1

150 100
= × = 50%
100 1

∆ in price 100
% ∆ in price = old price
× 1

8−5 100
% ∆ in price = 8
× 1

3 100 75 (b) (i) 140 units (ii) 300 units (iii) 350 units
= 8
× 1
= 2
37.5%
(c) The law of supply states that the higher the price of a
50% commodity, the higher the quantity supplied, and the
𝑇ℎ𝑢𝑠 𝐸𝑠 = 37.5% = 1.33 ( C ) lower the price, the lower the quantity supplied.
1995/6 Exercise 6.7
2010/4 Exercise 6.6 Supply is best defined as the
(a) Define increase in supply. A. quantity of goods a producer is willing to sell B. part
(b) With the aid of diagrams, explain the effect of an of total product brought to the market for sale
increase in the supply of fish on the price of beef. C. part of total product retained by producers
D. quantity offered for sale over a period of time
E. quantity offered for sale at a given price over a period of time
2019/11
Which of the following factors is not a condition for a
change in the supply of a commodity?
A. improved technology B. cost of production
C. the price of the commodity
D. government tax policies
Answer The price of the commodity (C)

125
2019/13 2018/40 Neco
Two commodities X and Y are in joint supply when Use the figure below to answer question 40
A. X is a by – product of Y
B. X and Y are produced by the same firm
C. increase in quantity of X leads to decrease in Y
D. X and Y cannot be produced in the same process
Answer
X and Y are produced by the same firm (B)

1992/11
The market price of a commodity is determined by the
A. total number of people in the market
B. total demand for the commodity
C. quantity of the commodity supplied
D. interaction of demand and supply E. law of demand The figure above represents a ____ supply curve
Answer A. fairly elastic B. fairly inelastic C. negative
Interaction of demand and supply (D) D. perfectly elastic E. perfectly inelastic
Answer
1992/12 Perfectly inelastic (E)

2005/23 UTME
An increase in the quantity supplied of a commodity
suggests
A. a leftward shift of the supply curve
B. a rightward shift of the supply curve
C. a movement along the supply curve
D. an increase in elasticity of supply
Answer
A rightward shift of the supply curve (B)
In the above diagram, SoSo is the original supply curve 2006/50 UTME
while S1S1 is the new curve. Which of the following does Given that demand and price remain unchanged, an
S1S1 represents outward shift of the supply curve will lead to
A. a movement along a given supply curve A. hoarding B. excess demand C. a black market
B. an increase in supply C. a decrease in supply D. excess supply
D. a perfectly elastic supply Answer
E. a perfectly inelastic supply Excess supply (D)
Answer
A decrease in supply (C)
2007/32 UTME Exercise 6.8
1993/2 Nov The coefficient of the price elasticity of supply is always
If the coefficient of elasticity of supply is 0.5, then, the A. negative B. positive C. zero D. constant
supply is
A. perfectly inelastic B. inelastic C. infinitely elastic
D. perfectly elastic E. elastic
Answer 2007/34 UTME
Inelastic (B) If P = ½(Qs + 15), what is the quantity supplied at N9:00?
A. 33.0 B. 12.0 C. 3.0 D. 1.5
2019/38 Neco Answer
1
When a small change in price brings about a bigger change P = (Qs + 15)
2
in the quantity supplied the supply is said to be 1
A. fairly elastic B. fairly inelastic C. perfectly elastic 9= (Qs + 15)
2
D. perfectly inelastic E. unitary elastic
Qs+15
Answer 9=
Fairly elastic (A) 2
Cross multiply
Qs + 15 = 18
Qs = 18 – 15 = 3 (C)

126
2008/17 UTME
One of the factors affecting the supply of manufactured
goods is
A. weather B. technology C. consumer tastes
D. availability of inputs
Answer
Technology (B)

2009/11 UTME
A supply curve is positively sloped because
A. supply always exceeds demand
B. demand always exceed supply
C. price is an incentive to consumer
D. price is an incentive to producers
Change in quantity demanded
Answer
Price is an incentive to producer (D)
An increase in price from OP0 to OP1 led to an
2002/6 Neco increase in quantity supplied from OQ0 to OQ1, while
(a) Differentiate between change in supply and change in a decrease in price from OP0 to OP2 caused the
quantity supplied. quantity supplied to decrease from OQ0 to OQ2.
(b) What are the factors that can affect the supply of (b) Factors that affect the supply of maize in Nigeria
maize in Nigeria? (1) Price of the commodity: If the price of maize in
Answer Nigeria increases, more of it would be supplied, other
(a) A change in supply occurs if there is an things remaining equal, less would be supplied if its
increase/decrease in the quantity of a commodity price falls.
offered for sale without an rise/fall in the price of the (2) The cost of production: If the prices of factors of
commodity. It is caused by any of the factors production increases, less of them would be
affecting supply other than the price of the demanded by the producer, hence both his output and
commodity, eg. an improvement in technology, supply of maize will fall. Lower cost of production
changes in taxation, subsidy etc. In this case, the would increase supply of maize.
supply curve shifts to an entirely new position (either (3) An improvement in technology: Better production
to the right or to the left). techniques would lower the cost of production,
thereby leading to an increase in both output and
supply of the product maize in Nigeria.
(4) Natural phenomena: Weather, flood, earthquakes,
etc. affect production and supply. For example,
drought (an unfavourable weather condition) leads to
poor growth of crops thereby hampering the supply of
maize.
(5) Government policy: An increase in tax would
increase the producer’s cost of production thereby
leading to a lower supply of the product. On the other
hand, increased government subsidy would reduce
the cost of production and encourage the producer to
supply more of the product.
Change in supply
A shift in the supply curve to the left (decrease in supply) 2013/39 Neco
from S0S0 to S1S1 caused quantity supplied to decrease Given the supply function QS = 150 + 25P, calculate the
from OQ0 to OQ1 at the price OP2. A shift in the supply supply where price is ₦6
curve to the right (increase in supply) from S0S0 to S2S2 A. 250 B. 275 C. 300 D. 325 E. 3500
caused quantity supplied to increase from OQ0 to OQ2 at Answer
the old price. QS = 150 + 25P
QS = 150 + 25(6)
A change in the quantity supplied refers to an
increase/decrease in the quantity supplied brought about by
QS = 150 + 150
an increase/decrease in price. It is caused by a change in QS = 300 (C)
the price of the commodity, while other factors remain
constant. it involves movement along a particular supply
curve.
127
2008/8 UTME 1993/5 Exercise 6.10
If 100 units and 120 units of commodity X are supplied at Supply in economics means making
N80 at different times, it means that there is A. goods and services available to consumers
A. a change in supply B. a change in quantity supplied B. goods available to the market at a given price and at a
C. an increase in the quantity supplied given period
D. a decrease in the quantity supplied C. available, the goods and services which consumers
Answer require
A change in quantity supplied (B) D. available to the consumer, half of what is produced
E. available to the market, all that is produced
2008/14 UTME
An upward movement along the same supply curve results
in 1996/7 Nov
A. an increase in supply B. a decrease in price
C. a decrease in quantity supplied
D. an increase in quantity supplied
Answer
An increase in quantity supplied (D)

2003/32
Which of the following is not a factor determining supply?
A. cost of production B. climatic condition or weather
C. income of the producers D. number of producers
E. technological development
Answer
Income of the producers (C) In the above diagram, P1S, a supply curve for a
manufactured good, shows that
1995/16 Nov Exercise 6.9 A. when price is OP1, quantity supplied is infinitely elastic
Supply is best defined as the B. the higher the price, the greater the quantity supplied
A. quantity of goods a producer is willing to sell C. the higher the price, the lower the quantity supplied
B. part of total product brought to the market for sale D. when price is zero quantity supplied becomes infinite
C. part of total product retained by producers E. when price is infinite, quantity S
D. quantity offered for sale over a period of time Answer
E. quantity offered for sale at a given price over a period of When price is OP1, quantity supplied is infinitely elastic (A)
time

1995/9 Nov 2004/19 Exercise 6.11

Elasticity of supply can be expressed as
Percentage change in supply original supply
A. B. Original price
Percentage change in price
Change in supply Percentage change in supply
C. Change in price
D. Original supply

2001/22 Nov
An increase in the price of a commodity will lead to
A. a fall in quantity supplied
B. an increase in quantity supplied
C. supply remaining constant D. an increase in demand
Answer
The diagram above illustrates An increase in the price of a commodity will lead to an
A. a change in demand B. an increase in supply increase in quantity supplied (B)
C. a decrease in supply
D. an increase in quantity demanded
E. a decrease in quantity supplied
Answer
An increase in supply (B)

128
2001/23 Nov 2000/3 UTME
The diagram below shows that Commodities I and II are in
A. competitive supply B. substitute supply
C. joint supply D. derived supply
Answer
Substitute supply (B)

2000/4 UTME
The supply of commodity II increasing from S1S1 to S2S2
A. moves the price below OP2
B. leads to a fall in price from OP1 to OP2
C. increases the price from OP2 to OP1
D. moves the price to OP1
A. supply is infinitely elastic Answer
B. the higher the price the greater the quantity supplied Leads to a fall in price from OP1 to OP2.
C. the higher the price the lower the quantity supplied
D. supply has unitary elasticity
Answer
Supply is infinitely elastic (A) 2003/1 Nov
Supply means making
2001/1 Nov A. goods and services available to consumers
A situation in which an increase in the supply of certain B. commodities available to the market at various prices
goods leads to a fall in the supply of other goods is known as over a given period
A. competitive supply B. derived demand C. available, the goods and services the consumer requires
C. competitive demand D. joint supply D. available to the consumer what is produced
Answer Answer
Competitive supply (A) Commodities available to the market at various prices over
a given period (B)
2001/28 Nov
If the co – efficient of price elasticity of supply is 1.5, then
the supply is 1992 Nov
A. perfectly inelastic B. inelastic C. infinitely elastic Goods, the supply of which does not increase as price
D. elastic changes have
Answer A. perfectly price elasticity of supply
Elastic (D) B. an infinite price elasticity of demand
C. a zero price elasticity of supply
1987/24 UTME D. a unitary price elasticity of supply
An increase in supply will lower prices unless E. a perfect price inelasticity of supply
A. supply is perfectly inelastic B. demand is perfectly Answer
elastic C. it is followed by an increase in demand A zero price elasticity of supply (C)
D. demand is highly inelastic
Answer
It is followed by an increase in demand (C) 2016/12 NABTEB
As the supply of commodity x increases, the price of
2000/3 and 4 UTME commodity Y falls, X and Y are in
Use the diagram to answer questions 3 and 4 A. competitive supply B. derived supply C. joint
supply D. composite supply
Answer
Competitive (A)

2005/19 Nov Exercise 6.12

If elasticity of supply is greater than one, supply is
A. unitary elastic B. inelastic C. elastic
D. infinitely elastic

129
2001/4 UTME 2011/48
For a supply curve an increase in the price of a commodity If the supply of palm oil leads to the production of palm
will result in kernel, this type of supply is called ____ supply.
A. a decrease in supply A. competitive B. complementary C. composite
B. a decrease in the quantity supplied D. derived E. palm product
C. an increase in supply Answer Complementary (B)
D. an increase in the quantity supplied
Answer 2014/2015/19 (UI, IBADAN)
An increase in the quantity supplied (D) The change that is due to a movement from one supply
curve to another along the same price is called
2001/8 UTME A. change in supply B. change in quantity supplied
A change in supply is best described as a C. elasticity change D. control price effect
A. movement along the supply curve E. change in equilibrium quantity
B. shift of the supply curve to the left or to the right Answer
C. shift of the supply curve to the left Change in quantity supplied (B)
D. shift of the supply curve to the right
Answer 2003/11 UTME
Shift of the supply curve to the left or to the right (B) Price elasticity of supply is a ratio of the change in
A. quantity supplied to the change in demand
2002/5 UTME B. original quantity to a change in new quantity
A shift in supply curve indicates that a different quantity C. quantity supplied to the change in price
will be supplied at each possible price because D. price to the change in quantity supplied
A. consumers are willing to pay higher prices Answer: Quantity supplied to the change in price (C)
B. supply is facing competition
C. other factors than price have changed 2014/2015/20 (OAU, IFE)
D. price has changed When the supply of a commodity is fixed, its price
Answer elasticity of supply is said to be
Other factors than price have changed (C) A. perfectly elastic B. perfectly inelastic
C. undefined D. elastic E. inelastic
2004/46 UTME Answer: Perfectly inelastic (B)
A movement from M to T implies that there has been
A. a decrease in supply B. an increase in demand 2012/11 (OAU, IFE)
C. a decrease in price D. an increase in price Perfect price elastic supply means
Answer An increase in price (D) A. no change in supply as price changes
B. any change in price completely stops supply
2009/13 Exercise 6.13 C. changes in price double supply
If the price of an item changes by 8% and quantity D. a change in price leads to proportionate change in supply
supplied changes from 600 units to 660 units, the price Answer: Any change in price completely stops supply (B)
elasticity of supply is 2019/12 NABTEB
A. 0.80 B. 1.25 C. 2.00 D. 10.00 If an increase in the price of commodity ‘X’ leads to an
increase in the supply of commodity ‘Y’, then ‘X’ and ‘Y’
2000/7 Exercise 6.14 are said to be
The quantity supplied of books per week is represented by A. joint supply B. competitive supply
1
the function, QS = 70 + P, at a price of ₦8.00, the C. composite supply D. joint demand supply
2
quantity supplied is Answer: Competitive supply (B)
A. 70 B. 74 C. 76 D. 86
2013/16
If the supply of a product is elastic, a small reduction in
2011/39 Neco
price will
Supply function is a mathematical expression of the
A. reduce the cost of production
relationship between
B. reduce the quantity supplied
A. individual and market demand curves
C. increase the quantity supplied
B. supply and demand C. supply and factors affecting it
D. lead to no change in the quantity supplied
D. supply and price
Answer
E. two related goods supplied to the market
reduce the quantity supplied (B)
Answer Supply and factors affecting it (C)
Hint: In an elastic supply, a small reduction in price will cause a
decrease in the quantity supplied, this is because, suppliers will
not be willing to supply much goods when the price for it is low.
130
2019/13 NABTEB 2008/5
What is the elasticity of supply if an increase in the price (a) What is supply?
of a commodity from N10 to ₦15 leads to an increase in (b) Describe any five determinants of supply.
the quantity supplied from 10 units to 15 units? Answer
A. 0 B. 0.5 C. 1 D. 5 (a) Supply refers to the quantities of any commodity that
Answer producers are able and willing to offer for sale at
Price Qty supplied alternative prices over a given period of time.
10 10 units (b) Factors that determine supply
15 15 units (i) The price of the commodity: The higher the price,
% ∆ in qty supplied
the greater the supply and the lower the price, the
𝐸𝑠 = % ∆ in old price
lower the quantity.
∆ in qty supplied 100 (ii) The number of producers: Usually the larger the
% ∆ in qty supplied = old qty
× 1 number of producers the greater the supply.
15−10 100 (iii) Natural phenomena: Natural factor such as weather
% ∆ in qty supplied = 10 × 1 condition – especially in agricultural production.
5 100 (iv) Government policy: That may or may not encourage
= 10 × 1 = 50%
production e.g. taxation, subsidy, e.t.c.
∆ in price 100
% ∆ in price = old price × (v) Cost of production: A rise in cost of production will
1
reduce supply and a low cost of production will
15−10 100
% ∆ in price = 10 × 1 increase supply.
5 100
= 10 × = 50% 2008/8
1
The gap between demand and supply curve above the
50% equilibrium price is
Thus Es = 50% = 1 (C)
A. normal demand B. excess supply
2003/21 C. equilibrium quantity D. abnormal demand
Price elasticity of supply measures the responsiveness of Answer
quantity supplied to Excess supply (B)
A. change in supplier’s income 2018/1 NABTEB
B. changes in price of other commodities The demand and supply equations for a commodity are
C. a change in the price of the commodity given below:
D. a change in the demand for the product Qd = 60 – 10p
Answer Qs = 30 + 5p
A change in the price of the commodity (C) Qd is the demand equation
Qs is the supply equation
2014/2015/20 (UI, IBADAN) Exercise 6.15 (a) Calculate the quantities demanded at the price of
When the supply of a commodity is fixed, its price i. ₦1 ii. ₦2 iii. ₦3
elasticity of supply is said to be
A. perfectly elastic B. perfectly inelastic (b) Calculate the quantities supplied at the price of
C. undefined D. elastic E. inelastic i. ₦1 ii. ₦2 iii. ₦3
Complete the table below by filling the Qd and Qs,
2012/11 (OAU, IFE) columns
Perfect price elasticity supply means P(N) Qd Qs1 Qs2
A. no change in supply as price changes 1 50
B. any change in price completely stops supply 2 60
C. elasticity change D. control price effect
3 70
E. change in equilibrium quantity
(c) Present the table in a graph.
Answer: Change in quantity supplied (B)
(d) What economic concept does the graph represent?
2015/10 Solution
The market supply curve slopes upwards from left to right (a) Qd = 60 – 10p
indicating that (i) Qd = 60 – (10 × 1) = 50
A. producers pay high taxes (ii) Qd = 60 – (10 × 2) = 40
B. two commodities can be supplied at the same time (iii) Qd = 60 – (10 × 3) = 30
C. at a lower price, less is supplied (b) Qs = 30 + 5P
D. at a lower price, more is supplied and demanded (i) Qs = 30 + (5 × 1) = 35
Answer (ii) Qs = 30 + (5 × 2) = 40
At a lower price, less is supplied (C) (iv) Qs = 30 + (5 × 3) = 45

131
 The completed table for the problem is shown below 1981/10 UTME
P(₦) Qd Qs1 Qs2
1 50 35 50
2 40 40 60
3 30 45 70

(c)

In this diagram, S0S0 is the original supply curve while

S1S1 is the new curve. Which of the following does S1S1
represent?
A. a movement along a given supply curve
B. an increase in supply C. a decrease in supply
D. a perfect elastic supply curve E. an abnormal supply
curve
Answer A decrease in supply (C).

1982/35 UTME
(d) The graph represents a shift in the supply to the right In the diagram on page 11, which of the following is NOT
indication an increase in supply. likely to be a factor causing the changes from S1 to S2?
A. an imposition of a unit tax on maize
B. a decrease in the supply of labour
1979/5 UTME C. an increase in the price of other input
One of the reasons why the conditions of supply of a D. an increase in the price of maize
commodity may change is E. unfavourable weather conditions
A. change in real income B. changes in techniques of Answer
production C. a change of fashion or taste An imposition of a unit tax on maize (A)
D. changes the price of the commodity itself
E. changes in population
Answer: 1983/25 UTME
Changes in techniques of production (B)

2016/43 UTME Exercise 6.16

1
If P = (Qs + 30), what is the quantity supplied at ₦18?
4
A. 64.5 B. 42.0 C. 2.4 D. 30.0

1980/48 UTME
Which of the following is NOT a determinant of changes
in supply? In the diagram P1S is a supply curve for a manufactured
A. changes in the cost of production B. technical goods. It shows that
progress A. when price is OP1 quantity supplied is infinitely elastic
C. weather D. changes in the number of producers B. the higher the price the greater the quantity supplied
E. changes in the number of buyers C. the higher the price the lower the quantity supplied
Answer: D. when price is zero quantity supplied becomes infinite
Changes in the number of buyers (E) E. when price is infinite quantity supplied becomes zero
Answer
When price is OP1 quantity supplied is infinitely elastic (A)

132
1984/15 UTME 2013/15 UTME
1
If P = 4(Qs + 10), what is the quantity supplied at ₦14?
A. 14 B. 60 C. 46 D. 32
Answer
1
P = 4(Qs + 10)
P = ₦14
1 1
P = (Qs + 10) becomes 14 = 4(Qs + 10)
4
Qs+10
14 =
4
Cross multiply
Qs + 100 = 56
Qs = 56 – 10
In the diagram, the supply curve S0S0 shifts to a new Qs = 46 (C)
position S1S1 to indicate
A. a drop in supply B. a rise in supply
C. a supply push inflation D. a stable supply curve 2014/13 UTME
1
E. an increase in quantity supplied Given the supply of function P = (Qs + 10)
4
Answer A rise in supply (B) when P = N10, what is Qs?
A. 20 B. 15 C. 50 D. 30
1987/20 UTME Answer
1
P = (Qs + 10)
4
When P = N10
1
10 = 4(Qs + 10)
Qs+10
10 =
4
Cross multiply
Qs + 10 = 40
Qs = 40 – 10
Qs = 30 ( D )

In the diagram, PS is the supply curve for a particular

commodity while OP is the price. Which of the following
statements is correct? 2015/24 UTME
A. the quantity supplied is infinitely elastic
B. when price is zero, the quantity is supplied infinite
C. when price is infinite, the quantity supplied zero
D. the quantity supplied is indefinite
Answer
The quantity supplied is infinitely elastic (A)

2010/15 UTME Exercise 6.17

A set of factors that can shift the supply curve are changes in
A. weather, price and technology B. technology, price
and taste C. technology, weather and population
D. population, price and taste
From the graph above, a shift of the supply curve from S-
0S0 to SS will lead to
A. a decrease in price and quantity
2010/16 UTME B. no change in price and quantity
If the co-efficient of price elasticity of supply is greater C. an increase in price and quantity
than one, the supply is said to be D. a decrease in price and an increase in quantity
A. perfectly elastic B. infinitely inelastic Answer A decrease in price and an increase in quantity (D)
C. fairly inelastic D. fairly elastic
Answer
Fairly elastic (D)

133
2015/44 UTME
The supply of agricultural products is mainly determined
by
A. consumers’ taste B. consumers’ income
C. technology D. consumers
Answer Technology (C)
Hint: The supply choices are influenced by a number of factors
which includes the price of the product in question, the number
of producers, the input costs, the technological changes, the
price of other possible products, and unpredictable factors such
as weather.

2016/17 UTME Exercise 6.18

The co-efficient of price elasticity of supply is
% change in supply % change in quantity supplied
A. B.
% change in price % change in price
% change in quantity supplied
C.
% change in income

% change in quantity demanded

D.
% change in income

2017/30 UTME
A change in the quantity supplied of a commodity is
influenced by
A. the price of substitutes B. the price of the commodity
C. consumers’ tastes D. technological know-how

2011/20 – 22 (OAU, IFE)

Use the table to answer question 20 – 22
Price (₦) Quantity demanded Quantity
(kg) supplied (kg)
50 20 100
40 40 80
30 60 60
20 80 40
10 100 20

2011/20 (OAU, IFE) Exercise 6.19

At price ₦50, there is an excess supply of
A. 20kg B. 100kg C. 80kg D. 40kg

2011/21 (OAU, IFE)Exercise 6.20

Excess demand arises at prices
A. ₦50 B. ₦40 C. ₦10 D. ₦20

2011/22 (OAU, IFE) Exercise 6.21

The equilibrium price is
A. ₦40 B. ₦30 C. ₦10 D. none of the above

2011/23 (OAU, IFE)

Supply is said to be inelastic when the co-efficient of
elasticity of supply is
A. 2.5 B. 0.5 C. zero D. infinity
Answer
When the co–efficient of elasticity is less (<) than 1, we
have an inelastic supply. Option C is correct (0.5).

134
 UTILITY
Utility refers to the amount of satisfaction derived from the
THEORY OF CONSUMER BEHAVIOUR consumption of a commodity of goods and services at a particular
The theory of consumer behaviour is a principle that time.
fundamentally underscores the demand for commodities by This is the want satisfying power of any goods and services. It is
consumers. the satisfaction which consumers derive from consumption of
In economics, the consumer is defined as an individual or firm certain commodities. A rational consumer always seeks to
who puts a particular commodity or service to use for the maximize utility despite budget constraints and the limited
satisfaction of particular wants. Thus, consumption is simply the disposable income distribution in his choice between two
act of using goods and services to satisfy human wants. commodities or more Utility is measured in units called “utils”.
The consumer theory explains the economic principles on which
the law of demand is based which states that the lower the price TYPES OF UTILITY
the higher the demand and vice versa. It therefore analyses the 1. Form Utility: This involves changing the structure of a
economic behaviour of rational individuals and corporate commodity (e.g. through manufacturing) in order to increase
consumers within the economy. The consumer theory assumes the amount of satisfaction derived from it, e.g. changing
that the consumer’s disposable income is fixed, commodity wood to furniture
price are given and consumer’s taste varies as there are different 2. Place Utility: This involves changing the geographical
combination of goods and services that yield different level of location of a commodity (e.g. through distribution) in order
satisfaction. to increase the amount of satisfaction derivable from it, e.g.
transporting yams from the farm to the market.
There are two types of behaviour namely:
3. Time Utility: This involves storage of goods in order to
(a) Aggregate Behaviour: This is simply the behaviour
derive more satisfaction in future, e.g. storing rice for future
of individual households. use.
(b) Market Behaviour: This is the horizontal sum of the
demand curves of the individual households. APPROACHES TO THE STUDY OF UTILITY
There are basically two school of thought in the analysis of utility
FACTORS WHICH INFLUENCE BUYING BEHAVIOUR and they are as follows:
OF CONSUMERS (i) Cardinal Approach
1. Economic Factors: The consumer’s income is a crucial (ii) Ordinal Approach
economic factor which impacts the consumers buying
behavior. At the very least the consumer must earn or have CARDINAL APPROACH
access to money sufficient to sustain his or her buying The cardinal school of thought believes that utility or satisfaction
power. Credit availability is another important economic is measurable and additive. That is, it says that satisfaction can be
factor which impacts the buying behavior of consumers. measured in figures, and can also be increased.
In market driven economies, this is a very significant
avenue for purchasing products but credit facility could only ASSUMPTION OF THE CARDINAL APPROACH
be sustainable if there is a steady source of income to the i. Measurable Utility: Utility is measurable and additive. This
individual. is the pivot around which the cardinal approach revolves.
2. Social Factors: These factors include social class, family ii. Independent Utility of a commodity: The total utility of a
size, membership in association, friends, neighbours, etc. particular commodity to a consumer depends on the quantity
The social class predisposes the individual towards products of that commodity consumed and not on the quantity of
other goods consumed.
which are peculiar to the particular class.
iii. Concept of rationality: The consumer is “Rational” i.e. he
3. Cultural Factors: Each person acquires a unique set of
knows what he wants, he is prepared to pay a given amount
preferences, values, perception, opinions, behaviours over for it, and where to get it in order to maximize his
time. Also, peculiarities of the society which the person is satisfaction.
located or was raised are also significant determinants of iv. Concept of money utility: The utility of a commodity can
individual choices. All these contribute to buying behavior be conveniently measured in monetary units by relating it to
of the individual in various ways. the quantity the consumer is willing to pay for.
4. Religious Factors: Religion directly or indirectly affects v. Constant marginal utility of money: The marginal utility
the buying behavior of individuals in a strong manner. of money is constant. It is not affected with changes in the
Some religion forbids the consumption of certain food level of income of the consumer. The money income of the
products. The buying pattern for such products are consumer is held constant.
therefore affected. vi. Diminishing Marginal Utility: There is diminishing
5. Personal Factors: Personal Factors which influence marginal utility i.e. satisfaction decrease as more units of a
buying behavior include age, lifestyle, occupation, beliefs commodity are consumed.
which are not necessarily religious in nature, personality, vii. There are two commodities say A and B.
etc. As the individual goes through life cycle from
babyhood to old age, so does his wants and preferences,
hence a continuous change in the buying behavior exist
for the individual.
135
2013/11 UTME Where
One of the assumptions of the cardinalist approach is ∆ TU= Change in Total Utility
A. diminishing marginal rate of substitution ∆ Q = Change in Quantity
B. the consistency and transivity of choice MU = Marginal Utility
C. that total utility depends on the quantity of the Total, marginal and average utility
commodities consumed
Quantity of Total Marginal Average
D. unstable marginal utility of money
commodity utility utility utility
Answer
0 0 0
That total utility depends on the quantity of the
1 10 10 10
commodities consumed (C)
2 18 8 9
CONCEPT OF UTILITY 3 24 6 8
(i) Total Utility (TU): Total utility is the total satisfaction 4 28 4 7
that consumers derive from the consumption of a 5 30 2 6
certain quantity of goods or services. Total utility can 6 30 0 5
also refer to the summation of satisfaction that a 7 28 –2 4
person derives from the successive consumption of a NB: As the consumer consumes more and more of the
particular commodity. The total satisfaction commodity, TU increases, while MU decreases.
diminishes (as more and more quantity of a good or
service is consume).
TU = AU × Q
Where
TU = Total utility,
AU = Average utility and
Q = Quantity consumed.

(ii) Average Utility (AU):Average utility is the total

utility divided by the number of goods consumed in a
particular period. Average utility is the amount of
satisfaction derived by a consumer per unit of a
commodity consumed.
𝑇𝑈
AU= 𝑄
Where
AU= Average Utility
TU= Total Utility
Q = Quantity Consumed

(iii) Marginal Utility (MU): -Marginal utility is the

amount of satisfaction derived from the additional
consumption of a commodity. This implies that the
successive increase in the consumption of a
commodity brings about additional benefit or
satisfaction.

The marginal utility is sometimes, taken to mean the

amount of satisfaction lost due to giving up additional
consumption of a commodity. The sum of all
marginal utilities of a commodity equals the total
utility for the commodity. It is zero when the total
utility is at the maximum point. Decrease in the total
utility at the maximum point will imply a negativity
of the marginal utility.
Marginal utility decreases with increased
consumption.
∆𝑇𝑈
MU= or TU2 – TU1
∆𝑄

136
Total utility curve (plot TU on y axis against Q on the x axis).

Marginal utility curve (plot MU on y axis against Q on the x axis).

137
138
RELATIONSHIP BETWEEN TOTAL UTILITY AND
MARGINAL UTILITY
i. Total utility is the overall satisfaction derived from the
consumption of a certain quantity of a product while
marginal utility is the additional satisfaction derived from
consuming an additional unit of the product.
ii. Both total and marginal utility increase up to a point after
which further increase in total utility leads to a decrease
in marginal utility.
iii. Marginal utility is the difference between two
consecutive total utilities.
iv. When total unit is maximized, marginal utility is zero.
v. When total utility is decreasing, marginal utility is
negative.
vi. The sum of all marginal utilities equals total utility.

As the consumer consumes additional unit of the

commodity, total utility curve rises up to the point of
maximum utility termed the point of saturation or satiation
and after the point, the consumer starts facing disutility. As
the consumer consumes more units of the commodity, his
marginal utility falls from left to right indicating loss of
satisfaction.

A Household’s Utility Schedule

Units Consumed Total Marginal Average
by Etuajie utility Utility Utility
(A household) (TU) (MU) (AU)
0 0 - 0
1 26 36 26
2 50 30 25
3 75 25 25
4 95 20 23.75
5 110 15 22
6 120 10 20
7 125 5 17.86
8 125 0 15.63
9 120 -5 13.33
10 110 -10 11
11 99 -11 9
12 84 -15 7

139
From the curve above,
When total utility is maximized, Mu is zero
When total utility decreases MU is negative

140
2004/13 Nov 2007/7 Nov Exercise 7.3
Utility refers to the Total utility increases as more of a commodity is
A. production of goods and services for export A. purchased B. sold C. produced D. consumed
B. satisfaction derived from consuming goods and services
C. importation of capital goods and raw materials 2009/34 Neco Exercise 7.4
D. money spent on buying goods and services The amount of satisfaction per unit of the commodity
Answer consumed is called
Satisfaction derived from consuming goods and services (B) A. average cost B. average utility C. marginal cost
D. marginal utility E. total utility
2003/29 Neco
What is meant by utility?
MARGINAL UTILITY AND THE DERIVATION OF
A. amount of money derived by a manufacturer
THE DEMAND CURVE
B. a number of things a consumer will enjoy at a time
A demand for a product exists because it provides
C. amount of satisfaction derived from the consumption of
someone, somewhere, with satisfaction or utility. Indeed,
a commodity at a particular time
marginal utility is the key concept underlying demand. The
D. amount of satisfaction given to a producer
height of the demand curve reflects marginal utility.
E. total profit producers will get at a particular time
Answer
The marginal utility curve resembles the demand curve. It
Amount of satisfaction derived from the consumption of a
shows the extra amount of satisfaction which a consumer
commodity at a particular time (C)
derives from buying more units of a commodity. The price
2018/37 Neco he pays represents the additional amount of satisfaction
The satisfaction a consumer derives from consuming which he hopes to derive from purchasing additional or
additional unit of a commodity is called more units of the commodity.
A. average utility B. consumer’s surplus
C. marginal utility D. total utility Marginal utility decreases or diminishes as more units of a
E. utility maximization commodity are consumed. A consumer’s demand for any
Answer: Marginal utility (C) commodity depends, ceteris paribus (Latin for “other
2008/11 things being equal”), on the marginal utility of the
The additional satisfaction derived from the consumption commodity to him. In other words, the price per unit he
of one more unit of a good is called will pay for the commodity depends upon its marginal
A. marginal product B. marginal utility utility to him.
C. marginal revenue D. marginal cost
Answer Marginal utility is related to the current prices and current
Marginal utility (B) levels of consumption. The greater the level of an
individual’s current consumption of a commodity, the
2009/2010/25 (UNIZIK, AWKA) lower will be its marginal utility to him. The rate at which
A central argument of cardinal utility is that utility is a commodity’s marginal utility to a consumer declines will
A. psychological B. measurable C. ranked vary from one level of consumption to another.
D. intangible
Answer Why Most Demand Curve Slope Downwards
Measurable (B) Most demand curves slope downwards from left to right.
This is because more units of a commodity or service will
2000/4 Exercise 7.1 be bought at a lower price than at a higher price unless
The entire satisfaction that a consumer derives from a something happens to change the existing state of demand.
successive consumption of a particular commodity is Any rice in price will reduce the volume of sales, while a
known as fall in price will expand the volume of sales.
A. marginal utility B. total utility C. average utility
D. diminishing utility

2015/17 (OAU, IFE) Exercise 7.2

Marginal utility is the
A. pleasure or satisfaction from consuming a particular
quantity of goods
B. average utility per unit consumed
C. change in total utility that results from a one unit
change in the quantity of a good consumed
D. quantity of goods that a consumer prefers
141
 The second condition for the maximization of utility
is that the ratio of the marginal utility of commodity
A to its price must be equal to the ratio of the
marginal utility of commodity B to its price. This
condition is satisfied when:
MUA MB
=
PA PB
Expressed in words, the ratio of the marginal utility
of commodity A to the price of commodity A is
equal to the ratio of the marginal utility of
commodity B to the price of B.

Actually, both conditions are satisfied at the same

time. To prove this, let MUA = 8, MUB = 6, PA =
₦4.00 and PB = ₦3.00.
UTILITY MAXIMIZATION
The first condition is:
(CONSUMER’S EQUILIBRIUM)
MUA PA
Utility maximization implies the equilibrium of the =
consumer or the maximum possible level of satisfaction MUB PB
which is attainable by a consumer with appropriate
recognition or consideration of the constraints such as the Substituting figures, we obtain
income of the consumer and the prices of commodities. 8 4
=
6 3
Given his limited resources, a rational consumer would try
to maximize the amount of satisfaction he derives from his The second condition is:
expenditure. He would spend more money on those MUA MUB
commodities from which he derives more satisfaction than =
PA PB
on those that gives him less satisfaction. In order to
maximize his total utility, the rational consumer would Substituting figures we obtain:
allocate his expenditure among commodities in such a way 8 6
that he derives equal satisfaction from the last unit of =3
4
money spent on each item. If he consumes two Thus we see that once the first condition for utility
commodities A and B, he maximizes utility by allocating maximization is satisfied, the second is
his money in such a way that he derives equal satisfaction automatically also satisfied as shown above.
from the last naira he spends on commodities A and B. Summarizing,
The utility maximizing equation is
CONDITIONS FOR UTILITY MAXIMIZATION MUA MUB
With a limited income, two conditions must be fulfilled for =
PA PB
the consumer’s utility to be maximized:
The equation above can equally be written as
1. Equality of the ratio of marginal utilities and the MUA PA
ratio of prices. =
2. Equality of the marginal utility to price ratio for both MUB PB
commodities MUA = marginal utility of commodity A
The first condition for the maximization of utility is MUB = marginal utility of commodity B
that the ratio of the marginal utilities of the two PA = price of commodity A
commodities must be equal to the ratio of their PB = price of commodity B
prices. For example, let MUA be the marginal utility
of commodity A and MUB the marginal utility of NB: The case studied above is for a consumer consuming
commodity B. The condition is satisfied when: more than one commodity, if the consumer
MUA PA consumes only one commodity, utility is maximized
= at the point where the marginal utility of the
MUB PB commodity is equal to the price paid for it.
At the point MUA = PA ; and MUB = PB
Expressed in words, the ratio of the marginal utility
of commodity A to the marginal utility of
commodity B is equal to the ratio of the price of
commodity A to the price of commodity B.
142
GRAPHICAL REPRESENTATION OF UTILITY MUA MUB
(ii) If <
MAXIMIZATION PA PB

Suppose a consumer has an income of ₦300 only and has The consumer derives more satisfaction from
only two goods X and Y, to spend it on. Suppose also that commodity B. So, he should decrease his expenditure
X costs ₦15 per unit and Y costs ₦20 per unit. If the on commodity A and increase that of B so as to
consumer spend all his income on X, he will obtain 20 maximize his utility.
units of it and none of Y Where
MUA = marginal utility of commodity A
MUB = marginal utility of commodity B
PA = price of commodity A
PB = price of commodity B

From our discussion, we can conclude that in order to

be at equilibrium, every consumer cannot have the
same combination of the commodities in question
even where they are free goods. This is more so as
everybody cannot have the same taste, even for
people who were born twins. In other words, people’s
values vary.

2022/17 NABTEB
At what point will a consumer maximize utility for a
commodity?
A. 𝑀𝑈𝑥 = 𝑃𝑥 + 𝑃𝑟 B. 𝑇𝑈𝑥 = 𝑀𝑈𝑋
𝑀𝑈
C. 𝑀𝑈𝑥 = 𝑃𝑥 D. 𝑃 𝑥 = 0
𝑥
Answer
From the graph, this is shown at point B. If he spends all For a consumer, utility is maximized at the point where
of his income on Y, he will buy 15 units of it and none of the marginal utility of the commodity is equal to the price
X. This is shown at point A. The line AB is the consumer’s paid for it, i.e At the point MUx = Px (C)
price line. It shows all possible combinations of X and Y
that the consumer can purchase. Of all the combinations 1992/5
represented on the price line AB, the consumer will only Mu𝑥 P𝑥
=
have one. He will go for the combination which gives him Muy Py
the greatest satisfaction, i.e, the one at which his utility is Where Mux = marginal utility of commodity x.
maximized. Muy = marginal utility of commodity y.
Px = price of x
From the graph, the consumer’s indifference curve is CC, Py = price of y
showing all the combinations of X and Y which give him The above equation is known as
the same amount of satisfaction or utility. The consumer A. marginal utility theory of price
will maximize his utility at the point where his B. consumers optimal utility level
indifference curve touches the price line i.e. at point E. C. utility maximization equation D. marginal utility
Thus, our consumer’s utility is maximized at E, where the equation E. increasing marginal utility equation
combination of goods is 9 units of X and 8 units of Y Answer
Utility maximization equation (C)
CONSUMER’S DISEQUILIBRIUM
For a consumer’s that consumes more than one
commodity, he experiences equilibrium as discussed 2011/25 (OAU, IFE)
above, but disequilibrium sets in owing to the following: Utility maximization occurs when one of the following
MUA MU
(i) If > PB attained
PA B ∆TU MUx Muy Px Py
The consumer derives more satisfaction from A. MU = B. Px
= Py
C. = Muy
∆Q Mux
commodity A than B. So, he should decrease his Mux Pxy
D. = Muxy
expenditure on commodity B, and increase that of A Muy
in order to be at equilibrium. Answer
MUx Muy
Px
= (B)
Py

143
2003/30 Neco free. The above explanation is clarified with a means of utility
Utility maximization is about schedule below
A. achieving greatest satisfaction from the right item Quantity of water Total utility Marginal utility
bought (bottles) (price)
B. achieving greatest satisfaction from limited resources 0 0 -
C. achieving less satisfaction from more resources 1 10 10
D. deriving equal satisfaction from the last unit from 2 18 8
money spent 3 24 6
E. deriving more satisfaction from the last item bought 4 26 2
Answer 5 27 1
Deriving equal satisfaction from the last unit of money 6 27 0
spent (D) 7 25 -2

From the foregoing discussion and the utility schedule, we

THE LAW OF DIMINISHING MARGINAL UTILITY wish to state that:
The law of diminishing marginal utility states that the “The higher the quantity of a commodity a person
more of a product that a rational consumer consumes, the consumes, the less the value he attaches to an additional
less the marginal utility he derives from each additional unit. Conversely, the less the quantity of a product a
consumption. The law of diminishing marginal utility is consumer possesses, the higher the value he attaches to an
associated with the concepts of price and demand. extra unit”.

In explaining the law of demand, marginal utility analysis The consumer should stop at the sixth bottle where she
is a major tool to employ. The reason why a person attains ‘utility maximization’ the point of satiety. The
purchases a commodity is because the commodity gives seventh bottle doesn’t add anything to the level or amount
him utility or satisfaction. When consumer consumes of satisfaction as the marginal utility is negative. Thus the
successive additional units of the same commodity, the major determinant of people’s desire for a commodity is
successive marginal utility diminishes. the marginal utility and not total utility.
NB: The Law of diminishing marginal utility can be used
The law of diminishing marginal utility is based on the
to explain the derivation of the demand curve as illustrated
following consideration or assumption: “As the amount of
above.
a commodity a person possess or consumes increases, the
utility a consumer derives from successive units’ declines
until marginal utility becomes zero and assumes negative
value”.
The law illustrates the declining nature of a marginal
utility (MU). It stresses that the amount of satisfaction
derivable from successive units consumed declines
continuously until marginal utility becomes zero and starts
having negative figures (values).

At the initial stage of consumption of a commodity total utility

increases. And as a person consumes more of a commodity, the
satisfaction he derives from successive (additional) units
declines until total utility reaches the point of satiety (maximum
point) and thereafter it starts to decline (reduce).
Diminishing marginal utility curve
2021/18
When total utility is increasing, marginal utility is declining, and
The law of diminishing returns is applicable to the
when total utility is at satiety point, marginal utility is at zero. As
A. fixed inputs of production
total utility declines marginal utility starts having negative value.
B. variable factors of production
And this continues until total utility becomes zero and both total
C. plants and machinery of the firm
utility and marginal utility assume negative values.
D. equipment and other capital
For instance, a thirsty young lady will be willing to pay a very Answer
high price such as ₦10.00 for a bottle of cold drink for the first Variable factors of production (C)
time as the utility she will derive from it is quite high. As she
possesses more and more of the commodity, the marginal utility
(i.e. its value) diminishes until it eventually becomes zero; and
she is no more willing to take additional bottle even though it is
144
2000/5 The ordinal approach is based on the following
The theory of diminishing marginal utility states that as more assumptions
units of a commodity are consumed, 1. There are two commodities e.g. commodities A and B
A. satisfaction from an extra unit decreases 2. The consumer is rational.
B. satisfaction from an extra unit rises 3. Utility is ordinal i.e., the consumer makes a scale of
C. satisfaction from an extra unit remains constant preference for the two commodities he wants. This is
D. total satisfaction from the goods remain the same the basis of the ordinal approach.
Answer 4. There is a diminishing marginal rate of substitution.
Satisfaction from an extra unit decreases (A) That is, the rate at which one commodity is
substituted for the other diminishes systematically as
2019/14
the quantities of the two commodities consumed are
Units of quantity Total utility Marginal
varied.
consumed utility
5. The consumer is consistent in the combination of the
0 – –
two commodities.
1 10 10
2 15 5
6. The price of the two commodities, taste and the
3 17 2
income of the consumer are held constant.
4 18 1
5 18 0 INDIFFERENCE CURVE
Table 1 above illustrates the law of An indifference curve is a diagrammatic or graphical
A. diminishing returns illustration of the different combinations (or bundles) of
B. diminishing marginal productivity two commodities which will leave total utility unchanged.
C. diminishing marginal utility D. variable proportion
Answer
It indicates the locus of combination of two commodities
Diminishing marginal utility (C) that are satisfactory to a consumer. In indifference theory,
we assume that a household (or consumer) consumes a
2009/2010/47 (NDU, BAYELSA) Exercise 7.5 combination of two commodities only. The indifference
The law of diminishing marginal utility indicates that if a theory is interested in investigating the different
consumer increases his consumption of a commodity combinations (or bundles) of two commodities which will
continuously, his leave the total utility of a consumer unchanged as he
A. total utility must fall B. marginal utility must fall derives the same level of satisfaction.
C. marginal utility may rise even though his total utility is
falling Let us consider a consumer who consumes two
D. marginal utility may fall even though his total utility may commodities – Apples and Oranges. The indifference
be rising theory is interested in finding out the quantity of apples
which must be given up by this consumer to compensate
2016/19 NABTEB Exercise 7.6 for his increased consumption of oranges. That is, by how
As the consumption of additional units of a commodity much must the consumption of apples be reduced so as to
increases marginal utility decreases. This is the law of leave total utility unchanged when more oranges is
A. average proportion B. comparative cost consumed?
C. diminishing returns D. diminishing marginal utility Combination Oranges Apples
A 2 14
LIMITATION OF CARDINAL APPROACH
1. The cardinal approach does not absorb the use of money B 3 10
income increment of the consumer. C 4 7
2. The use of figures to evaluate one’s satisfaction is not D 5 5
only subjective, but arbitrary too. E 6 4
3. The assumption that the consumer is rational is not F 7 2
always true.
If all these combinations are plotted on a graph the
ORDINAL APPROACH resulting curve is called an indifference curve.
This school of thought does not believe in the use of figures
to measure consumer’s satisfaction. Rather, it believes that
utility is ordinal. It therefore permits you to simply say that
you prefer one commodity to the other. The ordinal approach
enables the household to make a scale of preference or rank
the various commodities that yield him the same level of
satisfaction in order of their relative importance.

145
 NB: From the diagram, each successive indifference curve
shows a higher level of utility. In other words,
combination of goods along IC2 gives a higher utility to
the consumer than those along IC1 and so on.
2015/25 UTME
An indifference map is made up of a set of
A. consumers’ total utility B. consumer surplus
C. budget lines D. indifference curves
Answer: Indifference curves (D)

2016/36 UTME
The combination of two commodities that yield the same
level of satisfaction is illustrated by
A. a budget line B. an isocost curve C. a production
possibility curve D. an indifference curve
Answer: An indifference curve (D)
MARGINAL RATE OF SUBSTITUTION (MRS)
Marginal Rate of Substitution (MRS) refers to the amount or
quantity of a commodity which a consumer will be willing to
forego or give up in order to get one extra unit of another
Indifference Curve commodity so as to be able to maintain the same level of
satisfaction. It is the rate at which one commodity must be
CHARACTERISTICS OF INDIFFERENCE CURVE substituted for another as one moves along the indifference
1. An indifference curve is usually convex to the curve. It gives the amount of one commodity required to make
up for the loss of one unit of the other commodity. The marginal
origin.
rate of substitution is given by the slope of the indifference
2. It slopes downward, negatively or from left to right
curve.
3. Higher indifference curve indicates a higher level of
satisfaction. The consumption of one more unit of a commodity means a loss
4. The collection of indifference curves on single diagram is in the consumption of the other. Therefore, the indifference
known as indifference map theory of value is usually negative in the consumption of the
5. On no conditions must indifference curves intersect each commodity sacrificed, and this explains why an indifference
other, or else, it becomes difficult to explain. curve is downward slopping. The MRS hypothesis requires that
the quantity consumed of one commodity varies inversely with
INDIFFERENCE MAP the quantity consumed of the other. Thus, as the MRS of
An indifference map is a set of indifference curves, each commodity X decreases, that of Y will increase. However, a
indicating a constant level of satisfaction derived by the rational household will not be repelled to give up a very small
household concerned, and based on the household’s amount of its scarce commodity to get an additional unit of
preference. The curves are usually represented on a single abundant commodity. This is the principle or hypothesis of
diminishing marginal rate of substitution.
diagram.
The map is made up of a set of indifference curve drawn The hypothesis which relies heavily on the principle of
together. The farther the indifference curve is from the point opportunity cost simply says that the MRS changes
of origin, the higher the level of satisfaction derived from the systematically and on a sliding scale as the quantities of two
various combinations on the curve and vice versa. The commodities consumed by a household vary inversely.
indifference map describes the preferences of a household.
2015/5 (OAU, IFE)
A utility function is homothetic, if
A. the marginal utility depends on the average of the goods
B. the total utility depends on the sum of the goods
C. the marginal rate substitution for the function depends
only on the ratio of the amount of the two goods
D. the MRS for the function depends on the total quantities
of the two goods
Answer
The marginal rate substitution for the function depends
only on the ratio of the amount of the two goods (C)
Hint: In consumer theory, a consumer’s preferences are
called homothetic if they can be represented by a utility
function of degree 1 (i.e have a constant returns to scale).
146
If the MRS depends only on the ratio of the amounts of two CONSUMER’S SURPLUS
goods, not on the quantities of the goods, the utility function A consumer’s surplus is a direct consequence of marginal
is homothetic and for perfect substitutes, MRS is the same at utility. It is defined as the difference between the price a
every point. consumer budgets to pay for a commodity and the actual
price he paid for it. Assuming that you are willing to pay
THE BUDGET LINE as most as ₦1,500for trousers which you consider to be
Budget line shows the quantity of goods and services that a vital for your international travels, If you get to the market
household can afford to buy given its money income and the and eventually buys it at the price of ₦900, you get a
prices of the commodities. surplus satisfaction of ₦600 (i.e. ₦1,500 - ₦900 = ₦600).
This analysis explains the constraints facing a household with
respect to its income and the prices of commodities
Number of Price Actual Consumer’s
Books consumer is price paid surplus (₦)
Optimum consumption point for the consumer is where the
willing to pay (₦)
budget line touches (i.e. ‘tangential’ to) the highest possible
1 1500 900 600
indifference curve. This is at a point on the diagram,(X1, Y1).
2 1200 900 300
At any point, along the budget line, the consumer would get a
3 900 900 0
lower level of utility. The diagram is as shown below
4 600 900 -300
5 300 900 -600
Based on the law of demand, you will buy the trousers up
to the point where the market price of it equals the price
you actually pays. You will buy 3 trousers and at this point
consumer’s surplus is zero.
Total amount paid for 3 trousers
= ₦900 + ₦900 + ₦900 = ₦2,700
Total amount he is willing to pay
= ₦1,500 + ₦1,200 + ₦900 = ₦3,600
Consumer’s surplus = ₦3,600 - ₦2,700 = ₦900
The consumer’s surplus is the different between the price
the consumer is willing to pay for the trousers, and its
Px
The slope of the budget line = Py market price. The consumer has no surplus where he is
prepared to pay less than the market price.
ASSUMPTIONS OF BUDGET LINE
1. One commodity could be substituted for another.
2. The consumers’ money is constant.
3. The prices of the commodities is constant.
4. The consumer spends all his money income on the
commodities.

2014/12 UTME
The budget line is caused by a
A. fall in consumer income B. change in consumer taste
C. fall in commodity relative price D. rise in the
commodity relative price
Answer
Rise in the commodity relative price (D)

2001/3 UTME
At consumer equilibrium, the slope of the indifference curve
is
A. half the slope of the budget constraint line
B. equal to the slope of the budget constraint line
C. greater than the slope of the budget constraint line
D. less than the slope of the budget constraint line
Answer
Equal to the slope of the budget constraint line (B)

Hint: It is important to note, at the point of equilibrium,

Slope of the budget line = Slope of the indifference curve.
147
This can be represented in a diagram as shown below

Consumer’s Surplus

148
2011/6 UTME No one need to tell the consumer what he should buy.
A consumer surplus measures the Within the limits of his income, his knowledge, and what
A. benefits derived from consuming a cheap commodity he prefers. Whichever commodities he chooses to spend
B. excess of total expenditure over total utility his income on, he adds choice. This demand becomes part
C. difference between marginal utility and marginal cost of the total market demand.
D. excess of marginal utility over price
Answer Since prices are determined by the forces of demand and
Excess of marginal utility over price (D) supply, the things which consumers demand the most will
command the highest prices – particularly if they are
scarce. These high prices, in increasing the supply of the
goods so demanded, rather than the supply of the goods
that are less demanded. In this way, production is guided
2010/14 UTME by the consumption of each individual.
If a consumer plans to spend 120k on four oranges but If the system described above is to achieve the maximum
spent 80k, his consumer surplus satisfaction of consumers, or their greatest welfare, they
A. ₦1.50 B. ₦1.00 C. ₦0.40 D. ₦2.00 must be well informed about the goods available so as to
Answer make wise choices. There is a principle of economics
Consumer surplus = 120k – 80k which may be applicable here. It is called the “principle of
Consumer surplus = 40k want selection”, it states that wants should be provided for
₦0.40 (C) in the order of their importance, or (to put it negatively) no
want should be satisfied if a more important want is
1998/14 UTME Exercise 7.7 thereby excluded.
Obstacles to the fulfilment of consumers’ sovereignty
The consumers’ sovereignty and the principle of want
selection are ideal concepts. In real life, a number of
obstacles hinder their fulfilment. The following are some of
the main obstacles to the fulfillment of the consumers’
sovereignty.
Consumers’ Ignorance and Folly
The average person, even in an advanced economy, is still far
from having the wisdom necessary to utilize his income in the
manner most conclusively to his welfare. Often, even people
who know what is good for themselves do not act upon that
The shaded triangle in the diagram above is known as knowledge. The result of this ignorance and weakness is a
A. excess supply B. consumer surplus C. excess great deal of unwise consumption.
consumption D. producer surplus
Lack of Standardization of Goods
The lack of standardization of goods prevents consumers
from knowing the quality of the things they buy. Suppose a
CONSUMER’S SOVEREIGNTY customer id desirous of purchasing a pair of shoes. He sees in
The consumer plays an important role in determining what the various shoe stores a number of similar pairs sold at
should be produced in a competitive economic system. different prices. How he to tell what is the best bargain for his
This is the concept of consumers’ sovereignty. We shall money?
examine briefly the obstacles to the fulfilments of the
consumers’ role in pricing and what the state or Advertising
government can do to protect or guide consumers in a The influence of advertising on the consumer, often
world that is full if imperfections. promotes the sale of unneeded or even harmful goods.

Consumers are said to be sovereign in a free or THEORY OF PARADOX OF VALUE

competitive economic system. This means that, (WATER AND DIAMOND PARADOX)
collectively, though unknowingly, they determine the The issue of value was once of immense concern to early
allocation of resources in that system of society. This economists. It took them 200 years to resolve the problem
created by paradox of value. Paradox of value is the apparent
means that by making the choices they do in spending their
contradiction in the observed fact that some absolute
incomes, the consumers set the direction that the
necessities to life are cheaper in price.
production of goods and services should take.

149
While some relatively unimportant luxuries are very (c) How many oranges and apples will he buy in order to
expensive, some important items that cannot be dispensed maximize his utility?
with are relatively cheap. In water and diamond paradox, it (d) How much will he spend on the fruits?
was observed that “while diamond that can disappear from (e) What should he do if his marginal utility (MU) of
the earth without necessarily causing any upset is priced very orange is 35 utils?
high, water which is very necessary to life is priced very
low”. With the view to resolving this apparent paradox, early 2014/2015/22 (UNIZIK, AWKA) Exercise 7.9
economist were able to identify that demand and supply plays Utility means
a very vital role in determining prices in a free market A. usefulness B. power of satisfaction of want
economy. C. beneficial D. advantageous E. consumable
In the case of “Water and Diamond, water has a great value in
use, but with a general low exchange value, whereas diamond 1992/4
has how much low value in use, but has a high exchange As consumption increases after a point, marginal utility
value. Again, the total utility of water is high, while its A. remains constant B. increases C. disappears
marginal utility is low. In other words, the supply of water D. diminishes E. reappears
exceeds its demand so its price should be low. On the other Answer: Diminishes (D)
hand, the demand for diamond is relatively higher than the
supply. Again, while the marginal utility of demand tends to 2006/29 Neco Exercise 7.10
be very high, the total utility is very low. Therefore, diamond The satisfaction derived from the consumption of a bottle
is bound to be priced far higher than water, hence the paradox of fanta is known as
of water and diamond. A. commodity B. enjoyment C. quantity
D. rationality E. utility
2015/14
In order to calculate total utility (TU) from a given level of 2012/12 UTME
marginal utility (MU), one has to When the slope of the total utility curve is declining the
A. subtract MU from TU B. add MU from the various marginal utility of consumer will be increasing if he
levels C. multiply MU by the initial TU A. stops consuming more of the commodity
D. divide current MU by previous MU B. reduces the quantity consumed
Answer C. increases the quantity consumed
Add MU from the various levels (B) D. consume more of another commodity
Answer
2013/49 Neco Increases the quantity consumed (C)
The satisfaction that a consumer derives from consuming a
commodity or service at any particular time is known as 2013/12 UTME Exercise 7.11
A. consumption B. effective demand Utility is the satisfaction derived from the
C. consumer’s surplus D. production E. utility A. distribution of goods and services
Answer B. use of goods and services
Utility (E) C. demands of goods and services
D. production of goods and services
2018/19 NABTEB
The marginal utility derived from the increasing units of a 2015/9 UTME
commodity consumed will In the theory of consumer behaviour, the sum of all
A. increase at an increasing rate marginal utilities is
B. increase at a decreasing rate C. continue to decrease A. average marginal utility B. the initial marginal utility
D. decrease at constant C. total utility D. diminishing marginal utility
Answer: Continue to decrease (C) Answer
2011/2 Neco (Adjusted) Exercise 7.8 Total utility (C)
An orange cost ₦10 and an apple cost ₦5. The first orange Hints: Total utility is the total satisfaction derived from
consumed by Musa yielded marginal utility (MU) of 55 utils consuming sum of quantities of any commodity or service.
and at every subsequent consumption of an orange the It is the sum of the marginal utilities from the consumption
marginal utility (MU) diminishes by 5 utils while the first of a commodity.
apple consumed by him yielded 50 utils and at every
subsequent the marginal utility (MU) diminishes by 10 utils. 1997/10 Nov Exercise 7.12
The satisfaction derived by an individual from consuming
(a) Present this in marginal utility (MU) schedule to the
one additional unit of a commodity is known as
fifth orange and apple purchased.
A. marginal cost B. marginal output
(b) At what level of consumption will Musa maximize
C. marginal utility D. diminishing utility
his utility
E. increasing utility

150
2002/3 Nov 2017/2018/21 (UNIZIK, AWKA)
Households are assumed to maximize Utility is the satisfaction derived from
A. investments B. utility C. profits D. production A. production B. distribution C. demand
Answer: Utility (B) D. consumption
Answer: Consumption (D)
2003/29 Neco
What is meant by utility? 2010/1 (OAU, IFE) Exercise 7.13
A. amount of money derived by a manufacturer In Economics, the pleasure, happiness or satisfaction received
B. a number of things a consumer will enjoy at a time from a product is called
C. amount of satisfaction derived from the consumption of A. marginal cost B. rational outcome
a commodity at a particular time C. status fulfillment D. utility
D. amount of satisfaction given to a producer
E. total profit producers will get at a particular time 2018/37 Neco
Answer The satisfaction a consumer derives from consuming
Amount of satisfaction derived from the consumption of a additional unit of a commodity is called
A. average utility B. consumer’s surplus
commodity at a particular time (C)
C. marginal utility D. total utility E. utility maximization
2003/30 Neco Answer: Marginal utility (C)
Utility maximization about 2012/36 Neco
A. achieving greatest satisfaction from the right item What is the marginal utility derived from the consumption of
bought the fourth unit of item?
B. achieving greatest satisfaction from limited resources Units TU
C. achieving less satisfaction from more resources 1 10
D. deriving equal satisfaction from the last unit from 2 12
money spent 3 16
E. deriving more satisfaction from the last item bought 4 16
Answer 5 15
Deriving equal satisfaction from the last unit of money A. 0 B. 1 C. 2 D. 16
spent (D) Answer: 16 (E)

2002/33 Neco 2012/37

Mr. Ajayi is prepared to pay ₦50 to be served a plate of Study the table below and answer the question that follows:
garri but unwilling to pay the same price for a second plate Price Qty dd Qty ss
of garri because of the law of 1 10 0
A. diminishing return B. diminishing marginal utility 2 9 1
C. diminishing total utility D. increasing return to scale 3 8 2
E. upward sloping demand curve 4 7 3
Answer: Diminishing marginal utility (B) 5 6 4
6 5 5
2013/35 & 36
7 4 6
Use the table below to answer questions 35 and 36
8 3 7
Quantity Total Average Marginal
9 2 8
Utility Utility Utility
At what price is equilibrium of both quantity demanded and
1 10 10 10 supplied established?
2 16 8 6 A. 4 B. 5 C. 6 D. 7 E. 10
3 18 X Y Answer
What is the value of X? 6 (C)
A. 4 B. 6 C. 8 D. 100 E. 12
Answer 2015/8 NABTEB
TU 18 (a) State the law of diminishing marginal utility.
AU = X = = = 6 (B)
Q 3 (b) Using suitable illustration, explain the law of diminishing
2013/36 Neco marginal utility.
Find the value of Y? Answer
a. The law of diminishing marginal utility states that the
A. 2 B. 6 C. 8 D. 10 E. 12
amount of satisfaction derived from additional units of a
Answer commodity decreases as the consumer increases his
MU = TU3 – TU2 = 18 – 16 = 2 (A) consumption of the commodity.

151
b. The law of diminishing marginal utility explained with a 1990/12 UTME
suitable illustration The law of diminishing marginal utility indicates that if a
consumer increases his consumption of a commodity
Units of X Tu Mu
continuously, his
0 0 0
A. total utility must fall B. marginal utility must fall
1 10 10 C. marginal utility may rise even though his total utility is
2 19 9 falling
3 26 7 D. marginal utility may fall even though his total utility
4 31 5 may be rising
5 34 3 Answer: Marginal utility must fall (B)
6 36 2
7 36 0 2001/38 Neco
8 35 -1 The satisfaction which a consumer derives from the
consumption of a commodity is known as
As increasing units of commodity are consumed, total A. indifference schedule B. isoquant C. isocost
utility increases while marginal utility decreases D. social benefit E. utility
continuously. Total utility increases up to unit 7 where it Answer: Utility (E)
reaches its maximum point. Over this range, utility
continues to fall. 2001/39 Neco
At the maximum point of the total utility, marginal utility Use the table to answer question 39 and 40.
falls to zero. A further increase in the units consumed Quantity of beer Total utility Marginal utility
beyond the maximum total utility point makes the total consumed
utility to fall and marginal utility becomes negative. 0 0 0
1 10 10
1979/13 UTME 2 16 ?
By utility we mean 3 ? 4
A. usefulness B. power of satisfying a want
What was the total utility when the 3rd bottle of beer was
C. beneficial D. advantageous E. consumable
consumed?
Answer: Power of satisfying want (B)
A. 24 B. 22 C. 20 D. 17 E. 14
Answer: 16 + 4 = 20 (C)
1979/49 UTME
In most cases, the marginal utility derived from a 2001/40 Neco
particular good What was the marginal utility when the bottle of beer was
A. increases, as additional units are consumed consumed?
B. increases at a decreasing rate as additional units are A. 8 B. 6 C. 5 D. 4 E. 2
consumed Answer: 16 – 10 = 6 (B)
C. decreases at a constant rate as additional units are
consumed 2010/12
D. decreases as additional units are consumed The law of diminishing marginal utility states that, the
E. remains constant as additional units are consumed more a commodity is consumed the
Answer: Decreases as additional units are consumed (D) A. higher the price to be paid
B. lower the quantity supplied
1980/12 UTME C. lower the quantity supplied
Utility of a commodity means D. lowers the rate of increase in the total utility derived
A. its usefulness B. power to satisfy a want Answer
C. price of the commodity D. satisfaction derived from Lower the rate of increase in the total utility derived (D)
the production of a commodity E. its adaptability
Answer: Power to satisfy a want (B) 2009/31 Neco
The additional satisfaction derived from the consumption
1988/16 UTME of one more unit of goods is called
If all goods were free, a rational consumer would consume A. marginal cost B. marginal product
A. an infinite amount of each good C. marginal revenue D. marginal utility E. total
B. the amount where marginal utility become zero utility
C. the same amount as when goods had a price Answer: Marginal utility (D)
D. the amount where marginal utility was the greatest
Ans: The amount where marginal utility was the highest (D)

152
2012/35 Neco 1992/5
The additional utility a consumer derives from the Mu𝑥 𝑝𝑥
= 𝑝𝑦where Mux = marginal utility of commodity x
consumption of an extra unit of a particular commodity is 𝑀𝑢𝑦

referred to as Muy = marginal utility of commodity y

A. average utility B. consumer surplus C. marginal Px = price of x
utility D. total utility E. utility maximization py = price of y
Answer: Marginal utility (C) The above equation is known as the
A. marginal utility theory of price
2007/29 Neco B. consumers optimal utility level
Muy py C. utility maximization equation
The function Muz = pz represents D. diminishing marginal utility equation
A. consumers average utility level B. diminishing E. increase marginal utility equation
marginal utility C. increasing marginal utility Answer
D. marginal theory of price E. utility maximization Utility maximization equation (C)
Answer: Utility maximization (E)
2017/14
2007/34 Neco A rational consumer will purchase a commodity whose
At the point where total utility begins to decline MU is price is
A. constant B. decreasing C. increasing D. negative A. greater than his marginal utility
E. zero B. less than his marginal utility
Answer: Negative (E) C. equal to his marginal utility
D. equal to his total utility
2007/35 Exercise 7.14 Answer: Equal to his marginal utility (C)
Given the utility table
Qty TU MU 2017/6
2 30 A Another term for equilibrium price is
4 50 20 A. price floor B. demand price C. market clearing price
6 120 70 D. satisfactory price
Answer: Market clearing price (C)
8 130 10
What is the marginal utility for A? 2020/11
A. 0 B. 10 C. 20 D. 30 E. 40 In consuming one commodity, the consumer is in equilibrium
when
2009/19 A. marginal utility equals price
A consumer maximizes his utility in consuming a good x B. marginal utility is above the price
when C. total utility diminishes quickly
A. Mux = Px B. Px >Mux C. price is falling D. average utility is measured in utils
D. Mux > px Answer: Marginal utility equals price (A)
Answer
Mux = Px (A) 2010/1 Exercise 7.15
The table below represents a traveller’s consumption of
1992/3 Nov bottles of coca –cola. Study the table carefully and answer the
Which of the following is a market situation above the questions that follows.
equilibrium? No. of bottles Total utility Marginal utility
A. demand being greater than supply 1 15 15
B. demand being equal to supply 2 29 F
C. supply being greater than demand 3 42 13
D. many sellers being present in the market 4 D 12
E. many buyers being present in the market 5 65 G
Answer: Supply being greater than demand (C) 6 75 H
7 E 0
1992/4 Nov (a) Complete the missing figures D, E, F, G and H.
As consumption increase after a point, marginal utility (b) Draw the demand curve for the traveller’s consumption
A. remains constant B. increases C. disappears of coca – cola (the use of graph sheet is essential)
D. diminishes E. reappears (c) Explain the law of diminishing marginal utility as the
Answer basis for the slope of the traveller’s demand curve.
Diminishes (D)

153
2008/31 Neco 2008/11 UTME
The amount of satisfaction derived from the consumption of a As long as marginal utility is positive, total utility must be
commodity is measured in A. negative B. increasing C. zero D. decreasing
A. kilograms B. percentages C. ratios D. tones Answer: Increasing (B)
E. utils
Answer: Utils (E) 2008/12 UTME Exercise 7.18
Diminishing marginal utility implies that
2015/17 Exercise 7.16 A. total utility increases as consumption increases
The law of diminishing returns relates to B. marginal utility decreases as consumption increases
A. total utility B. average utility C. total product C. marginal utility decreases as consumption increases
D. marginal product D. marginal utility decreases as consumption decreases
1997/1 UTME 2009/10 UTME
With a given level of money income, a consumer maximizes A major assumption in cardinal utility theory is that
satisfaction from the consumption of goods and services A. utility is measurable B. utility is not measurable
when the C. total utility equals marginal utility
A. total utility derived from each goods or services is D. total utility is constant
increasing at an increasing rate Answer: Total utility is constant (D)
B. marginal utility derived from each good or service is
increasing at the same rate 2010/11 UTME
C. marginal utility derived per naira spent is the same for all Consumer surplus tends to be higher when demand is
the goods and services A. perfectly elastic B. inelastic C. elastic
D. total utility derived from all the goods and services is large D. unitary elastic
Answer Answer: Elastic (C)
Total utility derived from each goods or services is increasing
at an increasing rate (A) 2010/12 UTME
One of the assumptions of ordinal utility theory is that
1991/4 UTME A. choice is not consistent B. total utility is a function of
A utility maximizing household will allocate its expenditure so price C. utility can be ranked D. satisfaction is
that measurable
A. more naira is spent on commodities with the highest utility Answer: Satisfaction is measurable (D)
B. less naira is spent on commodities with the lowest utility
C. the utility of the last naira spent on each commodity is equal 2010/13 UTME
D. the amount spent on each commodity is equal The law of diminishing marginal utility explains why
Answer A. the slope of a normal demand curve is negative
The utility of the last naira spent on each commodity is equal (C) B. the slope of a normal demand curve is positive
C. an abnormal demand curve slopes upwards
2003/3 UTME Exercise 7.17 D. the consumption of inferior goods increases with
Utility is the satisfaction derived from income
A. production B. distribution C. consumption Answer: The slope of a normal demand curve is positive (B)
D. demand
2017/35 UTME
2005/32 UTME Cup of milk taken Total utility Marginal
When the marginal utility of a commodity is zero, the total Utility
utility is 1 18 18
A. at its minimum B. upward sloping 2 24 6
C. downward sloping D. at its maximum 3 29 5
Answer 4 X 3
At its maximum (D) 5 34 Z
6 35 1
2006/46 UTME 7 35 0
If the marginal utility of goods X exceed that of goods Y From the table above, what is the value X?
this implies that A. 32 B. 35 C. 34 D. 30
A. X will be cheaper than Y B. Y is an inferior goods
C. consuming more of X will increase total utility Answer
D, a rational consumer will buy less of X Total utility is the cumulative marginal utility derived from
Answer the consumption of successive units of a commodity.
Consuming more of X will increase total utility (C) X = 29 + 3
X = 32 (A)
154
2018/38 UTME Exercise 7.19 2006/16 (OAU, IFE)
Utility is the satisfaction derived from The creation of utility can be referred to as
A. production B. distribution C. consumption A. value added B. profit marginalization C. production
D. demand D. entrepreneurship
Answer
2005/29 UTME Value added (A)
If the marginal utility of the last unit of commodity X at
₦2 is 16 and that of commodity Y at ₦4 is 24, the 2016/1 NABTEB Exercise 7.20
consumer will be at equilibrium when Given the following utility schedule for the oranges
A. the price quantity ratios are equal consumed by an individual
B. equal amount of of X and Y are consumed Quantity Total Utility Marginal
C. loss of Y and more of X are consumed consumed (TU) Utility (MU)
D. less of X and more of Y are consumed 0 0 0
Answer 1 10 10
Less of X and more of Y are consumed (D) 2 16 (a)
3 (b) 4
1987/26 UTME 4 (c) (d)
In which of the diagrams below is the consumer surplus 5 23 1
correctly shaded? 6 23 (e)
A. I B. II C. III D. IV i. Find the values of (a), (b), (c), (d) and (e).
ii. Using the completed table, draw the TU and MU
curves on a group.
iii. At what quantity does TU equals MU?
iv. What is the value of MU when TU reaches the
maximum?
v. What happens to MU as consumption increases?
vi. Given two commodities Qx and Qy with prices Px and
Py, state the condition for utility maximization.

Answer
IV (D)
2010/4 (OAU, IFE)
When economists say that people act rationally in their
interest, they mean that individuals:
A. look for and pursue opportunities to increase their
utility
B generally disregard the interest of others
C. are mainly creatures of habit
D. are unpredictable
Answer
Look for and pursue opportunities to increase their utility (A)

2008/10 (OAU, IFE)

Which of the following is not a basic assumption
underlining the theory of consumer behaviour?
A. consumers prefer more to less
B. consumers are rational C. consumers are willing to
make choices D. consumers make consistent choices
Answer
Consumers make consistent choices (D)
2013/17 (OAU, IFE)
A total utility increasing, marginal utility is
A. negative and decreasing B. positive and increasing
C. positive and decreasing D. zero
Answer
Positive and decreasing (C)
155
 1992/19 Nov
THEORY OF PRICE DETERMINATION Which of the following best describes market?
Price refers to the amount of money paid per unit for a good or A. a place where buying and selling takes place
service. All goods and services which are exchanged between B. contacts of buyers and sellers through the mass media
buyers and sellers in competitive markets have prices. C. a place where a lot of foodstuff can be bought and sold
Equipment, tools, gift items, houses, vehicles, clothes, shoes, D. a designed place where farmers meet
consumer goods of various kinds and so forth have prices. E. any means, place or system whereby buyers and sellers
Similarly, services such as rents, transportation, education, health can transact business.
care, security, consultancy and so forth have market prices. Answer
These market prices are determined through the interaction of Any means, place or system whereby buyers and sellers
demand and supply, which is known as Price System or Price can transact business (E)
Mechanism.
Price system refers to the various methods through which METHODS OF PRICE DETERMINATION IN AN
market prices are determined in an economy between ORGANIZED MARKET ECONOMY
buyers and sellers. For without an effective and efficient The various methods through which prices can be
price system, it will be extremely difficult for exchange to determined between buyers and sellers in an economy are
take place in any economy. as follows:
1. Free market economy or capitalist economy: In this
1993/28 type of economy, market price is determined by the
The price system is forces or interaction of demand and supply.
A. the market price of commodities 2. Socialist or centrally planned Economy: Here, the
B. a market where a single price rules state or government determines prices through the
C. a system of price allocation to the products of the same firm principle of welfarism.
D. a system of resource allocation through supply and demand 3. Monopoly market: In this type of market, price is
interactions determined by the monopolist.
E. a system by which the market price is determined only 4. Mixed Economy: The price of public goods is
through haggling determined by government while those of private
Answer goods is determined by market forces.
A system of resource allocation through supply and demand 5. Competitive or perfect market: Like free market
interactions (D) economy, price is determined in a competitive market
through the interplay of demand and supply.
1996/5 Nov
The major function of the price mechanism is to
PRICE DETERMINATION UNDER FREE OR
A. enable producers to make the highest profits
PERFECT COMPETITION MARKET
B. ensure that the consumer is king
Price determination implies how the price of a commodity
C. ensure that all consumers buy the same quantity of goods
is determined in the market. In a free market economy or
D. allocate scarce resources among competing ends
perfectly competitive market, prices are determined by the
E. restrict the demand of consumers
interaction of the forces of demand and supply. The
Ans: Allocate scarce resources among competing ends (D)
theories of demand and supply are used in understanding
CONCEPT OF THE MARKET the behaviour of market agents in determining market
A market refers to any arrangement process, system or prices, and setting this prices through their interaction to
organization which brings buyers of goods or services into close attain the equilibrium price. This is the price at which the
contact for the purpose of buying and selling. The forces of quantity demanded equals the quantity supplied, at this
demand and supply referred to as market forces interact to point there is no shortages or surpluses.
determine the prices of goods and services.
This concept is well treated under the topic “Market Structures”. 2003/20 Neco
2006/21 Nov In a free market economy, wages are determined by
The term market means A. the employees B. the employers C. trade unions
A. a geographical location where goods are sold D. interaction of demand and supply forces
B. selling of goods to customers E. the government
C. a formal arrangement that precedes sale of goods and services Answer
D. a medium which brings buyers and sellers together for Interaction of demand and supply forces (D)
exchange
Answer
A medium which brings buyers and sellers together for
exchange (D)
156
EQUILIBRIUM POINT (iii) “The price at which the quantity of the commodity
This is the point on a joint demand and supply diagram at demanded is equal to the quantity supplied” is known
which demand and supply curves intersect each other. as the Equilibrium Price. In th Figure above the
Equilibrium price and quantity give rise to equilibrium equilibrium price is OP0
point. (iv) At the equilibrium price, there is neither surplus nor
The price is determined by the interaction of the forces of shortage of eggs.
demand and supply. The forces of demand acts through (v) At any price higher than the equilibrium price e.g.
buyers while that of supply acts through the sellers. OP1, buyers will buy less eggs. At that price level,
supply is greater than demand and there is surplus
THE EQUILIBRIUM QUANTITY supply. This surplus will force price to fall.
This is the quantity at which demand equals supplythat (vi) At any price lower than the equilibrium price,
gives us the equilibrium market price. consumers will buy more goods but the producers who
This simply means that all the quantities of the commodity may not be covering cost will reduce supply. For
offered for sale were totally sold and there is neither example at the price level OP2, supply is less than
unsatisfied buyer nor seller. demand. The shortage will compel buyers to pay
higher price and the price will rise and encourage
EQUILIBRIUM PRICE producers to increase production. Therefore, prices
Equilibrium market price is the price at which the quantity adjust themselves so as to equate supply with demand.
of the commodity, which the buyers are willing and able to
buy, equals the quantity of that commodity which the EQUILIBRIUM OF DEMAND AND SUPPLY
sellers are willing and able to offer for sale. The In the curve of demand and supply, there exists a point of
equilibrium price is the price at which the quantity equilibrium which denotes a state of balance. The
demanded of a commodity is equal to the quantity supplied equilibrium is the point where the demand curve and the
to the market. The equilibrium price is also known as supply curve cross each other. At that point, the quantity
market clearing price as is favourable to both the buyer demanded is equal to the quantity supplied. Put in the form
and the seller. of an equation, at the point of equilibrium.
Demand = supply.
Under perfect competition, the equilibrium price is the
market price for a commodity and it is determined by the DEMAND AND SUPPLY SCHEDULE FOR BOOKS
interaction of the forces of demand and supply. Price (₦) Quantity demanded Quantity supplied
5 50 10
10 40 20
15 30 30
20 20 40
25 10 50

In the above diagram, the equilibrium price is OP0 while

the equilibrium quantity is OQ0. At the equilibrium point
(E), the forces of demand and supply are equal, hence the
quantity both demanded and supplied are equal (i.e. OQ0 at
the equilibrium price OP0).
The analysis of the diagram shows the following
(i) Supply and demand curves intersect at E. This point of
intersection is known as the ‘Equilibrium Point’. The
point E is neither the equilibrium price nor the
equilibrium quantity.
(ii) At equilibrium, the quantity demanded is equal to the
quantity supplied. This quantity which is OQ0 in the
figure above is known as the equilibrium quantity.

157
The equilibrium point is denoted at E. Point E correspond 1991/28
to the equilibrium price which is ₦15 and the equilibrium If the equilibrium price falls by ₦2.00, what will be the
quantity of 30 number of books. For any price above change in quantity demanded and supplied?
equilibrium, there is excess supply because sellers are A. 7,000 and 6,000 bags respectively
willing to supply more quantity at a higher price. This B. 6,000 and 4,000 bags respectively
situation would make sellers dispose their output and bring C. 5,000 and 4,500 bags respectively
them to the market. As that happens there is a downward D. 3,000 and 3,000 bags respectively
pressure on price which then steadily reduces such a E. 2,000 and 2,000 bags respectively
situation as this is sometimes described as a buyer’s Answer
market. At equilibrium, quantity demaded = 7,000
If the equilibrium price falls by ₦2.00, the quantity
At any point below the equilibrium, demand overweight demanded will be 13,000
supply because consumers are willing to purchase more at Change in quantity demanded = 13,000 – 7,000 = 6,000
lower prices but suppliers are willing to supply less at that At equilibrium, quantity supplied = 7,000
lower price. This exerts an upward pressure on price which If the equilibrium price falls by ₦2.00, the quantity
then steadily rises. Such a situation gives rise to what is supplied will be 3,000
sometimes described as a seller’s market. Change in quantity supplied = 7,000 – 3,000 = 4,000
The equilibrium price and quantity may change as a result 6,000 and 4,000 bags respectively (B)
of the following.
(i) If a change in supply occurs without a corresponding
change in demand. 2015/5
Which of the following will not affect the market price of
(ii) If a change in demand occurs without a
a commodity?
corresponding change in supply and
A. increase in demand B. change in tastes
(iii) If simultaneous changes in supply and demand
C. intersection of demand and supply
occurs.
D. increase in supply
Answer
1992/11
Intersection of demand and supply (C)
The market price of a commodity is determined by the
A. total number of people in the market
B. total demand for the commodity 2003/31 Neco Exercise 8.1.
C. quantity of the commodity supplied Equilibrium price is
D. interaction of demand and supply E. law of demand A. a price which equates demand with supply
Answer B. a price where there is excess demand
Interaction of demand and supply (D) C. where consumers gain much
D. where producers gain much
E. where supply is more than demand
1991/27
Use the following market schedule for semovita to answer 1992/5
question 27 and 28. The equilibrium price of oranges is 50k. If for some
Price per kg Quantity demanded Quantity supplied reasons the price rises to 60k, there will be
bag in bags in bags A. excess demand B. excess supply
₦3.00 15,000 1,500 C. shortage in the market D. many buyers in the market
₦4.00 13,000 3,000 E. no buyers in the market
₦5.00 10,000 6,000 Answer
₦6.00 7,000 7,000 Excess supply (B)
₦7.00 5,000 9,000
₦8.00 4,000 12,000 2010/9 Exercise 8.2.
₦9.00 2,000 14,000 Equilibrium prices is the price at which quantity
What is the equilibrium price? A. demanded is greater than quantity supplied
A. ₦5.00 B. ₦6.00 C. ₦7.00 D. ₦8.00 E. ₦9.00 B. supply is greater than quantity demanded
Answer C. demanded is equal to quantity supplied
₦6.00 (B) D. supply equals quantity produced
Hint:The equilibrium price is the price at which the
quantity demanded of a commodity is equal to the
quantity supplied to the market.

158
THE EFFECT OF CHANGES IN SUPPLY AND EFFECT OF A CHANGE IN SUPPLY ON
DEMAND ON EQUILIBRIUM PRICE AND QUANTITY EQUILIBRIUM PRICE
If a decreased change in supply occurs without a corresponding A. A RISE IN SUPPLY
change in demand then, equilibrium price will increase and A rise in supply is an outward shift of the supply curve
equilibrium quantity will decrease. An increase change in supply from SS to S1S1. While the demand curve maintains its
without a corresponding change in demand will lead to converse position, the supply curve moves towards the right hand
result that is equilibrium price will fall, but equilibrium quantity
side. The immediate effect is a surplus (equal to the
will increase.
horizontal distance between the supply curves) at the
EFFECT OF A CHANGE IN DEMAND ON ruling price PE2. This surplus forces price downwards to
EQUILIBRIUM PRICE PE1. This movement establishes a new equilibrium point
A. A RISE IN DEMAND E1 which corresponds to a new quantity QE1 and new
A rise in demand is an outward shift of the demand curve from equilibrium market price PE1. This situation conforms to
DD to D1D1. While the supply curves maintains its position, the the normal economic market prediction that in the short
immediate effect of a rise in demand is to cause a shortage run, other things being equal, an increase in supply will
(equal to the horizontal distance between the demand curves) at
lower the price and this in turn will cause an increase in
the ruling price PE1. This shortage exerts an upward pressure on
the equilibrium point. As a result, the equilibrium point moves demand.
from E1 to E2 establishing a new price PE2 and new quality QE2.
The new price and quantity are higher than the previous PE 1 and
QE1. This situation conforms to the normal economic market
prediction that in the short run, other things being equal, an
increase in demand will raise the market price and this in turn
will cause a rise in supply.

Effect of a rise in supply on equilibrium price

B. A FALL IN SUPPLY
A fall in supply is the leftward shift of the supply curve
from SS to S1S1. However, the demand curve remains
fixed to its position. As the supply falls from SS to S1S1,
Effect of a rise in demand on equilibrium price there will be excess demand at ruling price PE1, (equal to
B. A FALL IN DEMAND the horizontal distance between the supply curves). This
A fall in demand is an inward shift in the demand curve from will cause the market price to rise to a new equilibrium
DD to D1D1. The demand curves moves to the lefthand side of price PE2. This higher price causes a reduction in quantity
its initial position. While the supply curve maintains its position, demanded. The movement of the supply curve establishes
the immediate effect of a fall in demand is to cause a surplus a new equilibrium position E2. E2 corresponds to a new
(equal to the horizontal distance between the demand curves) at quantity supplied QE2 and a new equilibrium market price
the ruling price PE1. This surplus exerts a downward pressure on PE2. With a new supply curve at S1S1 the quantity supply
the equilibrium point E2. The quantity demanded reduces from decreased while the price increased. This situation
QE2 to QE1 and a new equilibrium is established at E1. This conforms to the normal economic market prediction that in
causes a reduction in equilibrium price from PE 2 to PE1. This
the short run, other things being equal, a fall in supply will
situation conforms to the normal economic market prediction
that in the short run, other things being equal, a decrease in raise the price and cause a reduction in demand.
demand will lower the price and cause a reduction in supply.

Effect of a fall in demand on equilibrium price Effect of a fall in supply on equilibrium price

159
THE LAWS OF DEMAND AND SUPPLY The diagram above shows the effect of establishing a minimum
The following are the laws of demand and supply. price. The equilibrium price is initially at P 1. Setting a minimum
First law: The higher t/e price, the lower the quantity price pushes it up to P2. This causes supply to increase while
demanded and the lower the price, the higher the quantity demand decreases at the same time, both effects being caused by
the raised price. A surplus supply of Q3 – Q1 therefore develops.
demanded.
This surplus acts to depress the price. To maintain this minimum
Second Law: The higher the price, the higher the quantity price however, the Government or its official organ charged with
supplied and the lower the price, the lower the quantity such a responsibility will necessarily have to purchase the
supplied. surplus supply. If this does not happen, a glut develops in the
market and the price will soon fall. Other means by which
Third Law: The process of adjustment rests at a point governments of rich nation maintain the minimum price in such
where demand and supply are equal. a situation include the destruction of the excess supply
particularly farm products; granting farmers cash payments in
Fourth Law: An increase in supply will ignite a fall in the exchange for cutting back production and offering the excess
market price and a rise in demand. supply as aid donations to poorer nations.
Fifth Law: A decrease in supply will ignite a rise in price
and a fall in demand. MAXIMUM PRICE LEGISLATION
This is also known as “price ceiling”. It arises where the
Sixth Law: An increase in demand brings about an government fixes the highest price, above which prices are
increase in price and a rise in supply. not expected to exceed. Price ceiling is usually made for
Seventh Law: A decrease in demand occasions a fall in the following reasons:
price and a decrease in supply. 1. To control inflation.
2. To protect the consumers from undue exploitation in
PRICE CONTROL
the hands of shy lock seller.
Price control is also known as price legislation.
3. To promote economic stability.
This occurs when the government or its agency make
4. To preserve the purchasing power of the local
policies to control the prices of goods and services so as to
currency.
promote economic stability. Thus, Price control involves
the influence of prices through legislations rather than
through market forces.
TYPES OF PRICE CONTROL
Price control could be classified into two types namely:
MINIMUM PRICE CONTROL: This is also known as
“rock bottom price” or “price floor”. It occurs where the
government fixes the lowest price below which the price
of finished goods and services are not expected to fall.
The rock bottom price is usually fixed for the following
i. To control deflation.
ii. To protect infant industries against shrinking profit Effect of maximum price on demand and supply
occasioned by fall in prices.
iii. To stimulate investment and production, through The diagram above describes what happens when a maximum
reduction in cost of production. price is P2 and the quantity demanded and supplied is Q2. When
the maximum price P1 (which is lower than P) is imposed, the
quantity demanded increases to Q3 but the quantity supplied
decreases to Q1. Therefore, a shortage of Q3 – Q1 is created.
Because of this situation of demand being in excess of supply,
producers may in turn hoard their products since the price is
actually maintained below the equilibrium price. These hoarded
products may be taken to the parallel market which will
offer more acceptable prices. In most cases, a binding
price ceiling is very likely to give rise to a black (or
parallel) market. At the parallel market, goods are sold
illegally at prices which are different from the official
mandated prices. This act institutes black marketeering.
An acceptable means will have to be found to allocate the
Effect of minimum price on demand and supply available supply to the consumers.

160
2005/21 Nov CONDITIONS PROMPTING BLACK MARKET
Government’s fixing of prices below the equilibrium point i. Licensure–Driven Black Market Conditions: The
is aimed at protecting the licensing restrictions that govenrments impose on
A. consumers B. producers C. distributors D. sellers numerous occupations cause some workers to enter the
Answer black market because they don’t want or can’t afford to
Consumers invest the time and money to obtain the required license.
For example, in New York City, one must purchase a
PRICE RATIONING license called a Medallion in order to legally operate a
Price rationing is the process by which the market system taxi business, the issuance of license is also obtainable in
allocates goods and services to consumers when the quantity Nigeria (Lagos). These licensing fee is so huge making
demanded exceeds quantity supplied. It is the limiting of them prohibitively expensive for most enterpreneurs. As
goods and services that are in high demand and short in a result, some people may choose to operate black market
supply. This is the practice of controlling the distribution of taxis without a license – at least, until they are caught.
goods or services in order to cope with scarcity. It is done to Ride sharing services like Uber have further splintered
ensure the proper distribution of resources without any the market for these types of businesses.
unwanted waste. ii. TRADE DRIVEN BLACK MARKET
CONDITIONS: It is note worthy that, sometimes the
Price rationing is a mandate of the government at local or participants in black markets do not want to act illegally,
federal levels, it can be undertaken in response to adverse but because they lack the ability to work legally and need
weather conditions, trade or import/export restrictions, or in to make money, they do not report their jobs or income to
more extreme cases during a recession or at war. Price the government. Such situations arise when illegal
rationing risk generating black market and unethical practices immigrants obtain jobs, For example when students
as people try to circumvent the austerity mandated by a travelling abroad obtain employment without acquiring a
ration. work visa or when children work in violation of
minimum age requirements.
HOW RATIONING WORKS iii. Regulations–Driven Black Market Conditions: Black
Rationing involves the controlled distribution of scarce goods markets can also appear when government imposed price
or services, which often includes food and other necessities ceilings create shortages. For example, if the government
for which there is a shortage, including materials needed for caps the price at which a grocery store may sell bottled
war acts such as rubber tires, leather shoes, clothing and fuel. water after a natural disaster, the store will quickly run
Rationing of food and water may also become necessary out of water. Vendors will then likely appear selling
during an emergency, such as natural disaster or terror attack. water at the higher prices people are actually willing to
According to the law of supply and demand, when the pay. This secondary market is a black market.
available supply of a good or service falls below the quantity
demanded, the equilibrium price rises, often to unaffordable Governments can also cause black markets through
levels. Rationing artificially depresses the price by putting overregulation. An extreme example can be found in
constraints on demand. Alternatively, price ceilings can be Cuba, where the rationing and ineffective central
imposed creating the need of rationing in order to maintain a planning of communism made it difficult to purchase the
certain level of supply. In any case, rationing generally results desired quantities of even basic products such as cooking
in shortages. oil. Black markets are rampant because citizens want to
buy things that are difficult to come by through legal
BLACK MARKETS (PARALLEL MARKETS) channels.
A black market is an economic activity that takes place
outside government–sanctioned channels. Black market iv. Economic Driven Black Market Conditions: High
transactions usually occur “under the table” to let participant unemployment can give rise to black markets. When workers
avoid government price control or taxes. The goods and cannot find jobs in the above ground economy, they may turn
services offered in a black market can be illegal; meaning to jobs in the underground economy. These jobs could be
their purchase and sales are prohibited by law, or they can be innocuous (harmless) as fixing a neighbour’s toilet (but being
legal but transacted to avoid taxes. paid in cash and not reporting the income to the tax authorities)
Examples of black market includes the sales of illegal drugs, or as serious as selling cocaines (where not only the sale of the
weapons, human trafficking and illegal wildlife trade. product itself but also the non-reporting of taxable income is
illegal).
IMPACT ON THE ECONOMY
Positive Impact: Black market do provide some benefits such as 1992/32
creating of job for those who may not be able to find employment in When the price of a commodity is fixed by law either below or
traditional markets and allowing access to medicine and healthcare above the equilibrium, the mechanism is known as
to those individuals that might not have had access otherwise. A. price determinants B. price control C. perfect market
Negative Impact:Black market can have a negative impact on D. equilibrium price E. market structure
economy because their activities is not reported and taxes are not Answer: Price control (B)
collected on the transactions.
161
1988/13 If p is in naira, equilibrium price = ₦4.00
Price control can be defined as the fixing by government of (b) To determine the equilibrium quantity, substitute
maximum or minimum prices of for p in any of the function.
A. luxury goods B. inferior goods If Qd = 20 – 2(4) = 20 – 8 = 12
C. imported capital goods D. certain selected goods Hence Qd = Qs; equilibrium quantity = 12
E. goods consumed by low income earners (c) At price of ₦8.00,
Answer: Certain selected goods (D) Qd = 20 – 2(8) = 20 – 16 = 4
Qs = 6p – 12 = 6(8) – 12
2017/5 = 48 – 12 = 36
Parallel markets are usually the result of
Excess supply at ₦8.00 = Qs – Qd
A. excess supply B. the activities of rich individual
= 36 – 4 = 32
C. price legislation D. inadequate information
Answer: Price legislation (C) Example EP 2
The supply equation for a product is given as S = 36P –
GOVERNMENT INTERVENTON 72, while the demand equation is given as D = 120 – 16P.
Price control is the form of government intervention in a free market With P implying the price, determine
economy. Government intervention occurs where the government (a) The equilibrium price
takes steps to detect the flow of economic activities in general and to (b) The quantity supplied
determine the price of goods and services in particular. (c) The equilibrium quantity
Solution
REASONS FOR GOVERNMENT INTERVENTION (a) Quantity supplied = 36P – 72 …. (1)
i. Due to market failure: This arises where market force no Quantity demanded = 120 – 16P …. (2)
longer allocate resources or where the demand and supply in a At equilibrium, quantity supplied = quantity demanded
free economy no longer determine prices. Whenever a free Hence, 36P – 72 = 120 – 16P
market fails to achieve its set objective, then the government will 36P + 16P = 120 + 72
intervene in the best interest of the consumers. 52P = 192
ii. To internalize negative externality: Negative externality is also 192
known as “Third party Effect” it is the harmful effect which the P=
52
production and consumption of a commodity. In determining = ₦3.7 (i.e. the equilibrium price = ₦3.7)
cost of production, firm are only concerned with money and (b) To determine the quantity supplied, substitute 3.7 for
opportunity cost, regardless of the social cost or its implication to P in (i)
the society. The government may therefore intervene so that the Quantity supplied = 36(3.7) – 72
firms will pay for the social cost of their production, such as the = 133.2 – 72
negative effect of sachet water on the environment. = 61.2 units
iii. To eliminate or control private monopoly. (c) At equilibrium, D = S and S = D
iv. To protect infant industries. Hence, Quantity Supplied = Quantity Demanded =
v. To protect the consumers. 61.2 units
vi. To promote economic and political stability. ∴ The equilibrium quantity = 61.2units.
DETERMINATION OF EQUILIBRIUM PRICE AND
QUANTITY USING FUNCTIONAL RELATIONSHIPS.
Example EP 3
Demand and supply functions can be used to determine the
a. (i) Qd = 40 – 4p
equilibrium price and quantity.
NB: At equilibrium price, quantity demanded is equal
(ii) Qs = 12p – 24
quantity supplied i.e. Qd= Qs At equilibrium Qd = Qs
Therefore, 40 – 4p = 12p – 24
Example EP 1 40 + 24 = 12 + 4p
Let us consider the following demand and supply functions 64 = 16p
for a commodity. P = ₦4.00
Qd (Quantity demanded) = 20 – 2p (ii) To find Q, substitute for p in any of the functions:
Qs (Quantity supplied) = 6p – 12 Qd = 40 – 4(4) = 40 – 16 = 24
Determine the equilibrium price and quantity, and the excess Or Qs = 12(4) – 24 = 48 – 24 = 24
supply at the price of ₦8.00. Q = 24
(a) At equilibrium, Qd = Qs To find excess supply substitute ₦6.00 for p in the
∴ 20 – 2p = 6p – 12 two functions.
–2p – 6p = – 12 – 20 Qd = 40 – 4(6) = 40 – 24 = 16
–8p = –32 Qs = 12(6) – 24 = 72 – 24= 48
–32 Excess supply = Qs– Qd
∴P= −8
=4
= 48 – 16 = 32.

162
Example EP 4 2017/2
The demand and supply equation or functions for a commodity The market for apples is represented by the following demand
are given respectively as: Qd = 20 – ½P, and supply functions
Qs = 8 + ¼P, recalling that at equilibrium (E), D = S Qd = 30 – p;
Calculate the following. Qs = 15 + 2p
i. Equilibrium Price (EP) (a) Prepare a demand and supply schedule for the market
ii. Equilibrium Quantity (EQ) given the price $2.00, $4.00 and $7.00.
iii. Estimate excess supply when price is N24. (bi) Determine the equilibrium price and equilibrium quantity
iv. Estimate Excess demand when price is N12. of apples in the market.
Solution (ii) If the price of apple is fixed at $3.00, what will be the
i. Recalling that at E, Qd = Qs then, excess demand or excess supply?
20 – ½P = 8 + ¼P (c) Suppose the demand function changed to Qd = 40 – p
1 1
using the price in (a) above.
20 – 8 = P + P (i) Prepare a new demand schedule.
2 4
2+1P 3 (ii) does it represents an increase or a decrease in demand?
12 = = P (iii) explain your answer in (c)(ii) above
4 4
3 Answer
P = 12 (a) Demand and supply schedule.
4
12
12 4 When price = $2, Qs = 15 + 2p
P= = 3
× =₦16 Qd = 30 – p Qs = 15 + 2(2)
4 1 3
∴ The equilibrium price = ₦16 Qd = 30 – 2 = 28 Qs = 15 + 4 = 19
ii. Solve for EQ by substituting for P in Qd =Qs
When price = $4 when price is $4
∴ 20 – ½P = 8 + ¼P
Qd = 30 – p Qs = 15 + 2p
20 – ½(16) = 8 + ¼(16)
Qd = 30 – 4 = 26 Qs = 15 + 2(4)
12=12 (i.e. Qd = Qs)
Qs = 15 + 8 = 23
EQ = 12 units
iii. When price rises ₦16 to ₦24, When p = $7.00
Then S > D (i.e. disequilibrium) Qd = 30 – p when p = 7
8 + ¼P > 20 – ½P Qd = 30 – 7 Qs = 15 + 2p
8 + ¼(24) > 20 ½(24) Qd = 23 Qs = 15 + 2(7)= 29
8 + 6 > 20 – 12 Price ($) Quantity Quantity
14 > 8 demanded supplied
2 28 19
Qs = 14 4 26 23
Qd = 8 7 23 29
Excess supply = 6 units (bi) At equilibrium Qd = Qs
Therefore, 15 + 2p = 30 – p
iv. When price falls from ₦16 to ₦12: 15 + 2p = 30 – p
D > S (i.e. disequilibrium) 2p + p = 30 – 15
20 – ½P > 8 + ¼P 3p = 15
20 – ½(12) > 8 + ¼(12) 15
p= =5
20 – 6 > 8 + 3 3
14 > 11 Equilibrium is $5.00 substituting for p = 5, we
Qs = 14 have
Qd = 11 Qd = 30 – p
Excess Demand = 3 units. Qd = 30 – 5
Hint: A market that exhibits either excess demand or excess Qd = 25
supply is said to be in a state of disequilibrium. Or
Disequilibrium gives way for the attainment of Qs = 15 + 2p
equilibrium. Qs = 15 + 2 (5)
Qs = 15 + 10 = 25
2018/2019/47 (UNIZIK, AWKA) Exercise 8.3. (ii) If the price is fixed at $3.00
A market is in disequilibrium if Qd = 30 – p
A. the quantity purchased is greater than the quantity sold Qd = 30 – 3
B. the quantity sold differs from the quantity purchased Qd = 27
C. at a lower price, a larger quantity is sold Qs = 15 + 2p
D. the quantity demanded differs from the quantity Qs = 15 + 2(3)
supplied Qs = 15 + 6 = 21

163
 Excess demand (Qd > Qs) In a tender for purchase, there is only one seller and a
(c) If the demand function changes to Qd = 40 – p ( number of prospective buyers. The seller could
Qs remained unchanged) advertise the sale of his commodity and request for
(i) When price = $2 tenders. Each prospective buyer makes an offer for
Qd = 40 – p the commodity in writing, unaware of the prices
Qd = 40 – 2 offered by other buyers. The commodity is usually
Qd = 38 sold to the buyer who offers the highest price.
When price = $4
Qd = 40 – p In a tender for supply, there is one buyer and a number of
Qd = 40 – 4 sellers. The buyer would ask the sellers of a commodity to
Qd == 36 make tenders for supply. They apply in writing, quoting
When price = $7 prices at which they will supply the commodity. The buyer
Qd = 40 – p normally accepts the tender which is lowest. Many
Qd = 33 government contracts are awarded by tender for supply.

Price ($) Quantity FUNCTIONS OF THE PRICE SYSTEM

demanded 1. Regulating the allocation of Resources: Price
2 38 system ensures more efficient allocation or use of
4 36 scarce resources. Since the aim of production is to
satisfy human wants, price system ensures that the
7 33
factors of production are used to achieve optimum
result.
(ii) It simply represents an increase in demand.
2. Control of consumption: Price mechanism can
(iii) At the same price given the new demand function
control the consumption of certain goods and
when compared to the old demand function, more
services, which are considered harmful to human
quantities of apples were demanded.
health e.g. alcoholic drinks. It can also be used to
stimulate the demand or consumption of certain
PRICE DETERMINATION IN REGULATED OR
commodities which are in low demand.
IMPERFECT MARKET
We already studied how demand and supply determine prices in
3. Control of production: With good price system,
a perfect market. However, under conditions of imperfect resources allocation can easily determine what to
competition, prices are determined by other methods such as. produce, how, when, where and for whom to
1. Bargain or Haggling: This is a method of price produce.
determination whereby both the buyer and seller have 4. Rationing goods: When goods are rationed, they
a dialogue until a compromise is reached. This is the become expensive and can only be bought by those
most common method of price determination in West who have the money and actually wish to spend it on
Africa. It actually brings both the buyer and seller such goods. This helps to increase profit and also
into close contact. controls consumption.
2. Tag: This is a method of price determination where the 5. Price control mechanism: An effective price system
seller is prepared to have a dialogue with the buyer. can be used by the government in the control of
Rather, he fixes a definite price at which to sell to the price of goods and services. For example, during a
buyer. Under this condition, the buyer is left with the period of inflation, the government may have price
option of either buying at the price offered by the seller or ceiling i.e. fixing a maximum price at which the
to leave the article entirely. This method of price prices of certain products must not rise beyond.
determination is used by department stores, chain or 6. The price system may indicate changes in supply or
multiple stores, self – service shops e.t.c. where changes in the pattern of supply.
consumers pick goods of their choice off – the shelf. 7. The price system indicates changes in demand or
3. Auction: This is a method of price determination changes in the wants of consumers.
whereby goods are offered to the members of the public 8. The price system determines factor payment i.e. the
by an auctioneer in a public for bidding. The prospective rewards to the factor of production. The more scarce
buyers are allowed to bid for the goods which is normally the factor of production, the greater its reward
sold to the highest bidder. Auction sales occur when
seized contraband goods are sold by government or when DISADVANTAGES OF THE PRICE SYSTEM
churches are having their bazaar. 1. It creates disparity in income and wealth: Since it rations
4. Tender: This is an application in writing to purchase scarce goods and services, it tends to favour the rich at the
or sell a commodity. There is a ‘tender for purchase’ expense of the poor. Since only those who can afford a
and a ‘tender for supply’. commodity can buy it, the poor suffers.

164
2. Exploitation of consumers: It tends to encourage 2003/24 Neco
producers to charge high prices and make excessive A problem of price control is
profits. It also encourages the existence of monopolies. A. development of black market
Producers want to maximize profits by charging higher B. increased earning and higher profit
for their goods. This means exploitation of the consumers. C. increase in unemployment
3. It encourages the production of harmful commodities D. increase in investment E. redistribution of income
such as Indian Hemp and alcohol: This is because the Answer: Development of black market (A)
price system encourages the production of commodities
which are in high demand which command high prices. If 2002/29 Nov
harmful commodities have high prices and are in high If the government fixes price below the equilibrium level it
demand, they will therefore be produced in large will lead to
quantities. A. more of the commodity being supplied
4. It cannot lead to the production of all essential goods B. less of the commodities being demanded
and services: Essential but non – economic ventures such C. shortage in the market D. fall in production cost
as defence and provision of law and order may not be Answer: Shortage in the market (C)
embarked upon under the price system. They are non-
profitable ventures. 2012/4 Nov
5. It may lead to a waste of resources: Surplus goods A perfect competitor is a price taker because
and services may be produced if producers are A. the price is fixed by the marketing board
carried away by the high profits they make. B. he cannot control the price of his product
6. Tendency to produce more of the luxury goods C. government fixes the price of his product
required by the rich: In the attempt to maximize D. he can control the price of his product
profits by producers, there is tendency for them to Answer: He cannot control the price of his product (B)
neglect the products required by the poor, while Hint: A perfectly competitive firm is known as a price
producing more of those required by the rich. taker because the pressure of competing firms forces them
7. It encourages individualism: Less attention to paid to accept the prevailing equilibrium price in the market. If
to societal welfare and there is tendency for many a firm in a perfectly competitive market raises the price of
people to seek ways of satisfying their individual its product by so much as a kobo, it will lose all of its sales
wants and those of their families. to competitors.

2021/15 2012/38 Nov

When market supply increases, the equilibrium price The market period is when
A. rises and quantity falls A. demand and supply are perfectly elastic
B. falls and quantity rises B. supply in the market is fixed
C. and quantity increase C. the market demand exceeds supply
D. and quantity fall. D. the market is in equilibrium
Answer Answer
falls and quantity rises (B) Supply in the market is fixed (B)
Hint: An increase in supply will cause a reduction in the Hint: The market period is a very short period in which
equilibrium price and an increase in the equilibrium the supply of a commodity is fixed. It is the variations in
quantity of a good. demand that determine the price in such a market period.
1988/3 The time period is so short that supply is not responsive to
The price of a commodity is determined by the demand.
A. supplier B. consumer
C. quantity of goods demanded 2012/43 Nov Exercise 8.4
D. quantity of goods supplied If the price is set above the equilibrium price, the market
E. interaction of demand and supply will exhibit
Answer: Interaction of demand and supply (E) A. an excess demand B. an excess supply
C. abnormal demand D. abnormal supply
2006/22 Nov
When the government legislated price is set below the 1993/27 Exercise 8.5
market price of a commodity, the result is A market equilibrium exists when
A. excess supply of the goods A. demand and supply are equal B. the market is large
B. reduced demand for the goods C. the price is fluctuating
C. excess demand for the goods D. no buyers goes home empty – handed
D. constant supply of the goods E. no seller has an unsold stock
Answer: Excess demand for the goods (C)
165
1993/30 2000/6
If price fall below the equilibrium Highlight any five objectives of price controls
A. demand will equal supply Answer
B. demand will be greater than supply (1) It determines the allocation of scarce productive
C. supply will be greater than demand resources (land, labour and capital) among
D. price will become indeterminate entrepreneurs and among the various uses to which
E. quantity supplied will be zero they could be put.
Answer: Demand will be greater than supply (B) (2) It determines the amount of rewards accruing to the
various factors of production.
2000/7 Nov
(3) It determines how scarce goods and services are
The most important factor influencing the quantity demanded
allocated or rationed among consumers through price
or supplied for any commodity at a point in time is
A. taste B. government policy C. taxes D. price
variations.
Answer: Price (D) (4) The price system indicates changes in demand or
changes in the wants of consumers.
2008/8 (5) The price system may indicate changes in supply or
The gap between demand and supply curves above the changes in the pattern of supply.
equilibrium is (6) The price system induces supply to respond to
A. normal demand B. excess supply changes in demand.
C. equilibrium quantity D. abnormal demand
Answer: Excess supply (B) 2019/15
When the price of goods is above the equilibrium, there
2008/9 will be
A major function of the price mechanism is that it determines A. a shortage B. a surplus C. unemployment
the D. inflation
A. allocation of resources B. amount of national savings Answer
C. population of the country D. number of goods to be A surplus (B)
taxed
Answer: Allocation of resources (A) 2019/16
What happens when a minimum price is imposed in a
1990/19 Exercise 8.6 market?
In a market economy, resources are allocated through the
A. a shortage occurs B. surplus occurs C. the market
A. government authorities B. price system
maintains its equilibrium D. many firms will close down
C. banking system D. central planning bureau
E. revenue allocation formula
Answer: Surplus occurs (B)
Hint:A minimum price is when the government do not
1991/8 allow prices to go below a certain level. If minimum prices
(a) Define a market. are set above the equilibrium it will cause an increase in
(b) Explain four characteristics of a perfect market prices, leading to an increased production of the
Answer commodity, this will lead to a surplus of the commodity
(a) Market is a point or place or any means of available for sale.
communication whereby the sellers and buyers can
communicate with one another, to exchange goods and 2016/14 NABTEB
services at price determined by the market forces. At the equilibrium price, the quantity demanded and
(b) Characteristics of a perfect market are: supplied are
(i) None of the sellers or buyers will dominate the market. A. increasing B. decreasing C. constant D. equal
(ii) The goods are identical in the market. Answer: Equal (D)
(iii) There must be perfect knowledge about the price of the
commodity. 2001/24 Nov
(iv) The commodity bears the same price tag throughout the The price system is
market. A. the market price of commodities
B. a market when a single price rules
2018/14 NABTEB Exercise 8.7 C. a system where resources are allocated by the
In a perfect market, the equilibrium price and quantity are
government
determined by the
D. a system of resource allocation through supply and
A. influence of the buyers alone B. government agents C.
influence of the sellers alone D. market forces demand
Answer
A system of resource allocation through supply and
demand (D)

166
2006/28 Neco
The following are the functions of price system except
A. allocating productive resources among producers
B. determining factors payment
C. determining goods to be produced
D. determining production techniques to be adopted
E. distributing goods among consumers
Answer: Determining goods to be produced (C)

2007/17 Nov
A price ceiling established below the equilibrium price
will cause
A. quantity demanded to decrease
B. quantity supplied to be greater than the quantity
demanded
C. demands to be less than supply
D. quantity supplied to decrease
Answer
Quantity supplied to decrease (D)

2007/36 Exercise 8.8

Any point above the equilibrium price, there is always
A. constant demand B. constant supply
C. equality of demand and supply D. excess demand
E. excess supply

1992/1 Nov
The following is the demand and supply schedule for
oranges
Unit price Quantity demanded Quantity supplied
(k)
1 10 2
2 8 4
3 6 6
4 4 8
5 2 10
(a) From the above schedule, draw the demand and
supply curve in one diagram.
(bi) At what price will the customer demand the largest
number of oranges?
(ii) At what price will the seller be prepared to sell most?
(iii) What is the equilibrium price?
(iv) What is the excess supply at 4k?

167
Answer

(bi) The customer will demand the largest number of

oranges at 1k.
(ii) The seller will be prepared to sell most at 5k.
(iii) The equilibrium price is 3k.
(iv) The excess supply at 4k is 8 – 4 = 4

168
1999/1 Nov 2000/39
Given the demand and supply equations Given a market demand curve Q = 70 – 4p and a supply
1
Qd = 55 – P curve Q = 10 + 2p, the equilibrium price and quantity
3
respectively are
2 A. 5 and 15 B. 10 and 20 C. 10 and 30
Qs = 10 + P
3
D. 15 and 25 E. 15 and 30
Where P is the price in Naira
Answer
Qd is the quantity demanded and
At equilibrium Qd = Qs
Qs is the quantity supplied, determine
70 – 4p = 10 + 2p
(ai) The equilibrium price.
70 – 10 = 2p + 4p
(ii) the equilibrium quantity
60 = 6p
(b) If the price falls to ₦15, what will be the excess 60
demand? P= 6
(c) If the price rises to ₦60, what will be the excess P = 10
supply? Substitute P = 10
Q = 70 – 4p
Q = 70 – 4(10)
Q = 30
Answer Thus, the equilibrium price and quantity 10 and 30 (C)
(ai) At equilibrium Qd = Qs
1 2
∴ 55 – P = 10 + P 2001/1
3 3
2 1 Given the demand and supply functions
55 – 10 = 3P + 3
P Qd = 42 – 2p and Qs = 12 + 4p
2P P (i) Calculate the quantity demanded and supplied when
45 = 3 + 3 price is ₦1, ₦3, ₦5, ₦7 and ₦9.
2P+P
45 = 3 (ii) From the result obtained in (i) above construct a
3P demand and supply schedule.
45 = 3 (iii) What is the equilibrium price and quantity?
P = 45 Answer
∴ Equilibrium price is ₦45 (i) Quantity demaded Quantity supplied
1 When price is ₦1 when price is ₦1
(aii) Qd = 55 – 3P Qd = 42 – 2p Qs = 12 + 4p
1
Qd = 55 – 3(45) Qd = 42 – 2(1) Qs = 12 + 4(1)
Qd = 55 – 15 Qd = 42 – 2 Qs = 12 + 4
Qd = 40 Qd = 40 Qs = 16
When Price is ₦15 When price ₦3 when price is ₦3
1 2
(b) Qd = 55 – P Qs = 10 + P Qd = 42 – 2p Qs = 12 + 4p
3 3
1 2 Qd = 42 – 2(3) Qs = 12 + 4(3)
Qd = 55 – 3
(15) Qs = 10 + 3 (15) Qd = 42 – 6 Qs = 12 + 12
Qd = 55 – 5 Qs = 10 + 10 Qd = 36 Qs = 24
Qd = 50 Qs = 20 When price ₦5 When price is ₦5
Excess Qunatity = Qd – Qs Qd = 42 – 2p Qs = 12 + 4p
= 50 – 20 = 30 Qd = 42 – 2(5) Qs = 12 + 4(5)
Qd = 42 – 10 Qs = 12 + 20
When Price is at ₦60 Qd = 32 Qs = 32
2 1
(c) Qs = 10 + 3P Qs = 55 – 3P
When price is ₦7 when price is ₦7
2 1
Qs = 10 + 3
(60) Qs = 55 – 3
(60) Qd = 42 – 2p Qs = 12 + 4p
120 60 Qd = 42 – 2(7) Qs = 12 + 4(7)
Qs = 10 + Qs = 55 – Qd = 42 – 14 Qs = 12 + 28
3 3
Qs = 10 + 40 Qs = 55 – 20 Qd = 28 Qs = 40
Qs = 50 Qs = 35
When price is ₦9 when price is ₦9
Excess Supply = Qs – Qd
Qd = 42 – 2p Qs = 12 + 4p
= 50 – 35 = 15
Qd = 42 – 2(9) Qs = 12 + 4(9)
Qs = 42 – 18 Qs = 12 + 36
Qd = 24 Qs = 48

169
(ii) 2007/17
Price Quantity Quantity A price ceiling established below the equilibrium price
(₦) demanded supplied will cause
1 40 16 A. quantity demanded to decrease B. quantity supplied to
3 36 24 be greater than the quantity demanded
5 32 32 C. demand to be less than supply
7 28 40 D. quantity supplied to decrease
9 24 48 Answer
(iii) The equilibrium price is ₦5 and the equilibrium Quantity supplied to decrease (D)
quantity is 32. Hints: A price ceiling which is below the equilibrium
price will cause the quantity demaded to rise and
2004/5 Nov Exercise 8.9 the quantity supplied to fall. This is why a price
(a) What is supply? ceiling creates a shortage.
(b) With the aid of diagrams, show the effect on supply
of fixing the price. 1998/9
(i) Above equilibrium price The equilibrium price of mangoes is ₦1.00. If the price
(ii) Below equilibrium price falls to 50k, there will be
A. an excess demand B. an excess supply
C. a surplus in the market D. many sellers in the market
E. no seller in the market
1993/27 Answer
A market equilibrium exists when An excess demand (A)
A. demand and supply are equal B. the market is large
C. the price is fluctuating D. no buyer goes home empty
handed E. no seller has an unsold stock 2006/30 Neco
Answer
Demand and supply are equal (A)

2002/20 Nov
Use the table below to answer questions 20 and 21.
The demand and supply schedule for rice in a market.
Price per Quantity demanded Quantity supplied
bag
($)
50 85 200
40 95 185
30 120 120
20 140 60 In the diagram above, point A is
10 169 50 A. excess demand B. excess supply C. equilibrium
5 195 10 D. price ceiling E. price floor
The equilibrium price is Answer
A. $50 B. $40 C. $30 D. $20 Equilibrium (C)
Answer: $130 (C)
Hint: At equilibrium Qd = Qs 2009/10 Exercise 8.10
The demand and supply functions of a commodity are
2002/21 Nov given as follows.
At the rate of $50 per bag of rice, there is an excess supply Qd = 20 – 2p
of Qs = 6p – 12
A. 80 bags B. 90 bags C. 105 bags D. 115 bags Where p = price in naira, Qd = quantity demanded and Qs
Answer: 200 – 85 = 115 (D) = quantity supplied. The equilibrium price is
Hint: Excess supply occurs when Qs > Qd for the same A. 2 naira B. 4naira C. 6 naira D. 20 naira
price level.

170
1991/7 2014/2015/39 (UNIZIK, AWKA)
Use the diagram below to answer question 7 and 8 The rationing of scarce goods in a free market economy is
done principally by
A. the government B. business organization
C. the price mechanism D. consumers
E. both A and B
Answer
The price mechanism (C)

2017/2018/1-5 (UI, IBADAN)

Use the graph below to answer questions 1 – 5

In the diagram above, the equilibrium price is

A. OQ1 B. OQ0 C. P1P0 D. P0P2 E. OP0
Answer
OP0 (E)

1991/8
At price OP2
A. demand exceeds supply B. supply exceed demand
C. demand equals supply D. OQ2 is the quantity supplied
E. OQ0 is the quantity demanded
Answer: Demand exceeds supply (A)

2007/2008/63 (UNIZIK, AWKA) 2017/2018/1

The price of a commodity is determined by The graph above represents
A. the supplier B. the consumer A. change in quantity supplied B. change in supply
C. the quantity of goods demanded C. change in quantity demanded D. change in demand
D. the quantity of goods supplied Answer
E. the interaction of demand and supply Change in demand (D)
Answer The interaction of demand and supply (E)
2017/2018/2
2006/2007 (UNIZIK, AWKA) Point A is
In which of the following economic systems the consumer A. equilibrium constant B. old equilibrium point
referred to as “the king” C. new equilibrium point D. none of the above
A. planned economy B. mixed economy Answer
C. traditional economy D. free market economy Old equilibrium point (B)
E. socialist economy
Answer: Free market economy (D)
2017/2018/3
Point B is
2009/2010/31 (UNIZIK, AWKA) Exercise 8.11
A. equilibrium point B. old equilibrium point
In a free market system, trading can only take a place when the
C. new equilibrium point D. none of the above
A. equilibrium price is attained
Answer
B. market is not working efficiently
New equilibrium point (C)
C. price of a commodity tends to attract consumers
D. consumer sovereignty is lacking
2017/2018/4
Producer’s profit has
2013/2014/32 (UNIZIK, AWKA)
A. increased B. decreased C. remain constant
The equilibrium wage in an economy is determined by the
D. none of the above
A. public service B. workers union C. rate of inflation
Answer
D. demand for labour E. none of the above
Increased (A)
Answer Supply and demand for labour (D)

171
2017/2018/5 2014/2015/24 (UI, IBADAN)
S is The basic features of a market economy is
A. the supply curve B. the constant supply curve A. the reduction in the power of seller
C. the demand curve D. the constant demand curve B. the enthronement of consumer sovereignty
Answer C. the dismantling of barriers to trade
The constant supply curve (B) D. the perfectly elastic price for every transaction
E. the intersection of demand and supply curves
Answer The intersection of demand and supply curves (E)
2018/2019/4
1
The equilibrium of Qd = 5 – 2p and Qs = 2 + P is 2014/2015/25 (UI, IBADAN)
A. 1 B. 2 C. 3 D. 4 The following are the conditions that must be fulfilled for
Answer price determination except
A. market merger B. market segmentation
At equilibrium Qd = Qs
1 C. demand elasticities D. product differentiation
5 – 2p = 2 + P E. none of the above
1
5–2=P+ P Answer None of the above (E)
2
2P+1P
3= 2014/2015/26 (UI, IBADAN) Exercise 8.13
2
3P The main function of price mechanism is to
3= 2 A. limit consumer demand
Cross multiply B. enable producers make profits
3P = 6 C. allocate scarce resources among competing ends
6 D. ensure consumer sovereignty
P =3
E. achieve excess capacity
P = 2 (B)
2014/2015/27 (UI, IBADAN)
2014/2015/21 (UI, IBADAN) When government intervenes in price setting, the regulated
Given demand function: Qd = 5p + 10, supply function price is usually
Qs = 7p – 5. The equilibrium quantity is A. higher than the last price B. lower than the last price
A. 50 B. 55 C. 75.5 D. 47.5 E. 55.5 C. higher than the equilibrium price
Answer D. lower than the equilibrium price
At equilibrium Qd = Qs E. higher than the living price
5p + 10 = 7p – 5 Answer
10 + 5 = 7p – 5 Lower than the equilibrium price (D)
15 = 2p
15 2008/2009/11 (NDU, BAYELSA)
p= 2 The price of a commodity is determined by
p = 7.5 A. the supplier B. the consumer
Qd = 5p + 10 C. the quantity of goods demanded
Qd = 5(7.5) + 10 D. the quantity of goods supplied
Qd = 37.5 + 10 E. interaction of demand and supply
Qd = 47.5 Answer Interaction of demand and supply (E)
47.5 (D) 2017/2018/77 (DELSU, ABRAKA)
An important function of the price system is to
2014/2015/22 (UI, IBADAN) Exercise 8.12 A. ensure that producers profits remain in high
In market economies, resources are allocated through the B. guarantee full employment
A. government authorities B. price system C. allocate resources to most productive uses
C. banking system D. central planning bureau D. protect the economic interest of government
E. revenue allocation formula Answer Allocate resources to most productive uses (C)
2012/21 (OAU, IFE)
Which of the following is not true of price mechanism?
2014/2015/23 (UI, IBADAN)
A. equilibrium price is determined by forces of demand and
In the operation of market forces, the market is in equilibrium supply
at the point where B. individuals households and firms pursue personal
A. demand and supply curve intersects in more than one point interest
B. the excess in the market can be conveniently stored C. producers and consumers are rational in decision making
C. excess demand is positive D. price control is prominent in the commodity and input
D. demand and supply curve intersect markets
E. excess demand is negative Answer
Answer: Demand and supply curve intersect (D) Price control is prominent in the commodity and input market (D)
172
2011/20-22 Use the table to answer questions 20-22 2013/11 (OAU, IFE)
Price ₦ Quantity Quantity supplied In which of the following situations do we have a free goods?
demanded (kg) (kg) A. at zero price, more is demanded than supplied
B. at zero price, quantity supplied exceeds quantity demanded
50 20 100 C. at equilibrium price, quantity supplied is equal to quantity
40 40 80 demanded
30 60 60 D. any quantity can be obtained when the price is low
20 80 40 Answer
10 100 20 At zero price, quantity supplied exceeds quantity demanded (B)

2011/20 2015/2 (OAU, IFE)

At price ₦50, there is an excess supply of If the real market price of a product is N20 per unit and in this
A. 20kg B. 100kg C. 80kg D. 40kg market the government places a price ceiling at N30 per unit, what
will happen?
Answer: 80kg (C)
A. people will buy the product at N30
2011/21 B. there will be surplus of the product in the market
Excess demand arises at prices C. government price ceiling will not be effective
D. government can put price ceiling below or above equilibrium
A. ₦20 B. ₦40 C. ₦10 and ₦20
price
Answer
Answer
Where Qd = Qs There will be surplus of the product in the market (B)
N10 and ₦20 (C)
2011/22 2015/6 (OAU, IFE)
The equilibrium price is A pricing behaviour in which a firm charges different prices to
A. N40 B. N30 C. N10 D. None of the above different consumers for the same good and service is known as
Answer: At equilibrium Qd = Qs A. uniform pricing behaviour B. price discrimination
₦30 (B) C. market separability D. price differentiation
Answer Price discrimination (B)
2011/24
Price legislation can be defined as 2015/13 (OAU, IFE)
A. how prices fluctuates in the market Which of the following determines price in a capitalist
B. how prices are controlled in the market economy?
C. how to avoid inflation A. government B. invisible C. producer D. consumer
D. how the government fixes the prices of essential Answer Invisible (B)
commodities
Answer: 2015/20 (OAU, IFE)
How the government fixes the prices of essential commodities (D) Equilibrium in the financial market requires that
2013/7 (OAU, IFE) A. money supply equals money demand
If a market for good X is in disequilibrium, which of the B. money supply equals reserves demand
following statements is true about the quantity of X that is C. checkable deposits equal over all supply of money
actually exchanged D. money supply equals overall demand for money
A. it is determined by the forces of demand Answer Money supply equals money demand (A)
B. it is determined by the forces of supply
C. it is determined by both demand and supply forces 2015/21 (OAU, IFE)
D. it is determined by the forces of demand or supply Which of the following will cause a decrease in market
whichever is shorter equilibrium price and increase in market equilibrium quantity?
Ans: It is determined by both demand and supply forces (C) A. an increase in supply B. an increase in demand
C. a decrease in demand D. a decrease in supply
2013/8(OAU, IFE) Exercise 8.14 Answer An increase in supply (A)
How can we eliminate a surplus in a commodity market?
A. increase quantity supplied 1978/1 UTME Exercise 8.15
B. decrease quantity demanded Suppose that the equilibrium prices of an articles is ₦5.00 but
C. allowing prices to fall towards equilibrium the government fixes the price by law at ₦4.00, the supply will
D. allowing price to rise towards equilibrium be
A. the same as the equilibrium supply
B. greater than the equilibrium supply
C. less than the equilibrium supply
D. determined later by government E. none of the above

173
1987/17 UTME 1984/18 UTME
Market schedule for milk The control of prices by legislation usually produces a number of
Price per tin Quantity demanded Quantity consequences. Which of the following is not an associated problem
(tins) supplied (tins) of maximum price control?
8k 25,000 7,500 A. excess supply B. favouritism C. bribery and corruption
10k 23,000 9,000 D. black marketing E. hoarding
13k 20,000 11,500 Answer: Excess supply (A)
15k 18,000 13,000
1987/16 UTME
18k 15,000 15,000
In the operation of market forces, the market is in equilibrium at the
20k 13,000 17,500
point where
23k 10,000 21,000 A. demand and supply curve intersection is more than one point
25k 8,000 24,000 provided the market
From the market demand and supply schedule for milk, we B. the excess in the market can be conveniently stored
C. excess demand is negative
can say that equilibrium price and quantity are
D. demand and supply curve intersect
A. 15k, 13,000 B. 20k, 17,500 C. 13k, 20,000
Answer: Demand and supply curve intersect (D)
D. 18k, 18,000 E. 18k, 15,000
Answer
18k, 15,000 (E)

1981/42 UTME 1988/14 UTME

Market for garrri: At a price of N5, the exess supply is The demand and supply equations for a commodity are given
A. 30 tins per week B. 45 tins per week 1 1
respectively as D = 20 – 2P, 8 + P. Recalling that at equilibrium, D
C. 15 tins per week D. 20 tins per week 4
= S, the equilibrium price (P) and quantity (Q) can be obtained as
E. indeterminate
A. P = 12, Q = 16 B. P = 15, Q = 10
Price per tin Demand per week Supply per C. P = 12, Q = 14 D. P = 16, Q = 12
week Answer
N6 0 tins 45 tins At equilibrium D = S
N5 5 tins 35 tins 1 1
20 – P = 8 + P
N4 10 tins 25 tins 2 4
1 1
N3 15 tins 15 tins 20 – 8 = P + P
4 2
N2 20 tins 5 tins P P
12 = +
4 2
N1 25 tins 0 tins P + 2P
Answer 12 =
4
3P
30 tins per week (A) 12 =
4
Cross multiply
1982/7 UTME 3P = 48
48
The control price for a carton of beer in Nigeria is N720 but a carton P = = 16
3
of beer is sold in parts of the country for as much as N15.00. The 1
D = 20 – P
cause of this exorbitant price is that 2
1
A. there is government ban on the importation of beer 20 – (16) = 20 – 8 = 12
2
B. beer distributors want more profit ∴P = 16, Q = 12 (D)
C. Nigeria is a large country
D. middlemen hoard beer 1988/17 UTME
E. the demand for beer exceeds the supply Which of the following changes in equilibrium price and
Answer: The demand for beer exceeds the supply (E) quantity is as a result of an upward shift in the market
demand for a commodity?
1982/17 UTME A. both the price and the quantity fall
The equilibrium market price is determined at a point where B. the price and the quantity falls
A. consumers can only buy all they desire C. the price falls and the quantity
B. sellers can dispose of their wares D. both the price and quantity rise
C. the price is moderate Answer
D. quantities consumers desire equals quantities seller offer Both the price and the quantity rise (D)
E. sellers and buyers are not quarelling
Answer
Quantity consumers desire equals quantities sellers offer (D)

174
1988/19 UTME 1994/21 UTME Exercise 8.16
Above the equilibrium point, a further rise in price tends to
A. increase demand and restrict supply
B. restrict demand and restricts supply
C. increase demand and decrease supply
D. decrease demand and increase supply

1995/17 UTME
Which of the following statements is TRUE of the effects
of changes in demand and supply on price?
A. a decrease in supply will lead to a fall in price and a fall
in the quantity bought and sold
B. an increase in demand will lead to a fall in price and in
the quantity brought and sold
C. a decrease in demand will lead to a rise in price and in
the quantity bought and sold
D. an increase in supply will lead to a fall in price and a
rise in the quantity bought and sold
If in this demand supply diagram, the quantity supplied is
Answer
OQ, then
An increase in supply will lead to a fall in price and a rise
A. price will OP B. there will be excess demand of RT
in the quantity bought and sold (D)
C. price will ON D. price will tend to rise
Answer
There will be excess demand of RT (B). 1997/15
Given a market demand curve Q = 120 – 2P and a supply
1991/12 UTME curve Q = 4P, the equilibrium price and quantity
A market is in disequilibrium if respectively are
A. the quantity purchased is greater than the quantity sold A. 20 and 80 B. 30 and 120 C. 40 and 60
B. the quantity sold differs from the quantity purchased D. 60 and 240
C. at a lower price, a larger quantity is sold Answer
D. the quantity demanded differs from quantity supplied At equilibrium Qd = Qs
Answer 120 – 2P = 4P
the quantity demanded differs from quantity supplied (D)
120 = 4P + 2P
1993/15 UTME 120 = 6P
If the equilibrium price of a certain commodity is ₦120.00 120
P= P = 20
and the government fixed its prices at ₦110.00 the supply 6
will be Substitute P = 20 into any of the equation
A. greater than the equilibrium supply Qd = 120 – 2P
B. smaller than the equilibrium supply = 120 – 2(20)
C. the same at the equilibrium supply = 120 – 40
D. a determinant of the market forces of equilibrium Qd = 80
Answer Thus equilibrium price and quantity are 20 and 80 (A)
Smaller than the equilibrium supply (B)
2001/22 UTME
1994/20 and 21 If government fixes price below the equilibrium price,
Use the table below to answer questions 20 and 21 what effect will it have on demand?
Price in ₦ Quantity demanded Quantity supplied A. quantity demanded and supplied will be equal
10 50 450 B. quantity supplied will be greater than quantity
20 150 350 demanded
30 250 250 C. quantity demanded will increase
40 350 150 D. quantity demanded will decrease
50 450 50
Answer
quantity demanded will increase (C)
1994/20 UTME
What is the equilibrium quantity?
A. 50 B. 250 C. 350 D. 450
Answer
At equilibrium Qd = Qs
250 = 250
Thus equilibrium quantity is 250 (B)
175
2008/15 UTME Hint: The government can reduce the cost of accommodation by
Determine the equilibrium quantity fixing the rent at a maximum price. Maximum price
A. 14.2 B. 16.8 C. 20.8 D. 30.2 occurs when a government set a legal limit on the price of
Answer goods or services – with the aim of reducing prices below
the marke equilibrium price.
At equilibrium Qd = Qs
Government tries to control the rate charged for rent by
20 – 4P = 6P + 12 keeping the cost of renting below a certain level.
20 – 12 = 6P + 4P However, setting the price below equilibrium maximum
8 = 10P will cause a shortage – demand will be greater than
8 supply.
P = 10 = 0.8
When P = 0.8
2014/8 UTME Exercise 8.17
Qd = 20 – 4P
Given that Qd = 40 – 2P and Qs = 6P + 24, calculate the
Qd = 20 – 4(0.8)
equilibrium price
Qd = 20 – 3.2 Qd = 16.8 (B)
A. N4 B. N2 C. N36 D. N16
2008/16 UTME
If price is increased to N3, how much is the excess supply? 2014/15 UTME
A. 30 B. 22 C. 12 D. 8 When price is set below equilibrium, this will lead to
Answer A. an increase in the quantity supplied
Qs = 6P + 12 B. a new equilibrium C. a decrease in the quantity
Qs = 6(3) + 12 supplied
Qs = 18 + 12 Qs = 30 (A) (D a fall in price
Answer
a decrease in the quantity supplied (C)
2016/34 UTME Exercise 8.18
Given Qd = 30 – 3P and Qs = 9P – 15, determine the
equilibrium price
2010/10 UTME A. ₦12.00 B. ₦3.75 C. ₦2.80 D. ₦3.00
An excess demand for beans will result from 2017/3 UTME Exercise 8.19
A. an increase in the price of beans Given that Qd = 15 – 2P and Qs = 5 + 3P, determine the
B. a decrease in the price of beans equilibrium price
C. an increase in the supply of beans A. ₦3.00 B. ₦5.00 C. ₦2.00 D. ₦6.00
D. a decrease in the supply of beans
Answer
a decrease in the price of beans (B)

2013/7 UTME
An increase in demand without a corresponding change in
supply will lead to
A. a decrease in equilibrium price and an increase in
equilibrium quantity
B. an increase in equilibrium price and quantity
C. a decrease in equilibrium price and quantity
D. an increase in equilibrium price and decrease in
equilibrium quantity
Answer
an increase in equilibrium price and decrease in
equilibrium quantity (D)

2013/20 UTME
In Nigeria, government can reduce the cost of
accommodation by fixing rent
A. at the prevailing rate B. at the equilibrium price
C. above the equilibrium price
D. below the equilibrium
Answer
below the equilibrium price (D)

176
 2011/5 Neco
Goods and services that can satisfy one’s immediate needs
THEORY OF PRODUCTION are referred to as ____ goods
Production as earlier defined in chapter two is any activity A. capital B. consumer C. export D. indigenous
that results in the creation of goods and services to satisfy E. industrial
human wants. Production involves the creation of tangible Answer
things, as well as services rendered to people and paid for Consumer (B)
by them. Thus production is the creation of utility that is
able to satisfy human wants. The purpose of all production DIVISION OF LABOUR AND SPECIALIZATION
is to satisfy human wants. The greatest aim of division of labour is to increase
NB: Production is only complete when goods and services productivity. The proponent of the theory of division of
reaches the final consumer. labour is Adam Smith in the year 1776 from his book titled
“Wealth of Nations”.
1992/7 Nov Simply, division of labour is the sharing of work among
Which of the following best describes production?
persons involved in the production of a commodity. That
A. creation of utility B. production of tangible goods
is, it is the sharing of work among workers in a firm.
C. rendering of services D. extraction of mineral ores
In economics, division of labour is the breaking down of
E. payment for services rendered
the production process into a number of distinct
Answer: Creation of utility (A)
operations, each operation or stage being undertaken by a
1992/6 worker or a group of workers who concentrate or
In Economics, production is complete when specialize on each stage or process.
A. goods are produced in the factories Specialization is the permanent concentration of the
B. goods are sold to wholesalers productive efforts of an individual, a firm or a
C. prices are fixed for goods and services geographical area on a given aspect of economic activity
D. goods and services reach the consumers or on a particular line of production for which it is best
E. goods are sold to retailers suited. Specialization is also a situation whereby an
Answer : Goods and services reach the consumers (D) individual focuses his or her skills on just a part of the
1980/2 UTME Exercise 9.1. overall productive process in a factor or occupation. It
Production in Economics occurs when involves using productive resources in their best
A. a commodity or service is sold employment.
B. utility is created or added C. a commodity is manufactured ADVANTAGES OR MERITS OF DIVISION OF
D. raw materials are produced or extracted from mines LABOUR AND SPECIALIZATION
E. all of these (1) It saves time, energy and other resources: The
worker concentrates on a particular aspect of the
TYPES OF GOODS process assigned to him. No time is lost in moving
Goods are tangible items which may be categorized under the from one job to another.
following heading. (2) It results in a higher level of productivity per
(1) Capital/producer goods: The capital/producer goods are worker: Division of labour increases the output of
products that are bought by a firm or government for the
goods and services.
purpose of using them to produce other goods.
(3) It increases the skills of workers on the job: Division
For instance, a carpenter’s tools are producer’s goods
of labour and specialization implies that each person
because they are used to make other goods such as
performs the same task many times during each working
chairs and tables.
day. It is said that practice makes perfect and people
(2) Consumer goods: The consumer goods are products
learn by experience.
bought by a person for immediate consumption or use.
(4) It encourages economy in the use of tools and
For instance, household furniture such as beds, chairs,
equipment: Since there is specialization, each worker
and tables are consumer goods. Food items needed for a
does not need a complete set of tools and equipment for
family’s welfare are also consumer goods.
the overall process. Only those needed for his job
Consumer goods may be subdivided into durable and
aspects are required.
non–durable goods. The durable ones are those that can
(5) There is saving time in training of the workers: The
be used over and over again, e.g. radios, television sets,
worker needs knowledge and skills only in his specific
chairs, tables, cooking utensils, shoes and dresses. These
aspect of the work he or she can be trained quickly for
are used many times, or for many years before they get
the performance of a single operation.
worn out. They are often referred to as consumer
(6) Division of labour encourages mechanization of the
durable goods. Non–durable goods are those that get
process of production: When a complex productive
used up from one use. Bread, meat, biscuit, food items
process is broken down into a series of simpler but more
and drugs are some examples of non– durable goods.
manageable steps, it is often much easier to mechanise
the operations involved.
177
(7) Specialization results in the standardization of (4) The nature of the product: The nature of goods and
products: Goods and services produced with division services produced would determine the extent to which
of labour rarely differ from the defined standard division of labour can be carried out. There are certain
except there is specific defect. production processes that cannot conveniently be broken
(8) Specialization allows each worker, company or state down. Good examples are personal services such as those
to be engaged in what he, she, or it can do relatively of barbers and lawyers. It is not easy to breakdown the
well while leaving everything else to be done by personal service provided by a barber into separate
others. processes, any attempt aimed at doing so leads to
dissatisfaction. So the more indivisible a job is, more it
DISADVANTAGES OR DEMERITS OF DIVISION affects the practice of division of labour.
OF LABOUR AND SPECIALIZATION (5) Availability of Capital: Division of Labour increases
(1) Work becomes monotonous: The division of labour the total running cost of a firm. The extent of the
implies that a worker performs only one operation, many capital to meet such running costs will determine the
times each working day. This may lead to loss of interest level of production and affects division of labour.
in the job being done because it leads to be boring. (6) Managerial Efficiency: Managerial efficiency relates to
(2) Division of labour could lead to unemployment in a the ability of management (or entrepreneur) to organize
situation where machines are used intensively at the the other factors of production in such a way as to
expense of labour: Machine may be used to replace increase productivity. Where the entrepreneur does not
labour and therefore unemployment will arise. possess the vital managerial acumen. It is not advisable
(3) Reduction or loss of craftsmanship occurs: Production for him to attain the level of management more than that
in large quantities encourages the use of machinery and expected of him otherwise the scope of the firm will go
this may render the workers more operators of machines. out of his control.
That personal touch of a worker arising from the
possession of superior artistic abilities finds no place for 2003/7 Nov
application in standardized products. Division of labour is defined as the
(4) Division of labour increases the level of A. breaking down of manufacturing process into parks for
interdependence among different stages of collective participation
production: The absence of a worker in a line could B. performance of production activities by more than one
disrupt the production process and reliable, person
substitutes may be absent. C. breaking down of the production process into a number
(5) Restriction of choice due to production of of separate units
standardized product: Consumer’s choices are D. assembling of factors of production for rational use
restricted because so many products produced Answer
through mass production are not suited to individual Breaking down of the production process into a number of
tastes. separate units (C)
(6) Industrial action is more likely: Division of labour
1980/50 UTME
implies that more workers have to be employed
One of the disadvantages of division of labour is that
thereby increasing likelihood of industrial disputes.
A. there is a saving of time
LIMITATIONS TO DIVISION OF LABOUR B. it results in workers acquiring greater skill at their jobs
(1) Extent of the market: Where the market of a particular C. there is a greater risk of unemployment
commodity is large, mass production is needed and D. it makes possible the use of machinery
division of labour tends to be large. But where the market E. it makes the worker less fatigued by his work
is narrow, division of labour is also carried out on a low Answer
scale. The extent of the market therefore determines to There is a greater risk of unemployment (C)
what extent division of labour occurs.
(2) The level and state of technology: Some production 1986/5 UTME
stages could not technically be broken down into further The degree of specialization is limited by the
smaller units or else production would not occur. In A. availability of specialized skills and machinery
such a case, technology determines the extent of B. marginal cost exceeding marginal revenue
division of labour. The job of a driver could no more be C. extent of the market
split to accommodate two or more processes, where one D. disadvantage of standardization
person uses the gear, another the steering, another the
Answer
brake pedal. This may be technologically impossible or
Extent of the market (C)
inconvenient.
(3) Availability of Labour: As each process or stage
requires a separate worker, the number of workers
available will greatly determine the number of stages
that will be created.
178
1998/9 UTME Exercise 9.2. FACTORS THAT DETERMINES THE SIZES OF FIRMS
Specialisation often improves economic performance (LIMITATIONS TO THE GROWTH OF FIRMS)
because it A firm cannot continue to expand indefinitely, there are certain
A. permits exploitation of economies of scale limitations to expansions
B. incorporates external economies 1. Extent of the market: The larger the market, the larger the
C. is based on the law of variable proportions demand for goods and services produced. If the supply of
the commodity exceeds the demand or where there is no
D. allocates resources according to absolute advantage
demand for the goods produced, no chance is required, large
scale production is not advisable. Therefore, the demand
SCALE OF PRODUCTION limits the scale of production.
Production of goods and services may be achieved on various 2. Capital: The amount of capital available to a firm
scales of operation. It may be achieved on a small scale i.e. to determines the size of the firm both in the present and
future. In African, where there is low capital rate formation,
the subsistence level, or on a large scale as in the case of
firms find it hard to expand their production over and above
commercial production. A firm is an independently
certain level.
administered business unit which is engaged in definite form
3. Inadequate skilled labour: Many firms cannot recruit
of production. An industry consists of a group of firms sufficient number of specialists (skilled labour) in different
producing broadly similar goods or offering complementary departments. Inadequate capital compels them to only
services. employ inexperienced personnel with low qualifications.
FACTORS THAT AFFECT PRODUCTIVITY This hinders the growth of the firm.
(1) The greater the amount and quality of the production 4. Low level of technology: Many West African firms cannot
resources, the higher the level of output. buy modern large machines and sophisticated equipment for
(2) Natural phenomena such as climatic conditions and production of goods. They mainly use outdated machines
and they adopt primitive methods of production. These
earthquakes can affect the level of production especially
restricts the firm’s expansion.
in agricultural areas.
5. Entrepreneurial ability: The ability of the entrepreneur
(3) Availability of rapid rate of development of basic
will also limit the scale of the firm. If the entrepreneur
infrastructure helps to raise the level of productivity. possesses little managerial ability, he cannot easily run a
(4) Good working environment and improved welfare of the large establishment due to the fear of failure.
workers help to improve the efficiency of labour. 6. Optimum size of a firm: Firms tend to remain at a level
(5) Economic policies undertaken by the government affect (point) where their profits are at maximum. That is, the
the level of production. optimum size of a firm determines the level of output and
(6) Mob action, banditry, sabotage, and such man – made profit. And there are no incentives for expansion beyond
disruptive occurrences can interfere with the firm’s such a level.
operations. When these occur frequently and are 7. Government restrictions: The size of export-oriented
widespread, productivity of the firm reduces. industries – firms producing goods for other countries is
greatly affected by various government’s regulations, like
2015/35 embargoes, bans, high tax rates, etc. These adversely affects
An industry is best described as firms’ rapid growth.
A. firm that sells a set of closely related commodities 8. Inability to bear risk: Many people avoid taking risk.
B. a factor that produces different lines of product Similarly, certain firms don’t wish to venture into
C. a group of firm that sells a closely related set of product uncertainty or plough their capital or profit into ventures in
D. industrial concern that is into production and selling of which the risk involved cannot be accurately ascertained.
goods Thus they avoid expansion because of unwillingness to bear
greater risk.
Answer
9. Increasing cost of production: Increase in the scale of
A group of firm that sells a closely related set of product (C)
production requires a direct expansion of existing factors of
production. The expansion eventually leads to increase in
THE REASONS WHY FIRM GROW IN SIZE the cost of production by raising the price of certain factors
(1) To dominate the market thereby reducing competition and the substitution of factors is only possible after a point.
from the other firms. The increasing cost of production is finally passed on to the
(2) To reduce the cost of producing per unit. consumers in the form of increase in price.
(3) To meet up with the increasing demand for the goods or 10. Individuality verse standardization: The term individual
services being provided by the firm. in economies means separate existence or individual taste,
(4) To take advantage of limited liability offered by the while term standardization denotes uniformity in shape, size
large firms. or restriction of production to a limited number of varieties.
(5) To take advantage of the improved and more efficient While customers do not like standardization because of its
transportation and communication network. restriction or limitation to the choice and taste of customers,
(6) To respond to the challenges posed by the concept of firms prefer it as it is more cost effective. Standardization
division of labour and specialization. may not favour most producers as it restricts demand.
(7) To benefit from the advantage of the internal economies Besides, some products are priced differently when
of scale and hence maximize profit. customized, and some customers prefer this.

179
OPTIMUM SIZE OF FIRMS (I) Firm economies of scale
It is the ultimate aim of any firm to increase in size. A firm i) Financial economies: Large firms have most of the
is said to be at its optimum size when it is enjoying the full advantages in raising funds for expansion. Purchases
benefits of economies of scale and when it produces any can be made on credit and loans can be easily raised
given output at the smallest possible cost per unit. It occurs because they are more credit worthy and offer better
at the point where average costs of production is at collateral security.
minimum, and average product is maximized. The ii) Commercial or marketing economies: Commercial
optimum size of a firm can also be defined as a point economies are realized by large firms as in the case of
where profit is highest and cost per unit of production is obtaining discounts when making purchases in bulk and
lowest. thus enables them to buy more cheaply than small firms.
iii) Technical economies: Large firms can employ large
machines which small firms may not be able to afford.
The optimum size is the best or most efficient size of any
iv) Managerial or administrative economies: Production
firm. However, this varies within and between firms. on a large scale is cost effective. With a rise in the level
Although it is not always easy to determine the optimum of output, the manager is confronted with the new
size, but firms may undergo several optima size at challenges which enable him to perform better.
different stages of their size. v) Risk bearing economies: Large firms are usually better
equipped than small firms in coping with the risks of
1986/4 UTME business. Aggregate demand for their products over
A firm is at its optimum size when time will be more stable and more predictable than the
A. it produces the greatest output at the minimum cost case of smaller firms.
B. it has a motive to increase output vi) Research and development economies: Big firms can
C. marginal cost equals marginal revenue run fully equipped research and development divisions
D. marginal cost is less than marginal revenue which will significantly contribute to the overall growth
Answer of the company. Smaller firm because of size may not
It produces the greatest output at the minimum cost (A) be able to have such or if possible have it on a much
reduced scale.
ECONOMIES OF SCALE vii) Staff facilities economies: Large companies usually
Economies of scale are classified as internal or external boast of a significantly large number of employees in
economies such a situation provision of staff facilities such as
A. Internal economies of large scale production: sports arena, staff canteens, medical care, etc. The
Internal economics of large scale production are the provision of this translates to enhanced productivity of
the workers with attendant economies of production. A
benefits a firm derives directly from expanding its
small firm may not be able to provide this because of its
output single handedly, by its own efforts. The
much reduced size, i.e. the small firm cannot benefit
internal economics simply refer to the benefits that a from such economies of scale
firm derives from increase in output as a result of
improvement in the technical, managerial, financial, (II) Plant economies of life
risk bearing, commercial and welfare economies. (a) Increased specialization: The larger the company, the
larger are its plants and the more are the opportunities
Internal Economies Of Scale Can Be Divided Into Two for division of labour and specialization. The use of full
Forms employment of highly specialized machines and
(i) Firm economies of scale. equipment are possibly contributing to reduced costs
(ii) Plant economies of scale. and higher production levels.
(b) Increased dimensions: Bigger equipment, machines,
(i) Firm economies of scale plants e.t.c. lower the cost of production and bring about
(a) Financial economies. a high production level.
(b) Commercial or marketing economies (c) Indivisibility: Some heavy capital equipment can only
(c) Technical economies be efficiently or economically used at specified
(d) Managerial or administrative economies. minimum sizes.
(d) By –product economies: A large firm may be able to
(e) Risk bearing economies
convert its by – products to other useful products. It may
(f) Research and development economies
be able to sell the by – products to other companies
(g) Staff facilities economies which make use of them.
(e) Stock economies: A large firm can operate with smaller
(ii) Plant economies of scale stocks in proportion to its sales than a smaller firm. This
(a) Increased specialization. is because of unexpected changes in customers demand
(b) Increased dimensions. and variations in order from individual customers tend
(c) Indivisibility. to offset each other when total sales are very large.
(d) By – product economies.
(e) Stock economies.
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B. External economies of large scale production: It 5. Access to specialization economies: It encourages a
implies the benefits that a firm enjoy when such firms firm to adopt division of labour; i.e. to split the firm’s
along with similar others are concentrated in a work into separate sections. And it can employ a
particular area. It is also the advantages which specialist to head, supervise and coordinate activities
become available to the individual firm as a result of in each section. This leads to rapid expansion of the
growth of the sizes of the industry in which it is firm.
operating. These external economies result in lower 6. It enables a firm to involve in wide distribution of
average costs which a firm gains from the growth of goods: It leads to wide distribution of goods to
industry. Examples of external economies of large different states and countries as well as advertising
scale production include the following: them in both national and international media. And
(a) Specialized market: With the concentration of firms their expenses fall as output rises. This raises level of
in a particular location, buyers of their products are profit.
naturally attracted to them. This is because their 7. It enables a firm to have access to personnel and
localization already constitutes specialized market managerial economies: It enables them to recruit
which buyers access on their own. qualified and experienced people. They ensure
(b) Support companies: The concentration of firms in a efficient and effective operation of the firm.
particular location also attracts other companies 8. It leads to welfare economies: It encourages a firm to
which provide support service to these firms. These provide welfare services to its staff.
supportive companies cater for the needs of the 9. Access to risk bearing economies: It enables a firm to
dominant industry. produce varieties of goods. And it can ensure their
(c) Commercial facilities: External economies also arise proper distribution and sales in different markets,
from the fact that the financial services industry states and countries. A fall in demand for one product
comprising banks and insurance companies develop or in one market is compensated by high demand for
specialized products to cater for the particular needs other products and in other markets or states.
of the dominant industry in the area.
DISADVANTAGES OF LARGE SCALE PRODUCTION
(d) Availability of labour: The concentration of firm of
1. Bureaucracy and redtapism: The larger the size of the
the same industry in a particular location results in
firm the more bureaucratic its organisation tends to be.
the creation of a labour force to service those firms.
In such firms, there are laid down rules and regulations
(e) Proximity of the firms: Regional proximity
which must be strictly followed. This tends to kill the
encourages cooperation among the firms.
use of personal initiative and leads to a waste of time
DISECONOMIES OF SCALE in decision making.
These are the disadvantages that a firm suffers due to its 2. Sluggish to changes: Due to a long hierarchy of
large scale operations. They are demerits arising from management in a large firm. It takes a long time before
inability to reduce higher or rising costs per unit as output mistakes or wrong decisions made at the top can be
rises. corrected. It also takes much time to rectify faulty method
of production or adopt new techniques of production. They
ADVANTAGES OF LARGE SCALE PRODUCTION
cause a rise in total cost and a fall in profit.
1. It has access to financial economies: It enable’s a
3. Impersonal relationship between the firm and its
firm to easily borrow a large amount of money from
customers: Many large-scale firms deal with their
banks and at a reduced interest rate. It can easily raise
customers on an impersonal basis. Related to this is the fact
additional capital through the sales of shares, bonds,
that individual customers’ tastes are sacrificed because of
etc. It can also avail itself of hire and credit purchases
mass production, which entails standardization of
and other credit facilities.
production. On the other hand, the small firm deals with the
2. It enables a firm to increase the size of capital goods:
requirements of its customers on a personal basis and tries to
It enables a firm to increase the size of capital goods
satisfy them. This encourages them to continue patronizing it.
like machines, vehicles, tools, without necessarily
4. Impersonal relationship between management and
increasing the number of workers. This leads to
staff: Contact between the management and staff is
increase in output and a fall in unit cost.
less easy since the large firm may have hundreds or
3. It enables a firm to have access to research and
even thousands of employees. The manager may not
development economies: It enables a firm to conduct
know many of the workers personally. This lack of
researches on market surveys, marketing, sales, personal relationship makes large firms prone to industrial
product and promotion researches. They lead to disputes.
improvement in qualities of goods, method of 5. Complexity of Management: As the firm grows in
marketing the goods, etc. size, management becomes more complex. It may not
4. It enables a firm to have access to marketing be easy for a managing director to effect efficient
economies: It enables a firm to buy in bulk and at supervision of different departments and branches.
reduced price and obtain trade discount. This causes a rise in cost and a fall in profit.

181
6. Lack of interest and motivation: There may be non- 2018/4 NABTEB
challant attitude to work and to the affairs of the owners of A firm whose cost of production increases at a faster rate than
the business. This is because the workers and the manager the rate of output is enjoying
may not be co-owners of the business. Inefficiency may, A. economies of large scale production
therefore result. But with a small firm, such as the sole B. profit maximization C. stable equilibrium
proprietorship, his own interest and that of the business are D. diseconomies of large scale production
one. Pride of achievement encourages him to be more Answer: Diseconomies of large scale production (D)
efficient.
7. Inability to eliminate waste: As the firm grows in size 2003/5 Nov
Development outside a given firm which reduce the firm’s
especially with large number of departments and branches,
per unit costs are called
it becomes extremely difficult to entirely eliminate waste
A. internal economies B. external economies
especially in the production unit and branches. This leads C. external production D. internal diseconomies
to losses. Answer
8. Claiming monopoly power: Large-scale production leads external economies (B)
to a rapid rise in the firm’s size. And whenever they
become extremely large, they tend to dominate the market. 2014/8 UTME
It may lead to oligopolistic situation, i.e. the market will be If the production of a large firm is higher than that of a small
dominated by a few large firms, and they may merge to firm, it is experiencing
become one large organisation. This empowers them to A. external economies of scale B. external diseconomies of
exploit consumers through high prices and production of scale C. internal economies of scale
sub-standard goods and services. D. internal diseconomies of scale
9. Increased risks: The large firm is likely to suffer greater Answer
loss due to mistake or if a wrong decision is taken, than the Internal economies of scale (C)
small firm. Again, during a trade depression, a large firm
with many expensive machines and fixed capital will have 1997/28
a lot of excess capacity. (There is exess capacity if a firm is A firm is said to have benefitted from external economies in
producing at an output which is smaller than the point of production, if it has realized
minimum average total cost). In these circumstances, some A. a more efficient management of resources
of the fixed capital either be idle or working below B. a better combination of factors of production
capacity (i.e. not fully utilized). C. reduced resource costs due to operations of other firms
D. a higher profit level due to increase sales
Answer
2022/21 NABTEB
Reduced resource costs due to operations of other firms (C)
The advantages enjoyed by a firm as it expands its
operation is called 1989/7 UTME Exercise 9.3.
A. mutual benefit If the cost of production for a firm continues to increase as its
B. absolute advantage output rises, the firm is said to be experiencing
C. internal economies of scale A. large scale production B. profit maximization
D. comparative advantage C. economies of scale D. diseconomies of scale
Answer
Internal economies of scale (C) 2017/38 UTME Exercise 9.4.
The cost saving advantages which a large firm can achieve on
1982/9 UTME its own is called
A firm whose costs of production decrease as it continues A. internal economies of scale
to increase its output is said to be enjoying B. diseconomies of large scale
A. profit maximization B. large scale production C. external diseconomies of scale
C. a windfall D. government subsidies D. external economies of scale
E. economies of scale
Answer: Economies of scale (E) REASONS FOR THE EXISTENCE AND SURVIVAL
OF SMALL FIRMS
2006/25 Neco 1. Little Capital: Small capital requirements makes small
When firms producing similar products concentrate in one firms easy to establish and easy to resuscitate in times
particular area, they enjoy of serious financial crisis.
A. constant returns to scale 2. Little or no bureaucracy: The small firms also survive
B. external diseconomies of scale because they render quick and less bureaucratic services.
C. external economies of scale 3. Little management requirement: In view of the size
D. internal diseconomies of scale of the firm, its management requirement is greatly
E. internal economies of scale reduced. This minimizes cost and losses that may
Answer: External economies of scale (C) result from complex administrative structure.
182
4. Opening at convenient hours and place: The small 5. They provide a productive outlet for many private
firms are always at the service of their customers at businessmen who prefer to set up and manage their
such a place and time that is most suitable to them. So own business ventures: Those who prefer to be self-
the continued patronage of the customers is assured
employed are able to meet this desire by establishing
more than the large firms that open at clearly defined
place and time. small business enterprises on their own rather than
5. Absence of major economies of scale: Where there is working for large companies.
no incentive for the firms in the industry to grow in 6. Small firms act as specialist suppliers, subcontractors
size, it will be more profitable for the small ones. and consultants to large business enterprises: at
6. Provision of Variety of services: Unlike the large relatively lower cost than such large enterprises could
firms whose services are clearly defined, the small provide for themselves. This, in fact, lowers the cost of
firms provide a wide range of services to attract the
production for large firms. It also enables them to
interest of the customers. They can easily diversify
into other businesses. specialize in their lines of production, thereby leading
7. Provision of personal services: Most small firms to increased productivity.
continue to exist because of the direct and personal 7. Small firms provide sources of employment and
services they render to their customers. Their services livelihood for a large percentage of the business
are more of friendly than normal business relationship, community in West Africa: Most of the firms are
and for this reason, the customers continue to small and provide a source of living for many people.
patronize them.
8. Absence of government interference: It is the
fundamental economies policy of the government to
encourage self – reliance. So, the government hardly
find it necessary to curtail the economic activities of THE CONCEPT OF TOTAL, AVERAGE AND
small firms. MARGINAL PRODUCTIVITY
(1) Total product (TP): Total product is the total quantity
IMPORTANCE OF SMALL FIRMS IN ECONOMIC of goods and services produced from the gainful
DEVELOPMENT OF WEST AFRICA employment of all productive factors during a
1. They provide new entrepreneurs with small capital specified period of time. It is also referred to as total
bases the opportunity to enter into business: Such output or total productivity.
entrepreneurs are unable to set up large enterprises, NB: This is also termed the total output
and so they set up small business concerns with the
(2) Average product (AP): Average product is the total
little capital they have. output per unit of the variable input. If the variable
2. Small firms constitute an important source of input is labour for instance, average product is
innovation: Small scale production provides avenues for measured per unit of product per worker.
experiment and enterprise for young men and women with Total output
AP =
Number of workers employed
plenty of ideas. For the purpose of experimentation in new
or
lines of production or technique development, the small Total product (TP)
AP = labour (L)
size firm is usually the best. The loss which will arise will
be small than when a large firm is set up and used for NB: Average product is also called average output or
purposes of experimentation. average productivity.
3. They serve as a stimulus for challenging existing
firms so that they strive towards efficiency and (3) Marginal product (MP): Marginal product is the
change in total product resulting from the use of one
increased productivity: In an attempt to keep ahead of
more or one less unit of the variable input. In other
the new rivals. The old firms try to be as efficient as words, it refers to the addition to total product
possible in order to maintain their share of the market. resulting from the employment of an extra unit of the
Healthy competition is thereby generated, and this variable factor, it also refers to the subtraction from
leads to the production of high quality products. total product resulting from the withdrawal of one
4. Provision of peaceful industrial climate: The unit from the variable factor. Marginal product is
employees of most small businesses do not usually otherwise known as marginal output or marginal
productivity.
embark on strikes and there are usually little or no Change in total product (∆TP)
industrial disputes, thereby leading to harmony and MP = Change in labour (∆L)
∆TP
efficiency in production MP =
∆L

183
 NB: This is also termed the marginal output Author’s Question
What might be the possible reasons for negative returns to
factor in Stage III of production?
Answer: There can be various reasons for negative returns to
a factor:
 The fixed factor is limited in the short run. If we go on
increasing the variable factor beyond certain point, it
will mean inefficient usage of the fixed factor, acted
upon by the variable factor. This is why MP becomes
negative.
 The efficiency of variable factor may also be a reason for
negative returns. If more and more labour is added to
fixed capital (say machinery), the marginal contribution
of each variable factor become less, leading to
STAGES OF PRODUCTION overcrowding.
Based on the shapes of the TP, MP and AP curves, we can  The efficiency of the fixed factor is also affected in case
identify different stages of the production process faced by of overcrowding of variable factor. Too many labourers
a firm may cause chaos and wear and tear of machinery, which
ultimately causes TP to fall.
Stage 1
Called the stage of increasing returns to a factor, this stage SCHEDULE SHOWING TOTAL, AVERAGE AND
refers to that phase in the production process where MP is MARGINAL PRODUCTS
increasing and reaches its maximum profit. It is the phase No. of Total Marginal Average
where TP is increasing at an increasing rate. The stage workers Product Product Product
starts from the origin and extends till the point of inflexion (₦) (TP) (MP) (AP)
– the point on the TP curve after which TP increases at a 1 5 5 5
diminishing rate. 2 16 11 8
3 36 20 12
Since TP is increasing at an increasing rate in this phase, it 4 68 32 17
is profitable for the firm to continue employing more units 5 80 12 16
of the variable factor to increase its production. Hence, the 6 90 10 15
firm never operates in stage I.
Example:
Use the following table of production function to answer
Stage II the questions that follows:
This stage is called the stage of diminishing returns to a Units of Total product Average Marginal
factor. It refers to the phase where TP increases at a labour (TP) in tonnes Product (AP) Product (MP)
diminishing rate and reaches its maximum. In this phase, in tonnes in tonnes
MP is declining but note that it still remain positive. The 0 0
stage ends where MP = 0. Since this implies efficient 1 80
utilization of the fixed factor, a firm always operates in the 2 320 240
second stage of production. 3 630 210
4 265 430
5 425 1065
Stage III 6 2420 570
This is the final phase, called the stage of negative returns 7 1500
to a factor, where the TP curves starts to decline. MP in 8 4520 565
this phase becomes negative. This stage is not at all 9 510
feasible for operation for any firm as the TP starts to 10 4650 465 60
decline, which means that production has surpassed the a. Compute the TP at the following units of labour:
optimum level of specialization. i. 4 units ii. 5 units iii. 9 units
b. Compute the AP at the following units of labour:
i. 1 unit ii. 2 units iii. 7 units
c. Determine the MP at the following units of labour
i. 3 units ii. 6 units iii. 9 units
d. Draw the MP curve, indicating the following concepts on the
curve:
i. Increasing returns
ii. Optimum returns
iii. Decreasing returns
184
Solution:
Units of Total product Average Marginal
labour (TP) in tonnes Product (AP) Product (MP)
in tonnes in tonnes
0 0 - -
1 80 80 -
2 320 160 240
3 630 210 310
4 1060 265 430
5 2125 425 1065
6 2420 570 1295
7 3920 560 1500
8 4520 565 600
9 4590 510 70
10 4650 465 60
a (i) TP = AP × L or
Previous ouput level (TP) + Current Marginal Ouput level (MP)
TP = 265 × 4 = 1060 units or
TP = 630 + 430 = 1060 units
a(ii) TP = 425 × 5 = 2125 units or
TP = 1060 + 1065 = 2125 units.
a(iii) TP = 510 × 9 = 4590 units.
𝑇𝑃 80
b(i) AP = = 1 = 80 units.
𝐿
𝑇𝑃 320
b(ii) AP = 𝐿 = 2 = 160 units.
𝑇𝑃 2420 + 55 2475
b (iii) AP= 𝐿 = 7
= 7 = 354 units
𝑐ℎ𝑎𝑛𝑔𝑒𝑠 𝑖𝑛 𝑇𝑃 ∆𝑇𝑃
c(i) MP = 𝑐ℎ𝑎𝑛𝑔𝑒𝑠 𝑖𝑛 𝐿 = ∆𝐿
630−320 310
= = = 310𝑢𝑛𝑖𝑡𝑠.
3−2 1
∆𝑇𝑃 1420−2125 295
c(ii) MP= = = = 295 units.
∆𝐿 6−5 1
∆𝑇𝑃 4590−4520 70
c(iii) MP= ∆𝐿 =
9−8
= 1 = 70 units.

185
186
2021/17 2011/8 (OAU, IFE) Exercise 9.6
The output of an extra unit of an input is referred to as Marginal product (MP) is best defined as
A. output of the input Total product Change in total product
A. No of labour
B. Change in variable factor
B. marginal product of the input
C. average product of the input Total product Average product
C. D.
D. utility of the input employed Fixed factor No of labour
Answer
B –Marginal product of the input LAW OF VARIABLE PROPORTIONS (OR LAW OF
DIMINISHING RETURNS) OR DIMINISHING
2007/10 Nov MARGINAL PRODUCTIVITY
When marginal product is equal to zero then the The law of diminishing returns states that as more and more
variable factor, (e.g. labour), are added to a fixed factor, (e.g
A. average product has reached its highest level
land), the total output will initially increase to the extent that
B. total product is at maximum C. total product is marginal increment to the total output may eventually be zero or
negative negative.
D. average product begins to fall
Answer This law tells us that if increasing quantities of a variable input
Total product is maximum (B) are applied to a given quantity of a fixed input, the marginal
product and average product of the variable input will eventually
2000/22 Nov decrease”. The law is not only applicable to land but to all
The average output per worker is calculated as total factors of production.
product
For instance, if a farmer continues to add more workers and
A. plus total revenue
seeds to the same piece of land, his total output will increase
B. divided by the numbers of workers employed initially but as he continues to add workers and seeds, the total
C. divided by marginal product output will begin to decrease.
D. plus an extra unit of fixed factor It is important to note that if any other factor of production is
Answer held constant and others are varied, the same situation will take
Divided by the number of workers employed (B) place where total production will increase to a point and decline
Total output later.
Hint: AP = Number of workers employed
Average product (AP) is also called average output or AN ILLUSTRATION OF THE LAW OF
average productivity. DIMINISHING RETURNS
Fixed Variable Total Average Marginal
i input product product product
2010/21 NABTEB Exercise 9.5 n
The increase in the total output arising from the p
employment of an extra unit of the variable inputs is u
known as t
A. marginal product B. average product
C. net of production D. total product 1 1 1 1.0 –
1 2 4 2.0 3
2014/17 (OAU, IFE) 1 3 15 5.0 11
All of the following are true about total product, marginal 1 4 28 7.0 13
product and average product except one 1 5 35 7.0 7
A. when TP is at the maximum, MP equals zero 1 6 36 6.0 1
B. AP equals MP when MP is at the maximum 1 7 36 5.1 0
C. when TP is falling, MP is negative 1 8 32 4.0 –4
D. when TP is at the maximum AP is positive
Answer From the table above, it is observed that increase in total
When TP is at the maximum AP is positive (D) product occurs up to the addition of the 6th unit of the
Hint: when total product is maximum, average product is variable input of production. This shows increasing
decreasing returns. The addition of the 7th unit of the variable factor
does not result to a change in total product. This shows
constant returns. On the addition of the 8th variable factor
diminishing returns set in and total product begins to fall.

187
188
RELATIONSHIP BETWEEN TOTAL, AVERAGE, Solution
AND MARGINAL PRODUCTS The formular necessary for the solution are as follows
1. The marginal product is derived from total product. It is 𝑇𝑜𝑡𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 𝑇𝑃
(i) Average product (AP) = 𝐿𝑎𝑏𝑜𝑢𝑟 = 𝐿
the difference between two consecutive total products.
2. The average product is derived from total product. The Changes in TP ∆TP
(ii) Marginal product (MP) = =
sum of all average products gives the total product and Changes in labour ∆L
the average product equals total product divided by the But if labour changes by one unit only as it is the case in
quantity of variable factor. the equation above, then MP = Current TP – Previous TP.
3. The total, average and marginal products initially rise.
4. When the marginal product is zero, the total product is at THE LAW OF DIMINISHIG RETURN
its maximum point. Fixed Variable TP (kg) AP (kg) MP (kg)
5. When total product declines, marginal product becomes factor Factor
negative in value. (Hectares (Labour)
6. When the marginal product is increasing, the average of land)
product is above it, but when the marginal product is 5 0 0 0 -
decreasing the average product is below it. 5 1 16 16 16(16–0)
16( )
1
5 2 36 36 20(36–16)
IMPORTANCE OF THE LAW OF DIMINISHING RETURN 18( )
2
1. The law of diminishing return demonstrates that any time 5 3 72 72 36(72–36)
24( )
one factor is held constant in production, marginal 3
5 4 96 96 24(96–72)
product will always increase but diminishes afterwards. 24( )
4
2. It teaches entrepreneurs how to combine their factors in 5 5 110 22(
110
) 14(110–96)
order to achieve high productivity and avoid wastage. 5
5 6 120 120 10(120–110)
3. It teaches production through variation of all inputs. 20( )
6
4. It helps to determine the wages to be paid to the workers 5 7 120 120 0(120–120)
17.1( )
by the entrepreneur as the wages will be determined by 7
the contribution of the worker to the total production. 5 8 112 14(
112
) –8(112-120)
8
5. It helps to explain the reason for low standard of living in 5 9 90 90 –22(90 – 112)
10( )
many parts of the world, i.e. as population increases and 9
social amenities are not increased accordingly, shortage
and low standard of living will be the outcome

Example AP 1
The table shows the production function of a firm. Fixed Variable TP AP (kg) MP (kg)
The table shows the production function of a firm. factor Factor (kg)
(adjusted) (Hectares (Labour)
of land)
Fixed factors Variables factors Total Product
(Hectares of land) (Labour) (TP) in Kg 4 0 0 0 -
4 1 20 20 20(20–0)
4 0 0 20( )
1
4 1 20 4 2 50 50 30(50–20)
25( )
2
4 2 50 75
4 3 75 25( ) 25(75–50)
4 3 75 3
4 4 95 95 20(95–75)
4 4 95 23.75( )
4
4 5 110 4 5 110 110 15(110–95)
22( )
4 6 120 5
4 6 120 120 10(120–110)
4 7 125 20( )
6
4 8 125 4 7 125 125 5(125–120)
17.86 ( )
4 9 120 7
4 8 125 125 0(125–125)
4 10 110 15.63( )
8
(a) Complete the table above by calculating: 4 9 120 13.33(
120
) –5(120-125)
(I) Average product (AP) 9
4 10 110 11(
110
) –10(110–120)
(II) Marginal product (MP), for each labour. 10
(b) Draw the TP, AP and MP curves in a single diagram.
(c) Explain the relationship between TP and MP.
(d) What are the relationship between AP and TP?

189
(b)

190
(c) The relationship between TP and MP could be
classified into three and they are as follows:
(i) Increasing stage: When TP is increasing, MP will also
increase, but below the TP.
However, at the first unit of labour.
TP = MP
(ii) Constant stage: Here, TP is maximized, MP will be
zero (i.e. when TP is maximized, MP = 0).
(iii) Decreasing stage: When TP decreases, MP will be
negative.
(d) TP is a function of AP and Labour, hence TP = f(AP ×
L). The relationship between AP and TP is normally as
follows:
I. If AP is increasing, TP is positive.
II. If AP is decreasing, TP will initially increase at
a leass than proportionate rate, and finally
become negative.

Example AP 2
Use the table below to answer the questions that follow:
Fixed fact. Variable Total Avg. Marg.
2 hectares fact. prod. prod. Prod.
of land (labour) (TP) kg Kg (MP) kg
2 0 0 0 -
2 1 5 5 5
2 2 20 10 15
2 3 32 12 12
2 4 42 10.7 10
2 5 50 10 8
2 6 55 9.2 5
2 7 58 8.3 3
2 8 58 7.3 0
2 9 56 6.2 –2
2 10 50 5.0 –6
a. Explain the relationship between TP and MP.
b. Draw the TP, AP and MPP curves in a single diagram.

191
Solution

192
a. Relationship between TP, AP and MP 3. Decreasing returns to scale (DRS): This occur when a
i. When TP is increasing, MP is also increasing, but proportionate increase in all inputs results in the rise in
below TP. output by a smaller proportion.
ii. When TP is maximized, MP is zero. For instance, presume in a manufacturing procedure, all
iii. When TP is decreasing, MP is negative. inputs get doubled. As an outcome, if the output gets
doubled, the manufacturing procedure displays CRS. If the
output is less than doubled, then DRS occurs and if it is
more than doubled, then IRS occurs

1999/14 Nov
Increasing returns to scale means
A. higher rate of output to input
B. lower output at an increased cost
C. proportional increase in output and cost
D. higher output at a higher cost
Answer Higher rate of output to input (A)

2021/18 1993/10
The law of diminishing return is applicable to the
A. fixed inputs of production
B. variable factors of production
C. plants and machinery of the firm
D. equipment and other capital
Answer
C –variable factors of production
Hint: The law is not only applicable to variable factors of
production but to all factors of production

1992/8 Nov
Another name for the law of variable proportion is
A. say’s law of markets B. law of diminishing marginal Which important economic principles are illustrated by the
utility C. law of diminishing returns graph above?
D. parent’s optimality E. Adam Smith’s law of wealth A. law of cooperative cost
Answer: Law of diminishing returns (C) B. law of diminishing marginal utility
C. law of diminishing returns
RETURNS TO SCALE D. Malthusian law of population E. law of supply
This is the relationship between proportionate change in Answer Law of diminishing returns (C)
inputs to a proportionate change in output.
The law of variable proportions emerges because factor 1993/38
proportions change as 1 factor is held unchanged and the Division of labour gives rise to
other is raised. What if both factors can change? A. the exchange of good and services
Always remember that this can occur only in the long run. B. the use of a barter system
1 special case, in the long run, happens when both the C. the production of limited goods
factors are raised by the same amount of factors which are D. unemployment E. delay in production
ascended up. Answer: The exchange of goods and services (A)
A change in factor inputs brings about a proportionate
change in output, therefore return to scale shows 1995/13 Nov
relationship between inputs and outputs. Which of the following does not involve division of
labour?
TYPES OF RETURN TO SCALE
A. specialization by craft B. specialization by process
There are three types of return to scale as follows
C. regional specialization D. industrial activities
1. Constant returns to scale (CRS):This is when a
E. individual activities
proportionate increase in all inputs results in the rise in
Answer: Individual activities (E)
output by the same proportion.
2. Increasing returns to scale (IRS): This occurs when a
proportionate increase in all inputs results in the rise in
output by the larger proportion.
193
2012/33 2006/4 Neco
When a firm is able to buy goods more cheaply because of (a) Explain with examples internal and external
its large size, it is enjoying economies of scale.
A. marketing economics B. technical economics (b) Mention any five benefits that industries sited in Ikeja
C. welfare economics D. managerial economics industrial estate enjoy.
Answer Marketing economics (A) Answer
(a) Internal economies of scale: The internal economies
2012/1 Nov Exercise 9.7 simply refer to the benefits that a firm derives from
(a) What are external economies of scale? increase in output as a result of improvement in the
(b) Describe any four external economies of sales. technical, managerial, financial, risk bearing,
(c) State any three limitations to the growth of firms. commercial and welfare economies. Internal
economies of scale can be divided into
1997/18 Nov (i) Firm economies of scale.
One of the factors which adversely affect expansion of (ii)Plant economies of scale
production is External economies of scale: The external economies
A. effective management B. limited size of the market of scale imply the benefits that a firm enjoys when
C. adequate supply of funds D. increased profit prospects such firm along with similar others are concentrated
E. increasing returns to scale in a particular area.
Answer Examples are:
Limited size of the market (B) (i) Specialized markets (ii) Support companies.
2004/8 Nov (iii) Commercial facilities. (iv) Availability of labour.
(a) State any two reasons why firms may want to grow in
size.
(b) Highlight any four factors that limit the growth in the (b) The industries sited in Ikeja industrial estate will enjoy
size of firms. the following benefits
Answer 1. Economies of scale: Units located in an industrial estate
(a) Reasons why firms may want to grow in size. can adopt centralized buying and selling. The
(i) To dominate the market thereby reducing competition requirement of all the members for raw materials and
from the other firms. components can be pooled together and bulk purchases
(ii) To reduce the cost of production per unit. made. Such bulk purchases would be eligible for quantity
(b) Factors that limits the growth in the size of firms. discounts resulting in lower costs.
(i) Extent of the market: The larger the market, the Similarly, in the case of sales, the produce of members
larger the demand for goods and services produced. If can be pooled together and sold. This would reduce
the supply of the commodity exceeds the demand or selling costs to a great extent. This kind of centralized
where there is no demand for the goods produced, no buying and selling would enable member units to enjoy
change is required, large scale production is not scale economies.
advisable. Therefore, the demand limits the scale of 2. Economies of Agglomeration: Agglomeration refers to
production. the benefit of reduced production costs because of
(ii) Capital: The amount of capital available to a firm concentration of industries. The benefits from
determines the size of the firm both in the present and agglomeration are:
future. In African, where there is low capital rate  Availability of skilled labour.
formation, firms find it hard to expand their  Presence of repair, maintenance and service
production over and above certain level. facilities.
(iii) Low level of technology: Many West African firms  Availability of components.
cannot buy modern large machines and sophisticated  Presence of financial institutions.
equipment for production of goods. They mainly use The finished product of one unit might be the raw
outdated machines and they adopt primitive methods material for another unit. Since the units are located
of production. These restricts the firm’s expansion. close by, it results in savings in transportation costs for
(iv) Entrepreneurial ability: The ability of the the purchaser and assured market and reduced selling
entrepreneur will also limit the scale of the firm. If cost for the seller.
the entrepreneur possesses little managerial ability, he 3. Low Investment: Since the government provides land
cannot easily run a large establishment due to the fear for setting up industrial estates at affordable costs, the
of failure. initial investment is less. Industrialists can acquire
assets on hire purchase or on lease and can benefit
from higher output.

194
4. Availability of infrastructure: The infrastructural 2001/14 Nov
facilities such as electricity, water, roads, telecom, etc., Use the table below to answer question 14 – 17
are readily available in industrial estates. Entrprenuers Unit of Numbers Total Marginal Average
need not spend their time and money to get electricity land of new output of output (in output
connection, water supply and telephone connection. (in employed rice (in 000 (in 000
Therefore, production can commence immediately acres) 000 tonnes) tonnes)
without any wastage of time and resources. tonnes)
5. Availability of support facilities: Apart from the basic 1 1 40 – 40
infrastructure, banks, post offices, etc., are located in 1 2 100 60 ?
industrial estates. This facilitates business transactions 1 3 240 ? 80
to a great extent. 1 4 ? 160 100
1 5 550 ? 110
Extra benefits The average output in tonnes when marginal output is
6. Mutual cooperation: The units in an industrial estate 60,000 is
can cooperate among themselves and undertake joint A. 30,000 B. 40,000 C. 50,000 D. 100,000
research. Such research can be for exploring new Answer
markets, new sources of supply of raw materials, Total output
AP = Number of workers
better processes etc., They can share best practices
relating to quality standards. Such co-operation would 100,000
AP = 2
= 50,000 (C)
benefit all the member units.
7. Focus on business: The initial investment is low and
all the basic and supporting infrastructural facilities are 2001/15 Nov
readily available. Therefore, entrepreneurs can focus The marginal output in tonnes when total output is 240,000
their full attention on the business and concentrate on is
its growth. A. 110,000 B. 120,000 C. 140,000 D. 170,000
8. Increased employment opportunities: Industrial Answer
Change in total product
estates create more employment opportunities and MP = Change in labour
increase the mobility of labour. Since many of the
units are labour intensive, there are opportunities for 240,000−100,000
=
both skilled and unskilled workers. 3−2
9. Development of backward areas: Industrial estates 140,000
= 1
provide employment to the local youth. With their
development a host of facilities such as banks, post = 140,000 (C)
offices, insurance companies, housing, schools, health
care facilities come up. This results in the development
of backward areas and balanced regional development. 2001/16 Nov
What is the total output in tonnes when the fourth man was
employed?
A. 400,000 B. 500,000 C. 720,000 D. 770,000
2022/28 NABTEB
Answer
The concept of production in economics means TP4 = TP3 + MP4
A. procreation B. distribution of goods TP4 = 240,000 + 160,000
C. the creation of utilities D. marketing of goods TP4 = 400,000 (A)
Answer
The concept of production in economics means the 2001/17 Nov
creation of utilities (C) How many men were employed when marginal output was
at the maximum?
A. 2 B. 3 C. 4 D. 5
2001/8 Nov Answer
The law of diminishing returns applies to Marginal output is maximum at 160,000 tonnes, and 4 men
A. the average product only were employed (C)
B. land as a factor of production in the short run only
C. the cultivation of crops only 2019/33 NABTEB
D. production of essential commodities in the long run Division of labour is limited by the
Answer A. size of the labour force B. size of the firm
land as a factor of production in the short run only (B) C. absolute size of a country’s population
D. size of the market
Answer size of the market (D)

195
2019/3 NABTEB 2000/9
(a) What is division of labour. One of the internal economies of large scale production is
(b) Mention four advantages of division of labour. A. administrative economies B. market economies
(c) Explain four limitations of division of labour. C. regional economies D. horizontal economies
Answer Answer Market economies (B)
(a) Division of labour is the system of breaking down the
production process into segments and tasks which are 1988/8 UTME
performed by different people. In breaking down the Which of the following best describes the production
production process, the type of the organization, the function?
size of the organization and the nature of the goods A. it indicates the best output to produce
produced are taken into consideration. B. it relates naira inputs to naira outputs
(b) Advantages of division of labour C. it relates physical output to physical inputs
(i) It saves time, energy and other resources. D. it indicates the best way to combine factors to produce
(ii) It results in a higher level of productivity per workers. any given outputs
(iii) It increases the skills of workers on the job. Answer It relates physical output to physical inputs (C)
(iv) There is saving time in training of the workers.
(c) Limitation of division of labour 1988/10 UTME
(i) The sort of activity engaged in The law of diminishing returns begins to operate when
The kind of activity engaged in also matters. Some direct A. total product begins to rise
services do not require divisin of labour. Many of the B. total product begins to fall
operators of barbing salon do not venture into division of C. marginal product begins to fall
labour as in most cases it is not applicable to them. D. marginal produce begins to rise
(ii) The state of technology: The extent of division of Answer Marginal product begins to fall
labour and specialization will be determined by the
state of technology in a country or the capacity of the 1989/5 UTME
organization in question in the application of Efficiency in production involves
technology. It must be noted that a high level will A. reducing the size of the work force
encourage specialization while a low level of B. producing a given output with the lowest cost
technology will discourage it. combination of factors of production
(iii) Size of the market: Division of labour and C. adoption of capital intensive technology
specialization lead to greater output. The sustenance D. increasing the quantity of the fixed factor of production
of this requires having a large market to produce for. Answer
The availability of a large market for the product will Producing a given output with the lowest cost combination
encourage division of labour and specialization while of factors of production (B)
the otherwise will discourage them.
(iv) Availability of factor inputs: Division of labour will 2015/17 Exercise 9.8.
lead to increase in output increase in outputs is a The law of diminishing returns relates to
function of adequate availability of factor inputs. The A. total utility B. average utility C. total product
extent to which these are available will determine the
D. marginal product
extent to which these are available will determine the
extent to which division of labour can be applied in the 1995/13 Exercise 9.9.
productive process. Which of the following does not involve division of
labour?
2003/18 Nov A. specialization by craft B. specialization by process
The marginal physical product of a factor is the additional C. regional specialization D. industrial activities
unit of output produced from the hiring of E. individual activities
A. more of the factors of production
B. an extra unit of the factors of production 1990/25 Nov
C. more efficient and skilled workers The extent of division of labour can be determined by the
D. workers on piece rate basis A. size of the working population
Answer: An extra unit of the factors of production (B) B. size of the market C. attitude of the workers to work
2000/8 D. unit price of goods produced or service rendered
Total product E. factors of production
In production, the formula Number of men employed
is used Answer
to calculate the Size of the market (B)
A. total product B. average product C. marginal product
D. fixed product
Answer: Average product (B)
196
1990/38 Nov 2003/12
The introduction of division of labour in an automobile Use the diagram below to answer question 12.
industry will lead to
A. a fall in output B. a decline in the efficiency of labour
C. an increase in output
D. a separation of ownership from management
E. an increase in cost per unit
Answer An increase in output (C)
2011/6 Neco Exercise 9.10
Methods of production can be broadly classified as ____
and ____ methods
A. capital, labour intensive B. capitalist, socialist
C. industrial, agricultural D. crude, mechanized
E. direct, indirect
2011/9 Neco
The curve labeled x is the
The practice of division of labour can be restricted by
A. total revenue curve B. total product curve
A. improved system of exchange
C. marginal product curve D. marginal revenue curve
B. research and innovation
Answer
C. the employment of socialization
Total product curve (B)
D. the greater use of machinery
E. the nature of the job or product
2003/13
Answer The greater use of machinery (D)
When the total product is at its maximum, marginal product is
2011/24 Neco A. increasing B. positive C. negative D. zero
When total product is at maximum average product will be Answer
A. above marginal product B. below marginal product Zero (D)
C. maximum D. negative E. zero
Answer 2002/4 Nov
Above marginal product (A) Division of labour may be restricted when
A. producers increase output B. the market is small
2003/8 C. there is underemployment D. there is inflation
A major limiting factor of mass production is Answer
A. efficient management B. adequate labour supply The market is small (B)
C. small size of the market
D. adequate supply of raw materials 2008/3
Answer Small size of the market (C) Production covers all the following except when
A. utility is created B. a good is manufactured
2003/9
C. a commodity is consumed
Division of labour leads to
D. individual wants are satisfied
A. improved craftsmanship
Answer
B. the production of standardized goods
a commodity is consumed (C)
C. increase in the cost of goods
Hint: Production involves the identification of human
D. trade by barter
needs, producing goods that have utility with the objective
Answer
to satisfy the needs of the final consumer. It doesn’t
Improved craftsmanship (A)
involve when goods are consumed.

2008/5
The theory of diminishing marginal utility states that as
more units of a commodity are consumed the
A. satisfaction from an extra unit decreases
B. satisfaction from an extra unit rises
C. satisfaction from an extra unit remains constant
D. total satisfaction from the good remains the same
Answer
Satisfaction from an extra unit decreases (A)
197
2008/29 2008/4
Industry can be defined as (a) Explain the term internal economies of scale.
A. several firms producing different commodities (b) Outline any four economies of scale a firm enjoys as
B. group of firms producing similar commodities it grows in size.
C. different firms producing equal number of commodities Answer
D. many firms producing for export (a) Internal economies of scale are benefits a firm enjoys
Answer as it grows in size.
Group of firms producing similar commodities (B) (b) Such economies include:
(i) Technical economies: Large firms can employ large
2008/30 Exercise 9.11 machines which small firms may not be able to afford.
Which of the following is a disadvantage of large scale (ii) Risk – bearing economies: Large firms are usually
production? better equipped than small firms in coping with the
A. market economies B. managerial economies risks of business. Aggregate demand for their
C. impersonal organization D. division of labour products over time will be more stable and more
predictable than the case of smaller firms.
1992/4 (iii) Marketing economies: These economies are realized
(a) Highlight the factors which encourage entrepreneurs to by large firms as in the case of obtaining discounts
adopt division of labour in production. when making purchases in bulk and thus enables
(b) What factors are capable of limiting the practices of them to buy more cheaply than small firms.
division of labour? (iv) Administrative/managerial economies: Production on
Answer a large scale is cost effective. With a rise in the level
4(a) Factors which encourage entrepreneurs to adopt division
of output, the manager is confronted with the new
of labour are:
challenges which enable him to perform better.
(i) Division of labour makes it possible for more workers to
be employed. This leads to an increase in output. 2011/6 Neco
(ii) Time is saved in division of labour because no time is (a) Differentiate between a firm and an industry.
lost in moving from one stage of production to the other. (b) Explain any five factors that can influence the
(iii) Division of labour makes the use of machine possible at location of a cement factory?
each stage of production. This leads to better and
Answer
increased production.
(a) A firm is an independently administered business unit
(iv) Specialists handle various aspects of production in
which is engaged in a definite form of production. While
division of labour. This leads to innovations and
sometimes, inventions. an industry consists of a group of firms producing
(v) Since each worker on the production lines does only one broadly similar goods or offering complementary service.
aspect of the production process, the worker experiences (b) Factors that can influence the location of a cement
less fatigue. factory.
(vi) In division of labour, one person is responsible for an aspect i. Availability of raw materials
of production on which he concentrates his efforts and skill. An industry is therefore often sited where the raw
With time, the individual’s skill improves. materials it requires can be found. In instances where the
(vii) With the use of machinery, various types of technology raw materials are of a bulky and heavy nature, the
are developed to further facilitate production. industry may be located very close to where they are
(b) Factors that are capable of limiting the practice of found to minimize the cost of transportation. For example
division of labour are: the Nigeria cement in Enugu State is located at Nkalagu
(i) The level of technology sets a limit to the extent of due to the presence thereof deposits of limestone, a heavy
specialization. New technological break through may and bulky raw materials for cement production.
allow further specialization. ii. Transportation and communication
(ii) The nature of the product may not give room for division of Every industry is concerned with making profit, effort is
labour e.g. barbing, hair dressing and driving. made to locate the business where there are good means
(iii) In the field of creative art, division of labour is limited of transportation and communication. This facilities
because, individual talent is all important and works communication with different part of the country and the
cannot be mass – produced. outside world, as well as the movement of products to
(iv) A small market discourages mass production and hence,
markets far and near.
division of labour. If the market is large enough to
absorb sizeable quantities of the product, it will
iii. Availability of labour
encourage division of labour. The availability of labour, therefore is a factor which
(v) Mass production requires factors input in suitable cannot be neglected in the decision to locate an industry
quantities and qualities. The extent to which these in a particular place. There must be a reliable supply of all
factors are available determine the degree of categories of labour, skilled, semi – skilled and unskilled,
specialization in the industry. for the industry to operate profitably.

198
iv. Proximity to market Total output
(b) AP = Number of workers employed
Some industries are market – oriented. They are
located very close to the consumers of their products, 160
(i) At unit = 160
1
the major consideration being that what is produced
640
must also be sold. To some entrepreneurs, this (ii) At 2 units = = 320
2
becomes an overriding consideration, since profits
come from revenue, and revenue is income from the (iii) At 7 units = TP = 6,840 + 1,1005 = 7,945
sale of products. 7,945
= AP = 7
= 1,135
v. Availability of social amenities Change in total product
The concentration of industries brings along with it (ci) MP = Change in labour
the concentration of human beings. This can lead to 1,260−640 620
the overcrowding of available schools, and undue MP of 3rd unit = 3−2
= = 620
1
pressure on health and other services. 6,840−4,250 2,590
MP of the 6th unit = 6−5
= 1
= 2,590
9,180−9,040 140
MP of the 9th unit = = = 140
2002/1 Nov 9−8 1
The table below relates to the variation in output when Unit of Total Average Marginal
various units of labour were employed to a fixed area of labour product product product
land to produce tones of rice. Use the table to answer the (TP) in (AP) in (MP) in
question that follow. tonnes tonnes tonnes
Answer
Unit of Total product Average Marginal 1 160 160 -
labour (TP) in tonnes product (AP) product (MP)
in tonnes in tonnes
1 160 2 640 320 480
2 640 480
3 1,260 420 3 1260 420 620
4 530 860
5 850 2,130 4 2120 530 860
6 6,840 1,140
7 1,105 5 4250 850 2130
8 9,040 1,130
9 1,020 6 6840 1140 2590
10 9,300 930 120
(a) Calculate the total product when the following units 7 7945 1135 1105
of labour were employed.
(i) 4 units (ii) 5 units (iii) 9 units 8 9040 1130 1095
(b) Calculate the average product when the following
units of labour were employed 9 9180 1020 140
(i) 1 unit (ii) 2 units (iii) 7 units
(c) What is the marginal product at the employment of 10 9300 930 120
the following units of labour?
(i) 3rd unit
(ii) 6th unit
(iii) 9th unit
(d) Draw the marginal product curve and indicate the
following:
(i) increasing returns.
(ii) decreasing returns.
(iii) optimum returns.
Answer
(ai) Total product of 4 units = 1260 + 860 = 2,120
(ii) Total product of 5 units = 2,120 + 2,130 = 4,250
(iii) Total product of 9 unit = 9,040 + 140 = 9,180

199
200
2002/4 Nov 2002/30 Neco
(a) What are internal economies of scale? What should not be considered when siting an industry?
(b) Explain four forms of internal economies of scale. A. availability of capital B. availability of computers
Answer C. nearness to source of power
(a) The internal economies simply refer to the benefits D. nearness to raw materials E. nearness to market
that a firm derives from increase in output as result of Answer Availability of computers (B)
improvement in the technical, managerial, financial
risk bearing, commercial and welfare economies. 2003/17 Neco
There is correlation between a large scale production The law of variable proportion operate because
and the internal economies. By increasing the scale of A. less of variable factors are needed
production, a firm tries to reduce its cost per unit and B. the marginal output falls because the new dose of the
gets some other advantages. variable factors have less and less of the fixed factor to
(bi) Technical economies: points to the fact that work with
specialized machines and equipment can be used. C. the marginal output rises because the new doses of the
Research and development can also be afforded and variable factor have more and more of the fixed factor to
embarked upon. work with
(ii) Managerial Economies: Managerial capacity can be D. one variable factor is needed
improved upon. This improves or brightens the E. there is no need to add variable factors to fixed factor
capacity for problem solving particularly regarding Answer
the cost of production, decision making and so on. The marginal output falls because the new dose of the
(iii) Financial Economies: Large scale production variable factors have less and less of the fixed factor to
brightens the chance of access to finance. Loan can work with (B)
be more easily obtained for expansion from the
financial institutions as there is adequate collateral.
(iv) Commercial Economies: A large firm taking
advantage of internal economies find it cheaper to 2003/9 Neco
make bulk purchase from suppliers. Access to The law of variable proportion states that if the quantities
discount is also possible in this regard. of variable factors of production are used with fixed factor,
after a certain point.
2002/22 Neco A. each successive unit of the variable factor brings about
Variable input (per year) Output (per year) a decreasing marginal product
1 2 B. each successive unit of the variable factor brings about
equal increase in marginal product
2 5
C. each successive unit of variable factors bring about an
3 9
increasing marginal product
4 12
D. each successive unit of the variable factor brings about
5 14 four time increase in marginal product
What is the average product, when the 3rd unit of the E. each successive unit of the variable factor brings about
variable input was used? more than equal increase, in marginal product
A. 14 B. 12 C. 6 D. 3 E. 2 Answer
Answer Each successive unit of the variable factor brings about a
Total output
Average product of the 3rd unit of input = variable input decreasing marginal product (A)
9
AP = 3 = 3 (D) 2013/9 Neco
Which of the following is not an advantage of internal
2002/23 Neco economies of scale?
What is the marginal product of the 2nd unit of input? A. ability to employ highly qualified and competent managers
A. 6.5 B. 5 C. 4 D. 3 E. 2 B. availability of diverse source of revenue
Answer C. better working conditions for workers
D. existence of bureaucracy and red tapism
Marginal product of the 2nd unit of input
Change in total product E. existence of mass production techniques
= Answer Existence of bureaucracy and red tapism (D)
Change in labour

5−2 3
MP = = 1 = 3 (D)
2−1

201
2006/4 Nov 1993/21 Nov
(a) What is a firm? What is the marginal output when total output is 321?
(b) Explain any four reasons for the growth of large scale A. 123 B. 121 C. 111 D. 107 E. 95
firms in recent years in West Africa. Answer
Change in total product 321−200 121
Answer MP =
Change in labour
= = = 121 (B)
(a) A firm is a productive or business establishment 3−2 1
engaged in the production of goods or delivery of
services. A firm is a business unit of an industry. 1993/22 Nov
(b) Reasons for the growth of large scale firm What is the total output when the fourth man is employed?
(i) They are usually organized with large capital. A. 111 B. 121 C. 123 D. 321 E. 444
(ii) There is room for internal and external economies of Answer
scale. 321 + 123 = 444 (E)
(iii) They serve large markets which are characterized by
large and constant demand. 1993/23 Nov
(iv) They are mainly involved in secondary and tertiary How many men are employed when marginal output is at
production. the maximum?
A. 6 B. 5 C. 4 D. 3 E. 2
2018/7 Neco Answer
If twelve men were employed in a building site and they 444 + 𝑥 = 570
moulded an average of 150 blocks per person, calculate the 𝑥 = 570 – 444 = 126
total output in a day. 126 is the maximum which is 5 men. (B)
A. 1,200 B. 1,300 C. 1,400 D. 1,500 E. 1,800
Answer TP = 150 × 12 = 1,800 (E) 1993/24 Nov
Which of the production unit diminishes fastest?
2008/19 Neco A. average output B. total number of men employed
When the total product curve is at a maximum, the C. total output D. marginal output
marginal product curve is E. total acreage of land cultivated
A. constant B. decreasing C. increasing Answer Marginal output (D)
D. negative E. zero
Answer Zero (E) 1997/9
1993/10 Nov One of the disadvantages of division of labour is that is
Which of the following is a disadvantage of division? A. saves time B. makes work monotonous
A. development of skill B. saving of time C. encourages full utilization of capital
C. monotony of work D. greater use of machinery D. makes workers skilled at their work
E. use of specialists E. allows greater use of machinery
Answer Monotony of work (C) Answer Makes work monotonous (B)

1993/20 Nov 1997/24

Use the following table to answer question 20 – 24. Division of labour leads to
Unit of land Number of Total Marginal Average A. employment of everybody B. decrease in output
under men output of output (in output C. monotony of work D. increase of time in workshops
production employed maize (in 000
(in acres) 000 tonnes)
E. increase of time in learning a trade
tonnes) Answer
1 1 80 – 80 Monotony of work (C)
1 2 200 120 ?
1 3 321 ? 107 1980/21 UTME
1 4 ? 123 111 Division of labour means that
1 5 570 ? 114 A. the labour is divided into different sections
1 6 660 95 110 B. the work is divided into different parts to be completed
What is the average output when marginal output is 120? by each labour
A. 60 B. 80 C. 100 D. 107 E. 111 C. production is completed by the different departments of
Answer a factory
Total output D. commodities are produced at different times by a single
AP = No of workers employed labourer
200
E. the labour forces in the country is not united
AP = 2
= 100 ( C ) Answer
The work is divided into different parts to be completed
by each labour (B)
202
1980/49 UTME 2019/31 Neco
The marginal physical product of labour is Firms whose output is either bulky or perishable will
A. the output of labour unaided by machinery benefit more from which of the following locational
B. the extra revenue from the output of one additional factors?
worker A. nearness to financial institutions
C. the difference in output of two workers B. nearness to labour C. nearness to market
D. additional output achieved when one extra worker is D. proximity to electricity D. proximity to raw materials
added to fixed account of other factors Answer
E. none of the above Nearness to market (C)
Answer
Additional output achieved when one extra worker is 2019/4 Neco
added to fixed account of other factors (D) (a) What is division of labour?
(b) Mention and explain three merits and two demerits of
1994/30 specialization.
If successive units of labour are added to a piece of land Answer
while capital and technology remain constant, a point will (a) Division of labour is the breaking down of the
be reached in the level of production when each additional production process into a number of district
unit of labour will add less to the output than previous operations, each operation or stage being undertaken
units. This concept is known as the by a worker or a group of workers who specialize on
A. productivity of labour each process.
B. law of diminishing marginal utility (b) Merits of specialization
C. law of diminishing returns (1) It saves time, energy and other resources: The
D. law of diminishing returns of a variable factor worker concentrates on a particular aspect of the
E. internal economies of scale process assigned to him.
Answer (2) It results in a higher level of productivity per
Law of diminishing returns (C) worker: Primarily because more hands are involved
and also because of savings made on time and full
1994/31 employment of equipment.
Fixed unit Variable Total Marginal (3) It encourages economy in the use of tools and
of land unit of output product (MP)
(hectares) labour (TO)
equipment: Since there is specialization, each worker
5 1 10 10 does not need a complete set of tools and equipment
for the overall process only those needed for his job
5 2 25 15
aspects are required.
5 3 X 21
(4) It enables the worker to become specialized on the job:
5 4 60 14
As he or she get acquainted with the tasks makes new
5 5 73 13 discoveries and improves on specific operations, practice,
5 6 82 Y it is often said, brings perfection through repetition, the
worker greater honours his or her skills.
Which of the following pairs gives the values of X and Y
in the table above? Demerits of specialization
A. X = 20, Y = 6 B. X = 10, Y = 10 C. X = 38, Y = (1) There is monotony of work: Boredom sets in as an
9 D. X = 46, Y = 9 E. X = 46, Y = 14 individual performs the same function on a daily
Answer basis. He may lose interest in the job and when such
For X = 25 + 21 = 46 occurs, may not put in his best.
Change in total output (2) Occupational hazards may be evident in processes
For Y = MP = Change in labour involving work with noxious gases, dangerous rays
82−73 9 and so forth: Constant inhalation or exposure to such
MP =
6−5
=1=9 by the same set of workers may result in irreversible
health hazard.
X = 46, Y = 9 (D)
(3) Reduction or loss of craftsmanship occurs:
Production in large quantities encourages the use of
1991/31
machinery and this may render the workers more
Division of labour is greatly limited by
operators of machines. That person touch of a worker
A. its resultant monotony of work
arising from the possession of superior artistic
B. its associated decline in craftsmanship
abilities finds no place for application in standardized
C. its attendant risk of unemployment
products.
D. the extent of the market E. the boredom it creates
Answer
The extent of the market (D)
203
2020/19 2014/23 Neco
Which of the following statements is true when marginal If a producer employs 40 labourers to produce 360kg of
product equals average product? maize daily, calculate the average product per labourer
A. total product is rising B. marginal costs is rising A. 5 B. 7 C. 9 D. 13 E. 15
C. total product is falling D. marginal product equals zero Answer
Answer: Total product is rising (C) Total product 360
Average product = No of labourers = (AP) = = 9 (C)
40

2001/26 Neco
2000/23 Neco
No of workers Total output (units)
Use the table below to answer question 23 and 24.
1 36
Land Labour TP AP MP
2 54
(hect
3 70 are)
4 96 1 1 50 50 50
5 116 1 2 X 140 230
In the above table, the marginal product of the 2nd worker and 1 3 459 Y Z
the average product of the 4th worker respectively are
‘X’ is equal to
A. 28 and 27 B. 18 and 24 C. 27 and 25
A. 90 B. 100 C. 190 D. 280 E. 460
D. 26 and 23 E. 24 and 19
Answer
Answer
Change in total output 54−36
TP = AP × labour
MP =
Change in labour
=
2−1
= 18 TP = 140 × 2
= 280 (D)
Total product 96
AP = No of workers = = 24
4 2000/24 Neco
‘Y’ and ‘Z’ are
18 and 24 (B) A. 280 and 179 respectively B. 179 and 190 respectively
C. 153 and 179 respectively
2009/7 Neco Exercise 9.12 D. 190 and 90 respectively E. 90 and 153 respectively
Production is best defined in economies Answer
A. creation of utility yielding goods and services TP 459
B. distribution of goods and services Y = AP = L =
3
C. manufacturing of goods by small factories
Change in total product 459−280 179
D. provision of basic amenities Z = MP = = = = 179
Change in labour 3−2 1
E. rendering of services only
153 and 179 respectively.
1986/6 UTME Exercise 9.13.
Production in Economics can be defined as the
2009/19 UTME
A. totality of producing, buying and consuming
Which of the following can be deduced from the law of
B. transformation of raw materials and services in order to
variable proportions when total output is rising?
provide ultimate utility
A. MP is greater than AP B. MP is less than AP
C. transformation of raw materials and services in order to
C. MP is equal to AP D. MP is equal to zero
make maximum profit
Answer
D. production of goods and services for consumption
MP is less than AP (B)
1986/7 UTME
2009/2010/12 (UNIZIK, AWKA)
A firm achieves least cost in production by substituting
“Subsistence production” means that goods and services are
factors until
A. produced for consumption only
A. their factors prices are equal
B. sold to others C. sold in the country
B. their marginal physical – products are each equal to their
D. produced for the market
factor prices
Answer
C. their marginal –physical products are each zero
Produced for consumption only (A)
D. the ratio of their marginal – physical products equals the
ratio of their prices
2010/16 (UNIZIK, AWKA)
Answer
One of the advantages of large scale production is that
Their marginal – physical products are each zero (C)
A. there is a rise in the cost of administration
B. consumers sacrifice their individual tastes
2014/21 Neco Exercise 9.14
C. the firm can use labour saving machinery
Calculate the average output if 5 men were employed to
D. the demand for a firm’s product becomes localized
produce 75 units of output
Answer
A. 5 B. 14 C. 15 D. 18 E. 25
The firm can use labour saving machinery (C)

204
2011/2012/26 (UNIZIK, AWKA) Exercise 9.15 (b) Disadvantages of division of labour
Production in Economics occurs when 1. Monotony: With division of labour, a worker
A. a commodity or service is sold performs a task repetitively. This can make the work
B. utility is created or added monotonous to him.
C. a commodity is manufactured 2. The risk of interdependence: The interdependence of
D. raw materials are produced or extracted from mines workers goes with a great risk. A disruption of one
E. all of the above line of activity will ground other activities in the
production process.
2010/20 UTME 3. Loss of craftsmanship: Workers are denied the
Average product is less than marginal product when opportunity of starting a production process and
A. there is constant returns to scale completing it.
B. there is decreasing returns to scale 4. The risk of unemployment: The problem here
C. there is increasing returns to scale follows the assertion that anything can happen. The
D. diminishing returns set in world is not static. There is dynamism from time to
Answer time. If anything happens to the area or the task that a
there is decreasing returns to scale (B) person specializes in, such a person might be
rendered unemployed either temporarily or otherwise.

2010/5 Neco Exercise 9.16.

2010/21 UTME List and explain five factors that determine the size of a firm.
A firm enjoying economies of scale is said to be
A. a reducing average cost as production increases 2009/20
B. maximizing profits as production increases The relationship between marginal product (MP) and
C. benefitting from the activities of other firm average product (AP) is such that they are equal when
D. having an upward sloping curve A. average product is maximum
Answer B. average product is minimum
Reducing average cost as production increases (A) C. marginal product is maximum
D. marginal product is increasing
2010/49 UTME Answer Marginal product is increasing (D)
The choice of the method of production in an economy is
determined by the 1998/10 Exercise 9.17.
A. level of income B. rate of population growth The introduction of division labour in a firm will lead to
C. level of technical know – how A. a fall in output B. a decline in the efficiency of labour
D. availability of natural resources C. an increase in output
Answer D. the separation of ownership from management
Level of technical know – how (C) E. an increase in unit cost
1998/12
2010/50 UTME External economies refer to the
The amount of labour hired depends on the A. cost saving advantages firms enjoys by being close to
A. number of skilled labour available other firms in the same industry
B. marginal productivity of labour C. skill of labour B. disadvantages to a firm that is close to other firms
D. price of other inputs C. economies of foreign countries
Answer D. profits according to a country when it economizes in its
marginal productivity of labour (C) trade
E. economies of large scale production
2010/4 Neco Answer
(a) Define division of labour Cost saving advantages firms enjoys by being close to
(b) State and explain four disadvantages of division of labour. other firms in the same industry (A)
Answer
(a) Division of labour is the system of breaking down the 1978/47 UTME
production process into segment and tasks which are In Economics, production is complete when
performed by different people. In breaking down the A. goods are produced in the factories
production process, the type of organization, the size B. good are sold to the wholesalers
of the organization and the nature of goods produced C. goods and services are produced by the government
are taken into consideration. D. prices are fixed for goods and services
E. goods and services finally reach the consumers
Answer
Goods and services finally reach the consumers (E)
205
1979/3 UTME 1981/8 UTME
Production covers all but one of the following activities Which of the following is not true about specialization or division
A. changing the position of a good time as, for example of labour?
holding stocks of goods until they are required A. specialization and exchange go hand in hand
B. the provision of some kind of service e.g. retailing B. specialization implies that each person produces a surplus of
C. changing the form of a good from the raw materials to one or a few items (e.g. commodities) in which he is specialized
the finished products C. division of labour need not take account of the extent of the
D. changing the situation of a good as for example, from a market
factory in Lagos to a retail shop in Port Harcourt D. division of labour results in increase productivity
E. division of labour involves the danger of unemployment
E. the use of goods to satisfy individual wants
Answer
Answer The use of goods to satisfy individual wants (E)
Division of labour need not take account of the extent of the
market (C).
1983/24 UTME
Division of labour has many advantages. Notwithstanding, it is
1979/12 UTME Exercise 9.18 greatly limited by
Division of labour means A. monotony of work B. decline of craftsmanship
A. dividing the labour into different categories C. risk of unemployment D. extent of market demand
B. splitting the process of production into different parts to E. boredom
be completed by each person Answer Extent of market demand (D)
C. dividing the goods and services into different sections
D. assigning different duties to labourers 1984/1
E. group of labourers working in a factory of shop The main economic objective behind the production of goods and
services in any economy is to
1979/29 UTME A. maximize profits B. satisfy human wants
When the average physical product curve is rising, the C. become self – reliant D. create job opportunities
marginal physical product is E. make people wealthy
A. below it B. above it C. falling D. zero Answer Satisfy human wants (B)
E. none of the above
Answer Above it (B) 1984/3
Divison of labour is limited by
1979/42 UTME A. the zie of the market B. the productivity of capital
Study the table below. What is the marginal product of the C. cost of production D. the factor of production
second worker? E. government policy
A. 10 B. 20 C. 15 D. 18 E. 43 Answer
Answer The size of the market (A)
Number of workers Total products
1 10 1985/48 Exercise 9.19
2 28 Fixed units of Variable unit Total output Marginal
land (hectares) of labour (TO) product
3 48
(MP)
4 72
5 1 10 10
5 80 5 2 25 15
Change in TP ∆TP 28−10 18
Answer MP = = = = = 18 (D) 5 3 X 21
Change in L ∆L 2−1 1
5 4 60 14
1981/5 UTME 5 5 73 13
External economies are 5 6 82 Y
A. the advantages accruing to a farm as a result to its The table illustrates the law of diminishing return on a farm.
expansion Which pair of the following answers is appropriate for the missing
B. the advantages accruing to one firm as a result of the information in the spaces marked X and Y?
existence of other firms in the same locality A. X = 20, Y = 6 B. X = 38, Y = 9 C. X = 46, Y = 9
C. benefits derived by a firm as a result of its own D. X = 46, Y = 14 E. X = 10, Y = 10
individual policy
1987/6 UTME
D. repeated only by agricultural firms
Labour productivity is defined as
E. bound to increase the costs of production whatever the A. output per man/hour B. average outputs
circumstances C. the maximum of hours worked
Answer D. total level of outputs
The advantages accruing to one firm as a result of the Answer
existence of other firms in the same locality (B) Outputs per man/hour (A)
206
1987/7 UTME 1992/11 UTME
Efficiency of labour enhanced by Calculate the marginal physical product of the last unit of
A. involvement in own family affairs input?
B. mechanization processes A. 0 B. 2 C. 4 D. 10
C. war against indiscipline Answer
D. improved working condition and training ∆Total output
MP =
Answer ∆variable inputs
Improved working condition and training (D) 22−20
MP = 5−4
1988/6 UTME 2
= =2
The average product of labour in a given period is obtained 1
by dividing the
1992/12 Exercise 9.21
A. number of workers by the total product At what level of input has diminishing marginal returns set
B. total product of by the number of hours actually worked in?
C. change n total product by the change in the total number A. 3 B. 16 C. 20 D. 22
of workers
D. total product by the number of workers
1993/11 UTME
Answer A firm faces diminishing returns when its
Total product by the number of workers (D) A. total output diminishes B. average output diminishes
C. marginal output diminishes D. marginal revenue
1990/5 diminishes
One of the major advantages of specialization is that
Answer
A. the worker becomes a tenderer of machines Marginal output diminishes (C)
B. it causes more employment of labour
C. less machinery is required for production
D. the worker wastes less time between operations 1993/12 Exercise 9.22
Answer If labour productivity in the cement industry is increasing
The worker wastes less time between operations (D) as output of cement is expanded, then the amount of labour
per unit of output produced must be
1990/7 A. less than zero B. decreasing C. constant
A firm achieves least – cost in production by substituting D. increasing
factors until
A. their prices are equal B. the ratio of their marginal 2014/2015/34 (UNIZIK, AWKA)
physical products equals the ratio of their price One major limitation of division of labour is
C. their marginal physical products are each equal to their A. monopoly of work B. decline of craftsmanship
factor prices C. risk of unemployment D. extent of market demand
D. their marginal – physical product are each equal to zero E. boredom
Answer Answer
The ratio of their marginal – product products equal the Decline of craftsmanship (B)
ratio of their prices (B)
2017/2018/25 (UNIZIK, AWKA)
1992/11 and 12 UTME Exercise 9.20 Efficiency in production involves
Use the following production and cost data of a profit A. reducing the size of work force
maximizing firm to answer questions 11 and 12 B. producing a given output with the lowest cost
Units of Total output Total fixed Total C. adoption of capital intensive technology
variable cost variable D. increasing the quantity of fixed factor of production
input cost Answer
0 0 100 0 Producing a given output with the lowest cost combination
1 3 100 100 of factors of production (B)
2 8 100 124
3 16 100 172 1993/23UTME
4 20 100 190 Production is said to be completed when
5 22 100 200 A. goods and services reach the consumers
B. prices of goods or services are determined
C. goods are sold to the wholesaler
D. goods are packaged
Answer
Goods and services reach the consumers (A)
207
1994/13 UTME 2000/22 UTME
When the Total Product (TP) is at maximum points, the External diseconomies of scale result from excessive
marginal product (MP) and the average product (AP) growth of
respectively are A. external factors B. some sectors of the industry
A. zero and decreasing B. decreasing and zero C. the whole industry D. internal factor
C. negative and decreasing D. both at their maximum Answer
Answer External factors (A)
Zero and decreasing (A) 2001/23
A production function relates
1994/14 UTME A. cost of output B. wage to profit C. cost to input
In the long – run, all production factors are D. output to input
A. fixed B. semi – fixed C. variable Answer
D. semi – viable output to input (D)
Answer Variable (C)
Hint: The long run is a period of time in which all factors
of production and costs are variable. In the long run, firms 2001/25 UTME
are able to adjust all costs, whereas in the short run firms A major advantage of specialization and division of labour
are only able to influence prices through adjustments is that
made to production levels. A. time wastage will be minimized
B. trade unions will be encouraged
1997/9 UTME C. there will be a ready market for labour
Labour productivity is the ratio of D. workers will be adequately rewarded
A. labour to output B. man – hours to output Answer Time wastage will be minimized (A)
C. output to man – hours
D. average product to man hour 2003/19 UTME
Answer Output to man – hours (C) The best method of production in an under populated
country is
2000/14 and 15 UTME A. labour intensive B. land intensive C. capital
Use the table below to answer question 14 and 15 intensive
Variable Total Marginal Average D. labour intensive
Factor Product Product Product Answer
1 1 1 1 Capital intensive (C)
2 6 5 3
3 24 18 8 2007/21 UTME
4 48 X 12 The division of labour requires that the task to be
5 Z 25 14.6 performed
6 93 20 Y A. requires no special knowledge B. is simple but
strenuous C. must be undertaken by experts
2000/14 UTME D. must be done in stages
The average product Y is Answer
A. 15.5 B. 14.6 C. 12.0 D. 8.0 Must be done in stages (D)
Answer
TP 93 2007/24 and 25 UTME
Y = AP = L = 6 = 15.5 (A) Use the table below to answer questions 24 and 25
No of workers Total output (kg)
2000/15UTME 1 39
The marginal product X is 2 64
A. 18 B. 20 C. 21 D. 25 3 126
Answer 4 212
change in TP 48−44 24
X = MP =
change in L
= 4−3 = 1 24 (C) 5 425
6 684

2009/17 UTME Exercise 9.23

The marginal product of the 5th
A. 42 B. 85 C. 114 D. 213

208
2009/18 UTME Exercise 9.24 2016/26
Determine the average product of the 4th unit of capital Unit of output Total output (kg)
A. 53 B. 86 C. 212 D. 213 1 13
2 43
3 123
2014/17 UTME Exercise 9.25 4 243
Unit of Total Average Marginal 5 353
labour product product product 6 483
1 8 8 2 7 563
2 20 10 12 8 663
3 E 9 7 From the table above, determine the average product of the
4 28 7 F 5th unit of capital
5 40 8 12 A. 310.5 B. 176.5 C. 70.6 D. 62.0
Answer
From the table above, find the values of E and F TP 353
AP = L = 5 = 70.6 (C)
respectively
A. 27 and 1 B. 68 and 12 C. 28 and 5 D. 12 and 19 2018/2019/45 (UNIZIK, AWKA)
2023/5 Neco Exercise 9.26 Division of labour is limited by
a. What is Specialization? A. the size of the market B. the productivity of capital
b. Discuss three advantages and two disadvantages of C. cost of production D. government policy
Division of Labour. Answer The size of the market (A)

2011/9 (OAU, IFE) 2018/8 (UNIBEN, BENIN)

Which of the following is NOT a limitation to division of Farmers, miners and fishermen are said to be engaged in
labour and specialization? A. tertiary production B. secondary production
A. the size of the market B. availability of capital C. primary production D. subsistence production
C. interdependence amongst workers Answer Primary production (C)
D. the nature of the product
Answer Interdependence among the workers (C) 2011/10 (OAU, IFE)
The following are the advantages of internal economics of
2014/19 large scale production except
Division of labour requires that, the tasks in a production A. financial economics B. administrative economics
line can be performed C. technical economies D. market preference
A. by specialists B. in stages C. by all workers Answer
D. by unskilled labourers Market preference (D)
Answer In stages (B)
2010/8 (OAU, IFE)
2015/8 Productive efficiency refers to:
Unit of labour TP AP MP A. the use of the least cost method of production
B. the production of the product – mix most wanted by
1 6 6 -
society
2 14 7 8
C. the full employment of all available resources
3 K 9 13
D. production at some points inside of the production
4 40 10 F possibilities curve Answer
Answer
From the table above, find the values of K and F The use of the least cost method of production (A)
respectively.
A. 13 and 27 B. 27 and 13 C. 10 and 27 D. 27 and 2018/18
10 Productive resources can also be called
Answer A. principles of production B. factors of production
K = TP = AP × L C. items of production D. labour and material resources
TP = 9 × 3 Answer
K = TP = 27 Factors of production (B)
DTP
F = MP = DL

40−27 13
F = MP = = = 13 i.e 27 and 13 (B)
4−3 1

209
2019/38 UTME 2013/2014/39 (UNIZIK, AWKA)
Labour productivity is the ratio of At the maximum point of the total product curve of a firm,
A. labour market B. man – hours to output marginal revenue is
C. output to man-hours D. average product to man-hour A. zero B. decreasing C. increasing
Answer D. constant
Output to man- hours (C) E. none of the above
Answer
Zero (A)

2018/2019/42 (UNIZIK, AWKA)

When the average physical product curve is rising, the
marginal physical product is
A. below B. above it C. falling D. zero
Answer
Above it (B)

210
 THEORY OF COST AND REVENUE
The word “Cost” has many meanings in different settings. These variations arise because of differences in view points.
Cost theory refers to the process of determining the amount spent in the production of a given quantity of output with a
pre-determined units of resources.

Cost to a firm refers to the expenses incurred in production. Cost to an individual includes his expenditure on his
requirements such as food, clothing, housing, transportation, health, payment of school fees e.t.c.

Cost to a nation or government refers to the expenditure on various items such as administration, economic and social
infrastructure, defence and security, the maintenance of law and order, servicing of the national debt, etc.

IMPORTANCE OF COST THEORY

Economists attach much importance to costs for several reasons among which are:
1. To assist in making the best decisions in accomplishing its goals.
2. To determine the cost of production.
3. To evaluate how well scarce resources are used by firms.
4. To forecast future performance
5. To assist in the calculation of profit or loss.
6. To determine the price at which a firm must sell its product

DISTINCTION BETWEEN ECONOMIST’S AND ACCOUNTANT’S VIEW OF COST

To the accountant, cost is the total amount of money spent to obtain something and he is concerned with the actual
amount of money expended to bring this about. Because the accountant concentrates so much on total monetary
expenditures, his concept of cost is called the outlays or money cost.

It will be noted that this is the meaning commonly associated with the word cost in everyday language. The ordinary man
understands the cost of a commodity to be the amount of money paid to take possession of it. For instance, if you pay
₦500 to obtain this book from the bookshop, then to the accountant, as well as the ordinary man, the cost of the book
would be ₦500.

NB: The accountant views cost as “money cost” that is, the explicit cost of an investment.

To the economist, however, cost is wider than that of the accountant. The economist cost include both the accounting cost
(money cost) and opportunity cost (real cost), that is the value of the lost opportunity, or the value of the alternatives that
one now has to forego. The economist is not concerned merely with the amount of money given up to obtain a commodity
but also in the value of the alternative which had to be foregone to obtain it. Thus, to the economist, cost is not expressed
in units of money alone, but in terms of the opportunity foregone also. For this reason, the economist’s concept of cost
include both the implicit cost (real or opportunity cost) and the explicit cost (money cost).

It is clear that this is not the meaning of the word to the man in the street. For example, suppose you purchased this book
from your bookseller at ₦500. Suppose also that, with same amount you could have bought 4kg of rice. Then, to the
economist, the cost of the book is the real cost (implicit cost) – 4kg of rice which you had to forgone and explicit cost –
₦500 actually paid for the book. To the accountant, however, the cost of the book would simply be ₦500 (explicit cost).

NB: The economist would include both the implicit cost (real cost) and the explicit cost (money cost) comprising the
fixed costs and variable costs.

DIFFERENCE BETWEEN OPPORTUNITY COST AND MONEY COST

As stated at the introductory part of this book, opportunity cost is an economic term which expresses an alternative
foregone whenever a choice is made. It is the sacrifice made to satisfy a want with a given unit of resources.

Money cost refers to the consumer’s purchasing power or the actual amount of money spent on a given article or
commodity. The accountant is not concerned with the sacrifice made as a result of satisfying a want, but on the monetary
value of the benefit foregone. It is widely believed in accounting profession that the language of accounting is money.
Therefore, money cost is simply the consumer’s purchasing power.

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COMPONENTS/ELEMENTS COST OF PRODUCTION
There are three elements of cost namely material, labour and expenses. They are further divided into direct and indirect
costs respectively. Direct costs are those costs that usually form a contingent element of a product. They are those costs
that can directly be traced to output. They vary with output e.g. cost of raw material, direct labour and direct expenses. On
the other hand, indirect costs refer to all cost of production that cannot be traced to output e.g. factory rent, power and
lighting. Indirect costs are also called overhead expenses.

Prime cost: This is another name for variable cost or direct cost. It varies with output. It is the summation of all variable
costs.

Supplementary cost: This is another name for fixed cost. It must be met at every level of output, even where the firm
closes down temporarily. Rather such costs are more beneficial where the firm is engaged in large scale production.

Implicit and Explicit costs: Implicit cost is the opportunity cost of the use of productive resources which the producer
has, and need not pay for e.g. entrepreneur labour. Explicit cost is the cost of productive resources which the entrepreneur
neither has nor controls. Such cost must be paid for e.g. cost of raw materials, hired labour, e.t.c.

Private and Social Cost: Private cost are similar to explicit cost. They are cost which a firm incurs and it directly pays
for them; e.g. rent, raw materials, salary, etc. An economist refers to it as ‘value of best alternative use of a factor of
production which a firm uses’. Social cost are cost caused by firms but they fall on the shoulders of other people or the
public, e.g. pollution of air and water, dumping of organic or chemical waste into steams from which people fetch
drinking water or besides markets, public roads etc.

Internal and External Cost: These are costs incurred by firms and they are directly borne or paid by them
e.g rent, wages, fare etc. External cost are incurred by a firm but they are not borne or directly paid by the firm. The
burden is shifted to other people or the public, e.g. excessive noise from factory or musical band, air pollution by
factories.

TYPES OF COST
Elements of cost are also classified under this concept, this includes
(1) Fixed cost (FC):Fixed costs are referred to as “overhead costs” or “unavoidable cost or indirect cost’. They remain
constant in the short run, no matter the level of output. Fixed costs remain the same whether production is at full
capacity or below capacity. Such types of costs include money spent on fixed inputs such as rent on fixed machinery,
cost of building a warehouse, interest on loan, depreciation charges, e.t.c. FC = TC – VC.
Fixed cost can also be called indirect cost or supplementary cost

Relationship between fixed cost of production and output

(2) Variable cost (VC):These are those costs of production which have a direct relationship with the level of production
so that they rise or fall in sympathy with it. variable cost fluctuate with the level of output variable cost are also
known as prime costs, operating costs or direct cost. Examples include the cost of labour, raw materials and fuel.
Variable cost vary indirect proportion to the level of output of a firm
VC = TC – FC.

212
 Relationship between variable cost of production and output

(3) Total cost (TC):It is the overall expenditure involved in producing a given quantity of a commodity. It is the sum of
both variable costs and fixed costs i.e. TC = VC + FC. It is also derived by multiplying the unit cost of production by
the total quantity of a commodity produced (TC = AC × Q).

Relationship between total cost of production and output

(4) Average Cost (AC):It is the cost of producing each unit of the commodity. It is the total cost divided by the total
Total cost TC
quantity of the commodity produced. AC = Total output or
Q
For example if the total cost of production is ₦1500 and 150 units of the commodity are produced, the average cost
of production will be ₦10.

Relationship between average cost of production and output

From the diagram above, it could be observed that the curve slopes downwards and subsequently swings upwards to
assume ‘U’ shape.

(5) Marginal Cost (MC): This is the extra cost incurred by producing an additional unit of a commodity or reduction in
total production by one unit.
∆TC
MC = or TC2 – TC1 where ∆ = change.
∆Q
For instance, if the total cost of producing 200 units is ₦1000 and the total cost of producing 220 units is ₦1400, the
marginal units of producing extra 20units will be ₦1400 minus ₦1000 which is equal to ₦400.
213
 Relationship between marginal cost of production and output

Marginal cost is also called increment cost. The marginal fixed cost is zero since fixed cost do not vary with output.
NB: The average cost depends on the marginal cost for its shape MC = AC. When AC is at its minimum
(6) Average Variable Cost (AVC): This is the variable cost or total variable cost divided by the total units of output.
VC TVC
AVC = Q or Q
(7) Average Fixed Cost (AFC): This is the fixed cost or total fixed cost divided by the total units of output.
FC TFC
AFC = Q or Q
(8) Average Total Cost (ATC): It is the same as average cost already defined.
(9) Total Fixed Cost (TFC): This is the same as fixed cost. It is the total expenditure on overheads.
(10) Total Variable Cost (TVC): This is the same as variable cost. It is the total expenditure incurred on such things as
raw materials and fuel whose cost increases with the increase level of production.

RELATIONSHIP BETWEEN MARGINAL COST AND AVERAGE COST

(1) The marginal cost and the average cost are equal when the average cost is at its lowest level.
(2) As long as the marginal cost is less than the average cost, the latter will continue to fall.
(3) Once the marginal cost becomes higher than the average cost, the average cost will start rising.
(4) The marginal cost always rises or falls faster than the average cost. When the average is cost is falling, the marginal
cost is below it.

From the diagram above, it could be seen that:

(a) While AC curve falls and rises up after the lowest point, MC curve rises up indefinitely.
(b) MC curve usually intersect the AC curve at the lowest from below.
(c) The falling ATC is due to the effect of falling AFC in the short-run and this results from increasing output.

214
Example C 1
Output Fixed cost Variable Total cost Average Average Marginal
(units) (₦) cost (₦) (₦) variable Total cost cost (₦)
cost (₦) (₦)
0 500 0 500
1 500 200 700
2 500 320 820
3 500 400 900
4 500 440 940
5 500 480 980
In the cost schedule above, complete
i. The average variable cost column. ii. The average total cost column. iii. The marginal cost column.
Solution
Output Fixed cost Variable Total cost Average Average Marginal
(units) (₦) cost (₦) (₦) variable Total cost cost (₦)
cost (₦) (₦)
0 500 0 500 0 0
1 500 200 700 200(A) 700 (F) 200 (K)
2 500 320 820 160 (B) 410 (G) 120 (L)
3 500 400 900 133.3 (C) 300 (H) 80 (M)
4 500 440 940 110(D) 235 (I) 40 (N)
5 500 480 980 96 (E) 196 (J) 40 (O)
200 320 400 440 480 𝑽𝑪 𝑻𝑽𝑪
A= 1
= 200 B = 2
= 160 C = 3
= 133.3 D = 4
= 110 E = 5
= 96 Hints: AVC = 𝑸
or 𝑸
700 820 900 940 940
F= 1
= 700 G = = 410 H = = 300 I = = 235 J = = 196
2 3 4 5
𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕 𝑻𝑪
Hints: ATC=AC = or
𝑻𝒐𝒕𝒂𝒍 𝒐𝒖𝒕𝒑𝒖𝒕 𝑸

K = 700 – 500 = 200 L = 920 – 700 = 120 M = 900 – 820 = 80 N = 940 – 900 = 40 O = 980 – 940 = 40
∆𝑻𝑪
Hints: MC =∆𝑻𝑪 i.e.(TC2 – TC1)or ∆𝑸

Example C 2
The Cost Schedule of a Firm
Output Fixed cost Variable Total cost Average Average Average Marginal
(units) (₦) cost (₦) (₦) fixed cost variable total cost cost (₦)
(₦) cost (₦) (₦)
0 100 0 100 0 0 0
1 100 60 160 100 (A1) 60 (B1) 160 (C1) 60 (D1)
2 100 80 180 50 (A2) 40 (B2) 90 (C2) 20 (D2)
3 100 90 190 33.3 (A3) 30 (B3) 63.3 (C3) 10 (D3)
4 100 105 205 25(A4) 26.2 (B4) 51.2 (C4) 15 (D4)
5 100 140 240 20(A5) 28 (B5) 48 (C5) 35 (D5)
6 100 200 300 16.7 (A6) 33.3 (B6) 50 (C6) 60 (D6)
7 100 300 400 14.3 (A7) 42.8 (B7) 57.1 (C7) 100 (D7)

𝑭𝑪 𝑻𝑭𝑪
Hints: AFC = or
𝑸 𝑸
100 100 100 100 100 100 100
A1 = = 100 A2= = 50 A3= = 33.3 A4= = 25A5= = 20 A6= = 16.7 A7 = = 14.3
1 2 3 4 5 6 7

𝑽𝑪 𝑻𝑽𝑪
AVC = 𝑸
or 𝑸
;
60 80 90 105 140 200 300
B1= = 60 B2 = = 20 B3 = = 30 B4= = 26.2 B5= = 28 B6 = = 33.3 B7= = 42.8
1 2 3 4 5 6 7

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 𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕 𝑻𝑪
ATC=AC= or ;
𝑻𝒐𝒕𝒂𝒍 𝒐𝒖𝒕𝒑𝒖𝒕 𝑸
160 180 190 205 240 300 400
C1 = = 160 C2 = = 90 C3= = 63.3 C4 = = 51.2 C5 = = 48 C6 = = 50 C7= = 57.1
1 2 3 4 5 6 7

∆𝑻𝑪
MC =∆𝑻𝑪 i.e.(TC2 – TC1)or ∆𝑸

D1 = 160 – 100 = 60 D2=1 80 – 160 = 20 D3 = 190 – 180 = 10 D4 = 205 – 90 = 15 D5 = 240 – 205 = 35

D6 = 300 – 240 = 60 D7 = 300 – 200 = 100

2023/18
The total fixed cost curve is
A. vertical B. horizontal
C. downward sloping C. upward sloping
Answer: Total Fixed Cost (TFC) is the same as fixed cost and its crve is horizontal.

2023/19
If a firm retrenches some of its factory workers, its
A. fixed cost is likely to increase
B. marginal cost may increase
C. average fixed cost may increase
D. variable cost will decline
Answer : If a firm retrenches some of its factory workers, its variable cost will decline (D)

2007/2008/75 (UNIZIK, AWKA)

Which of the following explains marginal cost?
A. overhead cost plus variable costs resulting from production
B. the average cost of producing more units of the product
C. the extra cost of producing more units of the product
D. overhead cost minus variable cost
E. the addition to total cost resulting from the production of an additional unit
Answer: The extra cost of producing more units of a product (C)

2022/22 NABTEB
Which of the following should be added to variable cost to give total cost?
A. Marginal cost B. Fixed cost C. Variable cost D. Average cost
Answer
Total cost is the sum of both variable costs and fixed costs i.e. TC = VC + FC (B)

COST PERIOD
The term cost period refers to a period of time or a product range to which cost of production relates, and it is not
measured up weeks or months or years, but over a product range or installed capacity of the plant. There are two types of
cost period namely short and long – costs respectively.
SHORT – RUN COST
This is a cost which is not long enough for a change to be made to in the fixed cost of production. In the short – run, there
must be at least one fixed factor or cost of production, while other factors are variable. In any cost component where we
have TC = TFC + TVC, this indicates short – run cost period. In the short – run, it is more economical or profitable for a
producer to increase output provided that the revenue that will be earned from marginal output is at least enough to pay
for the extra cost involved.

LONG RUN COST PERIOD

This is a cost period, which is long enough for a change to be made in the fixed factor or cost of production. In the long
run analysis, there is no fixed factor or cost of production i.e., all factors and cost of production are variable. The decision
of the producer to expand, produce a new product, transfer to a new location, modernize or replace its product depends on
and must conform to the situation facing it. Under the long – run cost period decision – making, the firm can vary all or
216
any other factor inputs in order to meet the demand for its product. The firm’s operating in large scale standard to enjoy
lower average cost. This is so because as the cost of capital equipment becomes fixed, they must be met at every level of
output. Thus, in the long run, TC = VC.
Both short – run and long run cost can be represented on a curve as shown below.

Short – run AC and MC curve

SRAC1 represents the AC curve in the short run.
SRAC2 shows upward shift in AC.

Long – run AC and MC curve

LRMC = Long – run MC
LRAC = Long – run AC
The point marked “E” is the lowest cost which the firm can achieve and where MC = AC

OUTPUT PER PERIOD

The diagram below shows the long- run AC (LRAC), and the short – run (SRAC) curves respectively. The SRAC curve
cannot fall below the LRAC because the LRAC curve represents the lowest attainable cost for every output level. The
point marked “E” is the equilibrium where SRAC = LRAC. This results from variable cost. Thus, output can only be
increased or decreased by adjusting variable cost as the producer can decide on what combination of input that is
necessary to achieve any production target. In the short run, the producer will not only recover his total cost, but will also
make atleast normal profit.

Long – run and Short – run AC curves

217
COST AS A BASIS OF SHUT DOWN DECISION
Cost minimization is very vital for organization irrespective of whether any enterprise maximizes profit or not. Therefore,
any organization is expected to recover its average fixed cost (AFC). However, where an enterprise is facing a slump
period it is no longer concerned with its average fixed cost (AFC), rather average variable cost (AVC) becomes of
paramount concern. An organization reaches shut down point where it cannot recover average variable cost (AVC).

1987/12 UTME
The shut down point for a firm in the short run is the output at which
A. the price of the product is lowest
B. marginal cost is constant
C average variable cost is not covered
D. average cost is minimum
Answer
Average variable cost is not covered (C)

REVENUE
Revenue refers to the income derived by a producer or firm from business activities or from the sale of products. It
consists of all money received by a business for rendering a service or from the sale of commodities.
In the case of government, its bulk of revenue comes from various taxes and levies collected from the citizens.
Government can also collect revenue from its other establishment like government parastatals, e.g NTA, NNPC, stadia,
airports, etc.
Revenue is directly related and proportional to sales.

TYPES OF REVENUE
(1) Total revenue: This is the total income that accrues to a firm or a producer from the sale of its product or
commodity. This is derived by multiplying the total quantity sold by the price of the commodity.
TR = Q ×P where TR is total revenue, Q is quantity, P is the price of the commodity.
(2) Average revenue: Average revenue is the same as the price per unit of the commodity. It is derived by dividing the
total revenue by the total units of the commodity sold.
TR
AR = where AR is average revenue, TR is total revenue, Q is quantity.
Q
(3) Marginal Revenue (MR): This is the additional income earned by selling an extra unit of a commodity.
∆TR
MR = TR2 – TR1 or MR = ∆Q where ∆TR is change in total revenue.
∆Q is change in quantity

2022/15 NABTEB
Total quantity of goods sold multiplied by price gives
A. marginal revenue B. total revenue C. average revenue D. average cost
Answer
Total quantity of goods sold multiplied by price gives total revenue (B)

218
2003/34 Neco
Total revenue can be obtained by multiplying
A. price by quantity sold B. average revenue by the demand C. marginal revenue by marginal cost
D. average revenue plus marginal revenue E. average cost by variable cost
Answer
Price by quantity sold (A)
2018/2019/90 (NDU, BAYELSA)
When total revenue is at a maximum, marginal revenue is
A. constant B. negative C. zero D. positive E. maximum Answer Zero (C)

RELATIONSHIP BETWEEN REVENUE AND PRODUCTION

Revenue in every direction is rigidly related to the level of sales of a commodity, although the magnitude of relationship
of each type of revenue to the sales level differs.
As the output or quality of sales increases, total revenue increases indirect proportion. However, average revenue accruing
to a firm or producer continues to fall as sales level or output level increases. In the same vein, the marginal revenue
accruing from each successive output sales continues to fall. The rate at which marginal revenue falls is faster than that of
the average revenue.
Note: Profit = Total Revenue (TR) – Total Cost (TC)
= (AR × Q) – (TFC + TVC)
= (PQ) – (ATC × Q)
Where AR=average revenue, Q= Quantity, TFC= Total fixed cost,
TVC= total variable cost P= Price, ATC= Average total cost
Example RS 1
REVENUE SCHEDULE OF A FIRM
UNITS PRODUCED/SOLD TOTAL REVENUE (₦)
0 0
1 10
2 18
3 24
4 28
5 30
6 30
7 28
8 24
9 18
(a) Compute for AR and MR respectively.
(b) Draw AR and MR curves.

𝑻𝑹 ∆𝑻𝑹
Hints: AR = ; MR = ∆TR i.e. TR2 – TR1 or MR =
𝑸 ∆𝑸

Quantity sold (Q) Total Revenue (TR) Average Revenue (AR) Marginal Revenue(MR)
0 0 - -
1 10 10 10
2 18 9 8
3 24 8 6
4 28 7 4
5 30 6 2
6 30 5 0
7 28 4 -2
8 24 3 -4
9 18 2 -6
𝑻𝑹 ∆𝑻𝑹
Hints: AR = ; MR = ∆TR i.e. TR2 – TR1 or MR =
𝑸 ∆𝑸

219
(b)

220
Example CR 1
COST AND REVENUE OF TAIWO
Q (tons) 100 200 300 400 500
TC (₦) 9000 26000 35000 50000 67000
MC (₦/TONS) 50 30 60 70
Consider the table above showing output (Q), TC of production and MC for a firm in a competitive market. Suppose price
(P) = ₦150, what is the maximum profit the firm can make?
Solution
Profit = TR – TC
TR = AR × Q = price × Q = PQ

REVENUE, COST AND PROFIT CALCULATION

Q (TONS) 100 200 300 400 500
AR(PRICE ₦) 150 150 150 150 150
TR (i.e PQ) 15000 30000 45000 60000 75000
TC (as per quest) 9000 26000 35000 50000 67000
PROFIT i.e. TR – TC 6000 4000 10000 10000 8000
Looking at the profit column, it could be seen that the highest profit level is ₦10000. Therefore, the maximum profit that
the firm can make is ₦10000.

Example CR 2
COST AND REVENUE OF KEHINDE
Q (tons) 600 700 800 900 1000
TC (₦) 60000 81000 84000 96000 110000
MC (₦/TONS) 110 60 120 140
Consider the table above showing output (Q), TC of production and MC for a firm in a competitive market.
Suppose price (P) = ₦120, what is the maximum profit the firm can make?
Solution
Profit = TR – TC
TR = AR × Q = price × Q = PQ

REVENUE, COST AND PROFIT CALCULATION

Q (TONS) 600 700 800 900 1000
AR(PRICE ₦) 120 120 120 120 120
TR (i.e PQ) 72000 84000 96000 108000 120000
TC (as per quest) 68000 81000 84000 96000 110000
PROFIT i.e. TR – TC 4000 3000 12000 12000 10000
Looking at the profit column, it could be seen that the highest profit level is ₦12000. Therefore, the maximum profit that
the firm can make is ₦12000.

Example CR 3
COST AND REVENUE OF BLESSING
Output Price (₦) TR (₦) TVC (₦) TFC (₦) TC (₦) PROFIT MC (₦) MR (₦)
(units) (LOSS) (₦)
0 200 0 0 500 500 (500) loss
1 200 200 100 500 600 (400) Loss - -
2 200 400 200 500 700 (300) loss 100 200
3 200 600 300 500 800 (200) loss 100 200
4 200 800 400 500 900 (100) loss 100 200
5 200 1000 500 500 1000 0 Break Even 100 200
6 200 1200 600 500 1100 100 profit 100 200

221
1988/13 UTME (ii) Real cost is the goods and services forgone by
The output at which total revenue equals total cost is known employing the resources in their best or most profitable
as alternative uses, while Money cost is the amount of
A. profit maximizing output B. break – even level output money spent to produce a particular goods or services.
C. loss – minimizing output D. least – cost output (iii) Implicit cost are the cost of the resources supplied by
Answer the e.g. owners managerial skills, financial resources
Break – even level output (B) and owner-occupied buildings, while Explicit cost are
payments that are made for resources purchase from
2018/2019/6 (UI, IBADAN) outside e.g. payment for labour services, fuel,
Average revenue of a product is same as electricity, raw materials and transportation.
A. its price B. its quantity C. A and B above (b) The firm should stay open in the short run if price is
D. none of the above greater than average cost. The firm should shut down in
Answer the long run.
Its price (A) (ii) Any further production will add to losses in the long
run.
1998/11
Total cost is the addition of 2010/30 Neco
A. real cost and money cost B. price and taxes Cost borne by the general public which results from
C. fixed cost and variable cost D. average cost and activities of others is referred to as ____ cost.
marginal cost E. cost of raw materials and wages A. fixed B. money C. real D. social
Answer E. variable
Fixed cost and variable cost (C) Answer
Social (E)
1998/14
The shape of the average cost (AC) curve shows that as
2010/31 Neco
production increases
Given that fixed cost is ₦500.00, variable cost is
A. total cost decrease B. average cost decreases and
then increases C. average cost increases ₦1,500.00 and output is 50 units. What is the average cost
D. marginal cost increases E. total cost remains constant of producing one unit?
Answer A. ₦40.00 B. ₦50.00 C. ₦70.00 D. ₦90.00
Average cost decreases and then increases (B) E. ₦100.00
Answer
2009/25 TC = FC + VC
What accounts for the u – shape of the short run average TC = 500 + 1500
cost? TC = 2000
TC 2000
A. the law of variable proportions B. increasing returns to AC = = = ₦40 (A)
scale C. decreasing use of input output 50
D. changing output during the production period
Answer 2000/43 Neco Exercise 10.1.
the law of variable proportions (C) When a firm’s total revenue (TR) is at its maximum, the
marginal revenue is
2009/7 A. at its maximum B. constant C. decreasing
Distinguish between the following pairs of cost concept D. increasing E. zero
(i) Fixed cost and variable cost.
(ii) Real cost and money cost. 2000/49 Neco
(iii) Implicit cost and explicit cost. To produce 4 bags of maize, Babagana incurred a fixed
(b) What would you recommend to a firm whose average cost of ₦50 and an average cost of ₦20. What is the
cost is greater than its price? variable cost of producing the 4 bags?
(i) Cost is greater than its price. A. N2.50 B. N25.00 C. N30.00 D. N70.00
(ii) Give a reason for your answer in 7b(i) above E. N150.00
Answer Answer
(a) Fixed cost are expenses that remain unchanged TC = AC × Q
whatever the level of output e.g. money spent on the
TC = 20 × 4
purchase of land, rent payment, purchase of tools and
TC = 80
machinery, e.t.c. while
Variable costs are expenses that change with the level of VC = TC – FC
output e.g. expenses on raw materials, fuel, electricity, VC = 80 – 50
maintenance of fixed assets e.t.c. VC = ₦30.00 (C)

222
2000/7 Neco 2007/31 Neco
Explain the following cost concepts. Use the table below to answer questions 31 and 32.
(i) Total cost Output TFC TVC TC
(ii) Average cost 0 50 0 A
(iii) Marginal cost 12 50 20 70
(b) How do the economists and accountants differ in defining 23 50 B 80
cost? Calculate the TC for A
Answer A. 0 B. 50 C. 60 D. 70 E. 80
(i) Total cost: Total cost is the overall expenditure involved in Answer
producing a given quantity of a commodity. It is the sum of TC = VC + FC
both variable costs and fixed cost. Total cost (TC) = VC + TC = 0 + 50
FC or TC = AC × Q. TC = 50 (B)
(ii) Average cost: This is the cost of producing each unit of the
commodity. It is the total cost divided by the total quantity 2007/32 Neco
of the commodity produced. Calculate the TVC for B.
Total cost TC
Average cost (AC) = or A. 10 B. 20 C. 25 D. 30 E. 40
Total output Q
(iii) Marginal cost: Marginal cost is the extra cost incurred by Answer
VC = TC – FC
producing an additional unit of a commodity or reduction in
VC = 80 – 50
total cost arising from the reduction of total production by
VC = 30 (D)
one unit..
Change in total cost
Marginal cost (MC) = Change in quantity or TC2–TC1 2007/33
(b) To an economist, cost refers to the total cost of setting up When the average cost of a commodity starts falling, the marginal
and running a business which include the real cost or cost curve
opportunity cost i.e. the alternative forgone to set up the A. falls below average cost
business and the amount of money, (money cost) for hiring B. intersects the average cost C. is at maximum point D.
or acquiring long term plant and equipment and for the daily remains constant E. rises above average cost
running of the business. To an accountant, cost refers to Answer Falls below average cost (A)
“money cost” that is, the explicit cost of an investment.
2010/14
2014/53 Neco If TC, FC and VC represent total cost, fixed cost and variable cost
If the total cost of producing an item is N250 and the variable cost respectively, which of the following is correct?
is ₦70, what is the fixed cost? A. TC = FC – VC B. FC = TC + VC
A. ₦36 B. ₦70 C. ₦180 D. ₦250 E. ₦320 C. TC > FC + VC D. TC = FC + VC
Answer Answer TC = FC + VC (D)
FC = TC – VC
FC = 250 – 70 2010/2
FC = 180 (C) The table below represents the cost function of a poultry farm. The
price of a crate of eggs is $21. Use the information contained in
2014/54 Neco the table to answer the question that follow.
The cost that involves human and material resources in producing Quantity of eggs (in crates) Total cost (in $)
a commodity is referred to as 0 50
A. fixed cost B. variable cost C. average cost D. cost of 1 55
production E. marginal cost 2 62
Answer 3 75
Variable cost (B) 4 96
5 125
2009/20 Neco 6 162
Average total cost can be expressed as 7 203
A. average fixed cost plus average variable cost 8 248
B. change in total cost divided by change in output
C. total fixed cost divided by total output D. total fixed cost plus (a) What is the fixed cost of the farm?
total variable cost (b) Calculate the marginal cost at each level of output.
E. total variable cost divided by total output (ii) What is the profit maximizing output of the farm?
Answer (c) Draw the demand curve for the farm.
Total fixed cost divided by total output (C)
2009/33 Neco Exercise 10.2.
Which of the following is regarded as a fixed cost?
A. cost of fuel B. cost of light C. cost of raw materials D.
labour wages E. rent on land
223
 MC − MC 125−96 29
Answer MC2 =Change5in quantity
4
= = = 29
5−4 1
Quantity of eggs (in Total cost (in Marginal cost
MC6 − MC5 162−125 37
crates) $) (in $) MC2 = = = = 37
Change in quantity 6−5 1
0 50 -
MC7 − MC6 203−162 41
1 55 5 MC2 = = = = 41
Change in quantity 7−6 1
2 62 7
MC8 − MC7 248−203 45
3 75 13 MC2 = = = = 45
Change in quantity 8−7 1
4 96 21
(bii) The profit maximizing output is 4 crates of eggs where the
5 125 29
marginal cost is 21. This is when MC = P.
6 162 37
(c) D = AR (AR = $21)
7 203 41
8 248 45

(a) $50(when output is zero, total cost is $50. This implies that
fixed cost is $50)
(b) MC0 = 50
MC − MC0 55−50 5
MC1 = Change1in quantity = 1−0 = 1 = 5
MC2 − MC1 62−55 7
MC2 = = = =7
Change in quantity 2−1 1
MC3 − MC2 75−62 13
MC2 = = = = 13
Change in quantity 3−2 1
MC4 − MC3 96−75 21
MC2 = = = = 21
Change in quantity 4−3 1

2001/36 Neco
If the AC and TC of producing x unit of output is N20 and N100 respectively, what is the values of X?
A. 2 B. 5 C. 10 D. 20 E. 50
Answer
TC = AC × Q
100 = 20Q
100
Q=
20
= 5 (B)

2001/2
Find the values of letters A, B, C, D, E, F, G, H, I and J in the table below
Unit of output Fixed cost FC Variable cost VC Total cost TC Average cost AC Marginal cost MC
1 A 100 120 120 –
2 B 160 E G O
3 20 C 210 70 30
4 20 260 280 70 70
5 20 280 300 H 20
6 20 D F 90 J
Answer
A = FC = TC – VC F – TC = VC + FC or TC = AC × Q = 90 ×6 = 540
TC 180
A = FC = 12- - 100 = 20 G – AC = Q = 2 = 90
B – FC = TC – VC
B = FC = 180 – 160 = 20 H – AC =
TC
=
300
= 60
C = VC = TC – FC Q 5
C – VC = 210 – 20 = 190 TC2 − TC1 180−120 60
I = MC2 = = = = 60
D – VC = TC – FC ∆inQ 2−1 1
D – VC = 540 – 20 = 520 TC6 − TC5 540−300 240
E – TC – VC + FC J – MC6 = ∆inQ
= 6−5
= 1
= 240
E – TC = 160 + 120 = 180

224
 Unit of output Fixed cost FC Variable cost VC Total cost TC Average cost AC Marginal cost MC
1 20 100 120 120 –
2 20 160 180 G O
3 20 190 210 70 30
4 20 260 280 70 70
5 20 280 300 60 20
6 20 520 540 90 240

2020/21
The cost of machines in a factory is $20,000 while raw materials cost $15.00, if 5,000 units are produced, the average cost
is
A. $1.00 B. $3.00 C. $4.00 D. $7.00
Answer
FC - $20,000, VC = $15,000, unit of output = 5,000
TC
AC =
Q
But TC = VC + FC
TC = 15,000 + 20,000 = 35,000
TC 35,000
AC = = = $7.00 (D)
Q 5,000

2019/33
The cost of producing an additional unit of a firm’s output is known as ____ cost
A. average B. fixed C. marginal D. total E. variable
Answer
Marginal (C)

2019/34 Neco Exercise 10.3

Average fixed cost (AFC) multiply by the quantity produced (Q) is equal to ____ cost
A. average B. fixed C. marginal D. total
E. variable

1994/29
In the table below, the marginal cost when output is 2 units is
A. ₦16.00 B. ₦20.00 C. ₦36.00 D. ₦40.00 E. ₦48.00
Output Total cost (N)
1 20
2 56
3 96
4 144
5 160
Answer
MC2 = TC2 – TC1
MC2 = 56 – 20 = N36.00 (C)

225
2012/33 2003/28 Neco
Marginal cost is calculated by which of these formula Average cost (AC) equals to
∆TC AC TC TC TC TC
A. MC = TCn – TCn – 1 B. MC = A. TC B. AC C. AVC D. MC E.
∆Q Q
C. MC = TFC + TVC D. MC = TFCn – TVC–1 Answer
E. MC = TCn TCn1 TC
(E)
Answer Q
∆TC
MC = (B)
∆Q 2002/36 Neco
If the TR realized from the sale of one orange is ₦7, and
2012/34 Neco the MR of the second orange is ₦5, what is the TR
Which of the following cost curves is “u” shaped? realized from the sale of the second orange?
A. average cost B. fixed cost C. marginal cost
A. ₦35 B. ₦2 C. ₦10 D. ₦5 E. ₦4
D. total cost E. variable cost
Answer Average cost (A)
Answer
TR = Q × P = 2 × 5 = ₦10 (C)
2017/20
The amount of money that a firm receives from the sale of its 2002/44
output is called? Lamar and sons Nig. Ltd want a Toyota costing N300,000
A. total profit B. total revenue C. total cost and a Peugeot car cost N500,000. Due to shortage of
D. average revenue funds, company decides to buy the Peugeot leaving the
Answer Total revenue (B) Toyota car. What is the MC cost of the Peugeot car?
2018/35 A. N200,000 B. N300,000 C. N500,000
If the total cost of producing 200 units of commodities in D. N800,000 E. the Toyota car
N8,000, determine the average cost Answer
∆TC 500,000−300,000
A. ₦14.00 B. ₦20.00 C. ₦40.00 D. ₦50.00 MC = = = N200,000 (A)
E. ₦80.00 ∆Q 2−1
Answer 2002/26 Nov Exercise 10.4
TC 8000
AC = = = 40 (C) Marginal cost is the
Q 200
A. cost of production of an extra unit of a good produced
2008/32 Neco by a firm
What is the average cost, if output is 92 units while fixed and B. cost of production of the most efficient firm in an
variable costs are N8000.00 and N1,200.00 respectively?
industry
A. N9000 B. N100.00 C. N1,000.00 D. N1,900.00
C. cost of production of the most efficient firm in an
E. N2,000.00
industry
Answer
TC D. lowest cost of producing goods
AC =
Q
But TC = VC + FC 2011/34 Neco
TC = 1,200 + 8000 = 9,200 The total cost of producing a given number of units of
output divided by the number of units is referred to as
TC 9,200 ____ cost?
AC = = = 100 (B)
O 92 A. average B. fixed C. marginal D. total
E. variable
2013/31 Neco Answer
Average (A)

2008/16
Revenue is the
A. cost of good multiplied by the quantity sold B. price
of good multiplied by the quantity sold
C. quantity of good plus purchase price D. quantity
supplied less quality sold
Answer
The curve in the graph above represents _____ cost Price of good multiplied by the quantity sold (B)
A. Average fixed B. fixed C. marginal D. total
E. variable
Answer
Marginal (C)

226
2008/9 2015/20
(a) Define the profit of a firm. Which of the following cost curves is not u – shaped? The
(b) With appropriate formulae, explain the following A. marginal cost curve B. average fixed cost curve
revenue and cost concepts. C. average total cost curve D. average variable cost curve
(i) Total revenue (TR); Answer
(ii) Average revenue (AR) Average fixed cost curve (B)
(iii) Marginal revenue (MR)
(iv) Average fixed cost (AFC) 1990/17 Nov
Answer The addition to total cost resulting from an additional
(a) The profit of a firm is the difference between the total increase in output is referred to as
revenue and total cost = TR – TC. A. marginal cost B. total cost C. average cost
(bi) Total revenue (TR) is the total amount of income D. fixed cost E. additional cost
generated from the sale of a firm’s product. TR = Answer
price × quantity sold or AR × quantity sold. Marginal cost (A)
(ii) Average revenue (AR): This is the revenue per unit of
product sold. It is also equal to the price of the firm’s 1990/17
product. The additional cost incurred by producing one more unit of
TR a product is called the
AR = ; AR = P
Q A. average cost B. additional cost C. marginal cost
(iii) Marginal revenue (MR): This is the addition to total D. supplementary cost E. prime cost
∆TR
revenue is an additional unit of the product is sold Answer
∆Q
TR2 TR1 Marginal cost (C)
or −
Q2 Q1
(iv) Average fixed cost (AFC) is the total fixed cost 1991/2
TFC Complete the following cost schedules and answer the
divided by the output Q = AFC.
questions that follow.
It is the fixed cost per unit of output. Output Total cost Average cost Marginal cost
(TC) (AC) (MC)
2003/14 Exercise 10.5
Marginal cost can be derived from the 1 8 8 –
A. total product B. total revenue C. total cost 2 14 ?c ?f
D. average fixed cost 3 ?a 6 ?g
4 20 ?d ?h
2003/16 5 ?b 6 ?i
Use the table below to answer question 16 6 48 ?e ?j
Output Total revenue (a) At what output is AC at the minimum?
1 40 (b) At what output is MC at the minimum?
2 49 (c) At what output does AC start increasing?
3 56 (d) At what output does MC start to be greater than AC?
4 61 (e) What is the maximum output?
5 65 Answer
The marginal revenue when output is 4 units is a – TC = AC × Q
A. 5 naira B. 8 naira C. 56 naira D. 61 naira a – TC = 6 × 3 = 18
Answer b – TC = AC × Q
∆TR 61−56 5 b – TC = 6 × 5 = 30
MR = = − 1 = 5 naira (A) TC
∆Q 4−3 c – AC =
Q
14
2015/19 c – AC = = 7
2
Total cost is obtained by TC 20
d – AC = = = 5
A. adding up the marginal cost at each level Q 4
TC 48
B. dividing the total cost by output at each level e – AC = Q = = 8
6
C. adding up the average variable cost at each level
D. adding up the average variable cost and total fixed cost f – MC2 – TC2 – TC1 = 14 – 8 = 6
Answer g – MC3 = TC3 – TC2 = 18 – 14 = 4
Adding up the average variable cost and total fixed cost (D) h – MC at output 4 = TC4 – TC3 = 20 – 18 = 2
i = MC at output 5 = TC5 – TC4 = 30 – 20 = 10
j = MC6 at output 6 = TC6 –TC5 = 48 – 30 = 18

227
 Output Total cost Average cost Marginal cost 2019/19
(TC) (AC) (MC) Table II shows the short run cost of a firm. Use it to
1 8 8 – answer question 19.
2 14 7 6 Quantity Fixed Variable Total Marginal Average
(kg) cost cost ($) cost cost ($) cost ($)
3 18 6 4 ($) ($)
4 20 5 2 1 750 200 950 – 950
5 30 6 10 2 750 500 1310 360 655
6 48 8 18 3 750 900 P Q 550
Calculate the value of Q
(a) Output 4 units. (b) Output 4 units A. $350 B. $340 C. $360 D. $370
(c) Output 5 units (d) Output 5 units Answer
(e) Maximum output is 6 units P – TC = AC × Q
P – TC = 550 × 3 = 1650
2000/10 Q – MC3 = TC3 – TC2
Dividing total variable cost by quantity of output gives Q = MC3 = 1650 – 1310 = $340 (B)
A. total cost (TC) B. total fixed cost (TFC)
C. variable cost (VC) D. average variable cost (AVC) 2016/22 NABTEB
Answer The cost which increases as output increases is known as
Average variable cost (AVC) A. fixed cost B. average fixed cost C. marginal cost
D. variable cost
2000/26 Answer Variable cost (D)
Average variable cost (AVC) curve
A. is u – shaped B. rises from left to right 2006/41 Neco
Use the table below to answer questions 41 and 42
C. slopes upwards D. is horizontal to the x – axis
Answer Qty FC VC TC MC AC
Is u – shaped (A) 1 1000 750 1750 – 1750
2 1000 1000 A 250 100
2003/16 Nov 3 1000 1100 2100 B 750
Use the diagram to answer question 16 and 17 Calculate the value of A
A. 1000 B. 2000 C. 2200 D. 3000 E. 4500
Answer
TC = VC + FC
TC = 1000 + 1000
TC = 2000 (B)
2006/42 Neco
What is the firm’s marginal cost at point B?
A. 150 B. 200 C. 100 D. 250 E. 300
Answer
MC = TC3 – TC2
The curve labeled I and II are the
MC = 2100 – 2000
A. ATC and AFC B. MC and AVC C. MC and ATC
MC = 100 (C)
D. ATC and VC
Answer 1997/14 Nov
MC and ATC (C) Production costs such as rent, depreciation, interests and
insurance premiums are referred to as
2003/17 Nov A. marginal costs B. total costs C. real costs
The curves labeled III and IV are the D. average costs E. fixed costs
A. MC and ATC B. FC and AVC C. AVC and AFC Answer Fixed costs (E)
D. MC and MR
Answer AVC and AFC (C) 2004/10 Nov
Total cost can be defined as the
2019/22 NABTEB A. fixed cost plus variable cost
Average cost is B. total variable cost divided by total output
A. the extra cost of producing one additional unit of output C. total output divided by variable cost
B. overhead cost C. variable cost D. fixed cost plus marginal cost
D. the cost of producing a unit of output Answer Fixed cost plus variable cost (A)
Answer
The cost of producing a unit of output (D)
228
2004/11 Nov 1996/10 Nov Exercise 10.6.
Use the following information to answer questions 11 and 12. If fixed cost is ₦600.00, variable cost is ₦400.00 and total
A firm’s output per day increases from 10 units to 11 units output is 100, what is the average cost?
and the total cost increases from 80.00 naira to 110.00 A. ₦13.00 B. ₦12.00 C. ₦11.00 D. ₦10.00 E. ₦9.00
naira. Marginal cost is
A. 8.00 naira B. 10.00 naira C. 30.00 naira 2005/7 Nov
D. 10.00naira The cost that an entrepreneur incurs in using his/her own
Answer resource is referred to as
Output Total cost A. marginal cost B. implicit cost C. fixed cost
10 80 D. variable cost
11 110 Answer Variable cost (D)
MC = TC2 – TC1
MC = 110 – 80 2007/8 Nov
= 30 Which of the following is considered as a fixed cost of a
firm?
2004/12 Nov A. wages B. interest on debt
At output 11 units per day, average cost is C. expenditure on raw materials D. fuel and lubricants
A. 7.00 naira B. 8.00 naira C. 10.00 naira D. 11.00 Answer Interest on debt (B)
naira
Answer 2007/2 Nov
TC 110 The table below relates to the cost schedule of a firm. Use
AC = = = 10.00 naira (C) the information provided to answer the questions that
Q 11
follow:
1993/18 Output TFC ($) MC ($)
Which of the following is the correct way to calculate total cost? 0 20 –
A. addition of fixed cost to variable cost B. division of 1 20 10
total cost by total output 2 20 20
C. multiplication of fixed cost by variable cost 3 20 30
D. subtraction of fixed cost from total cost 4 20 40
E. addition of marginal cost to average cost (a) Calculate the total variable cost (TVC) and the total
Answer cost (TC) values for all levels of output.
Addition of fixed cost to variable cost (A) (b) Determine the total revenue (TR) for all the level of
output if the unit price of the product is $30.
2000/23 Nov (c) At what output will the firm maximize profit.
The costs which do not vary in direct proportion to the (di) Identify the market structure in which the firm is
firm’s output are called operating.
A. fixed costs B. variable costs C. average costs (ii) Explain your answer in (di)
D. marginal costs Answer
Answer (a)
Fixed costs (A) Output TFC MC TVC TC AC TR MR
($) ($) ($) ($) ($)
1992/9 Nov 0 20 – – 20 – 0 –
If X = TCn – TCn – 1 where TC = total cost and n = unit of 1 20 10 10 30 30 30 30
output, then X is 2 20 20 30 50 25 60 30
A. average cost B. total cost minus one 3 20 30 60 80 27 60 30
C. total variable cost D. marginal cost E. unit cost 4 20 40 100 120 30 90 30
Answer Unit cost (E) TVC = TC – FC
TVC = MC1 – at output = 10
1992/20 Nov At output 2 = TVC1 + MC2 = 10 + 20 = 30
Revenue is the TC = VC + FC
A. total profit made after sales B. total money made TC at output 0 = 0 + 20 = 20
from the sale of goods C. value of goods minus TC at output 1 = 10 + 20 = 30
depreciation TC at output 2 = 30 + 20 = 50
D. amount spent on purchases E. cost of goods TC at output 3 = 60 + 20 = 80
multiplied by quantity produced TC at output 4 = 100 + 20 = 120
Answer
Total money made from the sale of goods (B)

229
(b) TR = Q × P ∆TR Change in total revenue
(ii) Marginal revenue = =
∆Q Change in quantity
At price $30
33−0 33
At output 0 = TR = 0 × 30 = 0 MR at output 1 = = = 33
1−0 1
At output 1 = TR = 1 × 30 = 30 60−33
At output 2 = TR = 2 × 30 = 60 MR at output 2 = = 27
2−1
At output 3 = TR = 3 × 30 = 90 MR at output 3 =
81−60
=
21
= 21
3−2 1
At output 4 = TR = 4 × 30 = 120
∆TR 96−81 15
MR = MR at output 4 = 4−3
= 1
= 15
∆Q
30−0 30 105−96 9
MR1 = = = 30 MR at output 5 = 5−4
=1=9
1−0 1
60−30 30 ∆TC change in total cost
MR2 =
2−1
= = 30 (iii) Marginal cost = =
1 ∆Q change in quantity
90−30 30
MR3 =
3−2
= = 30 48−47 1
1 MC at output 1 = =1=1
120−90 30 1−0
MR4 =
4−3
= = 30 50−48 2
1 MC at output 2 = =1=2
2−1
(c) The firm will maximize profit where MC = MR
54−50 4
i.e. output 3 MC at output 3 = = =4
3−2 1
(d) Monopolistic market 62−54 8
MC at output 4 = 4−3
= =8
1
2004/2 Nov 78−62 16
MC at output 4 = 5−4
= 1
= 16
The table shows the price and other production data of an
artist who carves chairs from wood. Use the information (iv) Profit is maximized
contained in the table to answer the questions that follow. At output 0, 0 – 47 = –14
Number of chairs Price ($) Total cost ($) Profit = TR – TC
produced At output 1 = 33 – 48 = –15
0 – 47 At output 2 = 60 – 50 = 10
1 33 48 At output = 81 – 54 = 27
2 30 50 At output 4 = 96 – 62 = 34
3 27 54 At output 5 = 105 – 78 = 27
4 24 62 (b) The highest profit is earned at $24 i.e. output 4.
5 21 78 (c) The fixed cost of the artist is the price that is 33, 30,
(a) At each price level, calculate the: 27, 24, 21.
(i) Total revenue (ii) Marginal revenue VC = TC – FC
(iii) Marginal cost VC at output 0 = 47 – 0 = 47
(iv) Profit At output 3 = 54 – 276 = 27
(b) At what price is the highest profit earned? VC at output 1 = 48 – 33 = 15
(c) What is the fixed cost of the artist (explain your At output 4 = 62 – 24 = 38
answer) VC at output 2 = 50 – 30 = 20
(d) In what market structure does the artist operate? At output 5 = 78 – 21 = 57
(Give a reason for your answer).
Answer
(i) Total revenue = Q × P
At output 0 = 0 × 0 = 0
At output 1 = 1 × 33 – 33
TR at output 2 = 2 × 30 = 60
TR at output 3 = 3 × 27 = 81
TR at output 4 = 4 × 24 = 96
TR at output 5 = 5 × 21 = 105

230
 Number Price ($) Total cost Total Marginal Marginal Profit Variable
of chair ($) revenue revenue ($) cost ($) cost
produced ($)
0 – 47 – – – 47 47
1 33 48 33 33 1 –15 15
2 30 50 60 27 2 10 20
3 27 54 81 21 4 27 27
4 24 62 96 15 8 34 38
5 21 78 105 9 16 27 57

2000/2 Nov
The table below shows the output, cost and revenue situation of a hypothetical firm. Study the table and answer the
question that follows.
Output Price ($) Total revenue Variable cost Total cost Profit
(kg) ($) ($) ($) ($)
0 20 0 50
1 20 20 60
2 20 40 70
3 20 60 80
4 20 80 90
5 20 100 100
(a) Complete the table by calculating the
(i) Variable cost at each level of output. (ii) Profit at each level of output.
(b) In what market is the firm operating? Explain your answer.
(c) Should the firm continue to produce? Give one reason for your answer.
Answer
(ai) At output 0, VC = TC – FC
VC = 50 – 20 = 30
At output 1, VC = TC – FC
VC = 60 – 20 = 40
At output 2, VC = TC – FC
VC = 70 – 20 = 50
At output 3, VC = TC – FC
VC = 80 – 20 = 60
At output 4, VC = TC – FC
VC = 90 – 20 = 70
At output 5, VC = TC – FC
VC = 100 – 20 = 80
(ii) Profit = TR – TC
Profit at output 0 = 0 – 50 = –50
At output 1 = 20 – 60 = –40
At output 2 = 40 – 70 = –30
At output 3 = 60 – 80 = –20
At output 3 = 80 – 90 = –10
At output 4 = 100 – 100 = 0
Output (kg) Price ($) Total revenue ($) Variable cost ($) Total cost ($) Profit ($)
0 20 0 30 50 –50
1 20 20 40 60 –40
2 20 40 50 70 –30
3 20 60 60 80 –20
4 20 80 70 90 –10
5 20 100 80 100 0

231
2015/1
The total fixed cost (TFC) and the total cost (TC) functions of a hypothetical firm are shown in the graph below study it
and answer the question that follows.

(a) Determine the firm’s:

(i) Variable cost at output level 2, 4 and 6.
(ii) Average total cost at output level 2 and 3.
(iii) Marginal cost at output levels 4 and 6.
(b) If the price of the firm’s product is $40, calculate the firm’s profit or loss when the following units are sold.
i. 2 units.
ii. 4 units.
Answer
TFC = $40
(ai) VC = TC – TFC (bi) Profit = total revenue – total cost
VC2 = 100 – 40 = $60 Profit = TR – TC
VC4 = 140 – 40 = $100 TR = price × quantity
VC6 = 180 – 40 = $140 TR = P × Q
TC
(ii) ATC = Q When two units are sold
Profit = TR – TC where TR = P ×Q
100
ATC2 = 2 = $50 Profit = (40 × 2) – 100
120 = 80 – 100
ATC3 = 3 = $40
= – $20 (loss)
∆TC (ii) When 4 units are sold
(iii) MC = ∆Q
Profit = TR – TC
TC4 − TC3
MC4 = Q − Q Profit = (40 × 4) – 140
4 3 Profit = 160 – 140
140−120 20
MC4 = 4−3
= = $20
1
Profit = $20.
TC6 − TC5
MC6 =
Q6 − Q5
180−160 20
MC6 =
6− 5
= 1 = $20

232
1979/15 UTME Exercise 10.7 1987/13 UTME
Average cost is In the long – run a firm will leave an industry if price
A. the total cost of production A. does not cover at least average total cost
B. the extra cost of producing one additional unit of output B. is not equal to marginal cost
C. the cost of producing a unit of output C. is higher than average variable cost
D. variable cost E. overhead cost D. is not at least equal to the minimum of the marginal cost
Answer Is not equal to marginal cost (B)
1980/27 UTME
If a firm doubles its output and its cost increase by 60%,
the firm is experiencing 1988/12 UTME
Total fixed cost measures the cost of
A. increasing costs B. economies of scale
A. all plant and machinery B. all assets where quantity
C. decreasing returns D. decreasing costs
cannot be varied in the short run
E. none of the above
C. all assets upon which the firm has control
Answer
D. property owned by the firm
Economies of scale (B).
Answer
All assets where quantity cannot be varied in the short run (B)
1982/40 UTME
Units of output Total cost
2011/16 (OAU, IFE)
1 20
Which of the following is TRUE of marginal cost?
2 32 A. it is a cost incurred by the firm on variable input
3 42 B. it is the cost of producing one extra unit of a commodity
4 48 at any output level
5 50 C. it is the sum of the fixed cost and variable cost
In this table, the marginal cost of the 3rd unit of output is D. it is referred to as overhead cost
A. 12 B. 6 C. 10 D. 2 E. 9 Answer
Answer It is the cost of producing one extra unit of a commodity at
∆TC 42−32 10
MC = = = = 10 (C) any output level (B)
∆O 3−2 1
2011/17 (OAU, IFE) Exercise 10.9
1985/44UTME
Which of the following items is NOT a variable cost?
Which of the following is not a part of the fixed cost of a
A. cost of machine B. cost of electricity
limited liability company?
C. salaries and wages D. cost of raw materials
A. interest on loans B. rent on buildings
C. depreciation reserves D. management expenditure
2009/19 (OAU, IFE)
E. wages
Marginal cost curve intersects average cost curve
Answer
A. front above as its lowest point
Wages (E)
B. it omits below before the lowest point
C. from below at its lowest point
1985/47 UTME Exercise 10.8
D. from below after the lowest point
Output Total cost
E. obtaining time maximum
1 20 Answer From below after the lowest point (D)
2 56
3 96 1988/21 UTME
4 144 Total revenue is always equal to
5 160 A. marginal revenue multiplied by the quantity sold
In the table, the marginal cost when output is two units is B. average revenue plus marginal revenue
A. ₦16.00 B. ₦20.00 C. ₦36.00 D. ₦40.00 C. marginal revenue multiplied by marginal cost
E. ₦48.00 D. average revenue multiplied by the quantity sold
Answer
1987/8 UTME Average revenue multiplied by the quantity sold (D)
Average fixed cost is
A. average total cost less the sum of average variable cost 2009/2010/19 (UNIZIK, AWKA)
B. half the sum of all costs The cost which a firm will incur whether it is in production
C. total fixed cost divided by the level of output or not is referred to as
D. total fixed cost plus marginal cost A. average cost B. variable cost C. opportunity cost
Answer D. fixed cost
Total fixed cost divided by the level of output (C) Answer Fixed cost (D)

233
2013/2014/33 (UNIZIK, AWKA) 1994/17 UTME.
As a firm increase its output, the average fixed cost A firm determines its profits when it studies its
A. tends to rise continuously B. remains constant A. marginal cost B. average cost C. total cost
C. rises and then falls D. tends to decrease continuously D. average cost relative to price in the market
E. none of the above Answer Average cost relative to price in the market (D)
Answer
Tends to decrease continuously (D) 1995/14UTME Exercise 10.10
Given that TC = TFC + TVC and TR = AR × Q, profit is
2013/2014/42 (UNIZIK, AWKA) equal to
Given that the total fixed cost is ₦1,000, total variable cost TFC−TVC
A. (AR + Q) – TFC B. ( Q ) C. (AR × Q) – TC
₦2,500 and the output 100 units. Find the average total
TC ×Q
cost of producing one unit D. ( AR
)
A. ₦60 B. ₦45 C. ₦35 D. ₦30 E. ₦40
Answer 1998/11 UTME
TC
ATC = Q Total output unit Fixed cost Variable cost
But TC = VC + FC 100 100 100
TC = 2,500 + 1,000 = 3,500 120 100 110
160 100 120
TC 3,500
ATC = = = ₦35 (C) 200 100 140
Q 1000
240 100 160
The average total cost when output is 200 units in the table
1988/23 UTME
above is
Which of the following is TRUE at the quantity of output
A. ₦1.00 B. ₦2.00 C. ₦1.40 D. ₦2.40
where average cost (AC) per unit has reached its minimum
Answer
level? TC
A. AVC = FC B. MC = AVC C. MC = AC ATC = TC = FC + VC
Q
D. AC = AFC
240
Answer ATC = 200 = ₦1.20 TC = 100 + 140 = 240
MC = AC (C) No option is correct
1991/7 UTME
At any given level of output, the total cost of a firm equals 1999/17 UTME
the Given that the total fixed cost is ₦1,000, total variable cost,
A. marginal cost plus the average cost ₦2,500 and the output, 100 units. Find the average total
B. fixed cost less its variable cost cost of producing one unit
C. average cost multiplied by its output A. ₦60 B. ₦45 C. ₦35 D. ₦30
D. economic costs multiplied by variable cost Answer
TC
Answer ATC =
Q
Average cost multiplied by its output (C) But TC = TFC + TVC
1992/9 UTME TC = 1000 + 2500
By definition, variable cost (VC) is related to total cost TC = 3500
TC 3500
(TC) and fixed costs (FC) by the equation ATC = = = ₦35 (C)
TC Q 100
A. VC = TC + FC B. VC = TC – FC C. VC =
FC
D. VC = (TC)(FC) 1999/20 UTME
Answer A characteristic of the average fixed cost is that it
VC = TC – FC (B) A. rises and falls faster than the marginal cost
B. is u-shaped and intersects the price axis
1992/13 UTME C. is always higher than the average variable cost
The u-shape of the long run average cost curve can be D. falls continuously but is never equal to zero
explained by the Answer Falls continuously but is never equal to zero (D)
A. law of increasing returns B. law of constant returns
C. law of diminishing returns D. concept of economies 1999/18 UTME
and diseconomies of scale Which of the following falls continuously as output
Answer expands?
law of increasing returns (A) A. average fixed cost B. marginal cost
C. average variable cost D. average cost
Answer Average fixed cost (A)
234
2014/2015/49 (UI, IBADAN) 2003/15 UTME
Long run cost is u – shaped because of the operation of The ATC at 30 units of output is
A. economies of scale on the left hand side and A. ₦120.00 B. ₦6.00 C. ₦4.00 D. ₦3.00
diseconomies of scale on the right hand side Answer
B diseconomies of scale on the left and right hand sides TC
ATC =
C. economies of scale on the left and right hand side Q
D. constant return to scale But TC = FC + VC
E. diseconomies of scale on the left hand side and of scale TC = 60 + 120
of the right hand side TC = 180
Answer TC 180
economies of scale on the left hand side and diseconomies ATC = = = ₦6 (B)
Q 30
of scale on the right hand side (C)
2003/16
2014/2015/50 (UI, IBADAN)
At 60 units of output, the AVC is
Marginal cost is the cost
A. ₦150.00 B. ₦90.00 C. ₦2.50 D. ₦1.50
A. the lowest cost of producing goods
Answer
B. the cost of production of the most efficient firm in an TVC
industry AVC =
Q
C. the cost of production of the most inefficient firm in an But TVC = TC – FC
industry = 150 – 60
D. the cost of production of the last unit of goods produced TVC = 90
by a firm
E. the cost of production at which the minimum profit is TVC 90
AVC = = = ₦1.50(D)
obtained by the firm Q 60
Answer
The cost of production of the last unit of goods produced 2004/42 UTME
by a firm (D) Given the cost function C = 160 + 36Q. What is the
average cost at 20 units of output?
2003/12 UTME A. N720.00 B. N216.00 C. N44.00 D. N880.00
The long – run average cost curve is called a planning Answer
curve because it shows what happens to cost when C = 160 + 36Q
A. variable inputs are increased C = 160 + 36(20)
B. fixed factors are increased C = 160 + 720
C. different sizes of plants are built C = ₦880.00 (D)
D. a bigger size of plant is built
Answer 2005/20 UTME
Fixed factors are increased (B) A rising short – run average cost is a result of
A. falling marginal costs B. diminishing returns
2003/14 UTME C. economies of scale D. rising fixed costs
Short run period in production is a period too short for a Answer
firm to be able to change its Falling marginal costs (A)
A. variable inputs B. total outputs C. total revenue
D. scale of operation 2006/23 UTME
Answer If the short run cost curve of a firm is u-shaped the
Scale of operation (D) marginal and average costs are equal where the
A. average fixed cost is falling B. marginal cost is falling
2003/15 and 16 UTME C. average cost is minimum D. average cost is minimum
Use the table below to answer question 15 and 16
Answer
Output produced Fixed cost per day Total cost per Average cost of minimum (C)
per day (unit) (₦) day (₦)
20 60 100 2007/20 UTME Exercise 10.11
30 60 120 If the total fixed cost is the same regardless of output, the
40 60 130 average fixed cost will be
50 60 135 A. decreasing B. minimum C. maximum
60 60 150 D. increasing
70 60 170
80 60 190

235
2009/21 UTME 2018/2019/43 (UNIZIK, AWKA)
The shape of the long run average cost curve is best An average cost is
explained by the A. the total cost of production
A. law of diminishing returns B. law of returns to scale B. the extra cost of producing one additional unit of output
C. cost of fixed inputs D. cost of variable inputs C. overhead cost
Answer D. the cost of producing a unit of output
Law of returns to scale (B) Answer
The cost of producing a unit of output (D)
2014/20 UTME
Given that FC = ₦500, VC = ₦1,500 and Q = 50 units find 2019/2020/14 (UI, IBADAN)
the average cost of the product What accounts for the “u-shape” of the short run average
A. ₦300 B. ₦40 C. ₦10 D. ₦20 cost (AC) curve?
Answer A. the law of variable proportions
TC
AC = B. increasing returns to scale C. decreasing using of
Q
inputs
But TC = FC+ VC
D. changing output during the production period
TC = 1500 + 500
Answer
TC = 2000
The law of variable proportions (A)
TC 2000
AC = = = ₦40 (B)
Q 50 2014/2015/47 (UI, IBADAN)
Average fixed cost is
2014/2015/48 (UI, IBADAN)
A. average total cost less the sum of average variable cost
Average fixed cost is a rectangular hyperbola
B. half the sum of all costs
A. since unit cost increases as output increases
C. total fixed cost divided by the level of output
B. unit cost increases as output decreases
D. total fixed cost plus marginal cost
C. unit cost decreases as output increases
E. total variable cost divided by output
D. unit cost remains the same as output increases
E. none of the above Answer
Total fixed cost divided by the level of output (C)
Answer
Unit cost remains the same as output increases (C)
2018/2019/47 (NDU, BAYELSA)
2014/2015/51 (UI, IBADAN) Exercise 10.12 If the cost of production for a firm continues to increase as
Which of the following is NOT part of the fixed cost of a firm? its output rises, the firm is said to be experiencing
A. interest on loans B. rent on buildings A. large scale production B. profit maximization
C. depreciation reserves D. management expenditures C. economies of scale D. diseconomies of scale
E. wages E. increasing return to scale
Answer
2019/30 UTME diseconomies of scale (D)
Economies of scale operate only when
A. marginal cost is falling with input 1982/19 UTME
B. average cost is falling with output If AC = average cost of production, TC = Total cost of
C. fixed cost is variable production, VC = variable cost of production, FC = fixed
D. variable cost is less than fixed cost cost of production, Q = quantity of goods produced, then
Answer TC
A. AC = ; TC = VC + FC
Average cost is falling with output (B) Q

B. AC = (TC); TC = VC + FC
2013/2015/38 (UNIZIK, AWKA)
A firm will, in the long run leave an industry, if price TC
C. AC = , TC = (VC)(FC)
A. does not cover at least average total cost Q
B. is not equal to marginal cost D. AC = TC – FC, VC = TC – AC
C. is higher than average variable cost
TC
D. is not at least equal to the minimum of the marginal cost curve E. AC = TC; = VC + AC
Q
E. C and D
Answer Answer
Does not cover at least average total cost (A) TC
AC = ; TC = VC + FC (A)
Q

236
1983/13 UTME 2009/2010/68 (NDU, BAYELSA)
Marginal cost curve intersects average cost curve In the long run a firm will leave an industry if price
A. from above at its lowest point A. does not cover at least average total cost
B. from below before the lowest part B. is not equal to marginal cost
C. from below at its lowest point C. is higher than average variable cost
D. from below after the lowest point D. is not at least equal to the minimum of the marginal cost
E. at zero point curve
Answer Answer
From below before the lowest point (C) Is not equal to marginal cost (B)
1991/8 UTME 2007/17 (OAU, IFE)
At any given level of output, a firm’s total variable cost A producer sustains a loss in the short run if
equals A. marginal revenue is less than price
A. total cost less marginal cost B. price is less than average cost
B. total cost less total fixed cost C. marginal cost is less than marginal revenue
C. total cost less average cost D. average variable cost is less than average cost
D. average variable cost and marginal variable cost Answer
Answer Price is less than average cost (B)
Total cost less total fixed costs (B)
2014/18 (OAU, IFE)
2000/20 UTME
Average cost is equal to marginal cost when
If a total cost curve is plotted, marginal cost can be
A. average cost is at the maximum
illustrated by the
B. average cost is at the minimum
A. straight line from the origin to the mid – point of the curve
C. marginal cost is at the minimum
B. u-shaped curve cutting the total cost curve at its lowest point
D. marginal cost is at the maximum
C. slope of the tangent to the curve at any given output
Answer
D. straight line cutting the curve at its highest point
Average cost is at the minimum (B)
Answer
U – shaped curve cutting the total curve at its lowest point (B). 2006/14 (OAU, IFE)
Which of the following is regarded as fixed cost?
2000/21 UTME A. cost of raw materials B. labour wages
In a small scale business the fixed cost is ₦5,000.00
C. rent on land D. cost of light
variable cost is ₦15,000.00 and the output is 500 units.
Answer
What will be the unit cost of the goods?
rent on land (B)
A. ₦20.00 B. ₦40.00 C. ₦80.00 D. ₦400.00
Answer
TC 2019/2020/47 (DELSU, ABRAKA)
ATC = When the marginal revenue equals the marginal cost, then
Q
But TC = FC + VC the
TC = 5000 + 15,000 = 20,000 A. profit is minimized B. profit is equal to zero
20,000 C. profit is maximized D. loss is minimized
ATC = = ₦40.00 (B) Answer
500
Profit is maximized (C)
2015/49 UTME Exercise 10.13
The long – run total cost curve shows the cost of
A. all fixed factors of production
B. the average fixed cost
C. all factors inputs are employed
D. variable factor of production

2017/18 UTME
Cost of raw materials in production is an example of
A. marginal cost B. variable cost C. total cost
D. fixed cost
Answer
Variable cost (B)

237
 2019/11 UTME
Market is defined as
MARKET STRUCTURE A. one geographical location where people meet to buy and sell
B. the demand and supply of goods and services
Market Structure can be defined as the characteristics of C. a group of people whose sole interest is to make profit
market organization that affects the behaviour and D. any organizational frame work which links the buyers
performance of firms, such as the number and size of and sellers of a goods or service
sellers, the degree of competition and differentiation of Answer
product.It is the significant features of a market which Any organizational frame work which links the buyers and
determine the competitive relationship between sellers and sellers of a goods or services (D)
also affect the behaviour of the firms in the industry or the
market supply of a product. TYPES OF MARKET
It may also refer to the various types of market situation There are various types of market. They are grouped into
that may exist in any economy. The extent to which a three broad groups:
single firm controls both price and output is known as the 1. Commodity market – Consumer goods market:
competitiveness of the market structure. wholesale and retail market.
2. Factor market – Labour market.
MARKET CONCEPT 3. Financial market:
Market is any arrangement, system or organization I. Money market
whereby buyers and sellers of goods and services are II. Capital market
brought into contact with one another for the purpose of III. Discount market.
transacting business, or for the purpose of buying and IV. Security market.
selling. V. Foreign exchange market.

The essence of market is that, it enables buyers and sellers COMMODITY MARKET
of goods and services to strike a bargain, it also enables It is market in which consumer goods, like foodstuffs are
exchange to take place. bought and sold. This is the most popular market that
everybody is identified with. It is at times referred to as
The contact can be established through: consumer goods market which is sub-divided into
1. Personal call: Presence of two or more people in a wholesale and retail markets. The three basic necessities of
particular place. (Personal contact, market place etc.) life: foodstuffs, clothes and building materials are bought
2. Communication: Transaction which entails non– and sold in this market.
personal contact either through telephone, fax, mails,
telegram, telex etc. Advantages
1. It creates avenue for the sales of consumer goods,
2003/46 Neco especially foodstuffs as well as clothes, provision,
Economists define market as books, stationery, etc.
A. a place where people buy assorted types of goods and 2. It encourages firms and other producers to
services continuously involve in production as it provides
B. an open space and shops where consumers display market for their goods (assists in selling their
wares for buyers to buy products).
C. an arrangement where consumers display their needs for 3. It ensures proper storage of goods, especially
suppliers to see perishable items, until they are sold.
D. an arrangement whereby buyers and sellers are brought 4. It raises the level of economic activities.
into close contact with one another for the purpose of 5. It stabilizes prices.
transacting business 6. It provides revenue to the government through taxes –
E. a space which government allocates to sellers and market levy, etc.
buyers to transact the commercial business 7. It provides abundant employment opportunities to
Answer countless number of people: men, women and
An arrangement whereby buyers and sellers are brought children.
into close contact with one another for the purpose of
transacting business (D) FACTOR MARKET
It is a market in which factors of production are bought and
sold. The market involves entrepreneurs (firms’ owners),
labour, landlord and potential workers (applicants), etc.
The prices in the market are rent for land, salary and wages
for labour.
238
Advantages Money Market
1. It facilitates the sales and purchases of factors of It is a market for purchases and ledger of short – term
production. loans. It is a market for lending and borrowing of fund on
2. It enables property owners, like landlords, to come in short term basis. That is, it is a market in which people
contact with buyers of parcels of lands, houses, etc. acquire short term loans – borrow money in short period
3. It creates avenue for members of the public for hiring basis, like 3 months to 2 years for investment purpose, like
of accommodation (renting of houses), etc. setting up small scale enterprises. The commodities dealt in
4. It facilitates leasing of business equipment. are ‘short – term loans’. The sellers are the Central bank,
5. It provides revenue to the government through merchant, commercial banks and finance houses e.g.
property tax. cooperative credit societies, discount and acceptance
6. It creates employment. houses. The buyers are businessmen, bill brokers and
reputable people. The prices are the interest rates being
Labour Market charged.
It is an arrangement or a process through which applicants
(people seeking jobs) and employers (firms) are brought Advantages
into contact to determine wages and conditions of service 1. It provides short – term loans to businessmen,
(work). Briefly, it is a process of exchanging work companies, etc
(service) for wages. 2. It assists in the transfer of money from one person,
firm and country to another.
The buyers are entrepreneurs (owners of firms) or 3. It encourages the establishment of small – scale
personnel managers of companies. The sellers are potential businesses.
workers (applicants – unemployed people seeking for jobs) 4. It enables the existing companies to easily expand
– both skilled and unskilled labour. The prices are wages through borrowing of short – term loans.
and salary. The ministry of labour (labour office) where 5. It provides useful information to the public especially
people register their services for sales or hire may be their customers and businessmen on how they should
termed as labour market. successfully run their businesses.
6. It provides revenue to the government through profit
Advantages and income tax.
1. It makes labour services to be readily available to 7. It creates abundant employment opportunities and
firms, governments and other employers. employ countless number of people.
2. It eliminates or reduces problem of unemployment as 8. It cultivates saving habit among the members of the
it creates avenue through which applicants are easily public. That is, it mobilizes or stimulates members of
employed. the public towards saving.
3. It passes useful information to the public about 9. It provides economic growth and development.
vacancies; where they exist and the category of skilled
and unskilled labour needed. Instrument used in money market
4. It enables applicants to register their skills or services They are the means which people borrow money on short
for employment. time basis. They include the following:
5. It enables employers to easily have access to any 1. Treasury bills (Certificate)
category of labour either skilled or unskilled. They are the means (IOUs) with which money is
6. It provides revenue to the government through income borrowed on short term basis like 1 – 3 months. They
tax. are issued by Central Bank on behalf of federal
7. It creates employment opportunities. government to source for fund (borrow money) for
immediate use.
FINANCIAL MARKET 2. Commercial Bills (Trade)
It is a market for short term and long term loans. There are They are in two major forms:
five types of financial market: capital market, security or i. Bills of exchange: It is a document issued (drawn
stock exchange market, money market, discount market up written) by exporter for importers to accept. It
and foreign exchange market. The second market is matures at the end of 3 months. It can be
regarded, as or grouped under capital market. That is, discounted at discount houses or other financial
financial market has two major groups; capital market for institutions immediately it is accepted.
long term loans and money market for short term loans. ii. Promissory Note: It is issued by a debtor to
creditor. He promises to pay his creditor the
Hint: The advantages of financial markets are the same amount stated therein. It matures at the end of the
with those of capital and money markets. stated period: 2 to 3 months. It can also be
discounted at any finance house or bank.

239
3. Certificate of Deposit Instrument used in capital market
They are document (IOUs) issued by banks and They are the various types of securities available for sale and
financial houses to acknowledge receipt of money or purchase in capital market. They include the following:
indebtedness of the amount stated therein. The 1. Shares: It is a small equal part into which capital of a
maturity period ranges from one month to 5 years. limited liability company is divided for easy acquisition
They are traded at money market. And they are (purchase) by members of the public. They are bought
redeemable (payable) on maturity with accrued and sold at capital market. They bear dividends; and they
interest. are not redeemable. Indeed, it is the major instrument in
4. Treasury Certificate stock exchange (a branch of capital market).
It is a means by which central bank borrows money 2. Debentures: They are means with which limited liability
companies borrow funds on medium term basis (5-10
from the public on short term basis (1-2years). It was
years). They bear fixed rate of interest. They are
introduced in Nigeria in 1968. The principle and
redeemable (paid back) at the end of the agreed period
accrued interest are paid on maturity. like 10 years.
5. Money at call 3. Bonds: They are the means (instrument) with which
It is a very short term loan mostly borrowed by companies and government borrows fund (money) on
discount houses from commercial banks; and they are long term basis like 10-25 years. They bear specific
repayable on demand, i.e. immediately the request for interest rate. And they are payable at the end of the
payment is made. However, the duration is from 1 – 7 agreed period.
days. Thus, it is the loan with the lowest rate of 4. Stock: They are the means (instruments) with which
income. companies and governments borrow funds on long term
basis like 10 – 30 years. They bear fixed interest rate.
Capital Market And they are payable at the maturity date.
It is a market for the purchases and sales of long term
loans. It is a market for lending and borrowing of money Note: Instruments used in a market are the ‘articles of
on long – term basis. That is, it is a market in which people trade’. They are items bought and sold (or lent out). In
acquire long term loans for investment purposes like financial markets, they are documents or certificates of
establishment of firms, e.t.c. The commodity dealt in indebtedness (IOUs). They are used in the process of
(being sold) is loan. The sellers are financial institutions acquiring loans either for short term (even a few days,
like development, merchant, and mortgage banks, medium (5 years), long (30 and above) or on permission
insurance company, stock exchange, international basis (indefinite period) e.g. ordinary shares.
monetary institutions like World Bank, (businessmen),
Discount Market
limited liability companies, governments, etc. The prices
It is a market involved in the purchases and sales of bills,
are various interest rates being charged.
especially short term bills like treasury bills, bills of
Advantages exchange, etc. It is a market for purchases, sales and
1. It provides medium and long term loans to discounting of bills and other short dated securities e.g.
businessmen, firms and governments for important treasury bills, bills of exchange, promisory notes, etc.
investment.
The commodities dealt in are bills - discounting bills before
2. It encourages the establishment of both medium and
the maturity date. The bills are mainly trade bills and treasury
large scale enterprises. bills. The seller are bills’ holders and the buyers are the bill
3. It assists governments in the sale of securities, e.g. brokers – discount houses, commercial banks, merchant
bills, bonds, e.t.c. banks, etc. The prices are the interest being charged. Bills
4. It enables new companies to easily raise their capital businesses are transacted in discount houses and offices of
through sales of shares, stock, etc. other financial institutions.
5. It facilitates sales of shares, stocks, etc.
6. It encourages investors (businessmen) and other Advantages
members of the public to develop interest in economic 1. It makes money available to businessmen, especially
activities, especially setting up medium and large creditors by discounting their bills.
scale enterprise. 2. It raises the level of economic activities.
7. It assists government in the implementation of 3. It makes money available to the government through
economic policies. sales of treasury bills.
8. It renders advisory services to members of the public, 4. It boosts the activities of money market for being
especially, businessmen, on how to raise money for actively involved in acquisition of short term loans,
business activities. e.g. money at short notice or at call.
9. It makes revenue available to the government through 5. It provides revenue to the government through profit
profit and income taxes. and income tax.
10. It provides employment opportunities. 6. It provides employment opportunities.
11. It facilities economic growth and development.
240
Security market Foreign Exchange Market
It is a market in which existing shares and stocks are It is a market in which foreign currencies, like US Dollar,
bought and sold. It is also called stock exchange market. Pound Sterling, etc are bought and sold. The buyers are
The commodities dealt in are (old) shares and stocks. businessmen (like importers) and intending travelers to
Security market may be subdivided into two: stock foreign countries. The sellers are Central banks, merchant
exchange and issue houses. The former deals in old shares and commercial banks. The price is the exchange rate.
and stocks. While the latter handles new shares. However,
recent development reveals that stock exchange can also Advantages
handle new shares. 1. It facilitates the sales of foreign currencies.
2. It makes foreign currencies available to businessmen
The sellers at stock exchange are called ‘Jobbers’ – the and other members of the public.
actual deals in stock exchange. The buyers are called 3. It encourages import by providing importers with
brokers. They act as agents of middlemen between the foreign currencies.
jobbers and prospective buyers of old securities. Those 4. It makes foreign currencies available to those who
who wish to buy or sell old securities (like shares) wish to travel to other countries.
approach a broker; and they specify (mention) the types of 5. It generates revenue for the government through profit
shares they wish to possess (buy) or dispose or sell. The and income taxes.
broker contacts a jobber for the transaction. The latter 6. It provides employment opportunities.
quotes two prices: the lower the price is for purchase; while
the high one is for sale. Those who are desirous of either
purchase or sale might do so at the quoted prices. TYPES OF MARKET STRUCTURES
(i) Perfect market (ii) Imperfect market
Security market has a specific place of business
transactions. In Nigeria, old securities’ business are (I) PERFECT MARKET: A perfect competition market
transacted at ‘Stock Exchange House’, Lagos. While new is a market structure in which prices are determined
shares businesses are transacted at issuing houses’ offices, by the forces of demand and supply. Demand and
e.g. merchant banks’ offices, etc. The sellers of new shares supply operate without interference by the
are floaters of new companies, and buyers are prospective government or its agencies. This market is one in
shareholders (member of the public). which individual sellers or firms have no market
power.
Advantages
1. It provides avenue for the sale of old shares, stocks, Perfect competition is a market situation in which no
etc. That is, it enables firms and individuals to easily one seller is capable of influencing prices, all
sell their old securities: shares, stocks, e.t.c. suppliers being price takers. Prices are fixed solely by
2. It stabilizes prices of securities (shares, stocks, etc.). the forces of supply and demand.
3. It encourages members of the public, especially
businessmen to develop interest in security business,
e.g. purchase of share stocks, bonds, etc. FEATURES OF PERFECT COMPETITION
4. It enables the public to know the current prices and (1) Many buyers and sellers: There is large number of
earnings of shares, stocks, etc. sold at stock exchange. sellers and buyers whose actions will have no effect
5. It encourages the establishment of medium and large on the market price. No producer or seller can
scale enterprises. influence the price of his product by increasing or
6. It generates revenue for the government through reducing the quantity supplied.
income tax. (2) Homogenous commodity and existence of close
7. It provides employment opportunities. substitutes: The commodity bought and sold must be
8. Stock exchange enables the public to easily assess the identical. They must be of the same size, shape,
financial strength of quoted companies. colour e.t.c. The commodities must be the same in the
9. It provides useful information to businessmen, eyes of the consumer.
especially foreign investors, about business prospects (3) Free entry and free exit: There is no restriction to the
in a country. entry of sellers and buyers into the market and their
10. It facilitates transfer of resources (fund) from one exit out of the market. This means sellers have the
individual firm, economic sector to another. absolute freedom or the opportunity of taking up any
trade they like and checking out of it whenever they
wish to do so.
(4) Uniformity of prices: Each perfect competitor is a
price taker. Price is determined by the forces of
demand and supply hence they have equal prices for
the same product.
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(5) All the buyers and sellers must have perfect
knowledge of market transactions: The sellers or
producers must know the cost and profits of other
producers or sellers. All buyers and sellers be aware
of the ruling price for a commodity. There must be
free flow of information in the market. If there is no
free flow of information some producers may charge
higher than others.
(6) Free mobility of resources: The factors of production
are perfectly mobile as goods and resources such as
capital, labour and so on can move freely.
(7) There must be no preferential treatment: All buyers Profit maximization in the long run
must be treated equally. The seller must not reduce
prices for Mr. A because he is his relation or his The major point of focus is that of the conditional
regular customer and charge higher prices to Mr. B requirement in which output must equate marginal cost
who is not his regular customer. with marginal revenue for profit to be at its maximum. The
(8) The goods must be portable: The goods to be sold situation must be something of P=D= MC = MR =AC= AR
must be easy to carry from place to place. where P=Price , D= Demand, MC= Marginal Cost,
(9) At equilibrium price the marginal cost (MC) equals MR= Marginal Revenue, AC= Average cost and
marginal revenue (MR) AR= Average revenue as we have in the second curve.
(10) The perfect competitors makes abnormal profits only
in the shortrun. In the long run, his abnormal profits If the price is above OP, the firm can adjust the size of the
are wiped off. plant and earn pure profit. Considering the free entry
characteristic of the industry, new firm will soon enter,
DETERMINATION OF PRICE AND OUTPUT IN causing increase in aggregate supply and fall in price.
PERFECT COMPETITION Resultantly, the horizontal demand curve which doubles as
Profit is known to be the difference between the total the price line also falls. In a situation where too many firms
revenue and total cost or between marginal revenue and have entered, the market price as well as the horizontal
marginal cost. The magnitude of the difference determines demand curve of every firm in the industry falls below
the magnitude of the profit. For productive organizations price P and each of the firms suffers a loss, at least for
and as far as business executives are concerned, it is the some period of time. Depreciation sets in on plants and
profit that measures the performance of the management equipment, compelling some firms to quit from the
and act as the pointer to the income derived from industry. The supply of the remaining firms increases and
operating. Hence business organizations tend to work the horizontal demand curve of each of them rises to OP,
towards profit maximization. For an organization operating the previous position. The firm is at long run equilibrium
in a perfectly competitive market, profit is only maximized position if this situation is maintained.
in the short run.
Let us separately and more elaborately carefully analyse
The demand curve of the firm is characterized by
the equilibrium of a perfect competitor in the short run and
horizontal price line and it is perfectly elastic.
in the long run
The short run profit maximization and the long run
equilibrium positions of a firm in a perfectly competitive The Equilibrium of a Perfect Competitor in the Short
set up are depicted below. Run

Profit maximization in the short run Short Run Equilibrium of a Perfect Competitor

242
The condition for profit maximization is the point MC = P The profit being made by the firms in the industry attracts
Loss minimization is the point MC = MR (Where MR = P). new firms into the industry since free entry is a
The equilibrium position is at E where the MC curve cuts conspicuous characteristics of the perfect competition.
the MR curve from below. OQ1 is the equilibrium quantity
while OP1 is the equilibrium price. The total cost is The entrance of too many firms will cause the supply curve
represented by OSCQ1, while the total revenue is to shift or better still, will cause the supply to increase.
represented by OP1EQ1. When supply increases, the price falls and the horizontal
demand curve facing each of the firms both old and new
To determine if the firm is recording profit or loss, the also falls. Here the equality of MC and MR is also
positions of AC curve and AR curve have got to be maintained. At point E3, LRMC = MR3, the output is Q3
determined. If the AR curve lies above any part of AC and the price is P3, an indication of a clear readjustment.
curve, there is profit. If AR curve lies below any part of
AC curve, there is profit. If AR curve lies below any part The firms in the industry incur losses. As plants and
of AC curve, there is loss. If AC curve is tangential to AR equipment depreciate, some firms that cannot stand the test
curve, the firm operates at break even point where there is of time leave the industry. In other words, such firms
neither profit nor loss. leaves because they cannot withstand the losses. It must be
recalled that there is free exit in perfect competition.
When the level of demand is D1, the firm makes a profit
represented by AP1EC, when the level of demand comes As the firms quit the industry, the supply curve shifts to the
down to D2, the AR curve lies below the AC curve, left or put in other words, there is a decrease in market
indicating that the firm makes a loss. In the case of the supply. The decrease in the market supply brings about an
former, the situation in the equilibrium is that of profit increase in the horizontal demand curve for each of the
maximization while that of the latter, the situation in the firms in the industry. With reduction in supply, the price
new equilibrium is that of loss minimisation. When the rises to P2. All the firms in the industry readjust and the
level of demand further decreases to D3, it is obvious that long run equilibrium is attained. At this point, D2 = AR2 =
the firm cannot even cover its average variable cost let MR2 and these coincide with the minimum point of LRAC.
alone the average fixed cost, while the AC provides At the same point, there is a vivid intersection between the
information on how much profit or loss is made depending LRMC and the MR, the equilibrium quantity is Q2 and the
on the relative position of the average revenue curve, the equilibrium price is P2.
AVC indicates whether to produce or shut down.
It must also be noted that in the short run, the firm cannot THE REVENUE CURVE OF A FIRM UNDER
change the plant size and it cannot quit the industry. What PERFECT COMPETITION
a firm making losses will do is to stay in business and hope For the firms operating under perfectly competitive
for events to change the level of demand in a favorable condition, the industry determines the prices through the
manner. forces of demand and supply (the industry’s demand and
The Equilibrium of a Perfect Competitor in the Long Run supply curves determine the price) and each firm just have
to accept the price. Hence, the firm will not be able to sell
above the current market price and it cannot afford to sell
below the current market price. The price charged by all
the firms under perfect competition is therefore the same
irrespective of the quantity offered for sale by a firm
(whether the firm sells a large quantity or smaller quantity),
the main reason for this is that the demand curve for a
perfectly competitive market is perfectly elastic. Below are
the revenue schedule and demand curve of a perfectly
competitive firm.

Revenue Schedule of a Perfectly Competitive Firm

Quantity Price Total Average Marginal
sold (Q) (P) Revenue Revenue Revenue
(TR)
Long Run Equilibrium of a Perfect Competitor 1 5 5 5 5
2 5 10 5 5
An equilibrium is established in pointE1 where the LRMC
3 5 15 5 5
= MR. The original equilibrium output is Q1 and the
4 5 20 5 5
original equilibrium price is P1. At this point, the AR curve
is greater than the AC curve, maximum profit is made and 5 5 25 5 5
each firm in the industry can adjust its plant size and earn 6 5 30 5 5
profit.
243
Demand, Average Revenue and Marginal Revenue Curve

244
For perfectly competitive conditions the demand is equal to an insignificant proportion of output such that
the average revenue which is exact with price and the economies of scale may not be realized.
average revenue is equal to marginal revenue. The average 4. No welfare services: They do not participate in extra
revenue will be constant and the marginal revenue will activities or welfare services like community
coincide with it. development, donation, award of scholarship, etc. as
practiced by imperfect competitors.
ADVANTAGES OF PERFECT COMPETITION
The following are some of the important advantages of BARRIERS AGAINST ENTRY INTO COMPETITIVE
perfect competition to the society. INDUSTRY
1. Low prices: The goods are made available to 1. Very large capital requirement: The total amount of
consumers at lowest possible prices. They are even capital required for setting up certain industries is quite
sold at cost as producers only make normal profit in prohibitive (very high). Some countries cannot be able to
the long run. obtain such a huge amount of capital for setting up certain
2. Efficient use of resources: Perfect competition ensures firms, like petroleum refinery, cement factory, etc.
most efficient use of resources as the firms operate at 2. High initial cost: The high initial or development cost
optimum size (full capacity) or at the minimum point of setting up certain industries e.g. iron & steel
of the average cost curve as illustrated in the long – run complex, petrochemical complex, etc. prevents many
equilibrium diagram. In other words, they have no countries from establishing them.
excess capacity and they operate at the highest level of 3. Patent and copyright: They are legal rights granted to
efficiency. inventors and authors to produce complex goods e.g.
3. Very large output and supply: As there are numerous machines, vehicles, electronics and textbooks; and
firms, they are able to produce and offer for sale a very nobody can enter the industry to produce such goods.
large quantity of the goods at all times. Thus the goods 4. Possession of talents: Except people have similar
are available for sale at all times. talents (natural skill and knowledge) to perform certain
4. Equal treatment: All buyers are accorded equal skills like football, singing and dancing, massaging
treatment. They are neither discriminated against nor (medical skill), they cannot enter the industry.
anyone receives special favour at the expense of others. 5. Keen competition: If there is a keen competition in an
5. Perfect knowledge: Everybody is aware of whatever is industry, people will not be willing to venture (enter) into
happening in different parts of the market. And this it, as they are not aware that they could not succeed.
eliminates the exploitation of consumers by sellers 6. Adoption of market strategies: Various market strategies,
through manipulation of (changing or increasing) e.g. collusion, acquisition, combination, price war and
prices. other predatory practices prevent people from entering
6. Free entry: Anybody is free to enter the industry at monopolistic and oligopolistic industries.
any time without any form of restriction. And this 7. Ownership of natural resources: It is only countries or
increases production output; thus prices are quite communities that have natural resources e.g. crude oil,
moderate and stable. fertile soil (for rubber, timber, cocoa, cotton, etc) that
7. No extra cost: Producers and sellers don’t incur extra can set up relevant industries e.g. petroleum refineries,
cost in terms of marketing activities’ expenses as they tyre, saw mills, etc. Countries without these resources
don’t participate in this activity. cannot set up these industries.
8. Mobility of factors of production: Factors of
production can easily be switched from one form of 2004/30 Nov
production to another in accordance with the dictates Which of the following is a feature of a perfect market?
of consumers. This enables them to meet consumers’ A. factors of production are immobile
needs at all time. B. entry and exit are restricted
C. there is large number of buyers and seller
DISADVANTAGES OF PERFECT COMPETITION D. there is no perfect knowledge in the market
The following are some of the disadvantages of PC: Answer
1. No variety: Perfect competition involves production of There is a large number of buyers and sellers (C)
identical products. They don’t make a variety of goods
to satisfy different tastes of consumers. Thus 2003/20 Nov
everybody is presented with similar products. In a perfect market, the individual producer faces
2. No innovation: The firms don’t have sufficient A. perfectly inelastic demand curve
resources (money) with which to conduct researches B. downward sloping demand curve
into better methods of producing the commodity as C. perfectly elastic demand curve
they only make negligible (normal) profit. D. unitary elastic demand curve
3. Waste of Resources: There is capacity underutilization Answer
under perfect competition because each firm produces Perfectly elastic demand curve

245
2018/25 NABTEB Exercise 11.1 5. There is no free entry into or exit from the market:
A market structure with a large number of buyers and One is not free to join the trade or leave it when one
sellers and where no firm can influence the price is referred wishes.
to as 6. The goods may not be portable: Hence, they maybe
A. monopolistic competition B. perfect competition sold at different prices in different markets and places.
C. collusive oligopoly D. international market 7. There are transport costs involved in moving goods
and factors of production: There is no free mobility of
1995/26 Nov factors of production and cost is incurred in
Under perfect competition, the most profitable output level transporting goods.
is where 8. There is a differential cost structure: The cost of
A. marginal cost equals marginal revenue production of firms in the industry is not the same.
B. marginal cost is greater than marginal revenue
C. total cost is constant
D. marginal cost is decreasing TYPES OF IMPERFECT MARKET
E. marginal revenue is increasing (1) MONOPOLISTIC COMPETITION: This is a
Answer market situation in which there are many producers or
Marginal cost equals marginal revenue (A) sellers producing or selling identical but non –
homogenous commodities due to branding or use of
(ii) IMPERFECT MARKET trade marks. There are also many buyers.
An imperfect market is a market situation in which
the forces of demand and supply do not operate freely.
It is a market structure where heterogeneous FEATURES OF MONOPOLISTIC COMPETITION
commodities are sold at different prices. 1. A large number of sellers exist in the market: It is
In such a market, there are usually one or few sellers difficult for a company to track the product and price
or buyers. It is therefore the opposite of perfect decisions of other companies in the industry because
market. In the real world, a perfect market does not they are many. Because of this, each firm makes
exist in its pure form (the same applies to monopoly decision based primarily on its own demand and cost
which shall be treated later). The rule is imperfect conditions.
competition. Both perfect competition and monopoly 2. There is flexibility in entry and exit in the market:
are theoretical concepts. There is a near or total absence of entry or exit barriers
into the market. If existing firms are making losses,
some may exit the market making it possible for the
FEATURES OF IMPERFECT MARKET remaining firms to gain customers, reduce their margin
In most cases the conditions for imperfect markets are the of loss, and perhaps begin to earn profits. On the other
opposite of those for perfect markets. hand, if the existing earning firms are earning profits,
1. Heterogeneous commodity: The goods sold are not this constitutes an incentive for new firms to enter the
identical. They are not the same in the eyes of the market. When this happens the demand for the
consumer. The use of trademarks could make the industry’s products is shared among a higher number
commodities different. of companies with the implication that the profits of
2. There is an imperfect knowledge of market some may reduce.
transactions: The buyers and sellers are not aware of 3. Products are differentiated in many ways and they
conditions that exist in other parts of the market. The are not homogenous: The implication of this is that
producer is not aware of the cost structure of other there are many substitute products sold by various
firms and does not know the prices at which they sell companies. Consumers in a monopolistic competition
their products. On the other hand, the buyers are not market structure are therefore faced with a plethora of
aware of the ruling market prices for the commodity. choices and possibilities. Brand loyalty is not rampant
There is no free flow of information in the market. and consumers readily change their suppliers.
3. Preferential treatment exists/no uniform prices: The 4. The demand for product supplied under monopolistic
producer could sell at lower prices to his regular competition is elastic: Any hike in the price of a
customers and at a higher prices to others. He may commodity makes consumers to shift to its substitute
even refuse to sell to some people. goods. Each company therefore faces a demand curve
4. There is only one or very few buyers and sellers: which is downward sloping (i.e. negatively sloped) but
Prices can therefore be influenced. If there are few is however highly elastic.
sellers, they can collude in order to increase prices. If 5. There is a presence of preferential treatment:
there are few buyers they can collude to force sellers to Discounts may be offered on certain transactions.
sell at lower prices. Buyers may choose who to purchase from while sellers
choose who to sell to.

246
6. Symmetry exists in the market: Symmetry is a situation As one or two firms are observed to be enjoying
whereby changes in exiting conditions whether positive greatly prosperous situations, other firms will be
or negative tends to affect the sellers equally. For attracted into the industry and they will produce
instance, a government decision to raise import duties on closely related commodities. Their entrance will
essential inputs of the industry will affect the firms definitely have market effects in which case the
equally. When a new firm enters the industry, offering excess profit will be erased and the firm will have a
another brand of a differentiated product, its consumers normal profit. The new situation is depicted in the
are likely to be taken from several other firms in the same curve below.
industry. Therefore, no one firm is particularly or
severely affected by this.

DETERMINATION OF PRICE AND OUTPUT IN A

MONOPOLISTIC COMPETITION
The demand curve of a firm in monopolistic competition
is fairly elastic and not perfectly elastic. That is, by way
of explanation the monopolistic competitor faces a
downward sloping demand curve.

Long Run Equilibrium Situation of a firm in

Monopolistic Competition
In the long run, the demand curve is tangential to the
average cost curve. The supernormal profit is
competed away. The equilibrium position is
established at point E, that is, the point where
The reason for this is seen in the fact that an attempt in marginal cost curve intersects the marginal revenue
increasing the price may induce its customers to change curve. The price to be chargedis OA at point B. On a
to other brands. last note, under equilibrium, MC = MR and AC = P.
P is however greater than MC.
In determining the equilibrium of the firm, the short term (2) OLIGOPOLY: An oligopolistic market is one in
and long term situations can be considered. which there are few producers or sellers but many
buyers. Large capital requirements may limit the
number of producers in the industry. The few firms in
the industry sometimes agree on common production
and pricing policies. This is known as colluding
oligopoly.
(3) DUOPOLY: This is a market situation in which there
are only two sellers or producers of a commodity but
there are many buyers.
(4) MONOPSONY: A monopsonist is a single buyer.
Monopsony is a market situation in which a single
individual or a group of person acting as a unit is
responsible for the purchasing of a particular
commodity, but there are many sellers.
Short Run Equilibrium Situation of a firm in (5) OLIGOPSONY: This is a market condition in which
Monopolistic Competition there are few buyers and many sellers of a
commodity.
From the above curve, the firm in monopolistic
competition manipulates price and quantity until profits 2003/21 Nov
are maximized. Profit will be maximized when marginal Under imperfect competition, firms producing basically the
revenue is equal to marginal cost, that is when MR = same goods try to differentiate them through
MC. Output OQ1 will be produced and the selling price A. quantity and quality B. packaging and branding
will be OP1per unit of output. The firm makes excess C. storage and transport D. discounts and credit
profit of CBAP1. Answer Packaging and branding (B)

247
1992/15 Nov (9) In monopolistic market price is greater than marginal
Monopolistic competitions refers to a market situation cost.
where there are (10) The producer/seller makes abnormal profits in both
A. many buyers and sellers of identical products the short run and long run.
B. many competitors for food items
C. many sellers of close substitutable goods TYPES OR CAUSES OF MONOPOLY
D. two producers of closely substitutable goods (1) Natural monopoly: This type of monopoly is usually
E. few sellers of similar goods caused by nature. It occurs where a country is endowed
Answer with certain natural resources, which cannot be found in
Many sellers or producers of closely substitutable goods (C) any other part of the world, as nature does not distribute
its resources evenly over the earth. This makes the areas
2016/26 NABTEB where such resources are found monopolists.
A market form in which there are few producers or sellers (2) Social or government policy: This deals with the
of a commodity is known as establishment of public corporations or other
A. duopoly B. monopolistic competition C. oligopoly government enterprises. In this case, the government
D. monopoly may set up a corporation to provide goods or services
Answer Oligopoly (C) to the interest of the public.
(3) State and Legal monopoly: Monopoly may be created
2018/27 NABTEB Exercise 11.2 by law. Examples are patent right and copyright
A feature of the oligopolistic market is which the government grant to an individual or firm
A. interdependence of firms in order to protect him.
B. blocked entry for new firms (4) Voluntary monopoly: This type of monopoly is
C. identical costs for firms formed when firms willingly merge or combine.
D. firms are independent of each other
There are two types of combinations or merger.
2006/48 Neco (i) Vertical combination.
A market condition with few buyers and many sellers of a (ii) Horizontal combination
commodity is called Vertical combination occurs when all the firms at
A. duopoly B. monopoly C. monopsony different stages of the production process, beginning
D. oligopoly E. oligopsony from obtaining of raw materials and ending with the
Answer Oligopsony (E) manufacturer of the finished product, are brought
under one management.
(6) MONOPOLY
Monopoly is a market situation in which an individual or Horizontal combination occurs when several firms of
firm controls the total output or supply of goods or services the same kind, at the same stage of production are
which has no close substitutes. A monopolist is the only brought together in an agreement or come under one
producer or seller of a particular commodity in the market. management. The major types of combination could
be grouped into trust and cartel.
FEATURES OF MONOPOLISTIC MARKETS
(1) There is only one seller or a combination of firms Trust: A trust is created when rival firms become
under one management: There are many buyers and completely fused so as to form a company under one
the single seller has no rivals. management. The various competing firm completely
(2) The monopolist has the ability to control either price lose their original identities.
or output: He cannot control both at the same time.
He can raise price if demand for his commodity i.e. Cartel: A cartel is an agreement between two or more
inelastic. producers in the same line of trade to regulate
(3) Entry is restricted or banned in monopolist market. production and sales in order to achieve monopolistic
(4) There is no perfect substitute for the product of the ends. The members retain their identities and are
monopolist. under different management e.g. Organization of
(5) There is an imperfect knowledge of market Petroleum Exporting Countries (OPEC). They agree
transaction: There is no free flow of information in on the price of petroleum and the maximum quantity
the market and so the buyers are not aware of the to be sold by each member country.
ruling market price for the commodity.
(6) The monopolist usually has transport costs. (5) Technology Induced Monopoly: This is a monopoly which
(7) The cost structure of the monopolist is unique. arises as a result of technological advancement or
(8) There is price discrimination: He can sell at different inducement. An improvement in technique of production
prices to different consumers in different market. may enable a firm to produce at lower cost per unit and as
such sell at lower prices than its rivals.
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(6) Capital Requirement: Highly capital intensive production DISADVANTAGES OF MONOPOLY
can also create monopoly, especially where there are 1. Low level of output – creating artificial scarcity:
relatively very few industrialists to meet capital requirement Monopoly manipulates (reduces) production output
in the industry. and supply in order to raise the price(s) and reap
(7) Monopoly may also arise from the imposition of high abnormal (large) profit. That is, he manipulates supply
tariffs on imported goods by the government: Government at expense of consumers.
may want to protect infant industries at home, by setting up 2. Exploitation of consumers (high prices): As he is the
high tariff walls, which reduces competition with imported only producer of the commodity, he takes different
goods. The home industry will enjoy monopoly power. actions to exploit (cheat) consumers. They maybe in
(8) Nationalization: This is the take-over of a private enterprise
terms of high prices, inadequate supply, deliberately
by the government. The government may forcefully take-
reducing the quality of the products and services. They
over industry and control it alone.
(9) Monopoly arises if there is restriction on entry into a have serious adverse effects on consumers.
particular occupation. 3. No freedom of choice: Consumers do not exercise
freedom of choice in the purchases of goods. They are
ADVANTAGES OF MONOPOLY restricted to the use of only one item, either good or
1. Encouragement for invention and writing: The granting of bad, for indefinite (long) period.
legal monopoly like patent to inventors and copyright to 4. Low level of efficiency: The level of efficiency in state
authors and singers protect their work (inventions) and books enterprises, e.g. NEPA, Water board, etc. is relatively
from reproduction by members of the public. This motivates low. Thus, many consumers prefers efficient services
them to carry out further important work. with high prices than those of state enterprises with
2. Abnormal profit at all times: Monopolists are privileged to low prices.
reap supernormal (large) profits both in the short and long 5. Under-utilization of resources: They under-utilize
runs. They therefore have sufficient resources (money) with resources; and this causes unemployment of people and
which to carry out large scale production. inadequate use of raw materials.
3. Absence of destructive competition: It does not involve in 6. Discrimination: A monopolist sells to people whom he
non – price competition, like persuasive advertising, sales likes and he can object selling to consumers whom he
promotion, publicity, etc. Thus total cost does not rise; and dislikes. Since he is the only producer, consumers who
prices are moderate. are deprived of the goods are forced to use inferior
4. Economies of scale: It reaps benefits of large scale production substitute, if any.
because of the extremely large size of its plant. 7. Ineffective control of statutory monopoly: There is
5. No wasteful duplication of resources: It prevents wasteful
danger of bureaucracy, nepotism, corruption,
duplication of resources especially in the supply of social
inefficiency and discrimination in statutory monopoly
amenities.
6. It undertakes research work: Being in possession of much
(public corporations e.g. NEPA, water board) due to
resources (large capital), it sets up research and development government ineffective control and unnecessary
department to find out the means of raising the quality of its interference.
products. 8. They dominate the market – causes exit of other
7. It promotes efficiency: Many monopoly firms employ firms: They dominate the market at the expense of
specialists in their various departments. This leads to efficient other firms. They reduce the influence (power) of other
production of their products. firms i.e. they reduce level of demand of similar firms’
8. Standardization: It encourages the practice of standardization products, and this may lead to their exit.
of products and centralized management. These reduces cost. 9. Lack of competition: Being a single producer, he does
9. It ensures moderate prices: Statutory monopoly firms, e.g. not compete with other firms. Thus he does not make
NEPA, water board etc. whose costs of production are much efforts to improve on the quality of his product.
subsidized, charge very low prices. Thus their products are This lowers level of efficiency and quality of product
quite affordable. remains constant or decline.
10. It leads to rapid expansion of firm: It promotes rapid
expansion (growth) of industry (firm) because of blocked CONTROL OF MONOPOLY
entry, absence of competition and uncertainty. The following are the necessary measures which a government
11. It leads to price discrimination in favour of the poor: Price can adopt in order to bring monopoly under control.
discriminating monopoly reduces inequality gap between the 1. Privatization: This is the process of transferring the
rich and the poor. For example, public corporations or public ownership and control of government’s business to
utilities (public schools, public hospitals, street light, portable
private individuals. This process helps to control
water, etc) makes goods and services to be available to the
monopoly. The government can also control state
poor free of charge.
12. Employment of skilled labour: Due to their large resources monopoly by making the industry a ‘free entry and
(capital), they employ specialists in departments and branches. exist’. Such a physical intervention will go a long way
in checking monopoly power.

249
2. Improvement in Technology: The activities of the From the above, BQ1OP2 represents the total cost while
monopolist can also be controlled through CQ1OP1 portrays the total revenue.BP2P1C is therefore
improvement in technology by way of research and representing the profit of the monopolist. The equilibrium
development. point is at K where there is intersection between the
3. Provision of Capital: To control monopoly, they marginal cost curve and the marginal revenue curve. The
should provide adequate capital for investors who wish price charged per unit of output is P1 at point C.
to complete with the monopolist.
For clarity, the short run and the long run equilibrium of a
4. High taxes: Government should impose high taxes of
monopolist are separately examined below.
various types especially profit tax, export, import and
excise taxes on monopoly firms.
5. Promoting competition: Government should keen THE SHORT RUN EQUILIBRIUM OF A
competition in monopoly industries by encouraging MONOPOLIST
other investors.
6. Prevent mergers and acquisitions: Government can
enact laws to prevent merger and acquisition of firms.
It reduces monopoly practice.
7. Price control: Government should fix maximum prices
for product of monopolies. And those who contravene
(disobey) the law should be prosecuted.
8. Abolition of patent law and copyright: The legal
monopoly rights granted to inventors of machines and
authors should be abolished.
9. Production/importation of substitutes: Much efforts
should be made, especially by the government to produce
and/or import high quality goods which are very close or
perfect substitutes to those of monopoly firms.
10. Restriction of monopoly firm’s raw materials: The monopolist faces a downward sloping demand curve.
Government should deprive it of access to its raw Moreover, the demand curve for a monopolist and that of
materials. This hinders its production activity. the monopolized industry are identical. This is because the
11. Restriction of monopoly firm export: Government monopoly firm is the one that monopolises and makes up
should stifle (hinder) effort of a monopoly firm that the industry.
exports its products through either increase in export
duties or withdrawal of its license of operation. As the demand curve of a monopolist slopes downward,
the marginal revenue likes between it. Infact, the slope of
DETERMINATION OF PRICE AND OUTPUT the marginal revenue is half that of the average revenue
UNDER MONOPOLY curve.
The major goal of the monopolist is to maximize profit. To
achieve this, the marginal cost must be equal to the marginal The monopolist maximizes profit or attains equilibrium at
revenue like the case is with the perfect competitor. The the point where the marginal cost curve cuts the marginal
difference here is that the marginal cost or the marginal revenue revenue curve from below. Remember that the same
is not equal to price. The demand curve is equal to the average condition holds for the perfect competitor.
revenue and is downward sloping.
The monopolist can fix a price at which the average cost is
the lowest or a price at which he records a higher profit per
unit. The fact of the matter still remains that these prices
may not go down well with the monopolist as he is
interested in profit maximization.

In order to maximize profit, the monopolist goes for a price

– output combination in which the short run MC = MR.
such point is denoted by E in the curve above.

The ordinate drawn from point B to Q1 on the X axis helps

in determining the equilibrium quantity. When the ordinate
is drawn to touch the AR curve, the equilibrium price is
determined
Determination of price and output under monopoly

250
With the quantity and the price per unit determined, the Also from the curve above, the total revenue is OP1AQ1
total revenue can now be determined and that is and the total cost is OP2BQ1. Profit is therefore OP1AQ1 –
represented by OP1AQ1. OP2BQ1 and that is equal to P2P1AB.
The difference between the short run equilibrium and the
To determine the total cost, an ordinate is drawn from point
long run equilibrium of a monopolist lies in the fact that in
C until it touches the average cost curve at point B, the
the long run, producing a larger output, charging a lower
total cost is represented by OCBQ1.
price and making a larger profit are notable occurrences as
far as the monopolist is concerned.
With the total revenue and the total cost known, the profit
can be determined. Profit = TR – TC. Hence, profit is equal
Be it as it may, the monopolist will always cease
to OP1AQ1 – OCBQ1 and that is equal to CP1AB which is
production and determine price at the point where MC =
the shaded portion.
MR. He earns super profits at this point and such profits
cannot be competed away from him particularly as it is
Now, if the monopolist operates at the point where MC =
clear that he can exclude other firms from the industry
MR, the relative levels of AC and AR determine the profit.
unlike in the monopolistic competition where the
Where AC is equal to AR, there is break even. Where AR
monopoly profits would all be competed away in the long
is greater than AC, there is economic profit. Where AR is
run by rivals entering the industry, though the monopoly
less than AC, there is loss.
competitor will try to avoid this situation by introducing
new versions of his product as in changing the packaging
One major difference can be pointed out between the
or altering the exterior appearance of the product.
monopoly and perfect competition in the short run. That is
the fact that there is greater tendency for the monopolist to
get higher price and record excess profit. LOSS MAKING SITUATION UNDER MONOPOLY
There is possibility of making a loss by a firm under monopoly
in the short run. The firm can however minimize this by
THE LONG RUN EQUILIBRIUM OF A
making price to be greater than the average variable cost.
MONOPOLIST

BQ2OP1 is the total cost while AQ2OP2 is the total revenue,

The analysis of the long run determination of price and an indication that the firm is operating at a loss. The shaded
output and the eventual attainment of equilibrium of a portion, BAP2P1 depicts the loss being incurred. In order to
monopolist is similar to that of the short run. minimise the loss or break even, the monopolist charges
price P1.
In order to maximize profit, the monopolist goes for a
combination of price and output at which the long run THE REVENUE CURVE OF A MONOPOLIST
marginal cost is equal to marginal revenue. That point is For firms operating under monopoly, monopolistic
denoted by L in the curve above. competition or imperfect competiton, the demand curve for
such firms is less than being perfectly elastic. The same
With the point determined, the equilibrium price OP1 and thing applies to firms that operates under other imperfect
the equilibrium quantity OQ1 are known and the total market conditions such as oligopoly and duopoly. The
revenue can be calculated. exact degree of elasticity varies in different market
situations with number of sellers, the nature of the product
With the long run average cost also known, the total cost and the level of mutual interdependence as major
can as well be determined. determinants. Below is the demand and revenue schedule
for a monopolist
251
 COMPARISON BETWEEN PERFECT AND
P Q TR AR MR IMPERFECT COMPETITION MARKET
PERFECT MARKET IMPERFECT MARKET
10 1 10 10 10 1. There is large number of There is one seller, or only
relatively small sellers so that a few seller whose
9 2 18 9 8 variations in output will not variations in output affect
8 3 24 8 6 affect prices of goods and prices of goods and
services. services.
7 4 28 7 4 2. Products are homogenous. Producers are not
One product must be a perfect homogenous. They are
6 5 30 6 2 substitute of another, so that differentiated by, for
5 6 30 5 0 when a producer raises his example, brand names,
prices above the equilibrium special packaging, quality
4 7 28 4 -2 price, buyers will buy from differences and
another seller. advertising. When the
3 8 24 3 -4 producer raises his price,
2 9 18 2 -6 some buyers will still
patronize him.
1 10 10 1 -8 3. Consumers have perfect Consumers do not have
knowledge of the ruling price complete knowledge of the
0 11 0 0 -10
in the market; producers are ruling price in the market.
aware of the extent of profits
in the industry.
4. Firms can freely enter or leave There is no free movement
the market of firms into and out of the
market.
5. There is perfect mobility of Prohibition may make free
factors of production. They are movement of factors
easily transferred to where difficult.
they are needed.
6. No transport costs are Transport costs are
involved, as they mean involved and these impose
locational disadvantage. an added value on the
products. Thus causing an
increase in the price of the
goods.
7. Goods are movable from one Immobility is an essential
section of the market to element of imperfect
another. market. Therefore, goods
are not movable from one
section of the market to
another.
As easily observable in the schedule and the curve,
8. The perfect competitor is a The imperfect competitor
whenever additional units are to be sold, the price falls. price – taker. The graph is a price – maker. The
The fall in price does not just affect the marginal unit but showing the demand of the graph showing the firm’s
also the previous units. The indications here is that the firm’s products is a horizontal demand of goods is a
additional unit or marginal units is not bringing to the firm, price line. downward sloping line,
a revenue equal to its price. There is a level of loss when which is similar to the
extra unit is sold. The demand curve which slopes average avenue curve.
downward portrays that more can only be sold when the
price reduces. The marginal revenue curve which 2009/7 Neco
corresponds with the demand curve slopes at a greater rate. A monopolist is a
In other words, the rate at which the marginal revenue falls A. duopolist B. group of producers of related goods
doubles the rates at which the average revenue falls. The C. partnership business that produces a commodity with
average revenue falls by ₦1 while the marginal revenue high demand
falls by ₦2. While the marginal revenue can fall up to zero D. single producer or seller of a commodity at cheap rate
level or even become negative, the averge revenue (price E. single producer or seller of a commodity that has no
per unit) cannot fall to a zero level as this will make the close substitute
product uneconomic. Answer
Single producer or seller of a commodity that has no close
substitute (E)
252
2018/26 NABTEB Reasons for price discrimination
The monopoly market is characterized by Some of them are as follows:
A. a single buyer of product B. product having no close i. Profit maximization.
substitute C. goods that are homogenous ii. To enlarge sales volume.
D. sellers that are few in number iii. To raise the level of production output in order to
Answer operate at optimum level – full capacity.
Product having no close substitute (B) iv. To reap the benefits of large – scale production.
v. To have a lion share of the market.
PRICE DISCRIMINATION
Price discrimination occurs when units of the same product Factors that make price discrimination possible
are sold at different prices not on account of cost Price discrimination is possible if:
differential but for the purpose of profit maximization. In i. Elasticity of demand in each market is not the
other words, it is the selling of some units of a commodity same.
at high prices and other units at low prices to different ii. Markets are kept separate by a high tariff (tax
people or in different markets, states, countries etc. in order rates).
to enjoy the benefits of large – scale production and reap iii. The goods are produced by a monopolist.
maximum profit. Price discrimination is also referred to as iv. The goods or services cannot be transferred e.g.
‘multiple price system’. medical services especially surgery.
v. The resale of the goods by one buyer to another
cannot be done.
Price Differences not representing Price Discrimination
An example of multiple prices They include the following:
Let us assume that 20 units of a notebook are sold at ₦30 1. Wholesale and Retail Pricing: Wholesale prices are
each; the total revenue is therefore ₦600. If each notebook always lower than retail prices.
costs ₦25, the total profit is (₦600 – ₦500) ₦100.00. This 2. Seasonal pricing: Prices during international festivals like
is a situation of non – price discrimination – single price Christmas, Easter, etc., are relatively high. Also prices of
system. rainy season goods like umbrella are always higher during
the rainy season than in the dry season.
With the adoption of multiple price system, he will sell 3. Quantity discount: Prices are highly reduced when goods
some units of the notebook at a higher price to those with are bought in a very large quantity. That is, different
high income or less bargaining power and other units at discounts are given to different levels of high purchase.
low prices to low income earners or people with high or 4. Transport cost: The cost of transporting the goods to
tactful bargaining power. His total surplus profit will be distant locations, like foreign countries or rural areas may
much higher than when he adopts single (low) price lead to high charges.
system.
Success of price discrimination
Non – Price Discrimination The success of price discrimination depends on the following:
20 Notebooks at ₦30 each = ₦600 i. If a buyer at low prices cannot resell the goods at higher
If cost price is ₦25 each, prices.
Therefore total cost = ₦500 ii. If there is existence of high tariff wall (high tax rates like
Total profit = ₦100 import and export duties), transport cost, import quotas,
etc. that prevents re-export to home market.
Price Discrimination iii. If there is no perfect or close substitute in the second
6 units of a high price of ₦40 each =₦240 (foreign) market within the same price range.
6 other units of a moderate price of ₦40 each = ₦240
8 last units at a low price of ₦30 each = ₦240 Price discrimination in two markets
Total revenue = ₦720 A monopolist increases his profit by selling his output at
Total cost = ₦500 different markets, assuming two markets; home and foreign
Total profit = ₦220 markets. He sells at normal or high price in the home market;
and he sells the additional or remaining output at a low price in
Thus, the major aim is to earn higher profit than that of the second market abroad.
single price system. In other words, it is designed to
convert consumers’ surplus into producers’ pocket. How can he allocate his entire output among the two markets in
order to maximize profit? The output or quantity sold in the two
Perfect price discrimination occurs when the seller is able markets should be at the level that equates their marginal
to extract the entire surplus of the consumers. However, in revenue (MRs). That is, the output that makes their MRs to be
real world situation, perfect discrimination is impossible. equal. In other words, he should sell quantity at which MR
equal MC in each of the markets.
253
If this is not achieved, he has to re-allocate output among DUMPING
the two markets until the MRs in both markets are equal. Dumping is what happens when a product is sold in a
And the optimum price in each market is the price at which foreign country (or market) at prices below its domestic
MR equals MC. The monopolist maximizes total profit in sales price for reasons not related to cost.
both markets when he sells output in each market that
equates their MRs. 2010/44
Dumping means the selling of a goods in a foreign market
Elasticity of demand also influences the monopoly power at a price that is
in each of the markets. If the elasticity of demand is the A. below the home market price
same in each market, price discrimination is not possible. B. above the home market price
Why? It is because the monopolist cannot gainfully C. equal to the home market price
influence the price in any of the markets. That is, he cannot D. able to clear the home market
increase his profit through this practice. Answer
Note: Price discrimination is possible if demand is elastic Below the home market price (A)
in one market and inelastic in another.

Organisations Practicing Price Discrimination

They include: 2022/27 NABTEB
(i) Electricity corporations (ii) Railways In the short run, the monopolist
(iii) Airlines (iv) Medical services A. may close down B. always makes profit
(v) Sports and musical outfits, etc. C. always breaks-even D. always incurs a loss
Answer
Advantages In the short run, the monopolist always makes profit (B)
1. Increase in production output: Multiple price
monopolists produce more than single – price 2004/9 Nov Exercise 11.3
monopolists as the former can sell his product in (a) What is monopoly?
different markets. (b) Explain any four sources of monopoly power.
2. Poor can buy more goods: It enables low income (c) Outline any two commodities under which a
earners to afford acquiring certain goods or services as monopoly exist
some discriminating monopolists, like doctors, sell at
relatively low prices to them. 1995/26 Nov
3. It makes some businesses to survive: It enables Under perfect competition, the most profitable output level
monopolists to earn profit in certain ventures that is where
would otherwise be unprofitable. A. marginal cost equals marginal revenue
B. marginal cost is greater than marginal revenue
Disadvantages C. total cost is constant D. marginal cost is decreasing
1. Exploitation of consumers: It enriches producers at E. marginal revenue is increasing
the expense of consumers as the latter pay higher Answer
prices for the same unit of a commodity. Thus, Marginal cost equals marginal revenue (A)
consumers surplus are converted into producers Hint: The profit–maximizing choice for a perfectly
revenue. That is, it reduces consumers’ surplus competitive firm occur at the level of output where
(income). marginal revenue is equal to marginal cost, that is
2. Poor performance of local firms: It causes poor where MR = MC.
performance of local firms. If foreigners sell their
goods at foreign markets at prices that are lower than
the prices at which the local firms sell their goods. 2003/19 Nov Exercise 11.4
A firm which controls the total output of a product in an
1986/22 UTME industry is
A monopolist will practice price discrimination in two A. a perfect competitor B. a monopolistic competitor
markets if C. a monopolist D. an oligopolist
A. the cost of separating the markets is large
B. the markets have different elasticities of demand 2003/22 Nov
C. there is free flow of information in the two markets The type of monopoly that develops as a result of uneven
D. there is a patent of the commodity distribution of resources is called
Ans The markets have different elasticities of demand (B) A. legal monopoly B. natural monopoly
C. state monopoly D. international monopoly
Answer
Natural monopoly (B)

254
2000/46 2016/25 NABTEB
The Organization of Petroleum Exporting Countries An imperfect market is characterized by
(OPEC) is a A. perfect knowledge of the market
A. cartel B. duopoly C. monopoly D. monopsony B. many buyers and sellers C. restricted on entry of firms
Answer D. homogenous products
Cartel (A) Answer
Restricted on entry of firms (C)
1996/21 Nov
A commodity can be sold for two or more different prices 2016/26 NABTEB
to consumers if it is produced under the conditions of a If a producer increases his price in a perfect competition
A. monopoly B. perfect market C. monopsony market, his sales would fall because there is
D. mixed economy E. perfect competition A. free mobility of factors of production
Answer B. perfect information about the market condition
Monopoly (A) C. one unique price D. no cheating
2015/22 Answer
Which of the following is not a method of controlling perfect information about the market condition (C)
monopoly?
A. preventing mergers B. indigenization
C. privatization D. imposing high profit tax 2016/27 NABTEB
Answer Duopsony is a market situation where there are two
Privatization (C) A. sellers B. producers C. buyers D. distributors
Answer
2002/28 Nov Buyers (C)
Monopoly power is derived from all the following except Hints: A duopsony is an economic condition in which
A. competition B. licenses C. patients D. cartels there are only two buyers for a specific product or service.
Answer Combined, these two buyers determine market demand,
Competition (A) giving them considerably influential bargaining power,
assuming that they are outnumbered by firms vying to sell
2007/20 Nov them.
The condition for a perfect market will be violated if
A. the product sold can be substituted for each other 2006/43 Neco
B. there are too many buyers and sellers
C. the product of the industry can be branded
D. the exit or entry of sellers cannot affect the price
Answer
The product of the industry can be branded.
2007/21
A profit maximizing monopolist must decide on all the
following except
A. output level B. price level C. the wage level
D. the combination of outputs
Answer
The wage level (C)
The diagram above refers to
2001/27 A. short run equilibrium condition of a firm under perfect
The market type in which producers are price takers is market
called B. long run equilibrium condition of a perfect market
A. perfect market B. an oligopoly C. an monopoly C. short run equilibrium condition of monopolist
D. a cartel D. long run equilibrium condition of a monopolist
Answer E. long – run equilibrium condition of a duopolist
Perfect market (A) Answer
Short run equilibrium condition of a firm under perfect
2005/22 Nov market (A)
A major source of monopoly power is
A. competition B. unemployment C. patent rights
D. price level
Answer
Price level (D)
255
2008/45 Neco (ii) There is a large number of buyers and sellers, each of
who has no control over the ruling price: No producer
or seller can influence the price of his product by
increasing or reducing the quantity supplied. The
producer supplies only a fractional part of total supply;
hence, he cannot influence price.
(iii) Uniformity of prices: Each perfect competitors is a price
taker. Price is determined by the forces of demand and
supply hence they have equal prices for the same
product.
(iv) In a perfect market there are no transport costs
incurred: The cost of moving goods is assumed to be
zero. Also, there are no costs involved in the movement
of factors of production. They are perfectly mobile.

The curves labeled 1 and 2 in the diagram above are ____ 1990/22 GCE Exercise 11.5
of a monopolist. Under perfect competition, the most profitable output level is
A. AC and MR B. AR and AC C. AR and MC where
D. AR and MR E. MC and MR A. marginal cost equal marginal revenue
Answer B. marginal cost is greater than marginal revenue
AR and AC (B) C. marginal revenue is increasing
1999/3 Nov D. marginal cost is decreasing E. total cost is constant
Highlight three advantages and any two disadvantages of a
perfect market 2008/21
Answer Equilibrium under perfect competition requires that
(i) There are large numbers of buyers and sellers. A. MC = MR but AR < AC B. MR = MC = AR = AC
(ii) Each producer/seller is a price taker. C. AC = AR < MC D. TR < TC
(iii) There is freedom of entry and exit of producer/sellers. Answer
MR = MC = AR = AC (B)
Disadvantages
(i) Waste of resources. 2003/50
(ii) Inadequate resources to embark on research The Organization of Petroleum Exporting Countries (OPEC)
is an example of a
2001/7 Nov A. perfect competition B. monopsony
Highlight the cause of monopoly. C. duopoly D. cartel
Answer Answer
(i) Natural monopoly Cartel (D)
(ii) Social or government monopoly.
(iii) Legal monopoly. 1990/36 Nov
(iv) Voluntary monopoly. Which of the following is not true of a perfect market?
(v) Technological monopoly. A. there are many buyers and sellers
(vi) Monopoly arises if there is restriction on entry into a B. the producer is a price taker
particular occupation. C. the demand curve facing a single seller is perfectly elastic
(vii) Monopoly may also arise from the imposition of high D. the supply curve facing single supplier is upward sloping
tariffs on imported goods by the government. E. some sellers can come together to chare a higher price than
that ruling in the market
1991/8 Answer
(a) Define a market Some sellers can come together to share a higher price than
(b) Explain four characteristics of a perfect market. that ruling in the market (E)
Answer
(a) Market can be defined as any arrangement, system or 2011/49 Neco
organization whereby buyers and sellers of goods and Which of the following is not a similarity between monopoly
services are brought into contact with one another for and perfect competition?
the purpose transacting business or for the purpose of A. both can make abnormal profit in the short run
buying and selling. B. both equate marginal cost to marginal revenue for profit
(bi) Homogenous commodity and existence of close maximization
C. both have the same cost structure
substitutes: The commodities bought and sold must
D. free entry in both market
be homogenous, that is, identical. They must be of the
E. there are many buyers in both market
same size, shape, colour e.t.c. The commodities must
Answer
be the same in the eyes of the consumer. Free entry in both market (D)
256
2011/50 Neco 2003/44 Neco
The existence of monopoly should be discouraged because For a monopolist, the demand curve is
A. it does not carry out research A. inelastic B. perfectly elastic C. perfectly inelastic
B. it engages in minimal advertisement D. elastic D. unitary elastic
C. it involves excessive profiteering Answer
D. it leads to some economics of sale Elastic (D)
E. there is stability in production
Answer 2003/45 Neco
It involves excessive profiteering (C) Which of the following is true of a perfect market
situation?
2002/47 Neco A. price = AR = MC = AC B. price = DD = MC = AC
A perfectly competitive firm can enjoy abnormal profit in C. price = ACC = MC = AR D. price = AR = MR = DD
the short run only because of the assumption of E. price = MR but MR < AR
A. free transportation B. free entry and exit Answer
C. homogenous goods Price = AR = MC = AC
D. large number of buyers and sellers
Answer 2009/23 UTME
Free transportation (A) If a monopolist is incurring short – cut losses, this means
that his
2002/49 Neco A. selling price is above the short – run marginal cost
A monopolist cannot B. selling price is below the short – run marginal cost
A. charge different prices in different markets C. average revenue is greater than marginal revenue
B. enjoy excess profit at all times C. fix price D. average revenue is less than marginal revenue
D. fix output and price at the same time E. fix output Answer
Answer Selling price is below the short – run marginal cost (B)
Fix output and price at the same time (D)
2009/24 UTME Exercise 11.7
2009/26 In the long – run, one of the characteristics of monopolistic
Which of these is true of a perfect competitor? competitive firms is that they
A. P = AR < MR B. P > AR = MR C. P = MR < AR A. make abnormal profits B. suffer losses
D. P = AR = MR C. make normal profits D. collide with each other
Answer
P = AR = MR 2010/18 UTME
In perfect competition, price is determined by the
2009/28 A. government B. buyers C. sellers D. market
Which of the following is a condition necessary for a Answer
perfect market? Market (D)
A. the goods are heterogeneous
B. there is preferential treatment 2010/24 UTME
C. there is a large number of buyers and sellers One of the characteristics of monopolistic competition is
D. buyers and sellers are easily influenced that
Answer A. there is mobility of factors of production
There is large number of buyers and seller (C) B. consumers have perfect knowledge of price
2009/29 Exercise 11.6 C. no single seller dominates the market
A market in which a single price obtains for a product is D. the firms are price takers
known as Answer
A. a product market B. a capital price market No single seller dominates the market (C)
C. an imperfect market D. a perfect market
2011/17 UTME
1998/23 The optimistic range of output for a perfectly competitive
An imperfect competitor is in equilibrium when firm is where
A. marginal cost (MC) is equal to marginal revenue (MR) A. AC is lowest B. AVC is lowest C. MC is rising
B. marginal revenue (MR) is equal to price (P) D. MC is falling
C. average revenue (AR) is equal to average cost Answer AVC is lowest (B)
D. output (Q) is equal to average revenue (AR)
E. average revenue (AR) is equal to marginal revenue (MR)
Answer
Marginal cost (MC) is equal to marginal revenue (MR) (A)
257
2012/26 UTME 2017/5 UTME
A discriminatory monopoly is characterized by One of the basic assumptions of monopoly is
A. a common elasticity in different markets A. perfect information of the market condition
B. different elasticities in different markets B. the ability to either control price or output
C. a finite elasticity in all markets C. perfect mobility of factors of production
D. zero elasticity in all markets D. large number of buyers and sellers
Answer Answer
A common elasticity in different markets (A) The ability to either control price or output (B)

2014/22 UTME 2017/33 UTME

A perfect competitor will continue to expand output up to One of the arguments against the practice of monopoly is
the point where A. merging of producers B. competition C. exploitation
A. TC > TR B. MR = AR C. MC < MR D. non – government ownership
D. MC > MR Answer
Answer Exploitation (C)
MC < MR (C)
2019/1 UTME
2014/23 UTME A major assumption in a perfectly competitive market is
One of the characteristics of a monopolist is that he can that
influence A. the number of buyers and sellers is small
A. quantity produced by other producers B. individuals cannot influence prices
B. prices charged by other producers C. the quality of products remain the same
C. both price and quantity D. price or quantity D. prices will always remain constant
Answer Answer
Both price and quantity (C) Individuals cannot influence prices (B)
2014/24 UTME Exercise 11.8
2019/14UTME Exercise 11.9
A monopolist can boost his revenue by
What form of market is found in an imperfect competition
A. adjusting both price and output upward
where there are few buyers and many sellers?
B. reducing total output to match price
A. oligopoly B. monopoly C. duopoly D. oligopsony
C. increasing price D. reducing price

2015/31 2013/48 Neco

One of the features of a perfect competitive firm is Monopolistic competition differs from perfect competition
A. restrictions to entry and exit B. price discrimination because
C. absence of transportation cost A. it can make excess profit in the short run
D. produce differentiation B. it has large number of firms
Answer C. it maximizes profit when its MC = MR
absence of transportation cost (C) D. there is free entry E. there is product differentiation
Answer
2015/42 UTME There is free entry (D)
When the selling price of a monopolist is below his short –
run marginal cost, he is said to be making 1992/19 Exercise 11.10
A. an economic profit B. losses C. profit Which of the following is not a characteristic of a perfect
D. super normal profit competition?
Answer A. many sellers and buyers are in the market
Losses (B) B. there is perfect knowledge of the market situation
Hint: A monopolist is incurring short run losses, if the C. supply and demand are equal
selling price is below the short run marginal cost. D. there is no discrimination E. products are identical

2016/3 UTME 2017/21

The optimum level of output for pure monopolist occurs Which of the following is true of the monopolistic?
where A. his average revenue curve is horizontal
A. P is highest B. P = AC C. P = MC B. he determines both price and output
D. MR = MC C. his demand and marginal revenue curve are the same
Answer D. he determines either price or output
MR = MC (D) Answer
- He determines either price or output (D)

258
2006/24 Nov
The demand curve for a firm in perfect competition is
2000/51 Neco
A. perfectly inelastic B. perfectly elastic
Under perfect competition the long run equilibrium
C. upward sloping D. downward sloping
condition requires that
Answer
A. MC = MR but AR < AC B. MC = MR = AR = AC
Perfectly elastic (B)
C. MC = MR but AR > AC D. MC > MR
E. TC < TR
Answer
MC = MR = AR = AC (B)
2012/47 Neco
A market with homogenous product and easily mobility of
goods and services is described as
A. duopoly B. monopoly C. monopsony
2000/52 Neco
D. oligopoly E. perfect market
Use the figure below to answer questions 52 and 53.
Answer
Perfect market (E)

2012/48 Neco
In a monopolistic competitive firm, the relationship
between average revenue and marginal revenue is that
A. average revenue and marginal revenue are u shaped
curve
B. average revenue and marginal revenue are equal at all
levels of output
C. average revenue and marginal revenue have the same
intercept
D. intercept of both curves are different
E. marginal revenue is above average revenue

The broken line marked x represent

2019/46 Neco
The market structure where there is only one buyer and A. MR of a perfect competitor B. MR of a monopoly
many sellers is known as C. TC of a monopoly D. TR of a monopoly
A. duopoly B. monopolistic competition E. TR of oligopoly
C. monopsony D. oligopoly E. perfect competition Answer
MR of a monopoly (B)
Answer
Monopsony (C)
2000/53 Neco
The area OQ0 SR represents
2019/47 Neco A. average cost B. average revenue C. profit
Perfect market is characterized by the following except D. total cost E. total revenue
A. existence of preferential treatment Answer
B. free entry and exit C. homogeneity of products Total cost (D)
D. large numbers of buyers and sellers
E. perfect mobility of factors of production
Answer
Existence of preferential treatment (A)

1997/31
Which of the following is not true of a firm in equilibrium
condition in perfect competition?
A. MC is rising B. MC curve cuts AC curve from below
C. MR > AR D. MC = AC E. AC = MR = AR
Answer
MR >AR (C)

259
2014/8 Neco 2009/8 Neco 11.11
Use the information below to answer question 8 (a) List five characteristics of imperfect market.
(b) State five similarities between perfect competition and
monopoly.

2010/20 Exercise 11.12

Which of the following is obtainable in a perfect market?
A. P = MR > AR B. MP = MC > P C. MR > P
D. P = MR = MC

2014/2015/54 (UI, IBADAN)

Advertising is the main techniques used for effecting in a
monopolistic competition
The diagram depicts equilibrium in a/an A. market segmentation B. product differentiation
A. duopolistic market B. monopolistic competition C. C. price D. output E. supply
monopoly industry D. oligopolistic competition Answer Product differentiation (B)
E. perfectly competitive market
Answer 2014/2015/55 (UI, IBADAN)
Perfectly competitive market (E)
Output of a monopolistic is usually determined at a point
2014/10 where
(i) What is oligopoly? A. P = MC B. MR = MC C. AR = AC
(ii) State and explain four advantages of monopoly. D. marginal cost E. marginal revenue is rising
Answer Answer
(i) Oligopoly is a market in which there are few producers or MR = MC (B)
sellers but many buyers. Hint: By determining the point at which its marginal
Oligopoly could be perfect or imperfect. revenue equals its marginal cost, the monopoly can find the
In a perfect oligopoly, the few producers or sellers produce level of output that maximizes its profit.
or sell commodities which are homogenous. Imperfect
oligopoly, the few producers or sellers deal on non- 2014/2015/56 (UI, IBADAN)
homogenous commodities which are close substitutes. Product homogeneity is one of the characteristics of
(ii) Advantages of monopoly A. perfect competition B. monopoly
(1) Economies of scale due to greater efficient and full
C. monopolistic competition D. oligopoly
utilization of productive resources: Monopolist can carry
E. competition
out production and distribution of goods and services more
efficiently. Most monopolists operate on a large scale, they Answer
are therefore in a better position to use the factors of Perfect competition (A)
production to full capacity than perfect competitors.
(2) Reduction of both production and costs and output prices: 2014/2015/57 (UI, IBADAN)
Prices may be reduced as a result of more efficient Which of the following is compatible with a firm in a
organization of production and large scale production; he is purely competitive market?
likely to produce on a large scale leading to internal A. demand is inelastic B. demand is indefinitely elastic
economies of scale. The resulting economies of large scale C. marginal cost is falling D. price is greater than
production would lead to lower costs per unit of output. As a marginal cost E. price is less than marginal cost
result of the lower cost of production, the monopolist can Answer
afford to sell at lower prices. Price is greater than marginal cost (D)
(3) Stimulates research and inventions: Monopolists who
operate on a large scale and make high profits have enough 2008/2009/24 (NDU, BAYELSA) Exercise 11.13
money to do research, thereby making discoveries. A Which of the following is not a feature of a perfect
monopolist is the sole producer of the commodity; he competition?
realizes that he stands to gain a great deal if his research A. large number of buyers and sellers
succeeds. He may experiment on new techniques of B. homogeneity of products C. preferential treatment
production and introduce new improved commodities into D. absence of transports cost
the market and by such his profits will be increased. E. perfect knowledge of market situation
(4) Reduced risk of over population: Since the monopolist is the
sole producer/seller of the commodity, he is in a better
position to estimate demand more accurately. He tries to
produce the quantity that is required by customers. The
existence of monopoly helps to reduce over – population
which may lead to waste and unemployment.

260
2019/2020/19 (UI, IBADAN) 1991/24
An imperfect market exists where Dumping in economics means the selling of goods in a
A. the product is homogenous foreign market.
B. therefore is perfect information among the few buyers A. at a price below that received in the home market
and sellers B. at a price above that received in the home market
C. there is perfect information from the market C. at a price equal to the cost price in the home market
D. the location of some sellers gives them an advantage D. in order to encourage indigenous producers
over others E. at a price equal to the selling price in the home market
Answer Answer
The location of some sellers gives them an advantage over At a price below that received in the home market (A)
others (D)
2008/19
2001/50 Neco The monopolist an determine
In both the short – run and the long run, a firm maximizes A. price and output B. price only C. output only
its profits when D. price or output
A. AC = MC B. AVC = AFC C. AVC = AC Answer
D. MC = AVC E. MC = MR Price or output (D)
Answer
MC = MR (E) 2008/20
A market situation with a large number of firms selling
2001/8 Neco closely related but differentiated product is
(a) What is a market? A. monopolistic competition B. perfect competition
(b) Distinguish between a perfectly competitive market C. monopoly D. monopsony
and a monopolistic market. Answer
Answer Monopolistic competition (A)
(a) A market may be defined as any form of arrangement
whereby buyers and sellers are in close contact with 2008/21
one another for the purpose of transaction. Equilibrium under perfect competition requires that
(b) Difference between perfectly competitive market and A. MC = MR but AR < AC B. MR = MC = AR = AC
a monopolist market. C. AC = AR < MC D. TR < TC
(1) In a perfect competitive market, the prices of the Answer
goods are fixed while in a monopolist market, there is MR = MC = AR = AC (B)
no fixed price the firm change different prices.
(2) In a perfect competitive market, there are numerous firms 2008/8
while in a monopolist market, it consist of a single firm, (a) What is a market?
thus the firm and the industry are the same. (b) Explain the main features of a perfectly competitive
(3) In a perfect competitive market, there is free entry of market.
firm into the industry while in a monopolistic market Answer
other firms cannot enter the industry. (a) A market refers to any system or arrangement by
(4) In a perfectly competitive market, the demand curve which persons and institutions are brought into
is perfectly elastic, the demand curve is parallel to the contact to exchange goods and services.
base while a monopoly has elastic demand curve, it (b) Features of a perfectly competitive market are
slopes downward. (1) Buyers and sellers are price takers: A price taker is a
(5) In a perfectly competitive market abnormal profit firm or individual who takes the market price as given.
only exists in the short run and it earns normal profit (2) Many buyers and sellers: The number of buyers and
in the long run while a monopoly abnormal profit sellers should be so large that no single buyer or seller
exists in both short and long run. can influence the price of the commodity.
(6) In a perfect competitive market, their goods are (3) Free entry and exit: No barriers like technological or
homogenous that is products are identical while in a efficient scale of operation, taxes, quotes, e.t.c. which
monopoly goods are heterogeneous that is product are allow only one firm to produce at the lowest average
not identical they are differentiated. total cost.
(7) In a perfect competitive market, equilibrium point is (4) Homogenous product: The goods sold are perfect
when MR = MC = price while in a monopoly substitutes.
equilibrium point is when price is greater than MC (5) No preferential treatment to either buyers or sellers in
and MR that is price? MC = MR. the market.
(8) In a perfect competitive market there is no transport (6) Complete information of the market condition must
cost while in a monopoly, there is transport cost, it is be available to operators of the market.
included in total cost before fixing the price. (7) No transport cost.
261
2012/4 Nov 2017/5
A perfect competitor is a price taker because (a) State two features each of
A. the price is fixed by the marketing board (i) Perfect competition
B. he cannot control the price of his product (ii) Monopolistic competition
C. government fixes the price of his product (b) What does it mean for a firm to be a
D. he can controls the price of his product (i) Price taker. (ii) Price maker.
Answer (c) Explain the following sources of monopoly power
He cannot control the price of his product (B) (i) acts of parliament (ii) copyright
(iii) natural monopoly (iv) cartel
2012/6 Nov Answer
(a) In what four ways can a monopoly arise? (ai) Features of perfect competition
(b) With the aid of a suitable diagram, explain how the (1) Homogenous commodity and existence of close
monopolist achieves equilibrium in the short run. substitutes.
Answer (2) There is a large number of buyers and sellers, each of
(a1) Natural monopoly: Nature does not distribute its whom has no control over the ruling price.
resources evenly over the earth. As a result, some (ii) Features of monopolistic competition
areas have natural resources which are not found in (1) Heterogeneous commodity: The goods are not the
other areas. This makes the areas where such same.
resources are found monopolists in the supply of (2) There is no free entry or exit from the market.
certain commodities. (bi) Price taker: This means that there is only one ruling
(2) Social or government monopoly: This deals with the market. It is difficult for the price to be changed at
establishment of public corporations or other will by any seller or producer. Firms under perfect
government enterprises. market are price taker.
(3) Legal monopoly: It may be created by law example (ii) Price maker: In a perfect market, the forces of
are “patient right” and copyright which the demand and supply determine the price that is the
government grant to an individual or a firm in order to price maker.
protect him and give an incentive to inventions. (ci) Acts of parliament: This also called legal monopoly
(4) Voluntary monopoly: This type of monopoly is which is created by law.
formed when firms willingly merge or combine. (ii) Copyright: This is a grant which the government give
(5) Technological monopoly: This is a monopoly which to a firm or an individual who is into literary or
arises as a result of technological development. An musical work in order to protect him and give an
improvement in the technique of production may incentive to invention.
enable a firm to produce at lower cost per unit. (iii) Natural monopoly: Nature does not distribute its
(b) resources evenly over the earth. As a result, some
areas have natural resources, which are not found in
other areas. This makes the areas where such
resources are found monopolists in the supply of
certain commodities.
(iv) Cartel: A cartel is an agreement between two or more
producers in the same line of trade to regulate
production and sales in order to achieve monopolistic
ends. The members retain their identities and are
under different management e.g. Organization of
Petroleum Exporting Countries (OPEC).

2007/46 Neco Exercise 11.14

Which of the following is a condition necessary for an
imperfect market to exist?
The monopolist maximizes profits at the point where A. few sellers and buyers B. free entry and exit
marginal cost (MC) curve cuts the marginal revenue C. homogenous goods D. lack of preferential treatment
curve (MR) from below. He is in equilibrium at that E. many sellers and buyers
point.
The total revenue andtotal cost is represented by 2000/24 Nov
OP1AQ1and OCBQ1respectively. With the total The equilibrium position of a firm is attained when
revenue and the total cost known, the profit can be A. MC = AR B. MC = MR C. AC = AR
determined. Profit = TR – TC. Hence, profit is equal D. AR = MR
to OP1AQ1 – OCBQ1 and that is equal to CP1AB Answer
which is the shaded portion. MC = MR (B)
262
2000/26 Nov 1987/25 UTME
Dumping refers to Which of the following is compatible with a firm in a
A. selling goods abroad at a price lower than at the home purely competitive market?
market A. demand is inelastic B. demand is infinitely elastic
B. flooding the home market with the importation of C. marginal cost is falling
consumer goods D. price is greater than marginal cost
C. selling food abroad at a price higher than the home Answer
market Demand is infinitely elastic (B)
D. over importation of a particular commodity to the home
market 1987/27 UTME
Answer What form of market is found in an imperfect competition
Selling goods abroad at a price lower than at home market (A) where there are few buyers and many sellers?
A. oligopoly B. monopoly C. duopoly D. oligopsony
2004/29 Nov Exercise 11.15 Answer
A market characterized by only one seller but many buyers Oligopsony (D)
is known as
A. a perfect market B. a monopoly market 1988/22 UTME
C. an oligopoly market D. a duopoly market If prices fall in a perfectly competitive industry, the firms
in that industry in the short run will
1986/20 UTME A. not decrease in number B. keep output at the same
One major difference between monopoly and perfect level but makes losses C. reduces production
competition is that D. intensify the advertisement of their products
A. the perfect competitor is a price taker while the Answer
monopolist determines his own output Reduce production (C)
B. homogeneity of purpose exists for the perfect
competitor while no homogeneity of purpose exists for the 1988/24 UTME
monopolist In the short run, the monopolistic competitor
C. sellers are located all over the world in the case of A. always make profit B. always incur a loss
perfect competition but sellers are located only in one C. always break even D. may close down
country in the case of the monopolist Answer
D. there is free entry and exist in perfect competition but Always make profit (A)
no free exit in monopoly
Answer 1989/16 UTME
The perfect competitor is a price taker while the For a purely competitive industry, a fundamental
monopolist determines his own output (A) requirement of the demand curve, faced by individuals
firms is that it should be
1987/4 UTME A. downward sloping and price inelastic
Market is defined as B. perfectly price elastic C. downward sloping but price
A. one geographical location where people meet to buy and inelastic D. perfectly price inelastic
sell Answer
B. the demand and supply of goods and services Perfectly price elastic (B)
C. a group of people whose sole interest is to make profit
D. any organizational frame work which links the buyers 1990/18 UTME Exercise 11.16
and sellers of a good or service An imperfect market in which there is only one buyer of a
Answer commodity
Any organizational frame work which links the buyers and A. monopsony B. oligopoly C. monopoly
sellers of a good or service (D) D. duopoly

1987/16 UTME 1990/19 UTME

In the operation of market forces, the market is in The tailoring service is competitive partly because it
equilibrium at the point where consists of a large number of
A. demand and supply curves intersect in more than one A. large scale enterprises B. medium scale enterprises
point C. small scale enterprises D. government owned
B. the excess in the market can be conveniently stored enterprises
C. excess demand is negative Answer
D. demand and supply curves intersect Small scale enterprises (C)
Answer
Demand and supply curves intersect (D)
263
1990/20 UTME 2017/2018/34 (UNIZIK, AWKA)
Which of the following is applicable to a monopolistic firm The basic idea behind the brand differentiation under an
operating at the output where marginal cost equals imperfect market arrangement is to
marginal revenue? A. stimulate demand for rivalry product
A. cost of production is at a minimum B. create demand for the particular product
B. the plant is of optimum size C. enable the product to penetrate the market
C. price is above marginal revenue D. enable the product to compete with other product
D. average variable cost is at a minimum Answer
Answer Price is above marginal revenue (C) Create demand for the particular product (B)

1991/19 UTME 2014/2015/53 (UI, IBADAN)

In a perfectly competitive market, the firm is in long run A perfectly competitive firm produces the most profitable
equilibrium at the output where output where its
A. marginal cost is minimum B. average cost is minimum A. marginal revenue equals average cost
C. total revenue is maximum B. price equals average cost
D. marginal revenue is maximum C. price equals marginal cost
Answer average cost is minimum (B) D. marginal cost equal marginal revenue
E. average revenue equals average cost
2012/6 Neco Answer Marginal cost equals marginal revenue (D)
(a) Define a market economy.
(b) List and explain five features of a market economy. 2001/18 UTME
Answer In the long – run, a monopolist maximizes his profit when
(a) A market economy is based on exchange of goods and the marginal cost equals
services. Commodities produced are mainly for sale A. total revenue B. marginal revenue C. average cost
or exchange. D. price
(b) Features of a market economy Answer marginal revenue (B)
(1) Market economies have a higher level of productivity
and consequently a higher standard of living. 2002/29 UTME
(2) The higher level of productivity results from The short – run equilibrium output for a monopolist is
specialization. determined by the
(3) There is a higher incentive to produce because of A. highest point on the total revenue curve
surplus production can be disposed of. B. minimum point on the average cost curve
C. intersection of the average revenue and average cost curve
D. intersection of the marginal cost and marginal revenue curve
2007/2008/76 (UNIZIK, AWKA)
Which of the following is not a feature of a perfect market? Answer
Intersection of the average revenue and average cost curve (C)
A. large number of buyers and sellers
B. homogeneity of products C. preferential treatment 2002/33 UTME Exercise 11.18
D. absence of transport cost Under conditions of perfect competition, a firm’s supply is
E. perfect knowledge of market situation determined by its
Answer Preferential treatment (C) A. total cost curve B. marginal cost curve
C. variable cost curve D. fixed cost curve
2011/2012/39 (UNIZIK, AWKA) Exercise 11.17
Differentiated product is the characteristic feature of 2003/13 UTME
A. perfect competition B. pure competition Imperfect market is characterized by
C. monopolistic competition D. monopoly A. many buyers and few sellers
E. oligopoly B. a large number of buyers and sellers
C. non – preferential treatment
D. perfect mobility of factors of production
2017/2018/33 (UNIZIK, AWKA) Answer Many buyers and few sellers (A)
The market where there are many differentiated products is
called 2004/11 UTME
A. monopoly B. perfect competition The distinction between perfect competition and monopolistic
C. monopolistic competition D. oligopoly competition is that the latter is characterized by
Answer A. a single market price B. many buyers and sellers
monopolistic competition (C) C. product differentiation D. homogeneity of product
Answer Product differentiation (C)

264
2005/6 UTME 2019/2020/30 (UI, IBADAN)
In the long – run, the equilibrium point of a monopolistic firm Given perfect competition in the capital markets, the
is a point where the opportunity cost of capital is adequately reflected by the
A. marginal cost curve is tangential to the average fixed cost A. interest rate B. returns on capital C. alternative
curve capital forgone D. shadow price of foreign exchange
B. demand curve is tangential to the average variable cost curve E. skepticism
C. supply curve is tangential to the marginal cost curve Answer
D. demand curve is tangential to the average cost curve returns on capital (B)
Answer
Marginal cost curve is tangential to the average fixed cost 2019/71 (UI, IBADAN)
curve (A) An imperfect market in which there is only one buyer of a
2005/26 UTME commodity is
Under perfect competition, the short run supply curve of a A. monosony B. oligopoly C. monopoly
firm is determined by its D. duopoly E. oligosony
A. total cost curve B. marginal cost curve Answer
C. average fixed cost curve D. average cost curve Monopsony (A)
Answer Hint: A monopsony is a market condition in which there is
marginal cost curve (D) only one buyer, the monopsonist.

2006/21 UTME Exercise 11.19 2011/2012/11 (UI, IBADAN)

The market structure in which there is interdependence of Differential product is the characteristic feature of
price – output policies is A. perfect competition B. pure competition
A. an oligopoly B. a pure monopoly C. monopoly D. monopolistic competition
C. a pure competition D. a monopolistic competition Answer
monopolistic competition (D)
2006/21 UTME
Product differentiation in monopolistic competition implies 2011/2012/15 (UI, IBADAN)
that An imperfectly competitive market is one where
A. sellers determine whom to sell their product to A. a large number of firms sells homogenous product
B. different buyers pay different prices for the same product B. input and output prices are unaffected
C. the same product is available in different forms C. commodities are differentiated
D. different products are sold to the same buyer D. each firm maximizes profit by selecting an output level at
Answer which marginal cost equals market price land
The same product is available in different forms (C) Answer
commodities are differentiated (C)
2006/26 UTME
A perfectly competitive firm is advised to close down when Hint: Imperfect competition is a competitive market situation
the where there are many sellers, but they are selling
A. price is equal to the marginal revenue heterogeneous (dissimiliar) goods as opposed to the perfect
B. price is below the average variable cost competitive market scenario.
C. marginal revenue is equal to the marginal cost
D. price is below the marginal cost 2008/25 (OAU, IFE)
Answer A monopolist will practice price discrimination in two
Price is below the average variable cost (B) markets if
A. there is a patent of the commodity
2008/24 UTME B. there is free flow of information in the two markets
The characteristic of entry and exit ensures that firms C. the markets have different elasticities of demand
A. earn excess profit B. earn normal profit D. the cost of separating the market is low
C. break even D. expand their operations Answer
Answer The market have different elasticities of demand (C)
earn normal profit (B)
2013/3 (OAU, IFE)
2008/25 UTME For a perfectly competitive market, the shape of the _____ is
Which of the following producer is closest to being a horizontal while the _____ is downward sloping
monopolist? A. industry’s demand curve/industry’s supply curve
A. a baker B. a wheat farmer B. firm’s supply curve/industry’s demand curve
C. a large chain store D. an automobile C. firm’s demand curve/industry’s demand curve
Answer D. industry’s demand curve/firm’s demand curve
An automobile (D) Answer
Firm’s demand curve/industry’s demand curve (C)

265
2013/10 (OAU, IFE) 1982/41 UTME
When the product of any one firm in an industry is not Full equilibrium under perfect competition requires that
perceived by consumers as a perfect substitute for the A. MC = MR and AC = AR B. MC = MR but AR > AC
product of any other firm in the same industry, we have C. MR = MC = AR = AC D. TR > TC E. MR = MC
A. perfect competition B. monopoly Answer
C. oligopolist D. monopolistic competitive MR = MC (E)
Answer Monopoly (B)
2015/24 (OAU, IFE)
Which of the following statement is true of a monopoly 1982/42 UTME Exercise 11.21
markets? Oligopoly means
A. barrier to entry exists in the short run, but not in the A. large number of sellers in the market
long run B. single seller in the market
B price is greater than marginal revenue but less than C. few sellers in the market D. few buyers in the market
marginal cost E. single buyers in the market
C. demand is more elastic than the demand for a perfectly
competitive firm’s output 1983/49 UTME
D. demand for the firm’s product is also the market Differentiated product is the characteristic feature of
demand for the product A. perfect competition B. pure competition
Answer C. monopolistic competition D. monopoly
Demand for the firm’s product is also the market demand E. oligopoly
for the product (D) Answer
Monopolistic competition (C)
2014/10 (OAU, IFE) Exercise 11.20
The demand curve facing the pure monopolist is 1984/19 UTME
A. perfectly price elastic B. perfectly price is inelastic For a non – discriminating monopolist in Nigeria, price at
C. negatively sloped D. positively sloped the profit maximizing output is
A. equal to marginal cost B. greater than marginal cost
1979/32 UTME C. greater than average total cost D. equal to marginal
Pure monopoly describes a market where revenue E. equal to total revenue
A. there are many sellers and a few buyers Answer
B. goods are sold at different prices Greater than marginal cost (B)
C. entry is not blocked, but no one cares to enter 1984/21 UTME
D. a few sellers and one buyer exist An imperfectly competitive market is one where
E. none of the above A. a large number of firms sell homogenous products
Answer B. input and output prices are unaffected
None of the above (E) C. each firm faces a horizontal demand curve
D. each firm maximizes by selecting an output level at
1979/44 UTME which marginal cost equals market price
What do we call a market where there is a large number of E. commodities are differentiated
buyers and sellers, such that no one has an appreciable Answer
influence on price? Commodities are differentiated (E)
A. free market B. perfectly competitive market
C. controlled market D. stock exchange market
E. open market 1984/23 UTME
Answer A perfectly competitive firm does not influence the
Perfectly competitive market (B) demand for its commodities by lowering its price below the
market prices because
1981/48 UTME A. it is illegal price cutting
Which of the following is not a characteristic of perfect B. other competitors will be angry
competition? C. total revenue will decline due to its inelastic demand curve
A. many sellers and buyers in the markets D. it is able to sell all it wants at the market
B. there is perfect knowledge C. supply and demand are E. it does not maximize profit
equal D. there is no advertising Answer
E. products are identical Total revenue will decline due to its inelastic demand
Answer curve (C)
Supply and demand are equal (C)

266
1984/24 UTME 1991/20 to 22 UTME
Pricing and output decisions of sellers are highly interdependent in Use the diagram below to answer questions 20 to 22
markets known as
A. oligopoly B. perfect competition C. monopoly
D. monopolistic competition D. imperfect competition
Answer
Oligopoly (A)

1985/14 UTME
Under perfect competition, the long run equilibrium requires
A. MR = MC B. MR = AC = AR C. MR > MC
D. MR = MC = AR = AC E. AR = AC
Answer
MR = MC = AR = AC (D)

1985/15 UTME

1991/20 UTME
The firm portrayed is selling in
A. a purely competitive market
B. a market in which demand elastic at all prices
C. an imperfectly competitive market
D. a market in which companies produce homogenous
commodities
Answer
A market in which companies produce homogenous commodities
(D)
In the figure above the broken line labeled M is the marginal 1991/21 UTME
revenue curve of a Demand is relatively inelastic
A. monopoly B. competitive firm C. state corporation A. at P2 range B. in the P2P4 price range C. at P3 only
D. partnership E. monopsony D. at any price below P2
Answer Answer
Monopoly (A) At P2 range (A)
1985/16 UTME
If a monopoly is attempting to maximize profit, which of the 1993/17 UTME
following should it attempt to do?
A. select that output at which ATC is at a minimum
B. set price equal to TC C. maximize profit per unit
D. maximize revenues
E. equate marginal costs to marginal revenue
Answer
Equate marginal cost to marginal revenue (E)

1995/22 UTME Exercise 11.22

Both the short run and in the long run, a firm maximizes its profits
when
A. MC = MR B. AC = MC
C. AVC = AC D. MC = AVC
In the diagram above, what is the lowest possible price the
1991/22 UTME
monopolist could charge and still break even without there being
Which of the following statements must hold if price
excess demand?
discrimination is to be possible?
A. P1 B. P2 C. P3 D. P4
A. elasticities in the various market differs
Answer
B. the seller must recognize the possibility of resale
P2 (B)
C. the market must not be separated but integrated
D. the market should be separable and there should be no resale
Answer
The market must not be separated but integrated (C)
267
1993/18 UTME 2000/17 UTME
At equilibrium, one of the distinctive features of monopoly The short run equilibrium in a perfectly competitive market
compared with perfect competition is that in the former requires that
A. price is always equal to marginal cost A. marginal cost and marginal revenue be equal
B. supply is always equal to demand B. marginal cost be equal to total revenue
C. price is always higher than marginal cost C. cost are mutually determined by buyers and sellers
D. there are always many buyers and many sellers D. the marginal cost curve cuts the total cost curve
Answer Answer
Price is always equal to marginal cost (A) Marginal cost be equal to total revenue (B)
1994/26 UTME
In the long run, a firm in a perfectly competitive market 2000/18 UTME
The condition for equilibrium price and quantity under
will make
perfect competition is
A. normal profit B. abnormal profit C. marginal profit
A. MC = AR = TR B. NIC = AR = P C. TC = AR = P
D. no profit
D. MC = AR = TC
Answer
Normal profit (A) Answer
MC = AR = TC (D)
1995/23UTME
2000/19 UTME
Quantity of commodity Total revenue from sales
sold of commodity
43 N228.00
44 N233.00
45 N238.00
The firm whose sales and total revenue of the commodity
as given in the table is
A. a monopolist B. a monopolistic competitor
C. an oligopolist D. a perfect competitor
Answer
A monopolist (A)

In the diagram above, the total revenue of the monopolist is

given by the area
A. OQ1MP2 B. P4MTP1 C. OQ1TP1 D. OQ2SP2
Answer
OQ1TP1 (C)

1999/19 UTME Exercise 11.23

One of the characteristics of an imperfect market is the
A. large number of buyers and sellers in the market
B. awareness of market conditions by buyers
C. availability of substitutes
D. heterogeneity of products

1999/21UTME
In perfect competition, every firm is a price
A. maker B. taker C. giver D. bidder
Answer
Taker (B)

268
 FEATURES OF SOLE PROPRIETORSHIP
i. The business is strictly owned by one person.
BUSINESS ORGANISATIONS ii. The business has unlimited liability.
Business organisations are enterprises that are set up either iii. The business is only financed by the owner.
by individuals or group of individuals or government and iv. The basic aim for forming the business is to maximize
their agencies with the aim of providing goods and profit with the owner’s resources.
services. The primary objectives of any business v. The owner of the business has a total control of its
organisation is to make profit. activities.
vi. It is the easiest business to start and the most common
Business organisation can be classified into two major business organized in West Africa.
types. These are private enterprises and public enterprises. vii. The business is not a separate legal entity from the
When the business is owned and run by private individual, owner.
it is called private enterprise. If it is owned by government viii. The owner can easily diversify.
or state, it is known as a public enterprise, but if it is owned
by both the government and private individual, it is called SOURCES OF FUND AVAILABLE TO THE SOLE
joint enterprise. TRADER
The sole trader can raise capital for the running of his
DIFFERENCES BETWEEN PRIVATE AND PUBLIC business through the following sources:
ENTERPRISES 1. Through personal savings after working for others.
Public enterprise Private enterprise 2. By borrowing from friends and relatives.
Ownership The government Private individuals. 3. By ploughing. That is, by setting aside part of his profit
for future expansion or reinvestment.
Capital provided The government Private 4. Advance payment by clients or customers
by organisations or 5. Through loan and overdraft from banks.
ordinary people 6. Through trade credit.
Main aim for To supply goods To make as much 7. Federal or state governments assistance inform of mid-
setting it up and services at profit as possible. term loans to applicants or graduates.
reasonable prices
for the benefit of
the public ADVANTAGES OF SOLE PROPRIETORSHIP
Any financial The tax payer The owners 1. It is easy to organize and manage.
loss are met by 2. Decisions can be made very fast. Thus, the proprietor
Control of the The government Directors appointed can respond to immediate situations.
enterprise is by: through directors by the owners. 3. It requires little capital, thus the risk is not too great.
appointed by it. 4. Such business fosters better interpersonal relationship
between the proprietor and his employee.
1979/27 UTME 5. The proprietor personally knows his customers and
Which of the following is not a form of business the costumers know him. Information about the
organization? customers taste can be communicated to him directly.
A. sole proprietorship B. cartel C. partnership 6. Being the manager of his own business, he can keep
D. joint stock E. cooperative societies his business secret.
Answer
Cartel (B)
DISADVANTAGES OF SOLE PROPRIETORSHIP
1. His risk is limited: If his business fails, he may not
TYPES OF BUSINESS ORGANISATIONS only lose all the capital invested in the business but
(1) SOLE PROPRIETORSHIP: This is an also some of his other properties.
unincorporated business organisation, owned and run 2. His capital is limited: Therefore his scale of operation
by one man. The individual who owns the business is will necessarily be small. This may result in high cost
called a sole proprietor and he provides the capital of production.
himself. He takes all the decisions, controls the 3. He is a jack of all trade in his attempt to carry out the
operations, bears all the risks and enjoys all the profit most important aspects of his business. Therefore, he
of the business. This form of business is the oldest losses the advantages of division of labour.
and it is common all over Nigeria. This type of 4. He works long hours everyday often, he cannot go on
business unit is very common in Agriculture, the retail holidays as that would mean closing down the
trade and in the provision of direct services. business.
5. The survival of the business is never sure as illness or
death may mean the death of the business.

269
2012/9 Neco 2. PARTNERSHIP: A partnership is an unincorporated
Which of the following is the oldest form of business business organization formed by an association of two to
organization? twenty persons having similar economic interests, who by
A. cooperative society B. Joint stock company an agreement (usually legal), decide to run a business
C. partnership D. public liability company together and share the risks and profits of the business.
E. sole proprietorship
Answer TYPES OF PARTNERSHIP
Sole proprietorship (E) (a) The ordinary or general partnership: He takes an
active part in the management and direction of the
2012/30 Neco business and has unlimited liability.
A business unit that carries out production, distribution and (b) The sleeping or limited partnership: He takes no
marketing of goods under one management with the aim of active part in the management of the business and has
profit making is referred to as limited liability.
A. business organization B. conglomerate C. firm (c) Limited liability partnership: This operates like a
D. industry E. sole proprietorship general partnership, with all partners actively
Answer managing the business, but it limits their liability for
Sole proprietorship (E) one another’s actions.
2009/27
One advantage of a sole proprietorship is the PARTNERS
A. it can be managed without conflicts A partner is a member or one of the owners of a
B. the sole proprietor raise money from the public partnership firm. To become a partner, one must have
C. it makes an increase in the volume of business possible contributed financially or otherwise.
D. there is no limit to the number of people who may bring
in capital TYPES OF PARTNERS
Answer i. Active Partner: This is a partner who contributes money and
also take active part in the management of the business.
It can be managed without conflict (A)
ii. Sleeping or Dormant Partner: This is a partner who
2006/13 (OAU, IFE) 12.1. contributes money, but does not take active part or work in
the business.
The liability of a sole trade is
iii. Nominal Partner: This is a partner who neither contribute
A. indeterminate B. unlimited C. limited money nor take part in the running of the business, but only
D. transferable allows his name to be used in the business as goodwill. Such
a partner must be well known and responsible person whose
2013/8 Neco
name is an asset to the business.
Sole trade is not a preferred form of business organization iv. Quasi Partner: This is a partner who has retired but allows
because his capital to remain in the business as loan.
A. decision making is quick
B. it can be established with ease FEATURES OF PARTNERSHIP
C. it has unlimited liability 1. It is owned by at least two people and with a maximum of
D. the owner enjoys privacy in business twenty people, except in banking profession where it is two
E. the owner has no problem of double taxation to ten.
Answer 2. The capital of the business is contributed by the partners.
It has unlimited liability (C) 3. The liability of the members may either be limited or
unlimited.
2019/8 Neco 4. A partnership is not a separate legal entity.
A business in which all the risk of production is borne by 5. The partnership does not enjoy a perpetual succession.
one person is known as 6. A partnership is formed under a Deed (Agreement).
A. cooperative society B. partnership C. private 7. A partnership is a firm and not a company.
limited company D. public limited company
E. sole proprietorship SOURCES OF FUND TO A PARTNERSHIP FIRM
These are the sources from which capital is raised in a
Answer
partnership business:
Sole proprietorship (E)
a. Through contribution of capital by members.
2014/19 Neco 12.2. b. Through bank loans and overdrafts.
The oldest and commonest type of business organization in c. By borrowing from the partners and other financial
Nigeria is institutions.
A. cooperative societies B. joint stock companies d. By ploughing.
C. partnership D. public corporations e. By merging with other firms.
E. sole proprietorship f. Through trade credit.

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ADVANTAGES OF PARTNERSHIP DIFFERENCES BETWEEN SOLE PROPRIETORSHIP
(1) Capital is more easily obtained, either to begin the AND PARTNERSHIP
business or for business expansions than in the sole Sole Proprietorship Partnership
proprietorship. The partners can raise more capital by 1. Definition: It is a It is a business unit that is
pooling their resources that is the funds are raised business unit that is owned and run by two or
from the contributions of different people. owned and controlled more persons (between
(2) A partnership can enjoy the benefits of a variety of by one person. two to twenty persons).
ideas from the different partners. 2. Identity: The owner is The owners are called
(3) It is not expensive to register since it is only the called proprietorship. partners.
business name that is required to be registered. 3. Business name: It may It may have business
(4) Business risks are shared among more people. not have a business name preceded with the
(5) The partnership has a definite legal status. name. If it has, it is not words’ & Co.
(6) The partnership business enjoys tax advantage in preceded with the
some cases like the sole proprietorship. words & Co.
(7) The partnership has a definite legal status. 4. Registration: It may not It may be registered and
(8) There is the likelihood that better decisions would be be registered or comply complied with partnership
taken. with any legal formality. act.
(9) The burden of managing and controlling the business 5. Business involved It is common among
is shared by the partners. This reduces the stress (examples): It is professions.
which would have been on one person. dominated by retail
(10) Partnership can easily borrow money because a lender business and direct
may have greater confidence in lending to a group services.
than to a single individual. 6. Economics of scale: It It enjoys the benefits of
doesn’t enjoy the economics of scale to a
DISADVANTAGES OF PARTNERSHIP benefits of economics certain extent.
(1) A major decision about the business requires that all of scale.
partners must be consulted. This could result in 7. Binding document: It It is governed by Deed of
delays. may not be governed by partnership.
(2) It is not a separate legal entity. any written agreement.
(3) Liability is unlimited for active partners.
(4) If a partner dies or retires, this could be upsetting for 2021/22 (PC 2)
the business. A group of traders sets up a partnership. Its membership is
(5) Lack of capital may limit expansion. expected to be
(6) Each partner is responsible for the action of the A. between 2 and 20 B. between 7 and 50
others. C. very large D. unlimited
(7) Disputes and arguments may arise among the partners Answer: Between 2 and 20 (A)
especially if it is felt that some members are not
contributing to their full quota to the business. 1991/23
The ordinary partner in a partnership
ARTICLES OF PARTNERSHIP A. takes no active part in the management of the business
A partnership is usually governed by a written agreement B. has limited liability in case of business failure
which is usually drawn up by a legal practitioner. The C. has unlimited liability in case of business failure
agreement is called a “Deed of partnership” or the articles of D. cannot be sued personally on matters relating to the
partnership. A deed simply mean agreement between partners business
on how to establish and run the business successfully. Answer
The Deed of Partnership gives some details about the Has unlimited liability in case of business failure (C)
business such as: HINT: An ordinary partnership is not a separate legal
i. The name of the business. entity.Partners in an ordinary partnership therefore
ii. The nature of business to be undertaken. have unlimited personal liability.
iii. The amount of capital or resources to be contributed
by each partner. 2009/8 Neco Exercise 12.3.
iv. How profits and losses are to be shared among the Which of the following is a form of business enterprise?
partners. A. cartel B. entrepreneurship C. partnership
v. How the partnership may be brought to an end if need D. stock exchange E. supermarket
be.
vi. How responsibility for the management of the
business is to be shared or delegated.
vii. The method for admitting new partners e.t.c.
271
2018/9 Neco CHARACTERISTICS OF COMPANY
The partner who contributes capital but does not participate 1. Legal entity: A company is seen in law as an artificial
in the conduct and management of the business is referred human being that is different from the members. If
to as ____ partners anything happens to a company, the members may not be
A. active B. general C. limited D. quasi affected. Therefore, a company is a legal personality.
E. sleeping 2. Legal Capacity: A company as a legal entity can sue
Answer and be sued under its registered name. Therefore, it is
Sleeping (E) legal person capable of entering into contract.
3. Limited Liability: A registered limited company is
2005/47 UTME separately liable for its liabilities and obligations for as
Business organization in which the owner’s personal long as it exist.
property may be forfeited in the event of bankruptcy 4. Insurance Interest: No person other than the company
A. partnership and limited liability companies as a direct insurable interest in its properties. Therefore
B. partnerships and sole proprietorships a company has the legal right to insure its properties in
C. cooperatives and limited companies its name. hence, if a man transfers his property to his
D. corporations and sole proprietorships company, he losses his insurable interest to the
Answer company on such property.
Partnerships and sole proprietorships (B) 5. Perpetual Succession: A company outlives the
Hint: An unlimited liability company involves general members. That is, it succeeds its members who may be
partners and sole proprietors who are equally replaced by other members.
responsible for all debt and liabilities accrued by the 6. Going Concern: Once a company is registered, it is
business. Most companies opt to form limited assumed that it will continue in operational existence
partnerships, where a partner’s liability cannot for an indefinite period of time.
exceed their investment in the company. 7. Transferability of Shares: Subscribers to company’s
share capital are not the owners of the company per se.
2016/38 UTME They only own the shares allocated to them in return
The minimum member of shareholders for partnership is for cash payment. The shares are items of the
A. 7 B. 4 C. 2 D. 3 company’s property, which can be transferred or
Answer transmitted to another shareholder, if the need arises.
2 (C)
UNLIMITED LIABILITY COMPANY
2004/21 Nov Exercise 12.4. An unlimited liability company is one in which its
A partnership is usually governed by a written agreement owners have unlimited liabilities. The losses which
called these owners will bear if the company should run into
A. certificate of partnership B. deed of partnership trouble may exceed the capital which they contributed
C. document of partnership D. partnership trust during the formation of the company. To settle such
debts or liabilities they may be required to dispose of
(3) JOINT STOCK COMPANY: their properties and other significant investments. Each
A company is an association of persons bounded owner is limited without limit to provide money for the
together for a particular objective, usually the carrying payment of company debt in the case of liquidation of
on of business with the aim of making profit. the company. The official name of the unlimited
A company is an artificial human being that can sue liability company ends with the abbreviation ‘Unltd’.
and be sued in its registered name. It is however a mere Examples include Mobil Producing Nigeria Unlimited
creation of the law. The owners consist of shareholders (a subsidiary of Exxon Mobil), Texaco Petroleum
who invest into the company by buying shares. Company Unlimited, GlaxoSmithKline Services
The management of a company is usually left into the Unlimited, etc.
hands of appointed Board of Directors. The Board is in
charge of the day–to–day policy formulation and major LIMITED LIABILITY COMPANY.
decision making. A limited liability company is a company with legal
entity and distinct name and continuous existence. In
There are two broad categories of registered companies other words, it is a company in which a large number
namely the unlimited liability company and the limited of people with limited liability contributed money in
liability company, (the Joint Stock Company). form of shares to raise a large capital for setting up and
running a business with a view to make profit.
The Joint Stock Company is also called the Limited
Liability Company. This can be private limited
company or a public limited company. By Joint stock,
we imply the total assets of a company machines,
272
 equipment, goods in stock, building and money in the THE PRIVATE LIMITED COMPANY
bank. The total values of these assets are divided into a A private limited company is set up by two to fifty persons
number of equal shares which are owned by who buy shares in the company. The company has the
shareholders. The shareholders give control of the advantage of limited liability but suffers certain restrictions
company to a board of directors. They in turn leave the which are as follows:
day–day running of the firm to a managing director. (1) The numbers of shares cannot exceed fifty.
(2) The shares it issues cannot be quoted on the stock
In the activities of a joint stock company, two exchange.
document are dominant. These are (3) The shares of one member cannot be disposed without
(i) The Article of Association and the agreement of other members.
(ii) The Memorandum of Association (4) The directors are empowered to reject any proposed
transfer of shareholdings.
The Article of Association (5) Part of the shares of the company cannot be held by
The Article of Association takes care of the internal another company unless the shareholdings do not
relationships between the company and the members. It exceed fifty.
contains: (6) Nobody and no institution outside the company can
1. The methods by which the company will deal with influence the company’s policy except for
different types of shares such as the ordinary shares, governmental regulation.
preference shares and so on. NB: The above are the characteristics features of a private
2. The mannerism for handling the alteration of stocks limited company
specified in the memorandum of association.
3. The methods of dealing with profits, losses and taxes. ADVANTAGES OF PRIVATE LIMITED COMPANY
4. The method of dealing with dividends. (1) It enjoys limited liability. Hence, in the case of
5. The method of calling each type of company meeting. liquidation, a shareholder loses only what he invested
6. The mannerism for appointing directors and in the company.
compensating them. (2) The company is a legal entity. It can sue and be sued.
7. The mannerism for appointing auditors and (3) The management is separated from the ownership.
compensating them. (4) There is great ease of raising fund because of its size
8. The banks to be used by the company. and nature.
9. The debt limit of the company.
10. The mannerism for keeping the company’s records. DISADVANTAGES OF PRIVATE LIMITED
COMPANY
The Memorandum of Association (1) Limited capital due to the restriction of membership
This is meant for regulating the external relationship of the to a maximum of fifty.
company. It contains: (2) The company is subjected to the payment of
1. The name of the company which must not have corporation tax on its profit if it reaches the stipulated
correlation with the name of any existing company amount. This becomes a disadvantage because it has
especially for the purpose of protecting the members of led to the collapse of many companies that are not
the public. having solid footing.
2. The address of the company which will make the (3) It cannot raise capital through public subscription
company traceable for any reason. (4) A shareholder cannot transfer his shares without the
3. The names, addresses and subscriptions of the consent of the other shareholders.
incorporators. (5) There is bureaucracy and ineffective control as the
4. The purpose of forming the company which must be a firm gets larger
legal one for registration to be effected by the (6) There is delay in the decision making process as the
Corporate Affairs Commission. number of membership increases.
5. The different types of shares as in the ordinary shares,
preference shares and so on. THE PUBLIC LIMITED COMPANY
6. The number of authorized shares broken into smaller A public limited company is set up when the capital
units for sales to subscribers together with value per required is so huge that it cannot just be raised through
share. private issue. A public limited company has at least seven
7. The period for which the company will operate. members and there is no limit to the maximum number of
8. Information regarding the company’s liability. members it can have.
Members of the public company can dispose their shares
When the required information is made available to the
through the stock exchange whenever they like. The
Corporate Affairs Commission, the commission considers
company can also make an appeal for funds to the public
it and gives a certificate to the company. The certificate is
through public subscription.
expected to be displayed in the premises of the company.
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FEATURES OF A PUBLIC LIMITED COMPANY DIFFERENCES BETWEEN PRIVATE AND PUBLIC
1. It enjoys a wide spread of ownership since maximum COMPANIES
membership is not prescribed. Private limited liability Public limited liability
2. It has the privilege of limited liability. company company
1. Membership: It has a It has a minimum
3. The shares are transferable.
minimum number of two number of seven
4. There is a legal recognition of the company as a shareholders and a shareholders and there
separate entity. maximum of fifty. is no upper limit.
5. There is tendency for ownership to be separated from 2. Sales of shares: It cannot It can advertise for sales
control of the business. advertise for sales of of shares; that is, it can
6. There is continuity of existence. shares; that is, it cannot call on the public to buy
7. There exist no privacy as its business affairs, balance call on the public to buy shares.
shares.
sheet, or account statement must be published
3. Transfer of shares: Shareholders can easily
annually on the national dailies. Shareholders can only transfer their shares
transfer their shares with without seeking the
ADVANTAGES OF PUBLIC LIMITED COMPANY the company’s company’s consent.
(1) It enjoys limited liability. The liability of a permission.
shareholder is limited to the amount he invested. 4. Trading certificate: After being
(2) It is a legal entity. It can sue and be sued. After being incorporated, incorporated, they
they can commence cannot start business
(3) The management is separated from shareholding.
(start) business without without trading
(4) The company enjoys perpetual existence, as the death trading certificate. certificate.
of a shareholder does not affect the activities of a 5. Other debt instruments: They issue stock,
company. They don’t issue stock, debenture and bond.
(5) The company enjoys a large capital base and a wide bond and debenture.
scope for raising capital because of its size and nature. 6. Control: They are owned They are owned by
(6) It enjoys economies of large – scale production. and controlled by the shareholders; but they
same group of people. are controlled by board
(7) It has the ability to keep pace with the technological
of shareholders.
progress. 7. Scale of operation: They They have large capital
(8) Shares in the company can be easily transferred to have small capital; and and they operate on a
other individual. This means owners of shares who they operate on a small large scale. Thus it
like to relinquish their holdings can do so to others scale. Thus, it involves involves large scale
who want them. This is usually done through stock small and medium scale enterprises.
brokers on the stock exchange. enterprises.
8. Privacy: It is not The law enforces them
DISADVANTAGES OF PUBLIC LIMITED COMPANY compulsory for their to publish their balance
1. A public limited company is expected to furnish the balance sheet to be sheet on newspapers
published on newspapers annually.
Registrar of companies with nearly all vital annually.
information about itself. 9. LTD: They are referred PLC: They are referred
2. There is no privacy of accounts as the company is to as limited liability to as public liability
mandated to make its accounts public and as the company; thus their company; thus their
company’s account can be subjected to periodic audit names are preceded with names are preceded
examination. the word ‘LTD’. with the word ‘PLC’.
3. There is no personal relationship between the owners 10. Prospectus: They do not They must issue
issue prospectus. prospectus
of the company and the employees as the management
11. Quoted: Their shares are Their shares are quoted
is separated from shareholding. not quoted (sold) in stock in stock exchange.
4. There is tendency for the managers to show negative exchange.
interest in certain matters that affect the company as 12. Ownership: It is owned It is owned by members
they are not the owners. by a group of people who of the public who
5. There is existence of trade union because of the staff are related in one way or bought shares.
strength of the company and a powerful trade union the other, e.g. members of
a family.
may hold the company to ransom.

274
2021/23 (PC 2) 2013/10 Neco
In which of the following business units can members A public limited company is different from a private
freely transfer shares? limited company because the former
A. public corporations B. public enterprises A. derives its power from the memorandum of association
C. public limited liability companies B. has separate legal entity
D. private limited liability company C. is controlled by board of directors
Answer Public limited liability companies (C) D. is owned by the government
E. is quoted in the stock exchange market
2009/9 Answer
The main objective of setting up a private business is quoted in the stock exchange market(D)
organization is to Hint: The shares issued by the public limited company is
A. protect the interest of the owners B. promote exports quoted on the stock exchange, but that of the private
C. provide infrastructure D. maximize profits limited company is not.
Answer Maximize profit (D)
1988/27 UTME
2010/7 Neco Exercise 12.5. In a public company, entrepreneurial functions are
Which of the following documents is required to set up a performed by the
limited liability company? A. workers B. shareholders C. general manager
A. articles of association B. articles of ostentation D. board of directors
C. bill of lading D. certificate of occupancy Answer
E. invoice Board of directors (D)

2002/9 Neco Exercise 12.7

1992/13
What is the maximum number of persons needed to form a
In a joint stock company, the debenture holders are
A. debtors to the company private limited company?
B. shareholders of the company A. 2 and 20 respectively B. 2 and 50 respectively
C. creditors to the company C. 5 and 2 respectively D. 10 and 20 respectively
D. advisers to the company E. distributors to the company E. 50 and above
Answer creditors to the company (C)
Hints: For a joint stock company, shareholders are the (4) THE COOPERATIVE
owners of the company, but a debenture holder is only a A cooperative may be defined as a self – help
creditor of the company. organization formed either by consumers or
producers. It is formed to provide services for its
2009/11 Neco members who provide nearly all its finance. The
A firm is said to be a public jointstock company when it profits of a cooperative association are usually not
A. has unlimited liability taxed.
B. is administered by the public
C. is owned by the government TYPES OF COOPERATIVE
D. operates as a public corporations (i) Producers cooperative: The producer cooperative is
E. sells its shares to members of the public organized by producers, mainly primary producers
Answer Sells its shares to members of the public (E) who produce goods which are brought into common
pool and sold together with part of the income
1996/15 Nov Exercise 12.6 realized by distributed among members.
Joint stock company is owned by (ii) Marketers cooperative: The marketers cooperative is
A. stock brokers B. entrepreneurs one in which a group of people, usually producers,
C. company directors D. wholesalers and retailers come together and each member is responsible for its
E. shareholders output.
(iii) Consumer cooperatives: The consumer cooperative is
2015/21 organised by consumers in order to advance their
Which of the following business organization is likely to interest in the purchase of consumer goods or other
experience disagreements between management and items.
shareholder? (iv) Thrift and credit cooperatives: This sort of
A. cooperative society B. sole trader C. partnership cooperative is organized to encourage savings among
D. joint stock company members. Members deposit their savings with the
Answer Joint stock company (D) cooperative and when they need loans, they ask the
society for help. The cooperative society deposits the
member’s savings in the bank.

275
(v) Multipurpose cooperative: This cooperative is (4) The organizations in many cases lack adequate capital
organised by a group of people who want to advance to work with. This greatly incapacitates them as
their interest in diverse ways. The cooperative dangles regard the level they can go.
into different activities that will be of benefit to the (5) The system of electing the people to run the
members. organization could pose a threat to getting the best
(vi) Retail cooperative: This form of cooperative is hands as elections are usually characterized by
preoccupied with distribute function. It is an sentiments.
association of small scale retailers who come together
and buy goods like the wholesaler. NB: Private enterprises comprise the sole proprietorship,
the partnership, private limited company (joint stock
FEATURES OF CO-OPERATIVE ASSOCIATION company) and the co–operatives.
i. There is usually no limit to the size of its membership.
ii. It is usually open to persons with identical interests 2019/8 NABTEB
who wish to join. Which business organizations enjoy tax free profits in
iii. Profits dividends are shared according to the purchases Nigeria?
from or sales to the society within a given trading year; A. cooperative societies
that is, according to the members’ patronage. B. private limited liability companies
iv. All the members bear the risks of the business jointly. C. joint stock companies D. partnership
v. They have unlimited liability. Answer Cooperative societies (A)
vi. The aim of setting up a cooperative society is to
maximize the welfare of the members who have pooled 2003/25
their resources. Which of the following is a type of business organization?
vii. The business is not a separate legal entity. A. stock exchange B. insurance company C. chain stores
viii. The profits of cooperative associations are usually not D. cooperative
taxed. Answer Cooperative (D)
ix. Initial capital is raised by selling shares to the 1998/22 UTME Exercise 12.8.
members. There is a minimum shareholding for every One form of business organization which is not motivated
member. solely by the profit objective is the
x. Management and control is democratic. Each member A. joint stock company B. private limited company
has one vote only and can stand for election into an C. cooperative society D. ordinary partnership
office. They have equal voting rights.
2000/32 UTME
ADVANTAGES OF COOPERATIVE A distinguishing characteristics of cooperative societies is
(1) It protects members against exploitation by money that voting power depends on the
lenders through the granting of loan facilities. A. number of shares held B. equality of members
(2) There is high level of democratic culture as decisions C. status of the member D. management’s decision
and policies are taken and formulated together. Answer
(3) It encourages members to develop saving habit. Equality of members (B)
(4) It enables people to fraternize.
(5) It provides an opportunity to lower the prices of goods 2018/12 UTME
as a result of the elimination of middlemen. In which of the following business units are the owners
(6) Members usually show loyalty to the organization. mostly the customers?
A. cooperatives B. limited liability companies
DISADVANTAGES OF COOPERATIVE C. partnership D. public corporation
(1) Inefficient management may be put in place in the Answer
case of wrong method of popular election. Cooperatives (A)
(2) Illiteracy of members where present may make
detection of fraud difficult or out of reach. 2011/2012/23 (NDU, BAYELSA)
(3) Many cooperative societies are not able to raise a The basic principle of cooperative societies are those of
large capital for their business because most of the A. workers ownership and worker control
members are low income earners. B. sole proprietorship C. partnership
D. denying of credit facilities to members
PROBLEMS OF COOPERATIVES Answer
(1) There is a great level of illiteracy among members in Workers ownership and worker control (A)
many cooperative organizations.
(2) There is problem of embezzlement in most cases.
(3) Members on many occasions fail to repay loan or
effect payment for goods received.
276
(5) PUBLIC ENTERPRISES (STATUTORY 2021/9 Neco
CORPORATIONS) The Nigeria Television Authority (NTA) is an example of
Public enterprises are business organizations which are A. cooperative society B. private limited company
directly under the control of the government. They are C. public enterprise D. public limited company
run as statutory corporations. Their aim is to cater for the E. sole proprietorship
welfare of the people. They are not set up to make profit, Answer:
however, they must be able to provide for their own Public Enterprise (C)
running expenses. These are financed by rates, a local
tax on property, through grants obtained from the central 1992/23 UTME
government and from borrowed money. The business is The type of business organizations mostly used for
controlled by a board of Directors appointed by the producing publicly goods in Nigeria is
governments. A. sole proprietorship B. limited liability companies
C. cooperative societies D. statutory corporations
ADVANTAGES Answer
(1) The provide infrastructural facilities such as electricity, statutory corporations(D)
water, roads, schools, railways and so on to the
populace. 2003/36 UTME
(2) They encourage continuity as they can last for a long Statutory organizations usually established by Acts of
period of time. Parliament are called
(3) They encourage the development of capital project such A. public enterprises B. public corporations
as rural electrification. C. cooperative societies D. joint stock companies
(4) They discourage exploitation of customers by making Answer
their goods and services available at cheaper rates. Public corporations (B)
(5) They embark on large scale production facilitated by
access to large capital. DIFFERENCE BETWEEN PUBLIC AND PRIVATE
(6) They are legal entities. Each of them can sue and be ENTERPRISE
sued. Public Enterprises Private Enterprises
1. Definition (Ownership): It is a business unit
DISADVANTAGES It is a business unit that is that is owned and run
(1) There is argument that workers in public enterprises entirely owned and run by shareholders
are not motivated to do their best as there is no profit by the government. (individuals).
motive. 2. Aims: To provide To make profit for
(2) There is government interference characterized by essential goods and their owners
political sentiments in the appointment of directors. services which she makes shareholders.
(3) Workers are usually a pathetic or poorly committed to available to everybody
what they are expected to do for the society. with little or no charge.
(4) Decision making used to be very slow and 3. Capital: They have a They have relatively
bureaucratic resulting in inefficiency. very huge amount of small capital which is
(5) There are cases of corruption, fraudulent practices and capital which is provided provided by
mismanagement of the nation’s resources. by the government. shareholders – the
(6) Inefficiency characterizes their operations as a result owners.
of lack of competition. 4. Use of Profit: To To be distributed as
(7) There is lack of proper accountability as they in most develop the state i.e. to dividends to
cases fail to render proper accounts to the help everybody. shareholders.
government. 5. Scale of operation: They They mostly involve
(8) They are monopolistic in nature and in most cases mostly involve large – small and medium
used to abuse privilege. scale enterprises e.g. scale enterprises, e.g.
NPA, NNPC. retail shops,
2022/10 NABTEB commercial banks etc
Public corporations are mainly set up in Nigeria to 6. Privacy: They do not They must publish
A. provide welfare services for the people publish their balance their balance sheets on
B. compete with other business enterprises sheet annually. newspapers annually.
C. exploit the citizenry 7. Formation: they came They came into
D. make maximum profit into existence through existence through
Answer either decree or act of incorporation (after
Public corporations are mainly set up in Nigeria with the parliament. being registered with
aim of catering for the welfare of the people. They are not registrar of
set up to make profit, however, they must be able to companies).
provide for their own running expenses. (A)
277
 8. Monopoly: They They do not enjoy (5) Joint venture also helps the company to enjoy internal
monopolize the provision monopoly. There is a economies of scale and advantages of size. They will
of the goods or services keen competition be able to produce more at lower cost due to
for which they are set up. between a large availability of resources.
That is, they do not number of firms (6) New technologies will be accessed. There will be pool
compete with others. producing the same or of innovative managerial practices that will gear up
similar goods or the achievement of the company’s goal. It also help in
services. the creation of stronger competitive units speed to
9. Accountability: They are They are accountable market.
accountable to to their shareholders.
government. SOURCES OF FUNDS AND OTHER MEANS OF
10. Control: They are They are controlled by FINANCING A BUSINESS
controlled by boards of boards of directors (1) Personal savings/funds: Individual savings can be
directors appointed by appointed by employed in the case of sole proprietorship and
the government. shareholders. partnership. Money inherited from parents and other
11. Specific area of They do not have a relatives can also be employed for purposes of
operation: They have a specific area of business.
specific area of operation. They (2) Loan from relatives or friends: When personal
operation; i.e. they only diversify their saving is found to be inadequate, loan can be obtained
produce the goods or activities; i.e. they from relatives or friends.
only render the service produce different (3) Borrowing from financial institutions: Loan can be
for which they are set up. types of goods and taken from banks, insurance companies and other
render various financial institutions. The limited liability companies
services. and public enterprises stand the best change in this
12. Bearing of risks: Risks Risks are borne by regard. Some big cooperatives can also avail
are borne by the shareholders (owners). themselves the opportunity in some cases.
government (tax payers). (4) Issuing of shares: A share could be defined as a unit
13. Dissolution: They are They are liquidated of ownership of a business concern. It is usually
always liquidated either voluntarily or expressed in terms of money capital. Company shares
voluntarily. involuntarily. is the participation of the owner in the provision of
capital to the company in which the shares are held.
JOINT VENTURE Public issue: Is the selling of shares to the public,
Joint venture is an economic activity or enterprise when it is being done for the first time by a particular
undertaken together by two or more parties. The parties company, it is called initial public offer (IPO).
agree to contribute stocks or shares and then share in the Right issue: Is the selling of shares to existing
revenue, expenses and control of the enterprise. shareholders of a company.
Authorized share capital is the maximum amount of
Joint venture can be for one project only or a continuing money that a company which is commencing business
business; it can be corporation, Limited Liability Company is allowed to raise by the registrar of companies
or partnership. It can also be the partnership business through the issuance of shares to the public shares can
between private investors and the government. be ordinary or preference shares.
(5) Plough back profit: The profit or part of the business
REASONS FOR FORMING JOINT VENTURE can be retained for further investment.
(1) Joint ventures can help to build on the strength of the (6) Trade credit: This involves parting with goods and
company. The strength of the parties can be put making payments at a later time, usually an agreed period.
together for increased productivity. (7) Government subsidies: Government can decide to
(2) It helps to spread the costs and risks of the company. give subsidies to some state – owned companies and
The cost and risk will not be bored by single party but to some specified private enterprises depending on the
all, hence reducing the burden. sort of goods and service they produce or render and
(3) It is to improve access to financial and other depending on the current policy of the government
resources. More funds will be available for use which may be to encourage crop production, to
through the parties. encourage export e.t.c.
(4) Joint venture helps to combine some of the (8) Debenture: A debenture is a fixed interest bearing
advantages of government ownership and private security with a specific maturity date. This is a long
ownership and reduce the problems of complete term loan obtained from the general public at a fixed
government or private ownership. interest. It may be redeemable by the subscriber after
the expiration of the loan period.

278
(9) Tax holiday: This may be allowed by the government for Privatization refers to the policy process of transferring
a purpose such as encouraging export, encouraging the ownership, interest and control of industries, corporations
growth of infant industries and so on. The firm involved or companies from the public to the private sector.
takes advantage of it to source fund.
(10) Grant from international financial institutions or Full privatization: This refers to the divestment by the
foreign nations: International financial institutions federal government of all its financial exposures in the
such as International Bank for Reconstruction and designated enterprises.
Development, African Development Bank as well as
rich countries in the world can give grants to the firms Partial privatization: This means the divestment by the
to finance certain ventures of interest. federal government, part of its financial commitment in the
designated enterprises.
GENERAL AND BASIC PROBLEMS OF BUSINESS
ENTERPRISE COMMERCIALIZATION
(1) Inadequate economic and social infrastructure: Commercialization is government policy involved in the
Poorly developed transportation, power supply e.t.c. restructuring or reorganization of public enterprises, which
make initial and operating costs high. were either fully or partly owned and controlled by the
(2) Inadequate capital: The poorly developed capital government to make them more productive, efficient, self
market and low level of savings limit capital for initial sufficient and profit – oriented. Commercialization means
operations and for expansion. the attitude or move to get enterprises placed on a social
(3) Political and social instability: Frequent changes in footing for economic restructuring to make them meet up
government and associated changes in policies, social with profitable goals.
instability e.t.c. make business climate uncertain, Full commercialization: This connotes that the enterprises
thereby hindering investments and business are expected to operate profitably and to raise funds from
expansion. the capital market without government guarantee. They
(4) Scarcity of indigenous skilled manpower: This charge fees (prices) which will enable them make profits
creates need for reliance on foreign manpower with its for maintaining plants, equipment and staff. They operate
associated problems of repatriation of funds, on the same basis with private firm and can embark on
economic sabotage e.t.c. expansion programmes without depending on government
(5) Location of businesses in economically unviable subventions.
areas :This is due to the policy of even development,
and inadequate feasibility studies and makes such Partial commercialization: These are enterprises required
businesses operate at a loss. to raise enough funds to cover their operating costs, but can
(6) Difficulty in obtaining imports licenses: for receive capital grants from government. Their charge
importation of capital equipment, raw materials and should be enough to enable them maintain staff and
spare parts which are not locally available. The equipment but can seek grants for capital projects.
process of obtaining import licenses is cumbersome
and many businessmen cannot afford it. The process GOVERNMENT’S OBJECTIVES OF
of importation of the required materials is difficult. PRIVATIZATION AND COMMERCIALIZATION
(7) Restrictive government policies: Delays in granting Privatization and commercialization are part of the effort of
industrial permits, high company taxes e.t.c. tend to the Nigerian government to restructure the economy. The
frustrate entrepreneurs. assumption is that the private sector is more efficient than
(8) High rate of corruption and embezzlement of the public sector. So government decided to sell its
business funds: Corrupt officials comprising companies or large shares to individuals or private
management and workers may steal business funds companies.
and may render the business bankrupt. Privatization has been defined as the process of transferring
ownership interests and control in an enterprise from
THE CONCEPT OF SEPARATE LEGAL ENTITY government to the private sector. This means that the
A business is a separate legal entity if the law recognizes effective control and management of such an enterprise
the business as a personality of its own, quite distinct from would be in the hand of private enterprises.
the owner. The law recognizes the business as a corporate
body or corporate personality which has the power to sue Commercialization, on the other hand, is the process of
or be sued in its own right, without involving the owners. making an enterprise self-accounting and self-sustaining
instead of depending on the government subsidies for its
PRIVATIZATION AND COMMERCIALIZATION operation.
Privatization refers to the determination to make Privatization and commercialization are a key policy on the
enterprise which are public corporations or government National Economic Empowerment Development Strategy
enterprises to be owned by private owners. of the Obasanjo administration.

279
 BENEFITS OF PRIVATIZATION AND 2013/38 UTME Exercise 12.9
COMMERCIALIZATION In Nigeria, efficiency in public corporations can be
To disengage from economic or business activities in which it achieved through
has no competence or in areas where the private sector is A. public offer B. indigenization C. privatization
better. D. nationalization
1. To make the companies and corporations more efficient by
injecting private sector efficiency into them.
2. To reduce government annual financial burden brought in
the form of subsidies and grants to these unprofitable INDIGENISATION
ventures and to use money to save for other needful Indigenisation is the transfer of ownership, control and
sectors of the economy. management of business enterprises that were hitherto
3. To reduce government bureaucratic control which has
dominated by foreign investors to the indigenes. The
militated against the efficiency of the affected companies.
indigenisation policy in Nigeria aims at ensuring greater
4. To make the commercialized companies financially self-
sufficient and self-sustaining. participation of the citizens in the ownership, control and
management of such enterprises.
PROBLEM OF PRIVATIZATION AND
COMMERCIALIZATION INDIGENISATION POLICY IN NIGERIA
1. Retrenchment of workers: Some of the privatized or This refers to a deliberate policy by the government to
commercialized companies have been reorganized. increase the participation of the nationals in the ownership
Incidentally, these re-organisations have resulted in the and management of commercial and industrial activities in
retrenchment of workers. the country. The ownership and personnel of certain
2. Concentration of Shareholding on a few Nigerians: economic activities are reserved for indigenes.
Although a thorough research is yet to be carried out,
there have been allegations that a few well-placed THE NIGERIA ENTERPRISES PROMOTION
individuals have succeeded in hijacking some of the most DECREE
profitable government companies and corporations in The Nigerian Indigenisation Decree was promulgated with
spite of the assurances given by TCPC against such a effect from February 23, 1972 and was amended in 1977
possibility. under the ‘Nigerian Enterprises Promotion Decree’.
3. There is yet to be any report of significant success stories
that companies and corporations that were viable before The 1977 Enterprises Promotion Decree divided industries
privatization have continued to be viable or that those that with commercial enterprises into three schedules.
were previously unprofitable have become profitable.
4. We have no report yet that workers welfare in the Schedule 1: This comprises enterprises which are
privatized or commercialized enterprises have improved exclusively reserved for Nigerians (i.e. 100% indigenous
beyond what it was before. participation and ownership). These include advertising
and public relations business, assembling of radios,
2006/26 Neco radiograms, television sets, etc; blending and bottling of
Privatization policy involves alcoholic drinks, bread and cake making, etc.
A. selling of all government properties to private
Schedule 2: This comprises enterprises in which Nigerians
individuals B. setting up of refineries in Nigeria
must have a majority interest - at least 60% equity interest.
C. transferring ownership and control of government
These include banking – commercial, merchant and
companies to foreign living in Nigeria
development banking – basic iron and steel manufacturing,
D. transferring ownership and control of government
beer brewing, boat building, clearing and forwarding
companies to private individuals
agencies, etc.
E. transferring the control of multinational companies from
foreigners to Nigerians Schedule 3: This comprises enterprises in which Nigerians
Answer must have at least 40% equity interest. These include
transferring ownership and control of government distilling, rectifying and blending of spirits such as ethyl
companies to private individuals (D) alcohol, whisky, brandy, etc; fertilizer production,
manufacture of basic industrial chemicals, tobacco
2011/43 UTME manufacture, etc.
The transfer of public shareholding incorporations to
private enterprises is
A. concession B. incorporation C. commercialization
D. privatization
Answer
Privatization (D)

280
 OBJECTIVES OF INDIGENISATION POLICY IN 5. The prohibition of foreign investors from entering into
NIGERIA certain businesses where indigenous equity participation
1. To create more employment opportunities for is not up to the required percentage negatively affects the
Nigerians in order to reduce the unemployment capitalization of such businesses. In other words, it
problem. compounds the capitalization problem which was
2. To enable Nigerians have a greater control of their characteristic of some of those enterprise before. Further,
economy by increasing indigenous ownership and some ventures that produce vital goods and services were
control of economic activities and at the same time not active since the indigenes could not run them and
reduce foreign domination in order to prevent possible since the foreigners have been disallowed or limited by
laws backing up the policy.
economic sabotage and ensure economic security.
3. To increase the local retention of profits from 2010/43 Neco
investment thereby saving foreign exchange which The process of reducing foreign control of an economy is
would have been lost through repatriation of profits by known as
foreigners. A. commercialization B. incorporation C. indigenization
4. To create greater opportunities for training indigenous D. industrialization E. privatization
personnel in the art of management. This would Answer
increase Nigerian participation in the decision making Indigenization (C)
process of large industrial and commercial
establishments. 2007/41 Neco
5. To promote self-reliance, thereby encouraging A deliberate government policy to exclude foreign
indigenous industrious outlay and development. participation in certain economic activities is known as
A. commercialization B. indigenization C. liberalization
BENEFITS OF INDIGENISATION D. localization E. privatization
1. It helps in increasing the equity participation of the Answer
indigenes in the national economy. Indigenization (B)
2. It helps in raising the level of production of
intermediate capital goods in the economy. NATIONALISATION
3. It aids the retention of profit in the economy and This is the policy by which businesses, which were hitherto
further re-investment of the profit which would have owned and controlled by private individuals and
been repatriated. organizations, are taken over by the government.
4. It helps in providing employment for the indigenes in This may be done if the business or firm is seen to be
the top and middle level positions of management. operating against public interest or the government.
5. It promotes local initiative and the development of
domestic technology. 2012/31 Neco
The transfer of private enterprise to government ownership
PROBLEMS OF INDIGENISATION for economic, social and political reasons is known as
1. There is the problem of getting fund to acquire firms that A. commercialization B. indigenization
are now to be controlled by the indigenes. Indigenous C. industrialization D. nationalization
investors are not often as rich as the foreign investors. E. privatization
2. There is lack of adequate trained personnel to handle the
Answer
activities that are hitherto handled by the foreigners.
Nationalization (D)
Many indigenes lack the skills or manpower traits needed.
3. The policy encourages inequalities in the distribution of
wealth. Few indigenes who have the wherewithal will be SHARES AND STOCKS
enriched at the expense of the others who do not have Shares
money to purchase shares in the indigenized companies. The capital of a limited liability company (joint stock
4. The indigenous business partners of the foreign investors company) is usually divided into small equal units, like ₦1,
collaborate with them to avoid or escape some of the ₦5, ₦10 or ₦20 etc. And each of these small
provisions of the decrees. For instance, the requirement denominations is called a share. A share is therefore
for the acquisition of a certain percentage of shares in defined as a unit of ownership of a business of concern.
some business enterprises was on many occasion
rubbished in Nigeria’s indigenization policy. A lot of rich
Those who bought shares (who contributed money towards
Nigerians who were interested in making money rather
the setting up of the business) are called “shareholders”.
than working towards the well being of Nigeria and
Nigerians parlied with the foreign investors in such a way They are given certificates (clear evidence of the amount of
that on paper, the indigenes had the right percentage of money contributed to the company) called “Share
ownership but practically or actually, the foreigners are Certificates”.
still in charge.

281
It clearly indicates the number of shares acquired, and the Similarities
value of a share. If a value of a share is ₦5, the person who 1. They are long term securities.
bought 200 shares had contributed ₦1000 as a part of the 2. They bear dividends.
company’s capital and he would be rewarded accordingly. 3. They are not retrievable.
4. They are bought and sold at stock exchange.
Shareholders NB: Equity implies ordinary share. Ordinary shares are called
A shareholder is a person who bought shares in a limited equities or equity shares because they have equal share of the
liability company. And he is one of the owners of the company’s profit. They receive equal amount of dividend (profit).
company.
TYPES OF SHARES
Share Certificate
They are various types of shares; the important ones are outlined as
A share certificate is a document that certifies (indicates)
follows:
that a person named therein had bought the stated value or 1. Ordinary Shares: They are equity shares. They are the
number of shares in a joint stock company (limited commonest types of shares; and they are usually issued when
company). a company is newly formed. They have no fixed rate of
dividend (rate of interest). And the holders do not receive
Share Register dividends whenever there is little or no profit. Usually, they
It is a big notebook in which the names and addresses of receive the reserve of, or have last claim to, the distributed
shareholders are entered and kept for future use. It is easily profit. The holders are the actual owners, and they bear the
referred to as “official list of shareholders”. It enables the major risk of the company.
company to send dividends to shareholders annually as well as
for calling shareholders’ Annual General Meeting (AGM). They attend shareholders’ Annual General Meeting (AGM);
and they have voting rights. They elect board of directors who
Stock formulate the major policies (rules and regulations) of the
Stock is defined by a renowned economist as ‘Ownership firm.
of corporation divided into shares and they are represented
by certificate’. Types of ordinary shares
i. Preferred Ordinary Shares: They are the important
It is a bundle or collection of shares in a big denomination type of ordinary shares. They have first claim to
like ₦200, ₦300; and they are fully paid on purchase. dividends (paid first) after preference shareholders
might have been paid. They are always given
It is a financial security (debt instrument, a means) with preference over other types of ordinary shares.
which limited liability companies and governments raise ii. Deferred Ordinary Shares: They have last claim to
long – term capital. dividend. They may or may not be paid dividends if
NB: Shares and stock are synonyms; they are the means there is little or no profit. And they are paid dividends
after all other types of shareholders might have been
(financial security) with which companies and government
paid.
raise long – term capital. Shares are of small values (50kobo,
iii. Founders’ Shares: They are shares owned by floaters,
₦1, etc) while stock is of a big value (₦200, ₦300, etc). We promoters or founder members of a company. The
state below some of the differences between shares and stock. expenses the promoters incurred in the process of a
company’s formation, like preparation documents,
DIFFERENCES BETWEEN SHARES AND STOCK registration of the company advertising for sales of
Shares Stock shares etc, and until the business commences (begins)
1. It is a small equal part into It is a bundle of shares of and it starts realizing profit are converted into shares.
which a capital of a joint a joint stock company. And such shares are called founders’ shares.
stock company is divided.
2. It is issued in a small It is not issued but converted Summary of Ordinary Shares (features)
denomination like 50k, ₦1, from shares issued into I. They are the actual owners of a company.
etc. bundles of big denomination II. They do not have specific rate of dividend (interest).
like ₦200, ₦300. III. Holders have last claim to profit (i.e. they are the last
3. They are mostly sold in They are mostly sold in group of shareholders to be paid dividends).
parts by first tier capital full value by second tier IV. They are only paid dividends when there is a profit
market (banks) and they capital market (stock and dividends are declared.
are partly paid by buyers. exchange) and they are V. They bear the major rights.
fully paid by buyers. VI. They have voting rights.
4. Their sales are always Their sales are not always VII. They are policies (major decisions) makers.
advertised on dailies advertised but they are VIII. They elect board of directors periodically.
(newspapers). quoted (made known) at IX. They have last claim to (last group of shareholders to
stock exchange. be paid) proceeds from auction sale of company’s
property in event of business failure.

282
2. Preference Share Difference between ordinary shares and preference
They have specific rate of dividend (fixed rate of shares
interest) and first claim on the company’s profit. As the Ordinary shares Preference shares
name implies, it has preference over ordinary shares in 1. They are the commonest They are not popular shares
terms of payment of dividends and proceeds from type of shares and issued and they are not issued by all
auction sale of the company’s property in event of by all public companies. public companies.
liquidation (business failure). That is, the holders are 2. They do not carry a fixed They have fixed rates of
rate of dividend. dividends. Dividends are
fully paid before ordinary shareholders, and they are
Dividends are only paid paid to cumulative
paid first if the business fails. However, they are not if profit is earned. preference share
entitled to dividend if there is little or no profit. They shareholders whether profit
bear little or no risk; thus the holders have limited is realized or not.
rights. They cannot vote at annual general meeting of 3. They have last claim to They have first claim to
shareholders. dividend. dividends.
4. Ordinary shareholders They are not the actual
The following are at its other features: are the actual owners of owners of the company.
i. The can be redeemed. the company.
ii. They have first claim to proceeds from auction sale 5. They cannot be retrieved They may be retrieved by the
of the company’s property in case of liquidation (paid back) by the company, especially
(failure). company. redeemable preference
shares.
iii. The holders are always given preference over other
6. They holders attend The holders may or may not
investors (shareholders). AGM of shareholders attend AGM; however, they
iv. They have claim to profit remnant (amount of and they have voting do not have voting rights.
profit left after ordinary shareholders might have rights.
received their dividends). 7. The holders have The holders have restricted
v. They have limited power in the appointment of unrestricted power in power in formulation of
directors and in other important issues, like formulation of policies policies and appointment of
formulation (making) of important policies and and appointment of directors.
decisions. directors.
8. They are the major risks’ They bear little or no risk.
Types of Preferences shares bearers of the company.
9. They are divided into They are divided into:
There are three types of preference shares
preferred ordinary cumulative preference
I. Cumulative Preference Shares: The holders shares, deferred ordinary shares, participating
have right to claim arrears of dividend. That is, if shares and founder’s preference share and
the company is unable to pay the full amount of shares. Redeemable preference
interest in a particular year, the arrears shares.
accumulate and they are carried forward until
they are fully paid. Similarities
II. Redeemable preference shares: These are the 1. They are transferable.
shares the company can retrieve (buy) from the 2. They are entitled to dividends.
holders (shareholders). 3. The holders have limited liability and separate legal
III. Participating preference shares: The holders entity.
still participate in sharing the profit’s remnants 4. The holders attend AGM of shareholders.
after ordinary shareholders might have received 5. They have title of ownership.
their dividends.
NB: In a Limited Liability Company (LLC) voting right is
Note: Preferred stock is a type of stock (share) that proportionate to the value of shares held (owned). While in
entitles the holders to a fixed rate of dividends. It is a a cooperative society every member has equal voting – one
synonym of preference share. member one vote.

2021/8 Neco
A unit of capital of a company purchased by an individual
is
A. bill of exchange B. debentures
C. hire purchase D. shares E. trade credit
Answer
shares (C)

283
2003/27 DIFFERENCE BETWEEN A DEBENTURE AND
The shares which do not carry any fixed rate of dividend ORDINARY SHARE
are known as Debenture Ordinary shares
A. debentures B. cumulative preference shares 1. It is a document which It is a small equal part
C. ordinary shares D. participating preference shares certifies that a stated into which a capital is
Answer sum of money had been divided for easy
Ordinary shares (C) borrowed with fixed subscription.
interest rate; and it
1990/28 Nov Exercise 12.10. would be paid in future.
Shares whose holders do not receive any dividends until all 2. It is entitled to interest.
It is entitled to
other shareholders have been paid are referred to as dividend.
A. deferred shares B. cumulative preference shares 3. It has fixed rate of It does not have a fixed
C. ordinary shares D. preference shares interest. rate of dividend.
4. It is a loan. It is a part ownership of
1991/27 UTME a company.
A characteristics of a debenture is that 5. The interest must be Its dividend is only
A. its yield is based on profits paid whether the paid if the firm makes a
B. its yield is a fixed rate of interest company makes a profit profit.
C. it has no redemption date or it sustains a loss.
D. there is a voting right when interest is paid 6. The holder is a creditor The holder is the owner
Answer and not an owner of the of the firm and he is not
its yield is a fixed rate of interest (B) firm. a creditor.
7. It is acquired with It is not acquired with
collateral security. security.
DEBENTURE 8. It is redeemable (i.e. it It is not redeemable
It is a financial or debt instrument with which a joint stock can be paid back in (i.e. it cannot be paid
company borrows money from members of the public. And future). back).
it is therefore a loan and bears a specific rate of interest. 9. It has first claim to It has last claim to
Thus, the holder is a creditor to the company and not a profit. profit.
shareholder. It is thus a document which certifies that the 10. The holder does not The holder has all
stated sum of money has been borrowed from the person have any right in the rights in the firm;
named therein and it will redeemable (paid) in future at par company. voting, nominating of
value.
board directors,
decision making, etc.
Features
1. It has a fixed rate of interest, and it must be paid Similarities
whether the company earns profit or not. 1. They are certificate of indebtedness.
2. It is a loan to the company. 2. They are long term loans.
3. It has no ownership status; that is, the holders are not 3. The borrowers pay charges to the lenders.
the owners of the firm but they are creditors.
4. It is redeemable. 2009/4 (OAU, IFE)
5. It is acquired with an aid of a collateral security. A characteristic of a debenture is that
A. it yield is based on profit
Types of debenture B. its yield is a fixed rate of interest
1. Mortgage debenture: It is a debenture that is obtained C. it has no redemption date
by offering (giving out) a specific (particular) asset of D. there is a voting when interest is paid
the company, like machine, a parcel of land, etc. to the E. its interest is variable
lender(s) as a collateral security against default Answer Its yields is a fixed rate of interest (B)
(inability to pay back the loan). It is also referred to as
secured debenture.
2. Floating debenture: It is obtained without offering 1995/10 Nov
any collateral. That is, it is not attached to any A debenture as a means of business funding is
particular asset. It is also called ‘unsecured or naked A. an interest bearing security
debenture’. B. a government participating share
3. Convertible debenture: It is a certificate of C. a form of loan from banks
indebtedness that can be converted (changed) into D. a founder’s initial capital
ordinary shares in the future. E. an interest free loan to companies
Answer An interest bearing security (A)
284
1994/4 2006/6 Nov
Compare and contrast the private limited company with the (a) Explain the following terms
public limited company (i) Separate legal entity
Answer (ii) Limited liability
Similarities between private limited company and the (iii) Limited partnership
public limited company are: (iv) Deed of partnership
i. Both have legal status (b) State any two elements which differentiate a private
ii. They have limited liabilities. limited company from a public limited company.
iii. There is continuity of existence. Answer
iv. There is large capital outlay. (ai) Separate legal entity: A business is a separate legal
v. Powers are exercised through memorandum and entity if the law recognizes the business as a
article of association. personality of its own, quite distinct from the owner.
vi. Both companies may be voluntarily or compulsorily The law recognizes the business as a corporate
liquidated. personality which has the power to sue or be sued in
vii. Directors control the company. its own right, without involving the owners.
(ii) Limited liability: This refers to the idea of setting up
DIFFERENCES BETWEEN PRIVATE LIMITED an upper limit to the amount of money an investor or
COMPANY AND PUBLIC LIMITED COMPANY a shareholder in a business may be required by law to
Public limited Private limited company contribute to the settlement of business debt, in the
company event of liquidation or a business failure.
1. Shares are easily Shares are not easily (iii) Limited partnership: This is an unincorporated
transferable. transferable, except with the business organization formed by an association of two
consent of other members. to twenty persons having similar economic interests,
2. Shares are quoted in the It shares are not quoted.
who by an agreement usually legal decide to run a
stock exchange
business together and share the risks and profit of the
3. It has a minimum of It has a minimum of two people.
seven people. business.
4. It has no maximum It has maximum of owners of (iv) Deed of Partnership: This has to do with the
number of people 50. provisions made for the internal activities of the
5. It is owned by the It is owned by family members business; such provisions are expected to enhance
members of the public. and family friends. good administration. The Deed of Partnership
6. There is no privacy as It enjoys some level of privacy contains:
the account must be (i) The name of the business.
published. (ii) The nature of business to be undertaken.
(iii) The amount of capital or resources to be
2023/23 contributed by each partner.
A joint stock company enjoys perpetual existence because (iv) How profits and losses are to be shared among
A. it is formed by a minimum of seven members the partners.
B. it is a corporate entity (v) How the partnership may be brought to an end if
C. its shares are easily transferable need be is to shared or delegated.
D. there is a higher degree of specialization (vi) The method for admitting new partners, e.t.c.
Answer (bi) A private limited company is set up by two to fifty
A joint stock company enjoys perpetual existence because persons while a public limited company as at least
it is a corporate entity (B) seven members and no limit of maximum numbers.
(ii) A private limited company: The capital requirement is
small while a public limited company, the capital
2006/29 Nov requirement is huge.
The main source of finance to public limited companies is
A. equity shares B. debentures C. government subsidy 2008/17
D. trade credits A business outfit is said to be a public limited company
Answer Equity shares (A) when it
A. is owned by government
2006/30 Nov B. operates as a public corporation
A firm is said to be a public limited liability company when it C. is run by the public
A. is owned and controlled by multinationals D. sell its shares to members of the public
B. sells shares to members of the public Answer
C. is wholly owned by government Sells it shares to members of the public (D)
D. is operated as a public corporation
Answer Sells shares to members of the public (B)
285
2008/6 2012/11 Nov
(a) Define the term limited liability (a) Highlight any four features of co-operative societies.
(b) Explain any four problems of statutory public (b) Identify any four sources of finance available to
corporations in your country. business enterprises in your country.
Answer Answer
(a) Limited liability means debt responsibility is limited (a) Features of cooperative societies
to capital invested into the business in the event of the (1) There is usually no limit to the size of its membership.
collapse or liquidation of the business. (2) It is usually open to persons with identical interests
(b) Problems of statutory public corporation. who wish to join.
(i) Inadequate economic and social infrastructure: (3) Profits or dividends are shared according to the
Poorly developed transportation, power supply make purchases from or sales to the society within a given
initial and operating cost high. trading year that is according to the members’
(ii) Inadequate capital:T he poorly developed capital patronage.
market and low level of savings limit capital for initial (4) All the members bear the risks of the business jointly.
operations and for expansion. (b) Sources of finance available to business emperies.
(iii) Scarcity of indigenous skilled manpower:This (i) Personal savings
creates need for reliance on foreign manpower with its (ii) Loans from relatives or friends.
associated problems of repatriation of funds, (iii) Borrowing from financial institutions.
economic sabotage, e.t.c. (iv) Issuing of shares.
(iv) High rate of corruption and embezzlement of 2001/11 Neco
business funds:Corrupt officials comprising Another name for ordinary shares is
management and workers may steal business funds A. buyers shares B. debenture C. equities
and may render the business bankrupt. D. owners shares E. preference shares
Answer Equities (C)

2022/7 NABTEB 2001/13 Neco

Which of the following is not a type of business The main purpose of establishing public enterprises is to
ownership? A. allocate scarce resources efficiently
A. Joint stock company B. Private company B. compete with the joint stock companies
C. Debenture holding D. Partnership C. maximize profits
Answer D. maximize production E. provide essential services to
Debenture holding (C) the public
Answer Provide essential services to the public (E)
2022/9 NABTEB 2001/14
A form of business organisation that is not motivated In a joint company, preference shareholders are those who
solely by profit is called receive
A. sole proprietorship B. partnership A. a fixed rate of dividend and have the first claim on the
C. joint stock company D. cooperative society net profits of the company
Answer B. dividends quarterly when others receive annually
Cooperative society (D) C. high dividends when profits are high and little or
nothing when profits are low.
D. low dividends whetherprofits are high or low
2012/18 Nov E. the remaining profits after all other shareholders have
The risk in a joint stock company is borne by the been paid
A. general manager B. managing director Answer
C. shareholders D. workers of the company A fixed rate of dividend and have the first claim on the net
Answer profits of the company (A)
Shareholders (C)
1991/29
2012/23 Nov In the event of a limited liability company going into
One major set back in a partnership is liquidation each shareholder
A. access to capital B. better decision making A. may lose a maximum of the amount he has invested
C. privacy of business account D. disagreement among B. loses nothing C. loses everything including his house
partners D. may have an unlimited liability
Answer E. will lose the amount he has invested plus a proportion of
Disagreement among partners his bank account
Answer
May lose a maximum of the amount he has invested (A)
286
2018/2019/69 (UNIZIK, AWKA) 2007/8 Neco Exercise 12.11
The type of business finance that entitles the holder to a Which of the following is a disadvantage of a sole
fixed rate of dividend is proprietorship?
A. preferred stock B. common stock C. debenture A. does not enjoy limited liability
D. bank loan B. decisions are easily made and implemented
Answer preferred stock (A) C. easy to set up
D. enjoys secrecy
2019/4 UTME E. maintains close relationship with workers and customers
In a public company, shares are
A. sold to one person only B. distributed freely 20007/9 Neco
C. advertised to members of the public for subscription In a sole proprietorship, decisions are made by the
D. disposed off by the executive A. board of directors B. government C. management
Answer D. owners E. shareholders
Advertised to members of the public for subscription (C) Answer Owner (D)

2007/41 Neco
A deliberate government policy to exclude foreign
2012/4 (OAU, IFE) participation in certain economic activities is known as
Ordinary shareholders and preferential shareholders are A. commercialization B. indigenization C. liberalization
different because D. localization E. privatization
A. preferential shareholders participate and can vote and be Answer Indigenization (B)
voted for during the AGM
B. ordinary shareholders are given priority case if the 2020/24
company is liquidated Sole proprietorship dominates retailing business in West
C. preferential shareholders are given prominent Africa because it
shareholders than the ordinary shareholders A. encourages division of labour B. can easily sell shares
D. ordinary shareholders are the core shareholders in the C. enjoys government support
company D. requires small capital to start
Answer Answer Requires small capital to start (D)
Ordinary shareholders are the core shareholders in the
company (D) 2020/25
Public enterprise are mainly established for the
1991/36 A. supporting the private sector
Which of the following is a public corporation? B. improving the welfare of citizens
A. Roads (Nigeria) Plc C. maximizing profits
B. National Oil and Chemical marketing CO. D. creating employment
C. Union Bank of Nigeria Plc Answer Improving the welfare of citizens (B)
D. Volkswagen of Nigeria Plc
E. National Electric Power Authority 2019/5 Neco
Answer (i) What is public enterprise?
National Electric Power Authority (E) (ii) Discuss four disadvantages of public enterprises.
Answer
1991/37 (i) Public enterprise are business organizations which are
In a sole proprietorship, decisions are made by the directly under the control of the government. Their aim
A. government B. owner C. shareholders is to cater for the welfare of the people.
conference D. management E. board of directors (ii) Disadvantages
Answer (1) There is lack of proper accountability as they in most
Owner (B) cases fail to render proper accounts to the government.
(2) There is usually a lack of motivation for efficiency.
2010/7 Neco This is actually due to the fact that the businesses do
Which of the following documents is required to set up a not have an close competitors since they are
limited liability company? government monopolis.
A. articles of association B. articles of ostentation (3) There is favouritism in appointment of management
C. bill of lading D. certificate of occupancy and officials due to tribalism, nepotism and political
E. invoice interests.
Answer (4) Decision making used to be very slow and bureaucratic
Articles of association (A) resulting in inefficiency.

287
2014/18 Neco 2003/27
The external sources of financing a large business The shares which do not carry any fixed rate of dividend
organization include the following except are known as
A. buying on credit B. investment trusts A. debentures B. cumulative preference shares
C. loans from banks D. plough back accumulated profits C. ordinary shares D. participating preference shares
E. taking debentures Answer Ordinary shares (C)
Answer Investment trusts (B)
2009/11 Neco 2003/28
A firm is said to be a public jointstock company when it The economic goal of public corporations is to
A. has unlimited liability B. is administered by the A. maximize profit B. expand assets C. minimize costs
public C. is owned by the government D. provide essential services
D. operates as a public corporations E. sells its shares Answer Provide essential services (D)
to members of the public
Answer Sells its shares to members of the public (E)
2003/6
2009/12 Neco Exercise 12.12. Explain any four of the following terms
Which of the following is an advantage of sole (a) Nationalization
proprietorship? (b) Commercialization
A. flexibility in admission of new partners (c) Privatization
B. greater specialization in managerial functions (d) Indigenization
C. involvement of shareholders in decision making (e) Joint ventures
D. prompt decision making and implementation Answer
E. unlimited liability (a) Nationalization: Nationalization is a deliberate
policy by which government take over the control and
ownership of private enterprise due to economic,
1990/28 Nov political, social and strategic reasons.
Shares whose holders do not receive any dividends until all (b) Commercialization: Commercialization is a policy
other shareholders have been paid are referred to as geared towards making state owned enterprises to
A. deferred shares B. cumulative preference shares become more efficient and profit oriented. The policy
C. ordinary shares D. preference shares makes it possible for public enterprises to become
Answer more viable and effective.
Ordinary shares (D) (c) Privatization: This is policy designed to enable
individuals and private or corporate organizations take
over the ownership and control of government
2003/24 businesses such as public companies and
The most common type of business in West African corporations.
countries is (d) Indigenisation: This is the process through the use of
A. joint stock companies B. sole proprietorship law in which indigenes of a country are made to
C. partnerships D. public enterprises participate actively or to take control of the
Answer commercial, industrial and other sectors of the
Sole proprietorship (B) economy.
(e) Joint ventures are those businesses in which private
investors and governments are in participation.
2003/25
Which of the following is a type of business organization? 2011/12 Neco
A. stock exchange B. insurance company C. chain stores A preference shareholder
D. cooperative A. does not share in the risk of the business
Answer B. is a debtor to the company
Cooperative (D) C. is entitled to a fixed rate of dividend
D. is not entitled to a fixed rate of dividend
E. is paid after the ordinary shareholder has been paid
2003/26 Exercise 12.13 Answer Is entitled to a fixed rate of dividend (C)
One advantage of the sole proprietorship is that
A. control and supervision is under one man 2010/7
B. accounts must be publicized C. it is always successful (a) What is a partnership?
D. funds are easy to obtain (b) State any two advantages and any two disadvantages
of a partnership.
288
 Answer 1995/4 Nov
(a) A partnership is a form of business organization in Explain five ways of financing business enterprises
which between two and twenty individuals enter into Answer
an agreement to run a business. (1) Personal savings: Most business enterprises require a
(b) Advantages of a partnership certain degree of personal savings. This is very much
(i) Individuals pooling resources together can generate common to the sole proprietorship and partnership.
more capital. (2) Loan from relatives or friends: When personal savings
(ii) It is easier to specialize, since each of the partners is found to be inadequate, loan can be obtained from
may bring different skills and expertise into the relatives or friends.
(3) Trade credits: This involves parting with goods and making
business.
payment at a later time, usually an agreed period.
(b) Disadvantages of a partnership
(4) Debenture: This is a long term loan obtained from the
(i) Lack of capital may limit expansion. general public at a fixed interest. It may be redeemable
(ii) Decision making is difficult as partners sometimes by the subscribers after the expiration of the loan period.
disagree. (5) Ploughed back profit: The profit or part of the profit of
(iii) The activities of one partner may ruin the organization the business can be retained for further investment.
2010/8 Exercise 12.14 2003/9 Neco
(a) What is privatization? Which of the following is a characteristic of private
(b) Give four reasons for government participation in enterprises?
economic activities in your country.
A. business risks are borne by the buyers
2000/11 B. capital is provided by the public
Which of the following can sell shares on the stock exchange C. control and management of the business is in the hands
market? of customers
A. co–operative society B. partnership D. the business is owned and run by government
C. private limited company D. public corporation E. the main aim of setting up the business is to maximize
E. public limited company profit
Answer: Public limited company (E) Answer
2000/12 Neco The main aim of setting up the business is to maximize
A distinguishing feature of the sole proprietorship is that profit (E)
A. control and supervision is under one man
B. continuity is not a problem C. it can obtain funds easily 2017/22 Exercise 12.15
D. it enjoys limited liability E. it is always successful Equity shares form the bulk of the capital of a
Answer Control and supervision is under one man (A) A. private company B. public company C. statutory
company D. limited partnership
2002/10 Neco
Answer
One of the major disadvantages of the sole proprietorship is
that he has Public company (C)
A. difficulties in setting up the business B. difficulties in
transferring shares C. high degree of continuity 2017/23
D. limited liabilities E. unlimited liabilities If a state owned firm is sold through the stock market, the
Answer: Unlimited liabilities (E) organization becomes a
A. partnership B. private company
1997/26 C. public limited company D. public corporation
The indigenization policy in Nigeria is aimed at Answer
A. nationalizing foreign businesses Public limited company (C)
B. alienating foreign investors
C. commandeering foreign businesses in Nigeria 1994/8
D. expelling foreign investors and taking over their Which of the following is not an advantage of government
investments ownership of enterprises?
E. increasing equity participation and control by Nigerians
A. more capitals is provided
Answer
B. pricing policy may be in the interest of consumers
Increasing equity participation and control by Nigeria (E)
C. government workers may be indifferent towards the
1997/36 public
In a public company, entrepreneurial functions are performed D. infrastructures are rapidly developed
by the E. income may become evenly distributed
A. workers B. shareholders C. creditors Answer
D. board of directors E. chairman Government workers may be indifferent towards the public (C)
Answer: Board of directors (D)

289
1994/34 2018/45 Neco
Limited liability means that Which of the following policies can be used by a country
A. the debts of a company can only be paid from its own to reduce foreign dominance of an economy?
assets A. commercialization B. indigenization
B. the debts of a company are paid from business as well as C. nationalization D. naturalization E. privatization
private funds of the owners Answer Indigenization (B)
C. a company does not have to pay its debt
D. the debts of a company must be paid from private funds 2018/9 Neco Exercise 12.17.
only List and explain four sources of finance to business
E. government cannot tax a company enterprises in Nigeria
Answer
The debts of a company can only be paid from its own 2001/30 Nov
assets (A) Which of the following is not a source of funding for
Limited Liability Company?
1993/6 Nov A. ordinary shares B. preference shares
A joint stock company is C. ploughing back salaries D. debenture
A. a limited liability company B. a sole proprietorship Answer
C. a public corporation D. a cooperative society Ploughing back salaries. (C)
E. an unlimited liability company
Answer 2001/32 Nov
A limited liability company (A) The type of cooperative society which buys goods in bulk
and sells to its members is called
1993/18 Nov A. consumer cooperative B. producer cooperative
A business organization that is set up for the mutual D. credit and thrift cooperative
benefits of members with similar interests is known as a D. profit and loss cooperative
A. cooperative society B. public corporation Answer Consumer cooperative (A)
C. public limited liability
D. private limited liability company E. partnership 2019/8 NABTEB
Answer Which business organizations enjoy tax free profits in
Partnership (E) Nigeria?
A. cooperative societies B. private limited liability
1993/35 Nov Exercise 12.16. companies C. joint stock companies
Which of the following is not a type of business D. partnership
organization? Answer Cooperative societies (A)
A. entrepreneur B. sole proprietorship C. partnership
C. cooperative E. public corporation 2019/9 NABTEB
The shares that must be redeemed first at liquidation at
2018/10 Neco liquidation of a company are
Which of the following is not a feature of public A. debentures B. cumulative preference shares
enterprises? C. ordinary shares D. preference shares
A. government ownership B. government provides the Answer Preference shares (D)
capital C. it is a legal entity D. it is profit oriented 1990/10
E. management is accountable to the government One advantage of a partnership over a sole proprietorship is that
Answer A. it is the most popular form of business organization
It is profit oriented (D) B. the partner can easily withdraw from the business
2018/12 Neco C. it makes an increase in the capital of the business possible
Indigenization policy in Nigeria was aimed at D. there is no limit to the number of people who may bring
A. establishment of industries in capital
B. greater involvement of indigenes in farming activities E. it can raise money from the public
C. greater involvement of Nigerians in manufacturing Answer
activities It makes an increase in the capital of the business possible (C)
D. provision of employment opportunity to foreigners
E. stabilization of the economy 1990/34
Answer The oldest type of business unit is that of the
Greater involvement of Nigerians in manufacturing A. partnership B. sole proprietor
activities (C) C. limited partnership D. joint stock Company
E. cooperative movement
Answer Sole proprietor (B)
290
1995/10 Nov 2012/6 (OAU, IFE)
A debenture as a means of business funding is Private and public limited companies are not the same
A. an interest bearing security because
B. a government participating share A. former is limited to fifty shareholders but not the latter
C. a form of loan from banks B. both are not legal entities
D. a founder’s initial capital C. formers is established secretly but latter is located in
E. an interest free loan to companies central places
Answer D. former is managed by board of directors but latter is
An interest bearing security (A) managed by board of management
Answer
1995/14 Nov Former is limited to fifty shareholders not the latter (A)
Share whose holders do not receive any dividends until all
other shareholders have received are known as 2012/24 (OAU, IFE)
A. ordinary shares B. cumulative preference shares Legal entity means
C. participating preference shares A. a company is owned by large number of people
D. redeemable preference shares E. preference shares B. a company is owned by small number of people
Answer C. a company is insulated against litigation
Ordinary shares (A) D. a company is not insulated against litigation
Answer
1999/5 Nov A company is not insulated against litigation (A)
A sole proprietor enjoys all the following advantages
except 2008/8 Neco Exercise 12.18
A. low capital for operative B. easy organization A business organization whose sole aim is to improve the
C. books not open to public D. assured continuity in welfare of its members is known as
case of death A. cooperative society B. joint stock company
Answer Assured continuity in case of death (D) C. partnership D. private limited company
1999/12 Nov E. sole proprietorship
In equity – financing, the contributors of fund to the
business units are known as 2016/8 NABTEB
A. creditors B. shareholders C. high interest seekers The main aim of all business organizations is to
D. debenture holders A. maximize profit B. provide essential services
Answer C. implement government policies
Share holders (B) D. improve the welfare of the people
Answer Maximize profit (A)
1999/22
The liability of a shareholder in a joint stock company is 2016/9 NABTEB
A cooperative society is run on the basis of one man, one
A. unlimited B. limited to the invested capital
vote, this principle is known as
C. transferable to his account D. indeterminable
A. democratic principle B. proxy principle
Answer
C. patronage principle D. open membership
Limited to the invested capital (B)
Answer Democratic principle (A)
2012/4 (OAU, IFE) 2016/32 Exercise 12.19
Ordinary shareholders and preferential shareholders are Who are the entrepreneurs in a public corporation?
different because A. shareholders B. debenture holders C. tax payers
A. preferential shareholders participate and can vote and be D. the government
voted for during the AGM
B. ordinary shareholders are given priority case if the 2005/23 Nov
company is liquidated Which of the following is a form of internal finance for a
C. preferential shareholders are given prominent company?
shareholders the ordinary shareholders A. undistributed profits B. loans C. debentures
D. ordinary shareholders are the core shareholders in the D. trade credit
company Answer Undistributed profits (A)
Answer
Ordinary shareholders are the core shareholders in the 2005/25 Nov
In a limited liability company, the greatest risk is borne by
company (D)
A. preference shareholders B. company executives
C. ordinary shareholders D. debenture holders
Answer Ordinary shareholders (C)
291
2005/27 Nov 2019/22
All of the following are type of private enterprises except Which of the following means of funding business is very
A. sole proprietorship B. public corporation reliable and cheap?
C. partnership D. joint stock company A. bank loans B. loans from friends
Answer C plough back profits D. debentures
Public corporation (B) Answer Plough back profits (C)

2005/28 Nov 1996/15 Nov

Which of the following is not a source of finance for a one Joint Stock Company is owned by
man business? A. stock brokers B. entrepreneurs
A. inheritance B. stock exchange C. loans from banks C. company directors D. wholesalers and retailers
D. assistance from friends E. shareholders
Answer Stock exchange (B) Answer
Company directors (C)
1992/11 Nov
The indigenization policy in Nigeria was aimed at 2015/21
A. increasing the Nigeria participation and ownership in Which of the following business organization is likely to
business ventures experience disagreements between management and
B. totally criminating foreigners from participating in the shareholder?
economy D. nationalizing all businesses A. cooperative society B. sole trader C. partnership
D. improving the living standard in Nigeria D. joint stock company
E. increasing the level of intermediate and capital goods in Answer
production Joint stock company (D)
Answer
Increasing the Nigeria participation and ownership in 2015/23
Which of the following features distinguishes a public
business ventures (A)
limited company from a private limited company?
1992/12 Nov A. perpetual existence B. limited liability
A sole proprietor does all the following except C. legal entity D. sale of shares to the public
A. taking personal decision on his business Answer
B. hiring and firing labour at will Sales of shares to the public (D)
C. financing the business solely
D. sharing losses and profits with co – businessmen 2002/23 Nov
E. determining the pattern of production Which of the following is an advantage of sole
Answer proprietorship?
Sharing losses and profits with co – businessmen A. greater specialization in managerial functions
B. flexibility in admission of new members
2000/12 Exercise 12.20 C. involvement of shareholders in decision making
One important feature of sole proprietorship is that D. opportunity to take quick decisions
A. it is a limited liability business Answer
B. the business is owned by shareholders Opportunity to take quick decisions (D)
C. one person bears all the risks D. it is a legal entity
Answer 2002/24 Nov
One person bears all the risk (C) Partnership business is usually governed by a written
agreement called
2000/14 A. a legal partnership B. an undertaking for partnership
The consumer’s cooperative society is owned by C. a deed of partnership D. an associated partnership
A. a management committee B. members of the society Answer
C. debenture holders D. the government A deed of partnership (C)
Answer Members of the society (B)
2002/25 Nov Exercise 12.21
2000/45 A common source of finance to both sole proprietorship
Small enterprises find it difficult to expand due to and partnership is
A. inadequate capital B. lack of skilled manpower A. issuance of shares B. previous personal saving
C. the high level of technology required for expansion C. government subvention D. capital gains tax
D. their inability to provide after sales services
Answer
Inadequate capital (A)
292
2006/8 Neco 2003/23 Nov
Shares that are sometimes issued to the promoters and A more disadvantage of partnership form of business is that
founders of a company is known as A. every partner has to be consulted during decision
A. cumulative preference shares B. debentures making
C. deferred shares D. ordinary shares B. partners could be too friendly with their customers
E. preference shares C. affairs can be kept private
Answer D. partners could take long holidays
Ordinary shares (D) Answer Every partner has to be consulted during decision making (A)

2006/9 2018/8 NABTEB

Which of the following is a source of fund to a sole The aim of the sole proprietor is to
proprietorship? A. provide employment opportunities
A. debentures B. loans C. ordinary shares B. serve the people C. complete with other sole traders
D. preference shares E. special levies D. make profits
Answer Loans (B) Answer Make profits (D)
1993/5 Nov 2018/10 NABTEB
(a) What is partnership? Which of the following is a public enterprise in Nigeria?
(b) Outline the advantages and disadvantages of this type A. Dangote group of companies B. Nigeria Breweries
of business enterprise C. Nigerian Bottling Company
Answer D. Nigerian Railway Corporation
(a) A partnership is an unincorporated business organization Answer: Nigerian Railway Corporation (D)
formed by an association of two to twenty persons having
similar economic interests, who by an agreement (usually 2000/18 Nov
legal), decide to runa business together and share the risks A joint stock company can expand its business by
and profits of the business. A. issuing shares and debentures
(b) Advantages B. refusing to pay its creditors
(i) There is personal contact with both employees and C. giving out loans and advances
customers. D. selling parts of its machineries
(ii) Business risks are shared among more people. Answer: Issuing shares and debentures (A)
(iii) There is the advantage associated with specialization.
(iv) There is privacy in conducting business affairs. 2000/17 Nov
(v) Each partner is responsible for the action of the others. Which of the following forms of business organization is
most likely to collapse at the death of the owner?
1993/4
A. sole trader B. partnership C. joint stock company
Public corporation in West Africa are set up to
D. consumer cooperative
A. make maximum profit B. provide jobs for the people
Answer: Sole trader (A)
C. provide welfare services for the people
D. show that the government can do business 2000/27 Nov
E. compete with private enterprises In a cooperative society, the risk of the business is totally
Answer Provide welfare services for the people (C) borne by the
A. management B. chairman C. treasurer D. members
1993/12
Answer: Members (D)
Which of the following does not apply to private
companies?
2016/5 NABTEB
A. the number of shareholders is limited
(a) Explain (i) Legal entity and (ii) Limited liability
B. the liability of shareholders is limited
(b) Briefly explain any four elements which differentiate
C. accounts have to be publicized
a private limited company from a public limited
D. the companies are separated legal entities
company.
E. shares are not easily transferable
Answer
Answer Shares are not easily transferable (E)
(i) Legal entity: A business is a separate legal entity if
1993/39 Exercise 12.22 the law recognizes the business as a personality of its
One-man business are popular in West Africa because of own quite distinct from the owners. The law
all the following except the recognizes the business as a corporate body which has
A. ease of entry B. small capital required the power to sue or be sued in its own right, without
C. limited entrepreneurial skill needed involving the owners.
D. ease of decision making
E. tendency to become joint stock companies
293
(ii) Limited liability refers to the idea of setting an upper 1980/43 UTME
limit to the amount of money on investor or a In a limited liability company, the greatest risk is borne
shareholder in a business may be required by law to A. shareholders debentures B. company executives
contribute to the settlement of business debt, in the C. ordinary shareholders D. preference shareholders
event of liquidation or a business failure. E. board of directors
(b) Difference between private limited company and Answer Ordinary shareholders (C)
public limited company
(i) Ownership in private enterprises is by individuals or 1981/44 UTME
shareholders while ownership in public enterprises is Unlimited liability means
by the government or its agencies. A. the government can tax a company without limit
(ii) The formation of a private enterprise is effected by B. the debts of a company must be paid out of its assets
incorporation while the formation of a public C. a company cases to exist at the death of one of its owners
enterprise is effected by the act of parliament. D. a firm must pay its debts from business as well as
(iii) The main objectives in private enterprises is profit private funds
maximization except for the cooperatives which are E. none of the above
not after profits. Answer
(iv) In a private enterprise, the shareholders elect the A firm must pay its debts from business as well as private
members of the board of directors that will control the funds (D)
organization while in a public enterprise; the
government’s ministry in charge appoints the 1982/8 UTME
members of the board of directors that will control the Most firms are financed by share capital. The shares which
organization. do not carry any fixed rate of dividend are known as
A. debentures B. preference shares C. ordinary shares
1979/27 UTME Exercise 12.23 D. participating preference shares E. old shares
Which of the following is not a form of business Answer Ordinary shares (C)
organization?
A. sole proprietorship B. cartel C. partnership 1982/10 UTME Exercise 12.24
D. joint stock E. cooperative societies Who controls a limited company?
A. the general manager B. the managing director
1979/49 UTME C. the owner of 51% of the shares
Bondholders are treated more favourably than shareholders D. the board of directors E. the government
because
A. they are not liable for the company’s losses
B. they have a greater voice in electing the board of directors 1982/11 UTME
C. they control the management The National Electricity Power Authority (NEPA) is a
D. they have a prior claim on the company’s assets A. Public Limited Company B. Public Liability Company
E. none of the above C. Private Authority D. Public Corporation
Answer None of the above (E) E. Federal Government Authority
Answer Public corporation (D)
1980/17 UTME
Which would you NOT consider an advantage of a one – 1982/39 UTME
man business? Public enterprises are supported on the grounds that they
A. freedom of action B. limited liability are undertaken for
C. quick decision making D. personal contract with A. increasing profit of the private sector
customers E. none of the above B. reducing the burden of the private sector
Answer C. improving the welfare of the people
Limited liability (B) D. earning profit for the people
E. earning profits for the government
1980/22 UTME Answer Improving the welfare of the people (C)
A limited liability company is owned by
A. an individual B. two or more partners 1983/18 UTME
C. shareholders D. government E. a bank In a sole proprietorship the decisions are made by the
Answer A. government B. board of directors C. management
Shareholders (C) D. shareholders conference E. owner
Answer
Owner (E)

294
1983/19 UTME 1984/29 UTME
Which of the following enterprises does NOT pursue the The basic principles of cooperative societies are those of
sole objective of profit maximization? A. active participation of capitalists in the affairs of
A. Roads Nigeria Ltd B. Union Bank of Nigeria Ltd cooperative societies
C. Nigeria Electric Power Authority B. worker ownership and worker control
D. Volkswagen (VW) Nigeria E. Kingsway Nigeria Ltd C. sole proprietorship D. partnership
Answer Nigerian Electric Power Authority (C) E. denying of credit facilities to members
Answer Worker ownership and worker control (B)
1983/26 UTME 1985/21 UTME
In the event of a limited liability company going into A corporation can obtain funds by issuing bonds. A bond is
liquidation each a form of debt which falls due for repayment after
A. shareholder may lose the maximum of the amount he A. 6 months B. 9 months C. 2 years D. 5 months
has invested E. 10 or more years
B. shareholder losses nothing Answer 10 or more years (E)
C. shareholders losses everything including his house
D. shareholders liability becomes unlimited 1985/22 UTME
E. shareholder will lose the amount he has invested plus a A firm is said to be a public stock company when it
proportion of his bank account A. is owned by the government
Answer B. is operated as a public corporation
Shareholder may lose the maximum of the amount he has C. is operated in a non – democratic fraction
invested (A) D. sells shares to members of the public and publishes its
account E. is a limited liability company
1983/37 UTME Answer
When a government owns enterprises a number of Sells shares to members of the public and publishes its
advantages arise. Which of the following is NOT one of account (D)
such advantages?
A. more capital is provided 1985/23UTME Exercise 12.25
B. pricing policy may be in the interest of consumers Limited liability means
C. government workers may be in different towards the public A. the debts of a company can only be paid for its own
D. infrastructures are rapidly developed assets
D. income may be more evenly distributed B. the debts of the company are paid from business as well
Answer as private funds of the owners
Government workers may be in different towards the C. government cannot tax the company
public (C) D. the debts of the company must be paid from private
funds only
1984/25 UTME E. the company does not have to pay its debts
One disadvantages of sole proprietorship is its
A. limited liability B. high profits C. high sense of 1985/25 UTME
ownership D. low credit rating E. low failure rate When a business has unlimited liability
Answer Low credit rating (D) A. all its profits can be tax away by the government
B. all its assets are owned by the members of its board of
1984/27 UTME directors
Which of the following is not true of debentures and C. the business ceases to exist at the death of one of its own
debenture holders? owners
A. debentures are instrument for raising long – term capital D. the owners are responsible for all its financial debts
by limited liability companies Answer
B. debentures are fixed interest bearing securities with The owners are responsible for all its financial debts (D)
specified maturity dates
C. debenture holders are creditors to the company and 1986/24 UTME
therefore do not share in the risk of the company The most important advantage of cooperative societies is
D. debenture holders are entitled to interest payments A. their high degree of democracy
whether or not profits are made B. the increase in the cost of marketing
E. preference shareholders receive their share of profits C. that members are all encouraged to save money
before debenture holder receive their entitlement D. the possibility of raising loans for the members
Answer Answer
Preference shareholders receive their share of profits The possibility of raising loans for the members (D)
before debenture holder receive their entitlement (E)

295
1986/25 UTME Exercise 12.26 1988/28 UTME
In a public company, shares are The most important limitations on the partnership as a form
A. sold to one person only B. distributed freely of business enterprise is the
C. advertised to members of the public for subscription A. implication for partners liability
D. disposed by the chief executive B. legal limitation placed on the number of partners
C. difficulties arising from having two coordinate heads
1986/26 UTME D. fact that each partner regardless of the capital he
Which of the following is a characteristics of a private contributes, must have the same voting right
limited liability company? Answer Legal limitations placed on the number of partners (B)
A. its shares can be sold to the public
B. the number of shareholders ranges from fifty to one 1988/29 UTME
hundred Under partnership, investors who have no desires to be
C. all shareholders have equal powers and responsibilities actively involved in the day – to – day management of such
D. the number of shareholders ranges from two to fifty organizations are called
Answer: The number of shareholders ranges from two to A. stock brokers B. sleeping partners C. part – time
fifty (D) investors D. ordinary partners
Answer Sleeping partners (B)
1986/27 UTME
One of the advantages of the partnership over a sole 1989/21 UTME Exercise 12.27
proprietorship is that The size of a business unit tends to be small if the activity
A. it is the main popular form of business organization A. involves mass production of goods
B. the partner can easily withdraw from the business B. requires a large capital C. requires division of labour
C. it makes an increase in the capital of the business D. involves the provision of direct services
possible
1989/22 UTME
D. there is no limit to the number of people who may bring
Which type of business organization has the attribute of
in capital
effectively combining management with control?
Answer
A. sole proprietorship B. partnership
It makes a an increase in the capital of the business
C. limited liability company D. cooperatives
possible (C)
Answer: Sole proprietorship (A)
1987/29 UTME
The liability of the sole trader is 1989/23 UTME
The cooperative as a form of business organization differs
A. indeterminable B. unlimited C. transferable
from partnership by having
D. limited
A. several sources of capital for business financing
Answer Unlimited (B)
B. ability to issue preferred stocks to members
1987/30 UTME C. entrenched democratic control in the conduct of
Which of the following is not a type of business business
ownership? D. established rules and regulations governing the activities
A. debenture holding B. private company of its members
C. partnership D. joint stock venture Answer
Answer Debenture holding (A) Entrenched democratic control in the conduct of business (C)

1987/32 UTME 1989/24 UTME

A limited liability company is usually owned by The type of business finance that nestles the holder to a
A. an individual B. a government C. shareholders fixed rate of dividend is
D. two or more partners A. preferred stock B. common stock C. debenture
Answer Shareholders (C) D. bank loan
Answer Preferred stock (A)
1988/27 UTME
In a public company, entrepreneurial functions are 1989/25 UTME
performed by the Which of the business organizations listed below is
A. workers B. shareholders C. general manager characterized by limited authority and liability of the
D. board of directors individual owners?
Answer Board of directors (D) A. sole proprietorship B. partnership
C. joint stock company D. cooperative society
Answer Joint stock company (C)

296
1990/24 UTME 1992/22 UTME
A major difference between a state – owned enterprise and The main handicap of sole proprietorship is
a private enterprise is that the former A. limited liability B. lack of technical know – how
A. is not expected to cover its cost of production while the C. low profit margin D. inadequate capital
latter is Answer
B. is not always expected to maximize profits while the Inadequate capital (D)
latter is
C. has shareholders while the latter does not 1992/23 UTME
D. has a board of directors while the latter does not The type of business organizations mostly used for
Answer producing publicly goods in Nigeria is
Is not always expected to maximize profits while the latter is (B) A. sole proprietorship B. limited liability companies
C. cooperative societies D. statutory corporations
1990/25 UTME Answer
Divorce of ownership from control is a characteristic of Statutory corporations (D)
A. sole proprietorship B. a limited liability company 1992/24 UTME
C. partnership D. private limited company The main reason for the current programme of privatization
Answer and commercialization of public enterprises in Nigeria is to
A limited liability company (B) A. reduce public expenditure
B. encourage efficiency in the performance of such
enterprises
1990/26 UTME
C. reduce the number of public enterprises
Capital provided by individuals to the firm by purchasing
D. raise the price of goods and services produced by the
stocks is called
enterprises
A. debt capital B. fixed capital C. circulating capital
D. equity capital Answer
Encourage efficiency in the performance of such enterprise (B)
Answer
Equity capital (D)
1992/25 UTME
The type of business finance that entitles the holder to a
1991/25 UTME
fixed rate of dividend is
One of the most outstanding disadvantages of cooperative
A. preferred stock B. common stock C. debenture
societies as business organizations is that
D. bank loan
A. true spirit of cooperation is marred by delegated
authority Answer
Preferred stock (A)
B. member show how much interest
C. it is poorly financed 1993/24 UTME
D. membership interest is centred on sharing of essential A debenture share entitles its holder to
commodities A. participate in the annual general meeting of the
Answer company
Membership interest is centered on sharing of essential B. share in the dividends declared
commodities (D) C. receive a fixed interest on sums invested
D. have a representative on the Board of Directors
1991/26 UTME
Answer
A disadvantages of a joint stock company is
Receive a fixed interest on sums invested (C)
A. unlimited liability B. limited liability
C. continuity D. loss of controlling interest
1993/25 UTME
Answer
A public liability company is different from a private
Limited liability (B)
limited company because
A. is registered with the Registrar of companies
1991/27 UTME
B. is a legal entity C. can raise capital of any size by
A characteristics of a debenture is that
way of loans D. can sell shares in the stock exchange
A. its yield is based on profits
Answer Can sell shares in the stock exchange (D)
B. its yield is based on profits
C. it has no redemption date
1993/26 UTME
D. there is a voting right when interest is paid
A modern corporation is owned by
Answer
A. debenture holders B. ordinary shareholders
Its yield is based on profits (A)
C. preference shareholders D. creditors
Answer Ordinary shareholders (B)

297
1994/28 UTME 1997/22 UTME
A major shortcoming of the sole proprietorship form of A form of business organization which is characterized by
business is lack of limited authority and liability of the individual owners is
A. working capital B. patronage C. continuity the
D. market A. sole proprietorship B. partnership C. joint stock
Answer Continuity (C) company D. cooperative society
Answer
1994/29 UTME Joint stock company (C)
In the event of liquidation of a private limited liability
company, the shareholders liability is limited to their total 1997/23 UTME
A. income from all sources B. family assets The shares that must be redeemed first at liquidation of a
C. collateral offered for bank loans company are
D. investment in the company A. preference shares B. non – voting ordinary shares
Answer Investment in the company (D) C. ordinary shares D. debentures
Answer Debentures (D)
1995/25 UTME
In a joint stock company, preference shareholders are those
1998/21 UTME
who receive
Liquidation of a limited liability company implies that the
A. high dividends when profits are high and little or nothing
A. company may not pay its debt
when profits are low
B. a fixed rate of dividend and have the first claim on the net
B. debts of the company can only be paid from its own
profit of the company assets
C. the remaining profits after all other shareholders have been C. debts of the company are paid from both business and
paid private funds of the owners
D. dividends quarterly when others receive annually D. debts of the company must be paid from public funds
Answer only
A fixed rate of dividend and have the first claim on the net Answer
profit (B) Debts of the company can only be paid from its own assets (B)

1995/26 UTME 1998/22 UTME

The major reason for the survival of small shops despite One form of business organization which is not motivated
competition from large business enterprises is because of solely by the profit objective is the
A. the small capital outlay involved A. joint stock company B. private limited company
B. regularity and constant supply of commodities by them C. cooperative society D. ordinary partnership
C. their local services and longer hours of operation Answer
D. their level of managerial competence Cooperative society (C)
Answer
Their local services and longer hours of operation (C) 1998/23 UTME Exercise 12.28
Which of the following can have their shares quoted on the
1995/27 UTME stock exchange?
One of the major advantages of public enterprises is that A. public corporations B. a partnership
A. they are highly subsidized C. a consumer cooperative
B. they are the largest employers of labour D. a public limited liability company
C. their operations are highly standardized
D. they take prompt decisions and actions 1999/23 UTME
Answer The major problem of cooperative societies in Nigeria is
They are highly subsidized (A) that
A. they often lack cohesion and continuity
1995/28 UTME B. their liability is unlimited to members
When public enterprises become commercialized, it means C. voting is by proxy D. their management style is poor
that Answer
A. the product of the enterprises are further subsidized Their management style is poor (D)
B. they are expected to operate with the primary aim of
making profits 2000/32 UTME
C. the government has decided to divest itself of such A distinguishing characteristics of cooperative societies is
enterprises that voting power depends on the
D. the staff of the enterprises will be laid off A. number of shares held B. equality of members
Answer C. status of the member D. management’s decision
They are expected to operate with the primary aim of making
Answer
profits (B)
Equality of members (B)
298
2014/2015/84 (UI, IBADAN) 2003/32 UTME
The maximum number of shareholders for a limited An advantage of the sole proprietorship over the
liability company is partnership form of business organization is that
A. twenty B. seven C. five D. infinite A. balance of payment problems of member nations
E. limited to the number of individuals that are interested B. its existence is limited by an individual’s life span
Answer Infinite (D) C. it relies on the decision of friends to succeed
D. the possibility of conflict in management is virtually
2008/2009/16 (NDU, BAYELSA) non – existent
All the following are source of finance to a joint stock Answer
company, except The possibility of conflict in management is virtually non –
A. bank loan B. equity shares C. debentures existent (D)
D. preference shares E. cooperative thrift 2004/29 UTME Exercise 12.29.
Answer The number of shareholders in a private limited liability
Cooperative thrift (E) company ranges from
A. two to seven B. two to three C. two to fifty
2019/2020/11 (NDU, BAYELSA) D. two to twenty
Liquidation of limited liability company implied that the
A. company may not pay its debts 2005/41 UTME
B. debts of the company can only be paid from its own The raising of funds by selling stocks to the public is called
assets A. equity financing B. deficit financing C. loan financing
C. debts of the company are paid for both business and D. debt financing
private funds of the owners Answer
D. debts of the company must be paid from public funds Equity financing (A)
only
Answer 2006/14 UTME
Company may not pay its debts (A) A characteristics common to partnership and sole
proprietorship is
2001/29 UTME A. unlimited liability B. limited liability
The losses suffered by a sole proprietor are C. accessibility to loans D. transferability of shares
A. usually equal to the amount invested Answer
B. usually less than the amount invested Unlimited liability (A)
C. limited to the amount invested
D. not limited to the amount invested 2007/16 UTME Exercise 12.30
Answer The minimum number of shareholders for a joint stock
Not limited to the amount invested (D) company is
A. 4 B. 2 C. 7 D. 3
2001/32 UTME
The raising of funds by selling stocks to the public is called 2008/42 UTME
A. equity financing B. stock financing Joint stock companies can raise funds from
C. debt financing D. loan financing A. the money market B. the capital market
Answer C. various sources D. government
Equity financing (A) Answer Government (D)

2002/18 UTME 2009/39 UTME

Liquidity preference refers to the The major problem confronting a sole proprietor s
A. need to borrow money for short periods to meet some A. high level of risk B. limited expertise
temporary crisis C. limited source of capital D. high taxation
B. wish to hold more funds for precautionary purposes Answer
C. need to increase the money supply in order to lower the Limited source of capital (C)
interest rate
D. demand to hold money as assets rather than as stocks 2009/40 UTME
Answer A public liability company is run on a daily basis by
Demand to hold money as assets rather than as stocks (D) A. the Chief Executive B. the shareholders
C. the board of directors D. financial consultants
Answer
The board of directors (C)

299
2010/42UTME 2016/19 UTME
The maximum number of shareholders for a limited In a limited liability company, the greatest risk is borne by the
liability company is A. preference shareholders B. debentures shareholders
A. twenty B. seven C. five D. infinite C. ordinary shareholders D. board of directors
Answer Infinite (D) Answer
Ordinary shareholders (C)
2011/43 UTME Exercise 12.30
The transfer of public shareholding incorporations to 2016/38 UTME
private enterprises is The minimum member of shareholders for partnership is
A. 7 B. 4 C. 2 D. 3
A. concession B. incorporation C. commercialization
Answer
D. privatization
2 (C)
2013/38 UTME 2017/6 UTME
In Nigeria, efficiency in public corporations can be The major advantage of a public limited liability company
achieved through over a private limited liability company is
A. public offer B. indigenization C. privatization A. limited liability enjoyed by owners
D. nationalization B. separate legal entity C. easy transferability of shares
Answer Privatization (C) D. perpetual existence
Answer
2013/41 UTME Easy transferability of shares (C)
A distinguishing characteristics of consumer cooperative
2018/11 UTME
society is that, the
Joint ventures are partnership involving
A. maximum number of shareholders is 20
A. the poor and the rich B. employers and workers
B. members are the owners C. members are the workers C. government and private investors
D. the minimum number of shareholders is 5 D. multinationals and individuals
Answer Members are the owners (B) Answer
Government and private investors (C)
2013/42 UTME
A major disadvantage of partnership business is 2018/12 UTME
A. difficulty in the transfer of shares In which of the following business units are the owners
B. distrust among members mostly the customers?
C. limited liability D. large capital outlay A. cooperatives B. limited liability companies
C. partnership D. public corporation
Answer
Answer Cooperatives (A)
Distrust among members (B)
2019/4 UTME
2014/43 UTME In a public company, shares are
The voting power in co – operative societies is vested on A. sold to one person only B. distributed freely
A. management B. members without loan C. advertised to members of the public for subscription
C. shareholders D. members with the highest contribution D. disposed off by the executive
Answer Answer
Shareholders (C) Advertised to members of the public for subscription (C)

2015/3 UTME 2006/2007/38 (UNIZIK, AWKA)

Cooperative societies are characterized with All these are sources of finance to a joint stock company except
A. divergent interest of members B. limited liability A. bank loan B. equity share C. debentures
C. free entry and exit D. unlimited size of membership D. preference shares E. cooperate thrift
Answer Answer
Unlimited size of membership (D) Cooperative thrifts (E)

2015/7 UTME
The number of persons required to a private company ranges 2013/2014/34 (UNIZIK, AWKA)
from External finance for a limited liability company is mainly
A. ten to twenty B. two to fifty C. two to seven sourced through
D. seven to ten A. the leasing of equipment B. the issuing of shares
Answer C. trade credit D. bank loans E. none of the above
Two to fifty (B) Answer The issuing of shares (B)

300
2014/2015/38 (UNIZIK, AWKA) 2011/2012/13 (NDU, BAYELSA)
A limited liability company is owned by The disadvantage of sole proprietorship is its
A. an individual B. two or more partners A. limited liability B. high profits
C. shareholders D. government E. banks C. high sense of ownership D. low credit rating
Answer Shareholders (C) Answer
Limited liability (A)
2014/2015/44(UNIZIK, AWKA)
The most important advantage of cooperative society is 2011/2012/23 (NDU, BAYELSA)
A. their high degree of democracy The basic principle of cooperative societies are those of
B. the increase in the cost of marketing A. workers ownership and worker control
C. that members are encouraged to save money B. sole proprietorship C. partnership
D. the possibility of raising loans for others D. denying of credit facilities to members
E. they give loans without carying how members will repay Answer
Answer Workers ownership and worker control (A)
That members are encouraged to save money (C)
2014/2015/33 (UNIZIK, AWKA) 2012/25 (OAU, IFE)
Shares which do not carry any fixed rate of income are known as In the ownership structure of joint stock company, the
A. debentures B. preference shares C. ordinary shares following is correct
D. participating preference shares E. old shares A. ordinary shareholders are stronger than preferential
Answer shareholders
Ordinary shares (C) B. preferential shareholders are stronger than ordinary
2018/2019/69 (UNIZIK, AWKA) Exercise 12.31 shareholders
The type of business finance that entitles the holder to a fixed C. ordinary shareholders are settled first in case of company’s
rate of dividend is liquidation
A. preferred stock B. common stock C. debenture D. ordinary and preferential shareholders are perpetual rivals
D. bank loan Answer
Ordinary shareholders are stronger than preferential
2014/2015/81 (UI, IBADAN) shareholders (A)
In a limited liability company, the greatest risk is borne by
A. share holders debentures B. company executives 2009/4 (OAU, IFE)
C. ordinary shareholders D. preference shareholders A characteristic of a debenture is that
E. board of directors A. it yield is based on profit
Answer B. its yield is a fixed rate of interest
Ordinary shareholders (C) C. it has no redemption date
D. there is a voting when interest is paid
2014/2015/82 (UI, IBADAN) E. its interest is variable
In a public company, share are Answer
A. sold to one person only B. distributed freely Its yields is a fixed rate of interest (B)
C. advertised to members of the public for subscription
D. disposed off by the chief executive 2009/8 (OAU, IFE)
E. none of the above Under partnership, investors who have no desire to be actively
Answer involved in the day-to-day management of such organizations
Advertised to members of the public for subscription (C) are called
A. stock brokers B. sleeping partners
2014/2015/83 (UI, IBADAN) C. part – time investor D. ordinary partners
The advantage of the sole proprietorship is as follows E. debenture holders
A. it is always successful B. continuity is no problem Answer
C. control and supervision is under one man Sleeping partners (B)
D. fund are easy to obtain
E. inter-generational equity is assured 2009/9 (OAU, IFE)
Answer In a sole proprietorship, decisions are made by the
Control and supervision is under one man (C) A. government B. board of directors
C. management D. shareholders E. owners
2018/2019/70 (NDU, BAYELSA) Answer Owners (D)
Which of the following is not a type of business ownership?
A. debenture holding B. private company C. partnership 2004/20 Nov
D. joint stock venture E. sole trading If the government takes over a business organization from its
Answer original owners, the business is said to have been
Debenture holding (A) A. privatized B. liquidated C. indigenized
D. nationalized
Answer Nationalized (D)
301
2004/22 Nov 1995/10 Nov Exercise 12.32
Membership of a private limited company consists of between A debenture as a means of business funding is
two and A. an interest bearing security
A. ten B. twenty C. fifty D. infinity B. a government participating share
Answer Fifty (C) C. a form of loan from banks
D. a founder’s initial capital
1997/17 Nov E. an interest free loan to companies
Which of the following business organization has the highest
risk of discontinuity?
A. public corporation B. one man business 1992/4 Nov Exercise 12.33
C. partnership D. joint stock companies (a) What is a cooperative society?
E. cooperative societies (b) Discuss the various types of cooperative societies that
Answer can be found in Nigeria.
One man business (B)
2023/12 Neco
a. What is Co-operative Society?
b. Expatiate on five sources of finance to business
enterprises

302
 DISTRIBUTIVE TRADE
Distributive trade is the physical flow of goods and services from the producer to the consumers through certain channels.
The process of distribution is the chain of economic activities which is responsible for conveying goods and materials
from their manufacturers or producers and delivering them to the consumers.
A channel of distribution comprises the set of institutions, organizations or agents which perform all of the activities used
in moving a product from the production to the consumption stage that is from the manufacturers to the consumers.
Therefore the channel of distribution originates from the producer and terminates at the consumer.

PROCESS OF DISTRIBUTION
The process of distribution implies the series of activities that takes place in the task of bridging the gap between the
manufacturers and the consumers. The activities include
(i) Merchandising: This involves the buying and selling of goods. It provides a very good avenue for easy exchange of
goods and services. It opens the way for human satisfaction and the better standard of living by providing for basic
necessities of life which are food, shelter and clothing. The arrangement for purchase is usually made by the
wholesalers and the retailers. They buy goods for the purpose of reselling them.
(ii) Packaging: Packaging covers all activities in product planning that involves the development of a container and a
graphic design for a product. It must be noted that a package is an essential part of a product. Packaging, labeling and
branding are inter – related because label appears on the package and brand is also on the label. Package catch the
attention of consumer. It makes it easier to differentiate the product of one manufacturer to another.
(iii) Storage: Products are sometimes produced or obtained by the wholesalers in anticipation of demand. Storage and
warehousing helps in ensuring that products are in the place where they are most needed and that they are available
when they are wanted.
(iv) Transportation: It involves the movement of goods to the wholesalers, retailers or consumers. It can be by land, air
or sea. Transportation creates world market and enhance mobility of labour.
(v) Advertising: This has to do with creating awareness of a product to the consumers. It aims at making the existence
of goods known to the consumers. Advertising in forms and persuade consumers to purchase a product.

CHANNELS OF DISTRIBUTION
The channel of distribution (also known as trade or marketing channel, distribution chain, chain of distribution) is the route through
which goods pass from the producer to the final consumer.It consists essentially of producers or manufacturers, middlemen such as
wholesalers and retailers, cooperative societies, marketing or community boards and consumers.
The ultimate goal of the productive activities is to get the products produced to the consumers without any damage to the quality.
There are two major types of channel of distribution, namely direct and indirect:

1. Direct channel of distribution: This occurs when goods pass from producers directly to the final consumers. This implies that
there is no single middleman between the producer and the consumer. The producer sells directly to the final consumer.
2. Indirect channel of distribution: This occurs when middlemen e.g. wholesaler and/or retailers are involved in the movement of
goods from the producers to the final consumers. The goods pass through wholesalers and retailers before they reach the final
consumers. The table below shows the various types of channel of distribution.

303
Any of the channels may be chosen by the manufacturer 2000/15 Nov
but the decision on which one to choose will be influenced Which of the following pairs can be referred to as
by certain factors. These factors includes: middlemen?
1. The kind or nature of product offered for sale A. consumers and producers
(Perishable or non – perishable, expensive or non – B. producers and wholesalers C. retailers and wholesalers
expensive). D. retailers and producers
2. The kind of market served by the manufacturer. Answer
3. The geographical concentration of consumers. Retailers and wholesalers (C)
4. The quantity of order.
5. The category of middlemen desired by the producing 2019/2020/10 (UI, IBADAN) 13.2.
firm. Who among the following is the intermediary between the
6. The channel being used by the competitor (if there is producer and the retailer?
any). A. agent B. wholesaler C. consumer D. distributor
7. The number of potential buyers.
8. The size and financial standing of the manufacturing
organisation. THE MANUFACTURER/PRODUCER
The manufacturer/producer is the one who creates utility
NB: The wholesalers and retailers form the vital link by combining the factors of production to produce goods
between producers and consumers in the chain of and services, which satisfy the wants of consumers. An
distribution. They are middlemen between producers and important point to note is that without the
consumers. manufacturer/producer there may well be no channel of
distribution or distributive trade. A key merit of the
1997/21 Nov manufacturer/producer is that, it usually has the capacity to
Distribution is part of production because it produce a large number of units of the good or service.
A. involves the use of vehicles and labour Thus, the economy is assured of the steady supply of such
B. involves wholesalers and retailers needed or wanted products.
C. makes goods and services available to the final
consumers THE WHOLESALER
D. enables the consumers and entrepreneurs to interact The wholesaler is a trader who buys in bulk directly from
E. requires the employment of skilled labour producers and sells in small quantities to retailer. He is the
Answer middlemen between the producer and the retailer.
Makes goods and services available to the final consumers (C)
FUNCTIONS OF THE WHOLESALER
2016/23 NABTEB The wholesaler plays a major role.
The distribution chain refers to the mechanism through (i) To the manufacturer.
which goods and services reach the (ii) To the retailer.
A. final consumer B. producer C. retailer (iii) To the consumer.
D. wholesaler
Answer FUNCTIONS OF THE WHOLESALER TO THE
Final consumer (A) MANUFACTURER
1. Bulk Breaking: The wholesaler buys in large
2001/43 UTME quantities from the manufacturer and sells to the
The distribution channel that contributes most to the cost of retailers in accordance with their requirements.
production is 2. Risk bearing: The wholesaler buys and keep the
A. producer – wholesaler – consumer goods in stock. By doing this, the wholesaler faces and
B. producer – retailer – consumer bears the risk of fall in price, the risk of deterioration
C. producer – retailer – wholesaler – consumer and the risk of obsolescence which may result from
D. producer – wholesaler – retailer – consumer change in fashion.
Answer 3. Warehousing: The wholesaler provides warehouse
Producer – wholesaler – retailer – consumer (D) where he stores the goods he buys. This enables the
manufacturer to have space for further production
2018/23 NABTEB Exercise 13.1. activities.
The path through which goods and services reach the final 4. Price stability: By stocking goods and ensuring that
consumer is known as goods are released to the market when they are needed,
A. path finder B. distribution chain C. stock broking the wholesaler provides room for price stability.
D. internal trade 5. Branding and Packaging: The wholesaler in certain
cases brands and packages the goods to make them
more suitable for sale.
304
6. Transportation: The wholesaler in certain cases 5. He participates in advertising and marketing activities.
provides transportation facilities. He uses his vehicles 6. He participate in transportation services for the products.
to convey goods from the manufacturer. i.e from factory to market place or retailers stores.
7. Informing the Manufacturer: The wholesaler takes 7. He stabilizes prices of goods through patient storage and
information from the retailer and makes it available to gradual supply to the market.
the producer. 8. He conducts market and sales research to quicken sales
8. Financing Production: The wholesaler pays the of goods.
manufacturer promptly and this helps in avoiding break
in production. ELIMINATION OF THE WHOLESALER IN THE
9. Advertising and Marketing: The wholesaler helps in CHAIN OF DISTRIBUTION
creating awareness for the products and helps in (1) High prices of goods: The wholesaler adds to the cost
finding market for the products. of goods without directly adding value to the goods he
sells. He add his own cost of distribution and this
FUNCTIONS OF THE WHOLESALER TO THE forces up the final prices.
RETAILER (2) Creating an artificial scarcity of products: Most
1. Provision of variety of goods: The wholesalers buys wholesalers abuse their position by creating an
variety of goods from different manufacturers. By artificial scarcity of the goods they sell. They hoard
doing this, the wholesaler enables the retailer to stock part of their goods in order to earn higher prices for
variety of goods. themselves, which leads to the exploitation of
2. Provision of Credit Facilities: The wholesaler permits consumers.
the retailer to buy goods in credit and pay at a later (3) Tax evasion: Wholesalers earn a lot of profits and
time. many of them evade tax.
3. Price Stability: The warehouse facilities provided by (4) Payment of low producer prices to farmers:
the wholesaler makes products available when they are Middlemen pay the small farmers low prices for their
needed and this enhances price stability to the agricultural produce. The small producers are helpless
advantage of the retailer. and cannot bargain for higher prices because they
4. Grading and Packaging: The wholesaler grades and cannot market their produce themselves.
packages the goods before selling them to the retailer. (5) Disguised unemployment: The presence of the
5. Transportation: The wholesaler in some cases helps wholesalers encourages large scale disguised
in conveying the goods to the retailer. unemployment. They are usually under employed.
4. Advising the Retailer: The wholesaler who has an (6) Tends to make excessive profits: the wholesalers
expert knowledge of the goods in question and thus abuses his position to make excessive profits by over
advises the retailer about the goods and tells him charging for his function.
whenever there is new development. (7) Manufacturers can obtain information in absence of
5. Advertising the product: The wholesaler in some the wholesalers: Such market information can be
cases embarks on advertisement and through this obtained directly from the consumer.
makes the goods known to the consumers on behalf of (8) Embarking on wasteful advertisement: The
the retailer. wholesaler add the cost of their advertisements to the
cost of production, thereby increasing the price at
FUNCTIONS OF THE WHOLESALER TO THE which they sell.
CONSUMER
1. Variety of Goods: Bulk breaking or heavy purchase 2018/2019/41 (NDU, BAYELSA)
from different manufacturers makes the consumers Warehousing facilities in the distribution and marketing of
have access to variety of goods. products are provided by
2. Price stability: As the wholesaler stores goods and A. manufacturers B. wholesalers C. retailers
releases them when they are needed, the wholesale D. consumers E. sellers
stabilizes the prices of goods for the consumers. Answer Wholesalers (B)
2004/23 Nov
SUMMARY OF THE WHOLESALERS FUNCTIONS Wholesalers assist producers by
1. He breaks bulks for retailers. i.e. He buys in large A. preventing retailers from purchasing goods on credit
quantities from manufacturers and he sells in small B. informing manufacturers about retailers complaint
quantities to retailers. C. granting retailers warehousing facilities
2. He storesgoods in his warehouse until they are needed D. providing after sales services to consumers
or sold. Answer
3. He renders financial assistance to both producers and Informing manufacturers about retailer’s complaints (B)
retailers.
4. He passes useful information to both producers and
retailers.
305
2005/29 Nov Exercise 13.3. (7) Advertising the products: The retailers especially the
Warehousing is one of the functions of hawker advertises the products or makes them known
A. export promotion B. the retailer to the customers.
C. trade and industry D. the wholesaler (8) Provision of after sale services: He sometimes helps
to deliver and install goods such as television,
1979/21 UTME
refrigerators, stereo sets, e.t.c. he could also provide
Which of the following is not usually the function of a
maintenance services. In the case of goods which
wholesaler?
carry a guarantee, retailer could help to repair the
A. transport B. storage C. advertising
goods instead of sending them back to the wholesalers
D. after sales service E. branding
or manufacturers.
Answer Branding (E)
(9) Advising the consumer: He gives advise to
1990/21 UTME Exercise 13.4. consumers on the use of new products, performance
Which of the following is the major function of the or specifications of the goods.
wholesaler?
A. bulk breaking 2002/30 Nov
B. provision of useful information to the manufacturer on A trader who buys in bulk and sells in bits is a
products A. manufacturer B. sales representative C. retailer
C. provision of after sales service to consumers D. clearing agents
D. provision of warehousing facility Answer
Retailers (C)
THE RETAILER
A retailer is a trader who buys goods in fairly large 1983/17 UTME
quantities from wholesalers and sells in small quantities Retailers in an economy perform the functions of
directly to consumers. Retailing is the various A. production B. exchange C. distribution
arrangements made by traders for selling directly to D. hoarding E. investment
consumers. The retailers’ buys from the wholesaler, some Answer
retailers may buy directly from the manufacturer. They Distribution (C)
form the last link between the wholesaler and final
consumers in the chain of distribution. 2000/15
Which of the following is a function of the retailers?
FUNCTIONS OF THE RETAILER
A. provision of storage facilities
(1) Selling in small quanties: He buys from the
B. financing manufacturers C. stocking variety of goods
wholesaler and sells to the consumers in small
D. advertisement of goods
quantities. Many consumers want to purchase
Answer
commodities in units or singles.
Stocking variety of goods (C)
(2) Selling at Convenient Place: He helps to bring the
goods nearer to the consumers by being located close
REASONS WHY THE SMALL SCALE TRADERS
to them, he sometimes bring them to their doorsteps.
ARE IMPORTANT IN WEST AFRICAN
(3) Selling at Convenient Times:The retailers sells at the
COUNTRIES
time of the day or at any time that is convenient for
the consumer to buy.
1. There is flexibility in their operation as exemplified in
hours of operations, and granting of credit to customers
(4) Availability of variety of goods: He stores various
which can be tailored to meet their needs.
types of goods in his shop. A consumer could
purchase several commodities from the same retail 2. They require small capital to start their businesses.
shop. This saves time and effort. This is tied up with the low level of income and low
(5) Credit facilities: The Retailer is close to consumers level of savings that are prevalent in West Africa.
and many know them personally, he could allow them 3. Ability to meet the peculiar needs of their customers is
buy goods on credit. He helps those who have no there. They keep a variety of goods from which their
money to make immediate purchases, provided he is customers easily make their choices.
satisfied that payment will be made later. 4. Low overhead costs make them readily suitable to the
(6) Informing the wholesaler: The Retailer is able to West African business environment.
know what the consumers want since he is close to 5. Some of them serve as suppliers of the needs of larger
them. He is aware of changes in fashion and in their firms.
tastes. He could therefore, advise wholesalers on the 6. They are seen as training grounds for launching into
type of goods required. He informs the wholesalers of large – scale production.
the complaints about certain products, and the 7. Pride of ownership of joy of self-employment
consumer’s tastes or preferences. This information is commends their operational suitability in West Africa.
then passed to the producers by the wholesalers.
306
8. Small – scale businesses entail lower levels of risks The following are characteristics of a rational consumer:
and hence they are easily overtaken by the small-scale (a) Consumers prefer lower to higher prices and this
traders. reflected in their buying patterns.
9. The small – scale traders distribute goods to the very (b) Consumers are completely informed about all
remote areas, which is a peculiar characteristic of choices in the market.
theirs. (c) A consumer desires those goods and services that
10. The small – scale traders supply information to the will maximize utility.
manufacturers through the wholesalers thereby serving (d) A consumer makes decisions which contribute
as links between the consumers and the towards maximizing his or her satisfaction.
wholesalers/manufacturers. In view of the above characteristics of consumers,
manufacturers should continually produce goods which
CONDITIONS FOR BY- PASSING THE satisfy the needs and wants of consumers.
MIDDLEMEN
The conditions under which the middlemen would be by-
passed include the following: 2022/7 NABTEB (Dec) Exercise 13.4*
1. Direct delivery of consumer goods and services to the Explain five reasons why middlemen are important or
consumers by the manufacturers or producers. relevant in the distribution of goods and services.
2. Manufacturers or producers taking on other functions
of wholesalers and retailers in the chain of distribution. 2019/14 Neco
3. Middlemen’s rewards for services rendered seem to be The last link in the chain of distribution of goods and
outrageous and therefore objectionable. services is referred to as the
4. Manufacturers or producers can find alternative A. final consumer B. hawker C. manufacturer
sources of financing their businesses. D. retailer E. wholesaler
5. The manufacturers or producers can obtain vital Answer
information about the market situation direct from the Final consumer (A)
consumers.
6. Evolving measures that will prevent wasteful and
unjustifiable advertisement embarked upon by COOPERATIVE SOCIETIES
middlemen to reduce costs and price of goods. A cooperative society is an organisation of people that
comes together to protect or promote their own interest.
ARGUMENT AGAINST THE ELIMINATION OF
THE MIDDLEMEN
The middlemen plays a very important role in the EXAMPLES OF COOPERATIVES ARE:
economy. They should therefore not be eliminated in the (1) Consumer Cooperative: This is an association formed
chain of distribution for the following reasons: by a group of consumers of a particular product or
1. They complete production cycle, thus creating utility. certain products with a view to checkmating
2. They provide warehouse services to the manufacturer. exploitation by the producers and the middlemen.
3. They create employment opportunities for both They advances the interest of members in purchases
themselves and others. of consumers’ goods. The major essence is to enable
4. They serve as source of revenue to the government the consumers obtain goods at lower prices.
through the payment of registration fees, taxes, etc. (2) Producer/Marketing Cooperatives: A marketing
5. Without the middlemen, producers cannot reach out to cooperative, sometimes known as producer
all the consumers who are scattered all over the place. cooperative, allows its member who produce the same
6. By operating at strategic location and opening at a time products to cooperatively process, market and
that is convenient to customers, retailers play a very distribute the products. This helps lessen costs and
vital role in the life of buyers. strains in each area with a mutual benefit to each
7. Through buffer stock, the middlemen help in the producer. Producer can decide to work together or as
stabilization of price of products. separate entities to help increase marketing
possibilities and production efficiency.
(3) Retail Cooperative Society: This is a large scale
THE ROLE OF THE CONSUMERS retailing in which many retailers operating on a small
The consumer provides the market for goods and services. scale combine resources to make bulk purchase in
He is the ultimate buyer of the commodities produced by order to sell the goods at lower prices and with the
the manufacturer or the producer. The existence of aim of sharing the accruing profits among themselves.
wholesalers, retailers and producers in the chain of
distribution is largely dependent on the demands of the
consumers.

307
MAJOR ROLES OF COOPERATIVES IN (4) Marketing/supply of educational materials: Some tiers
DISTRIBUTIVE TRADE of government love educational supply companies which
(1) Effective distribution of consumer goods into remote supply books and other educational materials at low
areas: Consumers and marketing cooperatives help to prices e.g. Benue Educational Supply Company.
achieve an effective and judicious distribution of scarce (5) Marketing of agricultural products: They buy
but essential commodities to all nooks and crannies of agricultural produce from farmers during period of
the country, including remote villages. surplus and sell them to the consumers especially during
(2) Agents for distribution of inputs: Marketing and periods of scarcity.
producers cooperative helps to distribute inputs such as
fertilizers, improved seeds and farm machinery to PROBLEMS OF DISTRIBUTION AND MARKETING
farmers and other producers. COMMODITY
(3) Agents for distribution of essential commodities: (1) Poor transportation network: The means of
Consumer cooperatives are most often used as channels transportation such as roads and railways are poorly
for distribution of essential consumer goods. They are developed. This makes some areas inaccessible. Many
usually given priority in allocation of essential producers find it difficult to reach a wider market, and
commodities by government agencies such as the grains the extent to which they can distribute their product
boards. effectively.
(4) Bulk breaking of goods: Consumers cooperatives buy in (2) Imperfect nature of the market due to inadequate
bulk and sell at retail quantities and prices to members information: Poor means of communication makes
and non members of the cooperative society. effective transaction of business difficult.
(5) Low prices of goods: Consumers cooperatives help to (3) Numerous middlemen: The chain of distribution is
keep down retail prices and increase the income and inadequate. There is a long and complicated chains of
welfare of members through direct marketing which distribution. There are very many middlemen between
eliminate the middlemen. each producer and the final consumers. Many
(6) Buying agents for government marketing agencies: middlemen are required to distribute the goods in remote
Marketing cooperatives may assist the government areas. The presence of so many middlemen lead to very
marketing agencies such as the Grains Boards to high final prices and the exploitation of consumers, large
purchase commodities in bulk. scale hoarding, a high rate of tax evasion, and other
evils.
2001/32 Nov (4) Inadequate capital or credit facilities: Lack of adequate
The type of cooperative society which buys goods in bulk and capital to carry on large scale wholesaling and retailing.
sells to its members is called Many of them find it difficult to raise capital from
A. consumer cooperative B. producer cooperative commercial banks and other financial institutions
C. credit and thrift cooperative because they cannot offer the necessary collateral
D. profit and loss cooperative security.
Answer (5) Inadequate storage or warehousing facilities: This
Consumer cooperative (A) could be caused by lack of capital. It has not been
possible to develop adequate storage facilities which are
2017/29 suitable for certain local products, especially agricultural
Which of the following is a threat to the existence of crops such as yams, plantain e.t.c. perishable goods
middlemen? easily get spoilt and this leads to a waste of resources.
A. consumers cooperative societies There is a scarcity of commodities during certain
B. producers cooperative societies C. sales agents seasons prices are therefore high during the off-season
D. large scale producers and low during the crop season.
Answer (6) Hoarding: In order to create artificial security and to
Consumers cooperative societies (A) increase prices, many sellers hoard their goods. They do
this when there is a high demand for them. Hoarding
ROLE OF GOVERNMENT DISTRIBUTION involves storing goods, even when there is a demand for
AGENCIES them in order to create an artificial scarcity. It prevent
(1) Prevention/reduction of scarcity of products:They help the free flow of goods to consumers who require them.
to ensure adequate supply of essential consumer goods This is done in order to exploit them by charging high
to prevent scarcity. prices.
(2) Control of inflation/maintenance of low retail prices: (7) Insecurity on Nigerian roads: There are frequent
By selling at control prices, they help to cushion accidents and theft resulting in loss and damage to goods
inflationary pressures in the economy. in transit.
(3) Distribution of agricultural inputs: Government (8) Packaging problems: Many goods are poorly packaged
agencies such as Ministries of Agriculture, River Basin resulting in serious losses and damages.
Development Authorities e.t.c. sell agricultural inputs (9) Administrative bottle necks: There are unnecessary road
such as fertilizers improved seeds, e.t.c. to farmers at checks and dealer taxes paid on highways. These
subsided prices. together with need for dealer licences, delay distribution.

308
2004/7 Nov Exercise 13.5. 2016/6 NABTEB
(a) Distinguish between a wholesaler and a retailer. (a) Distinguish between consumer goods and producer goods.
(b) Outline any four problems faced by retailer in the (b) What five functions do middlemen perform in the
distribution of agricultural products in West Africa. distribution of goods in Nigeria?
Answer
2023/22 (a) Consumer goods are bought by a person for
Resources are pooled for the mutual benefit of its members immediate consumption or use. While producer goods
mainly in a are products that are bought by a firm or government
A. joint stock company B. partnership for purpose of using them to produce other goods.
C. private company D. cooperative society (b) Functions of the middlemen
Answer (1) He buys in bulk from the producer or the
Resources are pooled for the mutual benefit of its members manufacturer.
mainly in a cooperative society (D) (2) He provides warehousing or storage facilities.
(3) He makes goods available to the consumers at
2023/24 convenient places and time.
Consumers have access to a variety of goods through the (4) He provides personalized services such as after sales
activities of the services.
A. advertising agencies B. wholesalers (5) He could help to put finishing touches to certain
C. retailers D. mass media commodities.
Answer
Consumers have access to a variety of goods through the 2018/6 NABTEB
activities of the retailers (C) (a) Who is a retailer?
(b) In five different ways, distinguish between the
2022/23 NABTEB wholesaler and the retailer.
The criticism levelled against middlemen is that they Answer
A. make the channel of distribution of goods shorter. (a) A retailer is a trader who buys goods in large
B. sell goods at reduce prices. quantities from wholesalers and sells in small
C. create artificial scarcity. quantities directly to consumers.
D. make less profit. (bi) A wholesaler buys in bulk from the producer while a
Answer retailer buys in large quantities from the wholesalers
Create artificial scarcity (C) and sells in small quantities to the consumer.
(ii) A wholesaler serve as a link between the wholesaler
1995/17 Nov and the consumer.
Retailers are usually greater in number than wholesalers (iii) The wholesaler make prompt payment to the producer
because while retailer can buy on credit from the wholesaler.
A. retail business may be registered or incorporated (iv) The wholesaler provides warehousing or storage
B. retail business requires less capital and expertise facilities while the retailer does not.
C. retailers deal with final consumers (v) The wholesaler does not have variety of goods while a
D. all wholesale businesses are large enterprise retailer enables the consumer to have a wide variety
E. all retail business are small enterprises of goods.
Answer
Retailers deals with final consumers (C) 2006/14 Neco
Which of the following is a major problem of distribution
2007/6 of goods?
Outline any five functions of the wholesaler in the A. activities of middlemen
distributive process B. clearing and forwarding procedures
Answer C. delays at produce checkpoints
(1) He buys in bulk from the producer or the D. price control E. price instability
manufacturer. Answer Activities of middlemen (A)
(2) He breaks the bulk for the retailer.
(3) He finances producers and manufacturer. 2002/9 Nov Exerxise 13.6
(4) He helps to make the prices of goods stable. Highlight the role of consumer cooperative societies in the
(5) He finances retailers by giving them credit facilities. distribution of goods in your country?
(6) He gives vital information about market situations to
the producer and consumers.

309
2015/6 2011/2012/12 (NDU, BAYELSA)
Which of the following is an effect of many middlemen in The channel for good distribution in Nigeria consists of
the chain of distribution? A. producers, wholesalers and retailers
A. shortage of commodities B. low retail prices B. producers and consumers
C. hoarding of goods D. high retail prices C. producers and processor
Answer D. farmers, processor and consumers
Low retail prices (B) Answer
Producers and consumers (B)
2008/12 Neco
Which of the following functions do retailers perform in an 2008/22 (OAU, IFE)
economy? Which of the following does not hinder the efficient
A. after sales service B. branding of goods distribution of goods in West Africa?
C. bulk breaking D. production E. storage of goods A. government participation in the distributive trade
Answer B. inadequate storage facilities for agricultural goods
After sales service (A) C. inadequate credit facilities for potential distributors
2008/13 Neco D. the tendency to hoard and smuggle
Which of the following is not an agent of distribution in Answer
Nigeria? Government participation in the distributive trade (A)
A. consumers B. cooperative societies
C. government agencies D. retailers E. wholesalers
Answer 1982/21 UTME
Cooperative societies (B) Retailers are greater in number than wholesalers because
A. retail business may not be registered incorporated
2005/30 Nov Exercise 13.7 B. retail business require less expertise
The normal channel of distribution of goods is C. retailers deal with final consumers
A. consumer  wholesaler  retailer  manufacturer D. all wholesaler businesses are large enterprises
B. manufacturer  consumer  retailer  wholesaler E. all retail businesses are small enterprises
C. manufacturer  wholesaler  retailer  consumer Answer
D. retailer  wholesaler  manufacturer  consumer Retail business requires less expertise (B)

1992/14 Nov 1983/17 UTME

Which of the following is not a constraint to the smooth Retailers in an economy perform the functions of
distribution of goods in Nigeria? A. production B. exchange C. distribution
A. poor transportation system D. hoarding E. investment
B. inadequate storage facility C. inadequate credit facility Answer Distribution (C)
D. hoarding E. middlemen
Answer Inadequate credit facility (C) 1983/36 UTME
A major function of middlemen in Nigeria is the
2019/24 distribution of
Middlemen are made up of A. commodities to all consumers regardless of income
A. manufacturers, wholesalers and consumers B. commodities to consuming centres and the collection of
B. manufacturers, wholesalers and retailers money income to producing centres
C. wholesalers, retailers and hawkers C. economic welfare to all D. wealth to all
D. wholesalers, retailers and consumers E. poverty within the society
Answer Answer
Wholesalers, retailers and hawkers (C) Commodities to all consumers regardless of income (A)

2009/2010/62 (NDU, BAYELSA) 1990/22 UTME

Retailers are greater in number than wholesalers because In the distribution channels for goods and services, the
A. retail business may not be registered or incorporated middleman’s mark – up margin provides a rough measure
B. retail business requires less expertise for the
C. retailers deals with final consumers A. quantity discounts allowed final consumers
D. all wholesale businesses are large enterprises B. reward for business entrepreneurship
D. all retail business are small enterprises C. effectiveness of government control over the economy
Answer marketing channels
retail business requires less expertise (C) D. extent of exploitation of the final consumer
Answer Reward for business entrepreneurship (B)
310
1990/23 UTME 2001/3 Nov
Which of the following reasons could induce a (a) Who is a retailer?
manufacturer to bypass the wholesaler in the distribution (b) What are the functions of retailers?
chain? Answer
A. to provide the quantity needed by retailers (a) A retailer is a trader who buys goods in fairly large
B. to collect useful information on his product quantities from wholesalers and sells in small
C. to provide warehousing facilities quantities directly to consumers.
D. to violate government regulation on distribution (b) Functions of retailers
Answer (1) He serves as a link between the wholesaler and the
To collect useful information on his product (B) final consumers.
(2) He sometimes gives his reliable customers credit
1992/21 UTME facilities.
An important function of the retailer is to (3) He enables the consumer to have a wide range or
A. grant credit to the wholesaler variety of goods.
B. break bulk and sell products in small units (4) He gives advice to consumers on the use of new
C. reduce cost of distribution products.
D. generate demand for products through advertisement (5) He could help to put finishing touches to certain
Answer commodities.
Break bulk and sell products in small units (B)
2003/13 Neco
1996/17 Nov Of what importance is a wholesaler in the chain of
Which of the following will not adversely affect the distribution?
distribution of foodstuff in Nigeria? A. creation of artificial scarcity B. bulk breaking
A. lack of storage facilities C. formation of trade unionism D. hoarding of goods
B. inadequate information about market conditions E. making prompt payment to producers
C. inadequate transportation Answer Bulk breaking (B)
D. presence of middlemen
E. scarcity of petroleum products 1990/25
Answer Scarcity of petroleum products (E) Warehousing facilities in the distribution and marketing of
products are provided by
2001/29 Nov A. manufacturers B. wholesalers C. retailers
Middlemen should not be retained in the chain of D. consumers E. sellers
distribution because they Answer
A. provided after sales services to customers Wholesalers (B)
B. do not sell essential commodities to the poor
C. cannot provide credit facilities to their customers 1995/17 Nov
Retailers are usually greater in number than wholesalers
D. hoard goods thus causing scarcity of commodities
because
Answer
A. retail business may be registered or incorporated
Hoard goods thus causing scarcity of commodities (D)
B. retail business requires less capital and expertise
C. retailers deals with final consumers D. all wholesale
2001/311 Nov
businesses are large enterprises
Which of the following is a function of a wholesaler?
E. all retail businesses are small enterprises
A. banking B. hoarding C. storage
Answer retail business requires less capital and expertise (C)
D. after sales service
Answer Storage (C) 1991/9 Nov
Effective distribution of goods in West Africa is hindered by
2019/23 NABTEB A. banking services B. insurance services
In the normal channels of distribution, the breaking of bulk C. high transport cost D. administrative efficiency
is performed by the Answer High transport costs (C)
A. producer B. wholesaler C. retailer D. consumer
Answer Wholesaler (B) 2018/14 Neco
The following are functions of a wholesaler except
A. buying in small quantities B. marketing of products
C. provision of information
D. provision of transportation facilities
E. warehousing of goods
Answer Buying in small quantities (A)

311
2018/15 Neco 2014/16 Neco
Middlemen are criticized because they Which of the following represent a good channel of
A. collect useful information for the manufacturers distribution?
B. hoard goods in order to raise the price A. consumer  retailer  wholesaler  producer
C. introduce new products to the consumers B. producer  retailer  wholesaler  consumer
D. raise funds for the manufacturer C. producer  wholesaler  consumer  retailer
E. take consumer goods to remote areas D. producer  wholesaler  retailer  consumer
Answer Hoard goods in order to raise the price (B) E. wholesaler  retailer  consumer  producer
Answer
1993/25 Nov Producer  wholesaler  retailer  consumer (D)
Which of the following is not a function of wholesalers?
A. stabilizing the prices of goods 2014/17 Neco
B. providing storage facilities The argument for the elimination of wholesalers in the
C. giving credit facilities to the consumer distributive process is that they
D. buying in bulk from the producers A. delay the delivery of goods
Answer Giving credit facilities to the consumer (C) B. don’t prove a variety of goods to the consumers
1994/23 C. don’t provide credit facilities
Which of the following is not a problem of distribution of D. make excessive profits E. only sell in bank
goods in Nigeria? Answer
A. poor communication network Make excessive profits (D)
B. inadequate storage facilities
C. ignorance of consumers 2010/21 Exercise 13.8
D. dishonesty of middlemen E. inadequate market The wholesaler perform the following functions except
Answer Ignorance of consumers (C) A. breaking the bulk
B. offering credit facilities to consumers
1992/32 C. financing manufacturers
Hoarding in distributive trade leads to D. buying in bulk from manufacturers
A. non availability of commodities
B. production of inferior goods 2011/18 Neco
C. increase in the supply of goods Which of the following is a reason for the elimination of
D. decrease in the price of goods wholesalers in the chain of distribution? They
E. artificial scarcity of goods A. advertise and promote the distribution
Answer Artificial scarcity of goods (E) B. duplicate the functions of the retailers
C. increase the prices of goods
2002/16 Neco D. provide the means of transportation
One major disadvantage of middlemen is that E. provide storage facilities
A. capital is lost in the transportation of goods Answer
B. prices of goods will go up if they are eliminated Increase the prices of goods (C)
C. they create artificial scarcity 1992/7
D. their profit margin is too small Middlemen do encounter problems in the process of
E. they are intermediaries between the producers and the carrying out their business. Explain
consumers Answer
Answer Problems encountered by the middlemen in carrying out
They create artificial scarcity (C) their duties are:
i. Inadequate storage facilities:The absence of or
2002/17 inadequacy of storage facilities has created problems
What is not a problem of distribution in Nigeria? in the distribution process and has led to fluctuations
A. hoarding of goods B. inadequate storage facilities in prices.
C. loss of goods in transit ii. Poor transportation and communication system:
D. poor transportation network Most products come from the fields in the rural areas
E. use of crude implements which are not easily accessible. These products are in
Answer their primary conditions and are perishable.
Use of crude implements (E) iii. Large number of middlemen: As a particular product
passes from one middleman to another, a rise in the
price of the product is expected. This means that the
price of the product will have risen to a very high
level by the final consumer.
312
iv. Inadequate information: The producers, sellers and
buyers do not get adequate information regarding the 2014/44 Neco
A retailer performs the following functions except
prevailing market conditions.
A. advising the consumers
v. Insecurity on the roads: In recent times, our roads
B. bringing goods nearer to the consumers
have been made unsafe by armed bandits. This has
C. buying in bulks from the manufacturers
seriously affected distribution of goods in Nigeria.
D. giving credit facilities to consumers
vi. Administrative bottle necks in the collection and
E. storing variety of goods
handling of goods: This problem affects all
manufactured and agricultural products, processing Answer
Buying in bulk from the manufacturers (C)
supply papers takes unending hours and days. Corrupt
officials unduly delay their customers.
2019/13 Neco Exercise 13.9
Bulk breaking in the chain of distribution is the sole
2007/12 Neco
responsibility of
Branding and packaging of goods is the function of
A. consumers B. hawkers C. producers
A. brokers B. consumers C. manufacturers
D. retailers E. wholesalers
D. retailers E. wholesalers
Answer manufacturers (D)
2020/26
Distribution of agricultural products in West Africa is
2007/13 Neco
inefficient as a result of
Which of these is not a bottle neck in the distribution of
A. absence of roads and railways
goods in Nigeria?
B. inadequate number of middlemen to distribute the
A. adequate transportation network
products
B. inadequate credit facilities
C. poor storage facilities for the perishable goods
C. inadequate storage facilities
D. absence of demand for agricultural products
D. poor processing and packaging
E. unnecessary hoarding Answer
Poor storage facilities for the perishable goods (C)
Answer Adequate transportation network (A)
2010/10 Neco
2009/15 Neco
Which of the following is not a problem encountered in
Which of the following hinder(s) effective distribution of
product distribution in Nigeria?
goods in Nigeria?
A. activities of middlemen B. hoarding
A. branding and packaging of goods
C. large market D. poor road network
B. good transportation network
E. shortage of storage facilities
C. large quantity of goods
Answer Large market (C)
D. numerous middlemen E. warehousing facilities
Answer
Numerous middlemen (D) 2010/16 Neco
Which of the following is not a large retail outlet?
2009/16 Neco A. departmental stores B. hawkers
One major role of middlemen in Nigeria is the distribution of C. multiple shops D. peddler mail order business
A. commodities to all consumers E. supermarkets
B. economic welfare to the public Answer Hawkers (B)
C. poverty within the society
2010/18 Neco
D. social facilities E. wealth to the public.
A major constraint to the expansion of small businesses in
Answer
Nigeria is
Commodities to all consumers (A)
A. inability to provide after services
B. inadequate capital C. limited market
2014/43 Neco
D. low level of technology
Which of the following is not a function of wholesalers?
E. shortage of skilled manpower
A. buying in bulk from the producers and selling in small
Answer Inadequate capital (B)
quantities to the retailers
B. providing credit facilities to the consumer 2010/25 Neco
C. providing funds for the manufacturers to ensure Which of these pairs can be referred to as middlemen?
continuous production of goods A. consumers and agents B. retailers and consumers
D. providing useful information to the manufacturers C. wholesalers and agents D. wholesalers and consumers
E. providing warehousing facilities for the manufacturers E. wholesalers and retailers
Answer Answer Wholesalers and retailers (E)
Providing credit facilities to the consumers (B)
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1991/13 2006/18 Nov
Which of the following functions do retailers perform in an The roles of wholesaler include the following except
economy? A. determination of the wage rate of factory employees
A. production B. exchange C. hoarding B. warehousing goods C. financing the manufacturers
D. distribution E. investment D. provision of vital information to the manufacturers
Answer Distribution (D) Answer
Determination of the wage rate of factory employees (A)
1991/21
A major function of middlemen in Nigeria is the 2006/7 Nov
(a) What are producer goods?
distribution of
(b) Explain any five problems associated with the
A. commodities to all consumers regardless of income
distribution of consumer goods in your country?
B. commodities to consuming centres
C. economic welfare facilities to all Answer
(a) Producers goods are products that are bought by a
D. wealth to all E. income within the society
firm or government for the purpose of using them to
Answer
produce other goods.
Commodities to all consumers regardless of income (A)
(bi) Imperfect nature of the market due to inadequate
2012/13 Neco information:Poor means of communication makes
Distribution is part of production process because it effective transaction of business difficult.
A. encourages the provision of good roads, water ways and (ii) Numerous middlemen: There are many middlemen
railways between each producer and the final consumers. This
B. links the consumers with the producers long chain of distribution is partly necessitated by
D. offers employment to the people poor transportation. Many middlemen are required to
E. transport goods from place to place distribute the goods in remote areas.
Answer (iii) Poor transportation network: The means of
Makes goods and services available to the final consumers (C) transportation such as roads and railways are poorly
developed. This makes some areas (especially rural areas)
2012/14 Neco inaccessible. Many producers therefore find it difficult to
One argument against the presence of middlemen in the reach a wider market, and the extent to which they can
distribution channel is that they distribute their products effectively is severe.
A. are commissioned agents (iv) Inadequate capital or credit facilities: Lack of adequate
B. can be found almost everywhere capital to carry on large scale wholesaling and retailing,
C. cause increase in the prices of commodities many of them find it difficult to raise capital from
D. grade and brand goods commercial banks and other financial institutions because
E. help in keeping prices stable they cannot offer the necessary collateral security.
Answer Cause increase in the prices of commodities (C) (v) Inadequate storage or warehousing facilities: This
could be caused by lack of capital, it has not been
2013/13 Neco possible to develop adequate storage facilities which
The following are small scale retail outlets except are suitable for certain local products, especially
A. departmental stores B. hawking C. market trader agricultural crops.
D. road side trader E. shops 2009/4
Answer Departmental stores (A) (a) Outline the chain of distribution for manufactured
consumer goods.
2013/14 Neco Exercise 13.10. (b) Explain the function of the
The retailer differs from the wholesaler because he (i) Wholesaler (ii) Retailer
A. breaks the bulk B. engages in bulk purchasing Answer
C. finances the producers (a) Goods normally pass from the hands of manufacturers
D. keeps variety of goods and services or producers through a number of middlemen before
E. owns a warehouse they reach the final consumers.
Producers or manufacturer  wholesaler  retailer  consumer
2009/21 (b) Functions of wholesaler
Who among the following is the intermediary between the (i) He buys in bulk from the producer or the
producer and the retailer? manufacturer: Most producers want to dispose of
A. agent B. wholesaler C. consumer D. distributor their goods in large quantities as they are produced so
Answer Wholesaler (B) as to enable them to concentrate on production. The
wholesaler, is able to satisfy this need by purchasing
in large quantities from the manufacturer. He has
capital to purchase in bulk.
314
(ii) He breaks the bulk for the retailer: Most retailers want 2009/2010/13 (UNIZIK, AWKA) Exercise 13.11
to buy goods in small quantities because they have Warehouse facilities in the distribution and marketing of
relatively little capital to make bulk purchases. products are provided by
(iii) He finances producers and manufacturers: Producers want A. manufacturers B. wholesalers C. retailers
to be paid immediately for the goods they produce so as to D. advertisers
enable them to continue production. In financing producers, Answer Wholesalers (B)
wholesalers make prompt payments or advance payments for
the goods they want to purchase. 2011/2012/31 (UNIZIK, AWKA)
(iv) He finances retailers by giving them credit facilities: Which of the following is not usually the function of a
Retailers may not have enough money to make wholesaler?
immediate payments to the wholesaler. He can, A. transport B. storage C. advertising
therefore, allow his regular customers to buy on credit D. after – sales service E. branding
and make payments later. Answer Transport (A)
(v) He provides warehousing or storage facilities: The
manufacturer wants to dispose of his goods as soon as 2014/2015/25(UNIZIK, AWKA)
they are produced in order to have enough room in the Retailers are more in number than wholesalers because
factory for new products. A. retail business may not be registered or incorporated
B. retail business requires less expertise
Functions of Retailers C. retailers deals with final consumers
(i) He gives advice to consumers on the use of new D. all wholesale business are large enterprise
products: He serves this function effectively because of E. all retail businesses are small enterprise
his closeness to consumers. Answer retail business requires less expertise (B)
(ii) He could help to put finishing touches to certain
commodities: For instance, he could help to package or 2011/2012/2 (NDU, BAYELSA) Exercise 13.12
put labels on certain goods which he sells. Retailers in an economy perform the function of
(iii) He sometimes gives his reliable customers credit A. production B. exchange C. distribution
facilities: This is because he is close to consumers and D. investment
may know them personally. He could allow them buy Answer Distribution (C)
goods on credit, either or a monthly or weekly basis, or
onhire purchase. 2007/23 (OAU, IFE)
(iv) He provides personalized service such as after sales Middlemen in an economy perform the function of
service: He sometimes helps to deliver and install goods A. protection B. hoarding C. distribution D. exchange
such as television, refrigerator e.t.c. He could also Answer Distribution (C)
provide maintenance services.
(v) He gives information to wholesalers on what the 1984/26 UTME
consumers require: The retailer is able to know what The channel for food distribution in Nigeria consist of
the consumers want since he is close to them. He is A. farmers and their families B. producers, wholesalers
aware of changes in fashion and in their tastes.
and retailers C. producers and consumers
1995/5 Nov D. producers and processors
Give reasons why wholesalers should be eliminated in the E. farmers, processors and consumers
chain of distribution. Answer Producers, wholesalers and retailers (B)
Answer
(i) High prices of goods (inflation): The wholesaler adds 1985/20 UTME Exercise 13.13
Warehousing facilities in the distribution and marketing of
to the cost of goods without directly adding value to
products are provided by
the goods he sells.
A. manufacturers B. wholesalers C. retailers
(ii) Creating an artificial scarcity of products: The
D. consumers E. sellers
wholesaler hoard part of their goods in order to earn
higher prices for themselves, thereby leading to the
exploitation of consumers. 1986/23 UTME Exercise 13.14
In the normal channels of distribution, the breaking of bulk
(iii) Tax evasion: Despite the fact that wholesalers earn a
is performed by the
lot of profit, many of them evade tax.
A. producer B. wholesaler C. retailer D. consumer
(iv) Payment of low producer prices to farmers: The
middlemen pay the small farmers low prices for their
agricultural produce. The small producers are helpless
and cannot bargain for higher prices because they can
not market their produce themselves.
(v) Disguised unemployment: The wholesalers
encourages large – scale disguised unemployment.
They are usually under – employed.
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1989/18 UTME
Which of the following is an important function of the
retailers?
A. grants credit to the wholesaler
B. breaks bulk and sells product in small units
C. reduces cost of distribution
D. generates demand for products through advertisement
Answer
Breaks bulk and sells products in small units (B)

1997/21UTME Exercise 13.15

The best channel of distribution of baked bread is through
A. wholesalers to retailers then to consumers
B. direct sales to consumers C. wholesalers to consumers
D. retailers to consumers

1999/34 UTME
One of the major problems of product distribution in most
developing countries is
A. lack of storage facilities
B. large number of middlemen
C. inadequate manpower
D. inadequate means of transportation
Answer
Inadequate means of transportation (D)

2000/42 UTME Exercise 13.16

The major function of the wholesaler to his customer is
A. providing transport facilities
B. offering personal services
C. stocking a variety of goods
D. breaking of bulk

316
 influenced by the number of men, but by the number
of women of child – bearing age. Therefore, the
POPULATION, LABOUR MARKET AND greater the percentage of women in a country, the
HUMAN CAPITAL DEVELOPMENT greater the chances of a high birth rate and vice versa.
Population refers to the number of people living in a
specific geographical area at a particular time. (3) Family planning: This means a conscious effect to
determine the number of children a couple will rise,
DETERMINATION AND IMPLICATION OF SIZE and the time gap between the birth of one child and
AND GROWTH OF POPULATION the birth of the next. In the past, people believe that a
The size of the population in a country is usually influence woman was supposed to give birth to as many
by a number of factors. These include children as was biologically possible. However, the
(1) BIRTH RATE spread of knowledge and desire to enjoy an improved
(2) DEATH RATE standard of living have made many people consider
(3) MIGRATION controlling the number of children they could have. In
(4) NATURAL GROWTH RATE recent time, many methods have been introduced to
(5) POPULATION GROWTH RATE check unwanted pregnancies. This has helped in
controlling birth rate.
2003/9 Nov
Population of a country can be increased by (4) Infant mortality: Infant mortality means the rate at
A. encouraging family planning B. legalizing abortion which children die. In the past, women had many
C. encouraging sex education children because they were not sure that all the
D. encouraging early marriages children would survive. Infant mortality was very
Answer high during that period. With improved medical
Encouraging early marriages (D) facilities and better feeding, many children now
survive and this has affected the number of
(1) BIRTH RATE pregnancies which most women can now have.
Birth rate means the number of children born within a year (5) Social attitude towards children: Different societies
of every 1000 people in the country. If the birth rate is tend to have different attitudes towards children. In
rising, the population will be increasing, but if it is falling, our traditional society, children are regarded as a form
the rate of population growth will slow down. of wealth. This is because children are able to render
certain services to their parents. In such situation,
Birth rate (BR) is calculated with the following formula: people will have many children and the birth rate in
Number of children 1000
BR = × the country would increase. However, this attitude is
Population size 1
changing. Many people now feel that it is better to
Example have few children.
Nigeria’s population in 1980 was 76.4 million. And let us (6) Desire to enjoy a high standard of living: It is
assume that 550,000 births were recorded in 1980. Find her expensive to look after a child so people now felt that
rate of birth in 1980. they should leave only few children so that they can
550,000 1000 55000
BR = × 1 = 7640 = 7.2 per thousand population conveniently take good care of them.
76,400,000
(7) Educational pursuit: Many people do not get married
FACTORS INFLUENCING OR DETERMINING early because they are engaged in a long period of
BIRTH RATE educational pursuit. This reduces the number of births
(1) Age distribution of the population: This refers to the in a given period.
number of people who fall within one age grade. In
some cases, a greater percentage of the population is CONTROL OF BIRTH RATE
made up of old people. This can lead to low birth rate The following are the measures to control or regulate the
as many of the old people no longer give birth. On the birth rate:
other hand, if the population is such that the young 1. Family planning (birth control): People should adopt
ones are more than the old ones, then the birth rate family planning measures in order to regulate or
will be expected to increase overtime. control the birth of children, so as not to exceed one to
three births.
(2) Sex distribution of the population: This means the
2. Late marriage: People should defer (postpone) their time
composition of males and females of the population
of marriage to full maturity, like 35 – 40 years of age.
where there are more women than men, the birth rate
3. Practice of monogamy: People should strictly adhere
tends to be high. On the other hand, if the men are
to (comply with, obey) the practice of only one wife.
more than the women, the birth rate will tend to be
4. Legalizing abortion: This act reduces the birth rate.
relatively low. The number of birth is not really
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5. Government policy: Many governments in developed 7. Maternal/child care: Availability of maternity clinics
countries now fix maximum number of children at two. and children hospitals reduces the death rate, and vice
6. Sex education: In developed countries, sex education versa.
is introduced into secondary schools. This enables 8. Age distribution: An increase in the ageing population
students, especially female students, to guide against (a large number of old people) tends to bring about a
pregnancy during school period or until they complete high death rate and vice versa.
university education. 9. Infant mortality: A high rate of infant mortality per
7. Women emancipation: Women (girls) should be period increases the death rate, and vice versa.
encouraged to involve in pursuit of a career Note: Infant mortality rate is a component of death
(education). This eliminates their early marriage, rate.
imbibe the virtue (involve in) monogamy, family
planning (birth control), etc. These reduces the birth CONTROL OF DEATH RATE
rate. Death rate can be controlled with the following measures:
1. Abundant medical facilities: Government should
(2) DEATH RATE establish many medical facilities e.g. specialist
Death rate refers to the number of people who die in the hospitals, maternity and children hospitals, etc
year out of every 1000 of the population. When death rate everywhere (states). And she should encourage
is high, it means that many people die in the year and this individuals to set up pharmaceutical and medicine
tends to affect the size of the population. On the other stores. They reduce the death rate.
hand, a low death rate will lead to an increase in 2. Training of medical personnel: Government should
population, as more people are being born. establish many teaching hospitals, faculties of
medicine, university teaching hospitals, etc to train
Death rate (DR) is calculated with the following formula:
Number of death 1000 sufficient number of medical personnel, e.g. medical
DR = Population size × 1 doctors, pharmacists, nurses, etc to treat different types
of illness.
Example 3. Easy access to medical facilities: Hospitals and clinics
The population of Nigeria in 1980 was 76.4 million. If the should be located in all parts of a country, both in
number of death in 1980 was 20,000. Find her death rate in urban and rural areas. This enables everybody to have
1980 easy access to them.
20,000 1000 100 4. Government subsidy: Government should subsidize
DR = × = 764 = 0.26 per thousand population
76,400,000 1 cost of medical services and drugs. Happily, some state
governments have introduced free medical services;
FACTORS INFLUENCING OR DETERMINING but patients still pay for drugs. This reduces the death
DEATH RATE rate.
1. Medical facilities: Availability of hospitals, drugs and 5. Political stability: Government should ensure
medical personnel reduces the death rate; while their prevalence of tranquility (overall peace) in a country at
total absence raises the death rate. all times. Absence of violence, religious or civil crises,
2. Sanitation/Personal hygiene: Personal hygiene and war etc prevents incidence of mass death.
environmental sanitation, e.g. constant clearing or 6. Increase in income (standard of living): Proper
sweeping of streets and lavatory waste disposal, etc. alleviation of abject poverty throughout a country
reduces the death rate. Whereas dirty or filthy through gainful employment, payment of
environment raises the death rate. unemployment allowance to applicants etc reduces the
3. Wealth (standard of living): A high level of wealth death rate.
(high per capital income) reduces the death rate. While 7. High level of public sanitation and personal hygiene:
abject poverty increases the death rate. Proper participation in environmental sanitation on
4. Epidemic: The frequent outbreak of infectious diseases daily or weekly basis ensures healthy environment and
increase the mortality rate. The precaution is to ensure a fall in the death rate.
healthy (clean) environment and consumption of (eat)
hygienic food and pure water. This reduces it. (3) MIGRATION
5. Political instability (civil war): Civil disturbances, Migration connotes the movement of people from one
external aggression and other forms of war or violence place to another and this has effect on the sizes and growth
(horrible criminality) increases the mortality rate. of a country’s population. Migration has two aspects.
While political stability (peace) eliminates incidence of (1) Immigration
death. (2) Emigration
6. Natural disaster: The frequent occurrences of
earthquakes, floods, storms, droughts, etc increases the
death rate and their absence reduces it.

318
Immigration means the inflow of people into the country 8. Climatic factor: Some people escape from
from other countries. It increases the population of a unfavourable climatic region; e.g. extreme northern
country. America with very cold temperature states with more
Emigration means the movement of people out of the suitable climate e.g. U.S.A for permanent settlement.
country. It decreases the population of a country.
EFFECTS OF MIGRATION
NB: In a situation where the number of people moving out We outline below effects of migration from source e.g.
(emigration) is greater than the number moving into the Ghana into the destination e.g. Nigeria which is already
country (immigration) the population will decrease. If the over populated. That is, the negative effects of migration
reverse is the case, then the population will increase. when the population is above optimum:
1. A fall in per capita income.
Net migration is the difference between the inflow and 2. A fall in standard of living.
outflow of people in a country. 3. Much congestion – it will make our cities to be
That is, Immigration minus Emigration is known as net overcrowded especially traffic and house congestion.
migration. 4. House pressure on social amenities – it will cause
This factor determines whether the population will excessive demand for hospital services, school,
increase, decrease or remains constant, if birth rate and electricity, pipe borne water, etc.
death rate are equal. 5. It will worsen our unemployment problem.
6. It may increase wave of crime e.g. armed robbery,
Example prostitution, etc.
Given the immigrants into country X to be 89,000 and the 7. Population explosion – It will lead to increase in
emigrants to be 41,250. Calculate the net migration. government expenditure.
Solution 8. It may lead to increase in prices and high cost of living.
Net migration = Immigrant value – emigrants value
= 89,000 – 41,250 The following are the positive effects if the population is
Net migration = 47,750 below optimum:
1. It leads to increase in the size of the labour force.
CAUSES OF MIGRATION 2. It raises level of demand for goods and services
Migration is caused by various factors; the major one is especially in states with depressed economy.
economic factors, and others include socio-political and 3. It leads to increase in the number of investors and
climatic factors. The following are some of the causes of inflow of capital. This increases level of investment,
migration. output, income and employment.
1. Economic activities: The desire to seek for gainful 4. It makes very rare skilled labour, e.g. Engineers,
employment as well as business opportunities compel Medical doctors, lecturers, etc to be available in a
people to move into strange territories (areas). country.
2. Urge for knowledge: The desire for the acquisition of 5. It enhances (improves) cordial relationship between
knowledge forces people to migrate to other countries Nigeria and Ghana.
or continent.
3. Natural disaster: The frequent occurrence of natural It is worthy of note that the above positive effects as
disasters such as floods, earthquakes and so on has outlined above are more or less the advantages of
forced people to migrate to countries where such migration if reference is not made to either over population
disasters are unheard of. or under population.
4. Political instability: The fear of occurrence of civil
disturbance, religious repression, political CONTROL OF MIGRATION
victimization, external aggression and other forms of We hereby outline the measures to curtail high propensity
war or violence force people to migrate to (strong urge) for migration.
neighbouring countries. 1. Immigration policy: Government should adopt
5. Discovery of minerals: The discovery of minerals like restrictive immigration policy (not allowing foreigners
petroleum, gold, coal and fertile land acts as a magnet into the country) if the country is over – populated e.g.
(or source of attraction) to people from different parts Nigeria. While it should adopt open – door migration
of the world. policy (encourages foreigners to flow in) if the country
6. Good environment: The desire to live in a conducive is under-populated e.g. Seychelles
environment and favourable climate also makes people 2. Emigration policy: Government should adopt easy
to migrate to other states or countries. (open door) emigration policy (allowing the citizens to
7. Economic opportunities: Many investors move to migrate to other countries) if the country is highly over
other states or countries in which they can set up a new – populated e.g. India, China. While restrictive
firm of their branches with great return (much profit). emigration policy should be adopted if the country is
highly under populated e.g. Iceland, Malta.
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3. No work permit: Many developed countries do not 4. Rural–Urban Migration: This involves the drift of
grant work permit to immigrants in order not to worsen people from the rural areas to the urban centres.
their unemployment problems. Factors such as the desire to take advantage of social
4. Creating employment opportunities: Abundant infrastructural facilities like electricity, hospitals,
employment opportunities should be made available to telephone, pipe borne water and schools, the search for
people, especially applicants. This discourages them employment opportunity, the desire to have one’s
from migrating into neighbouring countries. standard of living improved and so on provide reasons
5. Creating economic opportunities: Enabling good for it.
environment conducive for various businesses to thrive
(grow and succeed) should be created for businessmen 5. International migration: This is when people of a
and women. This discourages indigenes from country are having the feeling of being disappointed, a
migrating to foreign countries for business ventures. lot of professionals that are precious to the countries
6. Ensuring political stability: Government should make have moved to other countries in search of greener
much efforts to foster (ensure) peace at all times and in pastures, occasioning an aggravation of the problem of
different parts of the country. This encourages foreign brain drain.
investors as well as high level of investment by
indigenes in the country. 6. Mega-Urban Migration: This represents an alarming
7. Good income policy: Government should formulate movement of people from the villages and countryside
and implement favourable or attractive income policy to major cities, usually in the search of white–collar
(high wage rates, fat allowances and enviable jobs, political appointments and social amenities.
(attractive conditions of service) to encourage Example is the movement of people from the
indigenous skilled labour to apply for jobs and remain hinterlands to Abuja and Lagos.
in their places of work in the country. 7. Mega–Rural Migration: This contrary to the above,
8. Good Infrastructural facilities: Government should represents a large movement of people from the cities
modernize the environment with modern basic and towns to villages and country–sides, perhaps to
amenities e.g. good network of roads, regular supply of seek protection in times of war, for agricultural
electricity and pipe – borne water, free health care purposes, or in the event of natural disasters like flood
services, free education services at all levels, railway, in the major cities.
sea and airports, reliable postals, communication and
transport system. These motivates both indigenes and 8. Seasonal Migration: This is the periodical movement
foreigner to settle permanently in the country. of people from one place to another. For instance,
during vacations or for tourism, people often move
TYPES OF MIGRATION from one location to another to stay for short period.
1. Urban–Urban Migration: This involves the
movement of people from one urban area to another A TYPICAL STUDY ON THE RURAL– URBAN
urban centre. Reasons for this will include the search MIGRATION:
for economic opportunities or the desire to stay in an As previously discussed, rural–urban migration involves
area with more improved economic and social the drift of people from the rural areas to the urban centres.
infrastructural facilities, the search for employment,
the desire for a more suitable climate and so on. CAUSES OF RURAL– URBAN MIGRATION
1. Urge for greener pasture: The desire to secure more
2. Rural–Rural Migration: This involves the movement gainful employment in companies, government
of people from one rural area to another rural area. The department, etc.
reason for this include the desire for change and 2. Desire for higher knowledge: The urge to acquire
adventure, notice of opportunity or better environment more knowledge through higher institutions e.g.
for agricultural practices, the desire for a move suitable colleges, universities, polytechnics etc.
climate and so on. 3. Desire for well developed areas (cities): The desire to
live in a well-developed area (cities) with state of the
3. Urban–Rural migration: This is about the movement art facilities e.g. electricity, pipe borne water, modern
of people from the urban centres to the rural areas. accommodation, cinema houses, etc.
Usually, many people will not want to leave the urban 4. Urge for better skills: Desire of the youth
areas for the rural areas but factors such as transfer and (adolescents) to acquire basic skills through
government policy which aims at encouraging the apprenticeship as tailor, plumber, mason, welder,
establishment of government department and electrician, carpenter, driver, etc.
encouraging the private organizations such as 5. Strong eagerness for higher income: Desire to earn
manufacturing companies and financial organizations higher income through self-employment and trade, as
to establish their branches in the rural areas are capable the urban areas has a better diversified economic
of occasioning the urban rural migrations. system.
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6. Urge for a higher standard of living: The conditions SOLUTION TO RURAL – URBAN MIGRATION
of life in rural areas is extremely poor – low quality 1. Establishment of industries: Establishment of large
food, shelter, etc. The youths, therefore abandon this scale industries which are labour intensive in the rural
poor living conditions by moving to cities where the areas will provide abundant employment opportunities
standard of living is very good and enviable (attractive, for the rural dwellers.
admirable), e.g. delicious diets in restaurants, beautiful 2. Establishment of academic institutions: Setting up of
houses, cinema (video) houses, etc. various types of institutions especially universities,
7. Declining income: People’s income in the villages polytechnics, etc to provide non – distant learning
always decline. While those in the cities always rise. facilities for school leavers.
This awareness forces them to move to cities for 3. Provision of infrastructure: Setting up of basic
permanent settlement. amenities especially electricity, pipe borne water, good
roads, hospitals, modern market, etc in the rural areas
EFFECTS OF RURAL – URBAN MIGRATION brings about rapid development of rural areas. These
1. Increased size of the labour force in urban centres: The greatly attract youths; and they settle down in the rural
drift to the urban centres increases the number of people areas.
who are available for work in the companies, commercial 4. Development of agriculture: Government should
institutions, etc. This increases the size of the labour force modernize agricultural activities in rural areas in order
helps to increase productivity in urban centres. to make it more attractive to youths.
2. Urban employment is aggravated: The migration of 5. Establishment of companies’ branches in rural areas:
many people to urban centres increases the number of Government should encourage large firms like banks,
people seeking employment in these urban areas. insurance and oil companies, government departments,
However, the number of job opportunities is not etc to set up their branches in various rural areas. This
enough to absorb many of the young people who have raises level of employment and commercial activities
drifted to the towns and cities. Urban unemployment in rural areas.
therefore grows at a fast rate. 6. Establishment of recreational facilities: Provision of
3. Explosion of demand in urban centres for social services: facilities like stadia, swimming pools, cinema houses,
Demand for social facilities such as housing, medical table tennis courts, amusement parks, etc in rural areas
facilities, educational facilities, electricity, pipe borne will stem (reduce) the rush to urban centres.
water, etc will be far in excess of their supplies. They will7. Provision of modern transport system: Availability of
be over-used resulting in their breakdown. modern transport buses that shuttle (move) between
4. Increase in social problems and growth of urban slums rural areas and cities at low rates will attract people to
or ‘Shanty towns’: As used here slum refers to those parts work in rural areas.
of the city which are not properly developed. They lack 8. Provision of housing estates: Availability of modern
adequate facilities and usually serve as hide-outs for housing estates in rural areas at low rent will encourage
criminals. There is usually a high rate of immorality, workers to settle down in rural areas.
loitering, armed robbery, thuggery, etc. 9. Empowerment of youths in rural areas: All tiers of
5. Increased government expenditure: Increasing government should grant soft loans to youths in rural
population in cities would necessitate the diversion of areas. This will enable them to set up small scale
funds from productive investment to the provision of enterprises like poultry, fishery (fish farm), transport,
social amenities, thereby altering priorities. farming, carpentry, repair workshop, computer centre,
6. Reduced supply of labour in rural areas: Since many etc in rural areas.
young people migrate to the towns, farming is left in the
hand of an ageing population which is incapable of coping 2000/21
with arduous farming activities. These old men and women Net migration is the difference between
who are left behind in the farms make use of traditional A. population and census B. immigrants and emigrants
methods of production. The consequences of inadequate C. per capital income and population
farm labour and use of traditional methods is reduced D. internal and external migration
productivity per worker and per hectare. Answer
7. It reduces the number of taxable adults in rural Immigrants and emigrants (B)
areas: Since many taxable young men have migrated
to the towns, the amount of revenue which can be 1992/16
derived by the Local Government in the rural areas Which of the following does not increase the population of
would be low. If little revenue is derived, the amount a country?
of social facilities provided will be low. A. an increase in birth rate B. a decrease in death rate
8. Uneven development of the country: Higher C. emigration D. immigration E. early marriage
concentration of population in urban centres will cause Answer Emigration (C)
business activities and infrastructure to be concentrated
in urban centres while rural areas are neglected.
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2019/10 In summary:
The migration that involves movement of people out of (i) A higher birthrate normally leads to a higher
their own country is known as population growth. Its reverse is true of a lower
A. emigration B. immigration C. seasonal migration birthrate.
D. urban – rural migration E. urban – urban migration (ii) A higher death rate tends to reduce the population
Answer Emigration (A) growth.
(iii) Migration affects this distribution of population;
1991/4 Exercise 14.1.
the higher in areas where people move to and
The effect of emigration on a country’s population, all
lower in area where people move away from.
other things remaining constant, is to
A. increase in size B. cause over population
2000/14 Neco
C. increase its growth rate
The formula: Birth rate – death rate + net migration is used
D. reduce the proportion of children E. reduce its size
in determining
1983/40 UTME A. emigration rate B. infant mortality rate
The effect of emigration on a country’s population, all C. natural growth rate D. population growth
other things remaining equal, is to E. the actual population
A. increases its size B. cause over population Answer
C. increase the growth rate Population growth (D)
D. reduce the proportion of children E. reduce its size
Answer Reduce its size (E) Example: P2
The population of country ABC in 1989 was 37 million.
(4) NATURAL GROWTH RATE The births were 650,000 while it records 410,000 deaths. If
The size of the population also depends on what is in the same year, its immigration were 40,000 and 30,000
regarded as the natural growth rate. This is the difference of its citizens left the country, calculate the total population
between the birth rate and death rate. at the end of 1990.
Natural growth rate = birthrate – death rate. Solution
If the birth rate is greater than the death rate, it would mean 1989 population figure = 37 million
that the natural growth would have a positive value. This Birth rate (B) = 650,000
means an increase in population, if the death rate becomes Death rate (D) = 410,000
greater than the birth rate. The natural growth rate would Immigration (I) = 40,000
have a negative value and this means a decrease in Emigration (E) = 30,000
population. Population growth rate, PGR= (B+I) – (D+E)
PGR= (650,000 + 40,000 ) – (410,000 + 30,000)
2004/21 PGR= 250,000
The difference between birth and death rates of a given Current year population = Previous year population figure + PGR
population is referred to as the 1990 Population figure = 1989 population figure + PGR
A. mortality rate B. fertility rate C. natural growth rate = 37,000,000 + 250,000
D. linear growth rate = 37,250,000.
Answer Natural growth rate (C)
Example: P3
2005/18 UTME
The population of Esan–Central L.G.A was 880,000 in
If the death rate of a country is 52% and the growth rate is
December, 2020, out of which 60% were females. If within
12%, what is the birth rate of the country
one year no births were recorded, but 5% of the males died,
A. 48% B. 64% C. 40% D. 52%
what will be the population of the L.G.A in December
Answer
2021?
growth rate = birthrate – death rate.
birth rate = growth rate+ death rate. Solution
Total population in 2020 = 880,000
birth rate = 12 + 52 = 64% (B)
(i.e. 100% population)
(5) POPULATION GROWTH RATE Total population of male
The population growth rate is the annual rate of growth of (i.e. 40% of 880,000) 352,000
the population of a particular geographical entity. It is Birth rate and immigration -
always the net value of birthrate, death rate and migration. Deduct death rate
Population growth rate is given by the number of births (i.e. 5% of 352,000) 17,600
minus deaths plus immigrants minus emigrants Population of male left after death 334,400
PGR= (B+I) – (D+E) Add female population
B = Birth rate I = Immigrants (i.e. 60% of 880,000) 528,000
D = Death rate E= Emigrants Total population of the _______
PGR= Population growth rate L.G.A in December, 2021 826,400
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2021/10 Neco 2. Improved agricultural techniques: New techniques
If the population of a country grows by 25% between 2003 of agricultural production was discovered. And it led to
and 2005 to 100,000 people, what was the population in adoption of mechanized system of farming
2003? (mechanization). This coupled with the uses of
A. 25,000 B. 55,000 C. 75,000 D. 80,000 E. 90,000 fertilizers improved seedlings and other farm inputs
Answer made it possible to increase crop yield per acre. And
Assuming a scale of 100% this made more food to be available to Britain.
From the year 2003 – 2005, population growth = 25% 3. Industrial revolution and improved means of
Population of 2003 in % = 100 – 25 = 75% transport: Also new technique of producing large
In the year 2003, actual population ships, airplanes, vehicles and machines needed for the
75 manufacture and transfer of goods was discovered.
= × 100,000 = 75,000 people (C)
100 This made it possible to involve in international trade.
A large quantity of goods were made and transported
THEORIES OF POPULATION
from America, New Zealand, etc to England (Britain).
The following theories of population can be identified
Consequently, the standard of living of Britons did not
(1) The Malthusian theory of population
fall although the population increased. Thus
(2) Demographic transition theory.
Malthusian theory of population became irrelevant, and
(3) Biological theory.
it was not believed some years after his death.
(1) The Malthusian theory of population
4. Others:
Reverend Thomas Robert Malthus (1766 – 1834) was a
(i) Introduction of contraceptive (birth control)
renowned British Economist, he propounded the theory
measures: After some years, people started to adopt
widely known as the Malthusian theory of population. He
effective birth control measures, like late marriage,
was perplexed by the rapid population growth in England.
monogamy (marriage of only one wife), rearing only
He assumed that the population was growing at a faster rate
two children, etc. These measures greatly reduced
than that of food production. The population problem
British population growth.
motivated him to write a famous essay on population in
(ii) Development of medicine: Improvement in medical
1798 titled “An essay on the principle of population as it
science led to the discovery of various methods of
affects the future improvement of society”
modern cure of different diseases. This coupled with
The theory highlights is as follows: hygienic and abundant food lengthened the people life
(i) There was a rapid increase in the population while the span. And it dealt deadly blow on Malthusian
food supply was increasing at a low rate. pessimistic (negative) view about the consequences of
(ii) No populous country could obtain the necessities of rapid population growth in England.
life so easily as a thinly people country.
(iii) While population increased at geometrical progression
(1, 2, 4, 8, 16, 32 etc.), food production could only be Many economists believe that his theory is relevant to the
increased at arithmetical progression (1, 2, 3, 4, 5, 6 situation in many countries especially the less developed
etc.). countries of the world, e.g Africa. The standard of living of
(iv)Unless population growth was checked by vice and the people in Africa is quite low due to increase in the rate
misery due to famine, pestilence, war or moral of population growth which is faster than the rate of food
restraint, the standard of living was bound to fall. production. That is, Africa has an overwhelming growth
rate which has led to a drastic fall in the living standard of
the populace.
Why was Malthus proved wrong?
The pessimistic view of Thomas Malthus was proved 2019/25
wrong because the people of England enjoyed a higher The Malthusian theory of population was proved wrong
standard of living some decades after the period he wrote because
his popular essay even though there was increase in A. the practice of subsistence farming was encouraged
population. This is due to the following reasons: B. developing countries adopted birth control method
C. new land and new methods of production were
1. Discovery of new lands: Thomas was only aware of discovered
the existence of geographical area of Europe (Britain). D. Malthus view was seen as an exaggeration
In other words, it was not to his knowledge that other
Answer
continents were in existence. But after his essay, the New lands and new methods of production were
venture of exploration of new lands or efforts to discovered (C)
discover other continents was crowned with success.
New lands like America, Africa, New Zealand and
Asia were discovered.
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2003/10 Neco Exercise 14.2. Stage II marks the beginning of the demographic transition.
The central point of the Malthusian theory is that There is a marked change from a stable or slow growing
A. everybody should become a farmer population to a rapidly increasing population. Many
B. government should provide enough accommodation and food countries of the third world are presently at this stage.
C. increasing population will get enough food
D. population increases in geometric progression while Stage 3 – Post transition stage
food production increases in arithmetic progression This is a period of declining or low birth rates, and low
E. wages has nothing to do with cost of living death rates leading again to little or no population growth.
The slow growing population which is characteristic of this
1993/19 stage occurs in the mature economically advanced
Robert T. Malthus postulated in his population theory that countries because of the influences of modernization and
A. the death rate may become so high that people may not development.
survive 2003/11 Neco
B. people will eventually stop having children In the demographic transition theory, stage II represents a
C. people will migrate from one place to another in search stage. Where
of food A. declining birth rates with low death rate to little or no
D. positive efforts should be made to increase population population growth
E. population growth rate may out – grow the means of B. high birth rates with low death rate leads to no
subsistence population growth
Answer C. there is population growth due to high birth rate and low
Population growth rate may out – grow the means of death rates at that stage
subsistence (E) D. there is a slow rate of population growth accompanied
by high but slightly fluctuating death rates
1988/41 UTME Exercise 14.3 E. there is a very high growing population as a result of
The Malthusian theory of population predicts that growth high birth rates accompanied by high but slightly
in food production will fluctuating death rates
A. keep pace with population growth Answer
B. be at a faster rate than population growth There is population growth due to high birth rate and low
C. be at a slower rate than population growth death rates at that stage (C)
D. be more rapid than population growth in the developing
countries 2012/8
The demographic transition theory explains ___ stages of
2002/25 UTME modern population history.
The Malthusian theory of population growth is often said A. 2 B. 3 C. 5 D. 6 E. 7
to be Answer
A. ambiguous B. over simplified C. pessimistic 3 (B)
D. optimistic
Answer Pessimistic (C) (3) Biological theory of population
(2) Demographic transition theory of population This population theory is associated with an American
The theory of demographic transition provides a historical Biologist, Raymond Pearl. The theory is illustrated with the
insight into the population problems of developing help of a logistic curve (an s–shaped curve) and hence it is
countries. It tries to explain why all developed countries in also called logistic curve theory of population. Pearl’s
contemporary times have passed through three identical experiment was based on the observation carried out on
stages of population history. These stages are as follows fruit flies. According to him, the number of fruit flies
rapidly grew at first but later the rate of growth became
Stage 1 – Pre – industrial or pre – transition phase slow or started declining. A vital point to note here is that
They had a stable or very slow growing population as a when there was decline “the current figure was more than
result of high birth rates accompanied by high but slightly the previous number”. Also, after this experience, the
fluctuating death rate. This was due to lack of birth control population starts to increase and the old process is
measures and absence of modern medical facilities. repeated.
Stage 2 – Transition phase
They had a rapidly growing population as a result of high
birth rates and low death rates. This is a feature of an
economy at the industrial take off. It occurs with
modernization, improved public and private health, better
diet, higher income e.t.c. lead to an increase in life
expectancy and a marked reduction in mortality rates.
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 TYPES OF POPULATION CONSEQUENCES OF OVER POPULATION
UNDER POPULATION (1) There will be congestion on land and pressure on
This exists when the population of a place is so small that it other resources including social services: The people
is not able to make the most effective use of the available become too many for the available land. Land will be
resources. In such a situation, the people will not be fragmented and over used, and this may result in poor
enough to take full advantage of the available material yields.
resources.
There will also be bottle necks in social services. There
will be great pressure on available housing, water
CONSEQUENCES OF UNDER POPULATION supply, medical facilities e.t.c.
(1) The supply of labour will be relatively low:The (2) There will be urban congestion: Cities will be
available man power will be insufficient to manage overcrowded, resulting in the growth of shanty towns.
effectively all the possible productive activities in the (3) There will be a fall in per capital output and income:
country. The heavy pressure on available productive resources
(2) The size of the market will be relative small:The results in diminishing returns. Consequently, average
overall demand for goods and services will be output and income will fall.
relatively low. This is partly due to low level of (4) The demand for goods and services will be relatively
income per capital and the relatively fewer number of higher than available commodities: Therefore, inflation
people in the population. may result from excess demand over supply, and the cost
(3) The level of income per capital and the standard of of living will be high. People will pay more to obtain
living will be low:The low level of income per capital goods and services.
results from the low level of outputs. Since output and (5) They may be an excess supply of labour which will lead
income are low, the level of consumption will also be to a fall in wages and weaken the bargaining power of
low, people will not consume adequate amount of trade unions: Since the price of labour depends on its
goods and services and this will result in a fall in the supply and demand, an excess supply of labour over
standard of living. demand will lead to low wages. Excess supply of labour
(4) The level of Output will be low: This is due to the relative high population which is higher than
insufficient supply of labour as a result of the available resources.
(6) Over – population may generate emigration: People
relatively small size of the working population,
from the heavily populated areas would migrate to other
resources are not fully exploitedor effectively utilized.
areas in order to enjoy a higher standard of living.
Output therefore tends to be very low.
(5) The size of exports may decrease: There would not 2000/19
be enough goods produced for export. The decrease in One economic implication of over population is that it
exports brought about by low productivity may lead A. leads to low demand of goods
the balance of payments problems if the value of B. reduces balance of payment difficulties
exports decrease relative the value of imports. C. leads to a fall in per capital income
(6) Savings and investment will be low: Because of the D. reduces pressure on the available social facilities
low level of income brought about by low production, Answer Leads to a fall in per capital income (C)
people will have less money to save. Capital
formation and investments may both below. OPTIMUM POPULATION
An optimum population is the population which provides
2018/2019/51 (UNIZIK, AWKA) the labour force that can use the existing technical
A country whose population size is too small relative to its knowledge, capital equipment and natural resources to
resources is generate maximum income per capital in the country.
A. over populated B. under populated C. optimally It is the best type of population where the number of
populated D. producing optimum output people equals the country’s resources.
Answer
Under populated (B) 2007/5 Nov
Optimum population is
OVER POPULATION A. the population which when combined with available
This exists when the population is far more than necessary resources yield the maximum profit
to make the best use of the available material resources. It B. birth less death rate
represents a population larger than necessary to make the C. increase in standard of living as population increases
fullest use of existing technical knowledge, capital D. the maximum number of people that can live in a
equipment and natural resources. In such a situation, the country
available labour is under – utilized and many people are Answer
unemployed, that is the resources are not enough to keep The population which when combined with available
the people gainfully employed. resources yield the maximum profit (A)

325
EFFECT OF OPTIMUM POPULATION Solution
(1) There is maximum output and income per head of the A country reaches Optimum population when she attains
population. the highest output per person, otherwise known as per
(2) The standard of living is at its maximum. capita output. The solution is therefore set out as follows:
(3) The supply of labour is adequate. Country Food Population Per capita
(4) It leads to full employment of labour and other factors population (million) output
of production. (million
(5) It leads to large scale of production and reaping tons)
benefits of economics of scale. A 2200 25 2200
25
=88
(6) It leads to increase in government revenue. 2100
(7) There is effective utilization of all available resources B 2100 35 =60
35
(8) There is a large market size C 2250 45 2250
=50
(9) It improves balance of payments position as it leads to 45
D 2750 50 2750
a rise in volume of export and a fall in volume of 50
=55
import. From the solution above, country A has the highest per
capita output of 88units. So, it could rightly be said that she
WHY OPTIMUM POPULATION IS NOT ATTAINABLE has optimum population.
(1) Population size is dynamic not static: Changes Total output
occurring over time on the birth rate, death rate and NB: Per capita output =
Total population
net migration leads to constant changes in the size of From the working as set out above, it could be seen that per
population. capita output is the highest at the population of 25, (per
(2) Effects of migration: Mass migration could lead to capita output = 88).
rapid population changes (increase or decrease) within
a short period of time. Therefore, optimum population occurred at the population
(3) Changes in the state of technology: Over time, the level of 25 million people.
level of technology may either improve or deteriorate.
Available technology is a major determinant of output IMPORTANCE OF POPULATION SIZE
per head at a given point in time. (1) It determines the size of the labour force: The population is
(4) Discovery of new resources: New resources are the source of labour. A country with a large population is
constantly being discovered, thereby changing what more likely to have a large working population than a
the optimum population would be at a given time. country with a small population.
(5) Changes in amount of resources available: The (2) It determines the amount of foreign aid and investments
amount of resources available at a given time that follow into a country: A country with a large population
determines the optimum population. may attract more aid and foreign investments than one with a
small population.
(3) It determines the amount of goods and services imported
into the country: If the size of the population is large, more
commodities may have to be imported to meet the existing
demand.
(4) It determines the level of government expenditure in the
provision of social infrastructure:A higher population figure
calls for increased government expenditure on schools,
hospitals, water supply, e.t.c. on the other hand, the
government will spend less if the size of the population is
small.
(5) It determines the amount of recognition or respect given to
a country at the international level: In world organizations,
Under, Optimum and Over population. countries with a large population could use mere number to
attract some recognition. China is recognized as a world
Example: power mainly because of its large population.
Country Population Food production (6) It determines the per capital income and the amount of
(million) (million tons) resources available per person: The higher the population
A 25 2200 size, the lower the per capital income and amount of
B 35 2100 resources available per person. Population size determines
C 45 2250 the standard of living. A lower per capital income would
D 50 2750 result in a lower standard of living.
(7) It determines the size of the market for goods and services.
From the table above, which country enjoys optimum
population?
326
REASONS FOR HIGH POPULATION GROWTH IN (ii) Better environmental conditions: Improvements in the
WEST AFRICA standard of personal hygiene and public sanitation have
(1) There has been an increase in the birth rate: The birth contributed to the increase in the average life span.
rate is high all over West Africa. Research by the There is now a more efficient disposal of waste, with
National Population Bureau in 1986 reveals that the rate proper drainage, and greater care is taken of
of child bearing for 1,100 adult population is 46. The surrounding.
high birth rate is due to several factors. (iii) Improved standard of living: The average standard of
living has increased because people now have higher
(i) Higher level of income: The level of income of many incomes (on average), and the level of production has
people has increased. Such people therefore give birth to increased. People now consume a variety of goods and
more children since they will be capable of maintaining services in greater amounts. This has led to an increased
them. life expectancy. There has also been a general
(ii) There is now a higher degree of immortality: Premarital improvement in social services and this has contributed
and extra marital sex are often practiced leading to the to the increased standard of living.
production of many illegitimate children. Increasing moral (iv) Relative peace and reduced incidence of other
laxity coupled with the greater liberal attitude of some problems: The incidence of wars and famine has been
societies towards sex outside marriage has led to an increase reduced. In the past, frequent inter tribal wars claimed
in the birth rate. many lives. With the exception of the Nigeria Civil war
(iii) The importance attached to the large family and Inter tribal wars have become a thing of the past. Also
polygamy: Recently, renewed importance has been increased food production has made the possibility of
attached to the large family. Some people look upon famine more remote. The abolition of slavery also
having more than one wife as a sign of wealth. contributed to the increase in the population of West
Polygamy is now practiced by many people. This has led Africa.
to the production of more children. The large family is (v) The growing influence of religion and increased
looked upon by many as a blessing from God. Again, in civilization: These have discouraged human sacrifices,
farming areas, many hands are required. The easiest way cannibalism, the killing of twins and other evils.
to get helping hands is to marry more wives and produce (vi) Migration is an important factor which has led to an
more children. increase in the population of many West African
(iv) Limited use of birth control methods or inadequate countries: Net migration has increased relative to the
family planning: Despite the fact that birth control numbers of emigrants. Many people migrate from one
methods exist, many West African are not aware of place to another.
them. Even when people are aware of them, they may
refuse to practice them because of their religious or POPULATION GROWTH CONTROL IN WEST
ethical beliefs. AFRICA
(v) People now tend to marry early:Many young men who (1) Birth control or family planning: The need to have
enter business easily become rich. They tend to marry early family planning programmes which will help to educate
and choose girls who are younger than they are. the people on how to control birth. These methods will
(vi) Government policy which has lessened the burden of help to reduce the number of births per family, and
parenthood: With political independence, many West reduce the rate of population increase.
African governments have embarked on projects that (2) Mass literacy/providing more education facilities for
lessen the economic burden of parents. Such projects all and more job opportunities for women: If more and
include free primary education, free medical services better educational facilities are provided, many people
e.t.c. These concessions encourage parents to have more will be encouraged to continue their education beyond
children. the normal secondary school leaving age, they may
therefore tend to postpone marriage until they complete
(2) There has been a fall in the death rate: The average life their education. The education of women helps to create
span of man has no increased to about 70 years more opportunities for their employments. The gainful
compared with about 50 at the beginning of the century. employment of women and the difficulty in securing
The research by the national population Bureau puts the house helps will help to reduce high population growth.
death rate at 1.6 percent i.e. 16 death for 1000 persons. (3) Legislation/population policy: Some people have
(i) Improvements in medical services and health facilities: suggested legislation on the maximum number of
More hospitals and dispensaries have been set up. More children per family as in some countries of South East
doctors, nurses, and other medical personnel are Asia.
provided, and more effective drugs have been produced. (4) Provisions of social security schemes: Adequate
When people are sick, they now go to hospitals or clinics pensions, old age allowances and old people’s homes
for treatment. Improvements in medical knowledge have should be provided. This will remove the necessity to
led to the control of malaria, small pox and other produce more children who will cater for the parents
dreaded diseases which have previously claimed many when they are old. This is because they would be
lives. adequately taken care of by the government during their
old age.
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(5) Tax incentives/government policy: The government can EFFECTS AND IMPLICATIONS OF AN AGEING
adopt policies which favour the maintenance of small (OR DECLINING) POPULATION
families. For example, there could be tax relief measures An ageing population is also referred to as a decreasing
which help the small family units at the expense of those population or stationary population. An ageing population
that are larger. A man with a large family could be made is a declining population with an increasing percentages of
to pay higher tax. old people while the relative percentage of children and
(6) Migration policy: The rate of immigration into the workers are decreasing.
county could be reduced by more stringent immigration
laws. Emigration could be encouraged by a less A declining population is brought about by:
restrictive policy towards it. (1) A sharp fall in birth rate. Fewer children are born.
(2) A sharp fall in death rate. Old people live longer.
CONSEQUENCES OF A RAPIDLY GROWING (3) War which claim the lives of many people, especially
POPULATION the young men who join the army.
(1) There will be an enlarged market:The total demand (4) Emigration reduces the population. Where emigration
for goods and services will be higher. An increase in is higher than immigration, the net migration will be
total population means an increase in the number of lower, resulting in a fall in population size.
consumers. In general, the demand for food, clothing
and shelter will increase. CONSEQUENCES OF AN AGEING POPULATION
(2) There will be a higher rate of unemployment: There (1) There will be changes in the investment or
will not be enough job opportunities to absorb all production pattern: Producers will produce more of
those who want to work. Since the rate of investment the goods and services required by old people because
may be reduced as a result of low level of saving, the demand for such goods and services has increased.
many people are likely to be left unemployed. Change Fewer children’s requirements will be produced.
in demand which results from changes in the (2) There will be a new pattern of demand: There will be
population structure, some industries producing old a shift in demand in favour of goods ands services
peoples’ goods may decline while others producing used by old people. More walking sticks, arm chairs,
children goods will expand. Workers in the declining snuffs, hats e.t.c. will be required. On the other hand,
industries may therefore be unemployed for there will be a drop in demand for goods and services
sometimes. used by children. For example, fewer toys less
(3) There will be a general fall in income per capital children’s clothing, and entertainiment will be
and the standard of living: The general level of required. There will be a fall in total demand for
consumption of goods and services will be low due to goods and services. This is because the total number
the low level of income per head. When the total of consumers are smaller.
amount of resources available is spread among the (3) There will be a fall in the size of the labour force:
population, the amount of resources per head will be Old people are not fit to work. They form a dependent
low. Fewer resources per person results in a lower group. An increase in the number of old people will
standard of living. result in a fall in the size of the working population.
(4) The size of the labour force will increase, especially (4) The society becomes more conservative and less
in the long run: If the size of population increases, innovative: Old people find it difficult to accept
the supply of labour will be greater. The children who changes. They are also not good at discovering new
are born will later move into the working class age ways of doing things. The society therefore tends to
groups and increases the number of people available stagnate.
for employment. (5) The fall in total production leads to decrease in
(5) There may be increasing social problems: There will output per head and low income per capital: When
be urban congestion leading to the growth of shanty the gross domestic product is spread among the
towns or urban slums. Social problems such as population, the amount of resources per head will be
prostitution, drunkenness, armed robbery and literacy low. The decreasing amount of resources per person
will tend to be an increase. or the lower income per capital will lead to a fall in
(6) There will be increased population pressure on land the standard of living especially in the long run.
which results in land fragmentation and over (6) There will be less mobility of labour: This may result
utilization: Land may therefore become less from the fact that old people usually want to stay in
productive. This is the case in some parts of igbo land one place. They do not want to move about from one
in Nigeria where the population density is more than place to another as young people do.
one thousand persons for square kilometer. (7) There will be high depending ratio: Workers will
have more old people to cater for. Old people cannot
work and so have to depend on the workers and the
government for their support.

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(8) There will be structural unemployment: Since fewer Assuming, we have two set of class, A and B
children’s goods and services are required, some A= Dependent class
producers of such goods and services may be forced B= Independent class
to close down and may remain unemployed for 𝐴
Dependency ratio = 𝐵= A:B
sometimes. They cannot immediately start producing
We wish to buttress the concept of dependency ratio much
old people’s goods because of the occupational and
further with a simple example. If the number of dependent
industrial mobility of labour. This unemployment
people is 200, and the number of independent people
which occurs within the period of re-adjustment is
(workers) is 500,determine the dependency ratio.
called structural unemployment.
200
Dependency ratio = 500 = 2:5.
POPULATION DISTRIBUTION
The population distribution of a country refers to how the A high dependency ratio causes a fall in output of goods
country’s population can be polarised along certain lines. and services. While a low dependent ratio leads to a rise in
This distribution can be: output of goods and services. That is, the higher the
(1) Age distribution of population dependency ratio, the smaller the labour force and output
(2) Sex distribution of population. of goods and services, and vice versa.
(3) Occupational distribution of population.
(4) Geographical distribution of population. 2019/11 Neco
The table below shows the age distribution of the
population of a country.
AGE DISTRIBUTION OF POPULATION Age group 0 – 17 18 – 35 30 – 60 61 and above
The age distribution of population is used to determine the Population 30,000 15,000 25,000 11,000
age composition of a population. This helps in knowing the From the table above, the dependent population is
different age groups as well as the ratio of the working A. 35,000 B. 40,000 C. 41,000 D. 45,000
population and dependent groups. E. 70,000
Age distribution is classified into two categories namely Answer
Dependent and independent respectively. The dependent The dependent age include (0 – 17; 61 and above)
group consists of those that given their age, are not 0 – 17 = 30,000
mentally and physically fit to work. They depend on others 61 and above = 11,000
for their living, e.g., children and old people. It is also = 41,000
defined as the economic less active segment of the The correct option is C – 41,000
population. The independent consist of those who are
mentally and physically fit to work, given their age. They
work to carter for the dependents and they consist of the 192/28 UTME
young people. It is also known as the working population, In an economy, if the proportion of people who are below
and defined as the economic active segment of the 18 years is 40% and those above 60 years is 30% what
population. The working population is made up of those would this imply? The
between 15 and 64 years old while the dependent groups A. dependency ratio is high B. population is optimum
are those below 15 years and those 65 years and above. C. ratio of females to males is high
D. population is growing at less than equilibrium
CONCEPT OF DEPENDENCY RATIO E. population is growing according to Malthus theory
Dependency ratio is the ratio of the number of people who Answer
are not working i.e. dependent, to the number of people Dependency ratio is high (A)
who are working in a country i.e. independent, in a given
period.
The necessity of age distribution of population is derived in
the fact that those between 15 and 64 years constitute the
labour force while others are non – productive.

CALCULATION OF DEPENDENCY RATIO

The sum of the percentage of dependent class to the
percentage of the independent class gives the dependency
ration.

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2006/2 Example D3
Age 0-15 16-35 36-60 61 and above
Population 40,000 26,000 30,000 24,000
The table above shows the age distribution of a town in
Nigeria. What is the dependency ratio of the town?
Solution
Age Dependent Independent
Populate Populate
0-15 40,000
16-35 26,000
36-60 30,000
61 and above 24,000
The pie chart below shows the age distribution of
Dependency 64,000 : 56,000
population in thousands of an island Y for the year 2000.
Ratio
The total population of the Island is 245,000. Use the
Dependency Ratio= Dependent people: Independent people
information supplied to answer the questions that follow. 64000 8
(Show all workings clearly). Dependency Ratio = = = 8: 7
56000 7
(a) Calculate the number of persons in the From the working above, it could be seen that the ratio of
different age groups. dependent is more than that of independent. Here, we say
(b) What is the dependency ratio of the population that the town has a high dependency ratio. High
(c) Give three implications of the above dependency ratio has its own economic implications on a
population structure. nation.
Solution Example D4
2a. Age group 0 – 16 years Age group in years Corresponding
220 245,000
= 360 × 1 = 149,722.20 percentages
Age Group 17 – 45 Above 60 30
75 245,000 15 – 60 150
× = 51,041.70
360 1 0 – 14 20
Age group 46 – 60 years Solution:
43 245,000
360
× 1 = 29,263.90 Age group Dependent Independent
Percentage Percentage
Age Group 61+ years Above 60 30
22
×
245,000
= 14,972.20 15 – 60 150
360 1
0 – 14 20
2b. Dependency Ratio = Dependency 50 : 150
Dependent people:Independent people Ratio
149,722.20 + 14,972.20 Dependency Ratio= Dependent people: Independent people
Dependency ratio = 50 1
51,041.70 + 29,263.90 Dependency Ratio = = = 1: 3
150 3
164,694.40
= = 2:1 From the working above, it could be deduced that the town
80,305.60
has a low dependency ratio.
2c. The population structure above is that of a high
dependency ratio, the implication of such Example D5
structure includes An hypothetical data of the age distribution of population
1. A high dependency ratio causes a fall in output of of a country is presented below.
goods and services as the labour capacity is low Sex Ages in years
2. The high dependency ratio will lead to low level of Below 11 11 – 14 15 – 35 36- 64 65 & above
savings and investment. Male 17,550 29,575 14,755 42,250
3. The structure implies less mobility of labour: Female 34,450 35,425 17,745 55,445
4. High prospective labour force because of the large Total 52,000 32500 97,500 78,000
proportion of young ones. Using the data,
i. Carefully complete the table.
ii. Determine the country’s total population.
iii. Calculate the difference between the population of the
male and the female who are 14 years and below.
iv. Find the percentage of the population that falls
between 15 and 64 years.

330
Solution 4. Changes in government policies: Government can
i. make law to change different age brackets; youth
Sex Ages in years group varies between 18 and 21 and pension group
Below 11 11 – 14 15 – 35 36- 64 65 & above varies between 58 and 65. Secondly, government can
Male 17,550 29,575 14,755 42,055 42,250 restrict rate of migration. They affect age distribution.
Female 34,450 35,425 17,745 55,445 35,750 5. Changes in dependent class: Increase in birth rate and
Total 52,000 65,000 32500 97,500 78,000 ageing population cause a rise in dependency ratio, and
ii. The country’s total population vice versa.
= Total (below 11) + Total (11 – 14) + Total (15 – 35) 6. Changes in independent class: Positive net migration
+ Total (36 – 64) + Total (64 & Above). (increase in the population size of group), and
= 52,000 + 65,000 + 32,500 + 97,500 + 78,000 government policy in favour of adult raise the
= 325,000. independent class. While negative net migration, war
iii. The population of the male 14 years and below. and unfavourable government towards adult group
= 17,550 + 29,575 reduces it.
= 47,125 7. Effects of war: A prolonged war in a country reduces
The population of the female 14 years and below. the adult group. While its absence, all things being
= 34,450 + 34,425 equal, makes it be either constant or rising.
= 68,875
The difference between the population of the female
and the population of the male who are 14 years and EFFECTS OF A CHANGED AGE DISTRIBUTION
below. 1. Changes in the market structure: There will be an
= the population of female – the population of male increased demand for goods and services for the
= 68,875 – 47,125 = 21,750 section of the population whose percentage has
iv. The population that falls between 15 and 64 year. increased, while demand for others will fall.
= 32,500 + 97,500 – 130,000 2. Changes in birth rate: Increase in the birth rate has
The percentage of the population that falls between 15 positive result if the population is under optimum. The
and 64 years reverse (opposite) occurs if the population is above
130,000 optimum.
= × 100
325,000 3. Changes in death rate: Increase in the death rate has
= 40% negative (bad) effect if the population is under
v. The dependency ratio optimum. The reverse occurs if the population is above
= Dependent Population :Working Population optimum.
Where 4. Changes in the production pattern: There will be
Dependent Population = 52,000 + 65,000 + 78,000 increased production of goods and services which are
= 195,000 high in demand.
And working population = 32,500 + 97,500 5. Changes in dependency ratio: The dependency ratio
= 130,000 will increase or decrease depending on the size of the
195,000 195 3 working population relative to the dependent
Dependency ratio = 130,000= 130 =
2 population.
Dependency ratio = 3: 2
6. Changes in the size of the labour force: It will
increase or decrease depending on the size of the
working population.
CAUSES OF CHANGES IN AGE DISTRIBUTION 7. Changes in government budgetary provisions: More
Factors influencing age distribution. In other words,
social facilities will be required by those whose
changes in age distribution or different age groups are due
percentage has increased.
to the following: 8. Changes in the import-export pattern: Imports or
1. Changes in the birth rate: High rate of birth causes a
exports will increase or decrease depending on the
rise in the infant group, and vice versa. direction of change.
2. Changes in death rate: A high rate of death mostly
9. Changes in the pattern of income distribution: The
affects old people. If this is coupled with high infant
income distribution will change in favour of the group
immorality lower the dependency ratio. While war whose percentage has increased.
reduces the adult group.
10. Effects on economic development: A high
3. Changes in net migration: Increases in positive net dependency ratio hinders economic growth and
migration (excess of immigrants over emigrants) raises
development, while a high independent class raises it
the adult group; while negative net migration reduces
as it increases output of goods and services.
it.

331
IMPORTANCE OF AGE DISTRIBUTION 6. Official school leaving age or age of entry into the
1. Knowledge of different age groups: It enables the labour force: The lower the official school leaving age
government to know the number of people in different of entry into the labour force, the larger the working
age groups in a given period. population vice versa.
2. Ensures effective planning: It enables the government 7. Official age of retirement: The higher the official age
to ensure effective economic planning – type and of retirement, the larger the working population and
number of goods and services to be provided in vice versa.
different areas or states. 8. Net migration: Positive net migration (excess of
3. Reveals production pattern: It assists investors immigrants over emigrants) increases the working
(business people, especially foreigners) to make wise population. While negative net migration reduces it.
investment decisions as they are aware (know) the 9. Level of remuneration: The higher the amount of
different types of different goods to produce and sell in salary and wages in a country, the higher the size of the
different states or areas. working population.
4. To forecast income tax: It enables government to 10. Culture: In some societies, married women do not
estimate income tax revenue. fully participate in many types of work especially those
5. Better budget preparation: It ensures effective outside the home. This reduces the size of the working
budget preparation. population.
6. Effective preparation of population policy: It assists 11. Number of people who are willing to work: The
the government in making good population policy higher the number of people who are willing to work
either to restrict or relax migration policy (either to (at any time), the higher the working population.
allow people to come in or to move out of the country). 12. Number of people who study beyond official school
7. Knowledge of dependent and independent class: It leaving age/people who retire before official age of
enables the government to know the population of retirement: The higher the number of these groups of
dependent people as well as those who are people, the smaller the size of the working population.
independent.
8. To know size of labour force: It enables the EFFECTS OF INCREASE IN WORKING
government to know the size of the labour force. POPULATION
9. Guides tax collectors in the collection of poll tax: 1. Increase in national output: It leads to a rise in
Since women don’t pay poll tax, tax collectors don’t output of goods and services in a country especially if
waste their resources in going to areas with high resources are available. This makes goods to be
women concentration e.g. foodstuff’s market. available for both local market and export.
2. Increase in government revenue: The increase in the
WORKING POPULATION level of economic activities in different parts of the
This is the total number of people who are gainfully country leads to a rise in national income and tax
employed in a country in a given period of time. revenue. It leads to a rise in government revenue.
3. Raises level of development: The increase in both
FACTORS INFLUENCING WORKING POPULATION government revenue and economic activities in various
1. Population size: The larger the population, the greater states or parts of the country stimulates (bring about)
the working population, and vice versa. rapid economic development e.g. building of
2. Culture: In societies in which women do not form a infrastructural facilities especially good roads,
part of the labour force, the working population may be electricity, pipe borne water, etc.
small, all things being equal. 4. Full capacity utilization: Increase in the working
3. Government policy: Government can make laws to population makes almost all industries to work at full
increase or decrease the working population through: capacity. This leads to increase in output of goods and
i. Restricting age of entry into the labour force. services.
ii. Regulating age of retirement. 5. Effective allocation and efficient use of resources: It
iii. Allowing women to form a part of the labour force ensures that all available resources are properly
iv. Granting permits to foreigners to form a part of the allocated and they are efficiently used to raise quantity
labour force. and quality of goods and services.
4. Employment opportunities: Availability of job
opportunities increases the working population while SEX DISTRIBUTION OF POPULATION
absence of jobs reduces it. The sex distribution of population specifies the number or
5. Disabled people: A large number of sick and disabled percentage of males and females in the population.
people in a country has adverse effects on the working In other words, it is a ratio of men to every thousand
population. women in a particular place, state or country in a given
period. It is also referred to as sex ratio.
Number of males
Mathematically: Sex ratio = Number of females
332
Example W1 2006/11 Neco
From the table below, determine the sex ratio of X and Y. The division of the population into male and female is known
Year Males Females Sex ratio as ____ distribution
1980 20,000 15,000 X A. age B. geographical C. man – woman
1990 20,000 25,000 Y D. occupational E. sex
Answer
Solution
Sex (E)
20,000 4
X = Sex ratio = 15,000 = 3 = 1.33 2000/5 Nov
The grouping of a population into males and females is
20,000 4
Y = Sex ratio = 25,000 = = 0.8 known as
5
A. man – woman distribution B. sex distribution
C. occupational distribution D. biological distribution
CAUSES OF CHANGES IN SEX COMPOSITION
Answer
1. Birth rate: A higher rate of birth of male than female
Sex distribution (B)
causes a rise in the sex ratio.
2. Death rate: A higher rate of death of female than male OCCUPATIONAL DISTRIBUTION OF POPULATION
reduces the sex ratio. The occupational distribution of population implies the
3. Immigration rate: A higher rate or immigration of division of the productive activities into different sectors or
men than women raises the sex ratio, and vice versa. occupations. Occupations are divided into three groups:
4. Emigration rate: A higher rate of emigration of (i) Primary occupation.
women that men reduces the sex ratio, and vice versa. (ii) Secondary occupation, and
5. Culture: Strong desire for men than women raises the (iii) Tertiary occupation.
sex ratio, and vice versa.
6. Gender discrimination/Government policy: Many 1. Primary occupation: It consists of all those engaged in
institutions (companies, colleges) and government extracting raw materials from the soil, sea and forest.
prefers to employ men instead of women. This makes That is, they work mostly in forest and sea. They include
migration (immigration) policy to favour male experts agriculturists (farmers, fishermen, hunters, etc), miners
(those involved in extraction and production of minerals),
than female. This raises the sex ratioi.e. increases the
quarry workers, etc. They are referred to as “Black collar
number of men than women.
workers”.
NB: High sex ratio implies more men than women; while a 2. Secondary occupation: It comprises mainly
low sex ratio implies more women than men. manufacturers, furniture makers (carpenters), mason,
tailors, welders, factory workers, construction workers,
IMPORTANCE OF SEX COMPOSITION etc. That is, it includes all those who convert the raw
1. Effective economic planning: The knowledge of materials into semi-finished products and finished
more women than men (low sex ratio) enables the productions. They work mostly in factories and
government to properly plan and cater for the welfare workshops. They are referred to as “Blue – collar
of women. It leads to establishment of more female workers”.
schools, maternity hospitals and training centres for 3. Tertiary occupation: It consists mainly of commerce
women in areas with relatively high population of and services. It includes all those that are involved in
women. commerce (trade and aids to trade) and rendering of
2. Rational investmentdecisions: It enables investors services. They work mostly in offices, stores and markets.
(businessmen) to change or adjust their production They include teachers, medical doctors, traders,
pattern either in favour of men or women. The transporters, bankers, distributions, salesmen, drivers,
knowledge of more women than men in a state makes businessmen and women, etc. They are referred to as
investors to produce or import more female wears “White – collar workers”.
(dresses – skirts, lady shoes/wrist watches, hair ties,
etc) than those of men (suits, hats, walking sticks, etc). CAUSES OF CHANGES IN OCCUPATIONAL DISTRIBUTION
3. Effective distribution of goods and services: A large (i) Culture of the people: In some societies women are
quantity of female items or needs are usually given to not allowed to occupy certain positions. Their culture
areas with a relatively large population of women and forbids it.
vice versa. (ii) Availability of education institutions: The kinds and
4. Efficient formulation of population policy: Its varieties of education institutions will affect the
knowledge guides the government in the formulation occupation distributions of the labour force.
of good population policies. They are designed in (iii) Distribution of education facilities: Some states have
favour of high sex ratio if population of men is relative more educational facilities than others such as
high; and in favour of women if there is low sex ratio. polytechnics, colleges of education and colleges of
agriculture. Such states will have more varied
occupations than states with less of such facilities.
333
(iv) Migration: Areas with greater and better economic 3. Presence of mineral resources: Discovery of mineral
opportunities will attract more people. The wider the deposits, e.g. crude oil, gold, tin, diamond, etc in a
varieties of such opportunities, the wider distribution country attracts many extractive industries e.g. oil
of occupational groups. companies and many auxiliary (allied) firms to the
(v) Natural endowment: The localization of natural state. This accounts for increasing population in Niger
endowment will influence the distribution of people – Delta region. While a complete absence of mineral
with natural talents. The availability of hides and skin deposits in a state, cateri paribus, may not support
in Kano State influences the concentration of leather dense population.
work experts in Kano. 4. Presence of administrative headquarters and state
(vi) Level of Technological Development: A country that capitals: The presence of many administrative
is more technologically developed will have a wider headquarters of multinational companies, as well as
spread of different occupations than the less developed presence of state capital in the same area or town lead
country. to a high population density in the town. While their
complete absence, all things being equal, may make
IMPORTANCE OF OCCUPATIONAL such town to be sparsely populated.
DISTRIBUTION 5. Presence of academic institutions: The location of
1. Effective economic planning: It enables governments many academic institutions, like two universities,
of under developed countries to properly develop the polytechnics, technical colleges and many primary and
secondary and tertiary sectors. secondary schools in a state or town causes a rise in its
2. Efficient investment decisions: It guides the population. While their absence in a state or town, all
government in making investment decision with regard things being equal, may make it to be sparsely
to sector(s) that should be given priority attention. populated.
3. Efficient formulation of population policy: It enables 6. Climatic condition: Favourable climatic condition,
the government to formulate appropriate population like the one in the middle belt, supports dense
policy, e.g. easy immigration policy attracts foreign population of both black people and European. While
experts to develop secondary and tertiary sectors. unsuitable climatic condition scares away people. It
4. Establishment of appropriate institutions and accounts for sparse population.
agencies: It enables the government to establish 7. Rocky, mountainous and inaccessible areas: These
appropriate number of institutions and agencies in areas cannot support neither agricultural nor industrial
different economic sectors especially in secondary and activities. They therefore, have sparse population.
tertiary sectors. While a well spread large land without the above
features, all things being equal supports dense
GEOGRAPHICAL DISTRIBUTION OF POPULATION population.
The geographical distribution of population is a 8. Government policy: Government policy influences
polarization according to geography or geographical distribution of people in a country. The location of
location. It can also mean the way people are scattered into state capital and industrial estates in a town, etc raises
different geographical areas. It refers to the breakdown of its population. However, many governments are
the population in accordance with geographical, historical desirous of ensuring even distribution of population
and social factors. throughout a country.
9. Presence of infrastructural facilities: A town or state
In most West African countries, the distribution of that is well developed with various social amenities
population by geography is distinct with people moving e.g. dual carriageways, constant supply of electricity
from one place to another. In Nigeria, there has been drift and pipe-borne water, hospitals, modern stadia, sea and
of people from the rural areas to the urban areas. airports etc. like those in federal and state capitals lead
to a high population density. While their absence in an
FACTORS INFLUENCING GEOGRAPHICAL area accounts for its sparse population.
DISTRIBUTION 10. Job opportunities: The availability of numerous
1. Presence of economic activities: A high concentration employment opportunities, like those in industrialized
of many large industries in a place leads to its dense cities e.g. New York, London, Paris etc leads to a very
population. While their complete absence, ceteri high population density. While their absence in an area
paribus, causes a sparse population. or town like rural area or villages accounts for their
2. Presence of soil fertility: A high level of soil fertility sparse population.
in an area eg. Plateau and Benue states suitable for the 11. Presence of commercial activities: The presence of
cultivation of a variety of crops e.g. tomatoes, onion, many large commercial activities or a large and
yam, sweet potatoes, etc, magnets (attracts) numerous reputable market in a town e.g. Onitsha, Kano, Lagos,
farmers and allied industries to the area. This leads to etc accounts for a high population density. While their
its dense population and vice versa. absence in a town, all things being equal, leads to a
sparse population.
334
POPULATION DENSITY 2. Urban areas tends to be more energy efficient: In
Population density (PD) refers to the number of population heavily populated urban areas, shops and facilities are
per land square area”. likely to be within walking distance unlike the rural
areas, where people will have to drive a long way to
It is calculated by dividing the population size by the total shops.
area of a place, town, state or country. 3. Urban areas also make efficient city-wide public
Population size transport networks more efficient: As population
PD =
Land area density rises, the city is almost forced to switch from
cars to more space efficient forms of transport, such as
Example PD 1
underground railway systems.
Calculate the PD of Nigeria:
4. Greater intellectual capital: Rising population leads
Population size in 2021: = 211 million people.
to greater scope, as the society will produce
Its total land area = 923,768sq.km.
entrepreneurs and innovators, who come up with
Nigeria’s PD in 1986 = 211,000,000 = 107.87
improved technology and business which helps to
923,768
improve living standards.
This implies that Nigeria’s PD as at 2021 is 228.41 i.e.
5. Technology has mitigated the negative forecasts of
Nigeria has an average of (228.41) 228 people per square
many who feared rising population: Malthus
kilometre in 2021.
predicted in the nineteenth century, a rising population
would lead to food shortages. The population has risen
2009/31
considerably, but areas of high population density have
The population density of town Y made up of 50 square
not seen the food shortages because of improved yields
kilometre land area and 100 million people is
from agriculture and the ability to trade food.
A. 50,000 people per square kilometre
6. Rising population creates demand for labour and
B. 0.2 million people per square kilometre
increased supply: Some fear, a rise in population (e.g.
C. 0.5million people per square kiometre
due to net migration) may lead to unemployment as
D. 2million people per square kilometre
migrants take jobs from native workers. However, a
Answer
Population size rising population both increases supply of labour and
Population density = Land area creates new demand from higher economic growth.
100,000,000 7. Industrial Specialization: Greater specialization
= enables increased living standards. Countries with
50
= 2,000,000 people per sq km. higher population densities are likely to see increased
∴ The population density is 2million people per square specialization in industries suited to urban
kilometre (D) environments.

2005/13UTME PROBLEMS OF A RISING POPULATION DENSITY

Population density is described as the 1. Congestion: There will be high pressure on existing
A. average number of people per square kilometer social amenities, like traffic (vehicles), houses,
B. average number of people in a country electricity, roads, pipe-borne water, hospitals, schools,
C. total population excluding migration etc; it causes their acute shortage.
D. total population including net migration 2. Pollution: Rising population makes it harder to reduce
Answer pollution and improve life quality as a result of the
Average number of people per square kilometer (A) excessive effluents released into our surroundings.
3. Famine – shortage of food items: There will be acute
1986/11 UTME Exercise 14.4 shortage of food items as the existing foodstuffs will
Population density refers to not be sufficient for the people’s use. This causes
A. densely populated urban centres sickness, suffering, etc.
B. the total area divided by the total population 4. Low per capital income and poor standard of living:
C. densely populated rural areas Due to the high population, the income per person will
D. the total population divided by the total area fall, and this leads to poor standard of living.
5. Excessive labour supply – high rate of
BENEFITS OF A RISING POPULATION DENSITY unemployment: The rate of unemployment will rise as
1. Economies of scale in national infrastructure: A there will be no sufficient vacancies for the dense
larger population density will help reduce the average population or numerous applicants who offer their
costs of the transport network for a terrain with an services for employment.
excellent motorway network/train system connecting 6. High level of demand – inflation: There will be high
different parts of the country, rate of demand for all types of goods and services. The
high pressure (demand) on goods and services will lead
to inflation: increase in prices, rent, fees, etc.
335
7. High rate of crime: Dense population often leads to ii) De jure population census: This population census
increase in number of applicants. They may resort to type involves the counting of only people who have
stealing, armed robbery, prostitution, etc. been permanent residents of a particular area, but they
8. High rate of emigration: The rate of emigration, were not necessarily present when the census was
especially among literates and youths, rises as the performed. This population census is also considered as
population rises. This causes inability to harness our counting by proxy.
resources. And it leads to a fall in output of goods and
services. IMPORTANCE OF POPULATION CENSUS
9. Increase in government expenditure: Government (1) It reveals the size and growth of the population: It
will be compelled to set up more social amenities like helps the government in determining whether the
electricity, roads, schools, hospitals, pipe-borne water, existing facilities for education, housing, transport
etc. She may be compelled to borrow money with high e.t.c are enough for the population. It is also used to
interest rate if she does not have sufficient resources determine how many of such facilities are required to
with which to establish them. This increases national meet existing and future demands.
debt. (2) Economic Planning: They help the government in
10. Balance of payment (BOP) deficit: It leads to high planning for development aimed at improving the
demand for both local and foreign goods. Their people’s standard of living. They help development
inadequacy may compel the government to involve in planners to forecast the numbers of hospital to be
mass importation of consumer goods. This may lead to provided, the number of schools to be built, the
BOP deficit (foreign debt). manpower required in various sectors of the economy
and different part of the country within a given plan
IMPORTANCE OF GEOGRAPHICAL period.
DISTRIBUTION (3) Forms the basis for the importation of goods and
1. It ensures equitable distribution of goods and services; services: A large population may call for increase
e.g. foodstuffs, stationery, etc. importation. The age distribution determines the types
2. It guides the government in the process of location of of goods and services to be imported.
industries and the types of industries to locate to an (4) Revenue Allocation: Allocation of federal government
area. Obviously, labour intensive industries should be revenue among states and local government is partly
sited in rural areas; while capital-intensive industries based on population figures.With states with high
for cities. population density getting more revenue that the sparsely
3. Its knowledge ensures efficient distribution of social populated states.
amenities; e.g. the types of roads, hospitals, schools, (5) The knowledge of size, derived from a population
with their appropriate sizes. census, helps in the administration of the country:
4. It facilitates development of rural areas with basic The division of the country into states and local
social amenities. government is largely based on population figures.
5. Its knowledge assists the government in the Also the division of the country into constituencies for
formulation of economic policies; e.g. drawing up election purposes is based on population data. There
development plans. is a minimum population which an area must have
before it can be created a constituency, a local
POPULATION CENSUS government or a state.
Population census refers to the head – count of the people. (6) Political Representation: Population figures also
It is the process by which the number of people living in a serves as a basis for representation in the national
country or a geographical is counted. assembly or parliament. The higher the population
figures, the greater the number of constituencies in a
In developed countries, it is carried out by the government state and the greater number or representative from
at regular intervals usually every ten years. A population the state.
census is a comprehensive form of population study in (7) Distributing foreign aid: Developing countries use
which the people who are counted are classified according population figures to attract aid; and aid may be given
to gender age groups, occupational groups, religion, to these countries according to their degree of need as
nationality, etc. expressed by their population sizes.
(8) Directs foreign investors on decision making: The
TYPES OF POPULATION CENSUS census data enables foreign investors to assess the
There are two types of population census. They are: level of demand in a state. And this guides them in
i) De facto population census: This population census making investment decisions. They invest more in
type involves the counting of only those who are present densely populated states than thinly populated
physically when the census is performed. Only people countries.
who are living within the borders of the country or are
seen by the census expert are counted.
336
(9) Estimation of population density: It enables the (10) Political Influence: In Nigeria, the allocation of federal
government to know the population density of the government revenue is based on the population figures
country. This ensures proper allocation of economic of states and local governments. This make some groups
and social amenities. of people to deliberately inflate census figures.
(10) Form Basis of Studies: Population census
information forms the basis of population studies to 2021/10 Neco
researchers, tertiary institution and other relevant Population census is important in the following ways
organisation, e.g. United Nations. except to
A. aid economic planning
PROBLEMS OF CENSUS IN WEST AFRICA B. determine the size of the population
(1) Inadequate fund: Many West African countries cannot C. help the government in the provision of social amenities
afford the huge amount of money required for carrying D. increase migration rate
out a regular population census. E. reveal the available manpower
(2) Inadequate census personnel: In many West African Answer
countries, there are few skilled personnel such as start of increase migration rate(D)
census taking. Because of the shortage of census experts,
when a population census is to be conducted, primary 2015/4 (UNIBEN, BENIN)
school teachers, students, etc. are employed to take the A major constraint on a successful head count in Nigeria is
census. They receive only a ‘skeleton’ type of training. the
Census figures are therefore inaccurate since those who A. lack of modern facilities
conduct the census are not qualified to do so. B. spatial dispersion of some people
(3) Inadequate means of transportation/inaccessibility of C. lack of enumerators D. large number of people
some areas: Some part of the countries of West Africana Answer
re not easily accessible because of the poor Lack of enumerators (C)
transportation system. The roads leading to many areas
are not motorable and other forms of transportation are 2000/18
not properly developed. Areas which cannot be easily
Census of population is usually conducted every
reached by the census enumerators may be bypassed.
A. 20 years B. 15 years C. 10 years D. 7 years
(4) Inadequate preparation: Inadequate preparation, like
lack of adequate public enlightenment campaign, Answer
inadequate materials for the exercise and its efficient 10 years (C)
distribution hinder efficient population census exercise. 2004/26 Nov
(5) Superstition: Superstitious beliefs still abound in many Which of the following is a problem of population census
areas. Some people believe that counting their children in West Africa?
may bring ill-luck to the family or they may die, so they A. high cost B. availability of electricity
give false information about their family. C. poor water ways D. unemployment
(6) Poor town planning: In many West Africa towns, Answer
streets are haphazard. Houses are built at random and are High cost (A)
either badly numbered or not numbered at all. Members
of such household may not be counted.
2023/11 Neco
(7) Corruption: Fraud and misappropriation of funds are
common thing among census officials in some
a. Distinguish between De facto and De jure population
developing countries. Some enumerators don’t go to the census.
field assigned to them to count people but they give fake b. Explain five problems encountered during population
figures in order to collect their allowance. Thus census is census.
mere guess work in most developing countries. Answer
(8) High degree of illiteracy and ignorance: In some West a. De facto population census involves the counting of
African counties, the illiteracy rate is put at over 70 only those who are present physically when the census
percent. Most of the population do not know how to read is performed. On the other hand, De jure population
and write. This makes self-enumeration difficult. Many census involves the counting of only people who have
people cannot fill the required information if forms are been permanent residents of a particular area, but they
sent to them. were not necessarily present when the census was
(9) Prohibitive customary and religious beliefs: Some performed.
types of custom and religion make census taking b. Five problems encountered during population census
difficult. For example in the Muslim areas women are (1) Inadequate census personnel: In Nigeria and many
not allowed to appear freely in public. For this reason, other West African countries, there are few skilled
they may not be seen by census enumerator. personnel that can adequately start and complete a
census taking exercise. Census figures are therefore
inaccurate since the majority of personnel hired to
conduct the census are not qualified.
337
(2) Inadequate means of transportation/inaccessibility of FACTORS THAT AFFECT THE LABOUR FORCE
some areas: Some part of the countries of West African, 1. Size of Population: The larger the populations size of a
Nigeria inclusive, are not easily accessible because of country, the larger the size of the labour force, and vice
the poor transportation system. The roads leading to versa.
many areas are not motorable and other forms of 2. Attitude towards work-custom: A society that does not
transportation are not properly developed. Areas which allow its women to work outside the home has a small
cannot be easily reached by the census enumerators may size of labour force, and vice versa.
be bypassed. 3. Government Policy: Governmental favourable policy
(3) High degree of illiteracy and ignorance: In some West increases the size of the labour force.
African counties including Nigeria, the illiteracy rate is 4. Number of Working Hours and Working Days: The
put at over 70 percent. Most of the population do not higher the number of hours per day as well as higher
know how to read and write. This makes self- working days per week, the less the number of people an
enumeration difficult. Many people cannot fill the employer will be willing to employ, and vice versa.
required information if forms are sent to them. 5. Official School Leaving Age (Statutory Entry): The
(4) Inadequate preparation: Inadequate preparation, like higher the official school leaving age or age of entry into
lack of adequate public enlightenment campaign, the labour force like 21-25 years, the less the size of the
inadequate materials for the exercise and its efficient labour force, and vice versa.
distribution hinder efficient population census exercise. 6. Retirement Age: The higher the age of retirement from
(5) Poor town planning: In Nigeria and most West Africa work; like 65 and above, the greater the size of the labour
towns, streets are haphazard. Houses are built at random force and vice versa.
and are either badly numbered or not numbered at all. 7. Proportion of the labour force willing to work: The
Members of such household may not be counted. higher the number of people or qualified people who are
(6) Political Influence: In Nigeria, the allocation of federal prepared to take up immediate employment, the larger the
government revenue is based on the population figures size of the labour force, and vice versa.
of states and local governments. This make some groups 8. Duration of training: A long duration of training and
of people to deliberately inflate census figures. schooling reduces the size of labour force as people will not
(7) Corruption: Fraud and misappropriation of funds are be available for employment during this period. While a short
common thing among census officials in some period of training increases its sizes.
developing countries. Some enumerators do not go to the 9. State of health: A good state of health and less number
field assigned to them to count people but they give fake of disabled people increase the size of the labour force.
figures in order to collect their allowance. Thus census is While a large number of sock and disabled people reduce
mere guess work in most developing countries. the labour force’s size.
10. Age distribution: The larger the number of small
LABOUR MARKET children and very old people, the smaller the size of the
Labour is in many ways an exceptional factor of labour force as the children are not matured for work and
production. Without labour, production and hence the the old people are too feeble to work, and vice versa.
creation of goods and services having economic value will 11. Sex distribution: The higher the number of women
be impossible. Labour is human efforts, mental or physical, relative to men (ie. The number of women exceeds that of
skilled or unskilled, used in production of goods and men, the smaller the size of labour force, and vice versa.
rendering of services to satisfy human wants. 12. Amount of remuneration (salary/wages): A very low
A labour market is any institution or arrangement where wage rate (poor, salary) prevents applicants from seeking
for jobs. This reduces the size of the labour force. While a
labour asa factor of production can either be bought or sold
high wage rate attracts them to apply for work. This raise
for a consideration known as wages or salaries. So it is a
the size of the labour force.
market where wages or salaries are determined for labour.
Inthe market, the employee is referred to as the seller while
2008/43 UTME
the employer is the buyer. Both party exchange what they The active population of a country determines the size of its
have after negotiation or bargain, which may be more A. economic resources B. national income
favourable to both or either party. C. labour force D. gross domestic product
Answer
CONCEPT OF LABOUR FORCE Labour force (C)
Labour force is the total number of people of working age
in a country who are able and willing to work. The labour 2006/13 Neco
force refers to the working population. It consist of those Efficiency of labour is affected by the following except
between the ages of 18 and 60 years who are allowed by A. education and training
law, custom, religion and other factors to work, and who B. effectiveness of other factors of production
make themselves available for such works. C. extent of specialization
D. inconsistencies is policy implementation
Answer
Inconsistencies in policy implementation (D)
338
2009/14 Neco 14.5. many hours without getting tired and thus stands the
Labour force simply means the chance of producing quite a lot within a day.
A. demand and supply of labour B. efficiency of labour (3) Good Health Care Service: Good health is above almost
C. job seekers D. unemployable population everything. Therefore, the organisation should provide
E. working population good health care service to the workers. All medical
facilities should be made available to workers at all
2014/19 UTME times and places (staff clinic should be available at staff
The labour force in Nigeria falls between the age of quarters, factory, offices, offshore, etc).
A. 18 and 45 B. 18 and 55 C. 18 and 60 (4) Efficient Management: Capable managers should be
D. 18 and 30 employed to ensure efficient management and proper
Answer coordination of all activities in all departments and branches.
18 and 60 (C) (5) High wage rate: A high wage rate is the most important
factor that makes workers to put in their maximum
2014/50 UTME efforts. It always induces a worker to put in his greatest
The labour force of a country is determined by the efforts in making use of given inputs to achieve
A. the structure of the population maximum output at the lowest cost.
B. geographical distribution of the population (6) Good Staff Warfare: Employers should provide staff
C. sex distribution of the population quarters, clinic, school for staff’s children, recreational
D. number of people available for work facilities etc. beside workers. These reduce workers’
physical and mental fatigue and thereby raising their
Answer
productivity.
Geographical distribution of the population (B)
(7) Availability of Modern Technology: The use of modern
technology cannot be overemphasized in the workplace were
1995/19 Nov 14.6.
applicable. As the adoption of modern techniques of
The size of the labour force is determined by the
production,e.g. uses of automatic machines and equipment
A. population of the country enable workers to obtain maximum outputfrom given inputs
B. number of men in the country at the lowest cost.
C. number of people under school age (8) Efficiency of other factors of production: The higher the
D. number of people employed in the public service quality of other factors of production (land, capital and
E. number of women in the country entrepreneur) the greater the efficiency of labour. The more
fertile the land, the higher the productivity per worker. The
THE EFFICIENCY OF LABOUR higher the quality capital such as machinery and equipment,
The efficiency of labour refers to the extent or degrees to the greater the output per man. Efficient organization also
which labour can be combined with other factors of leads to greater productivity. If the entrepreneur is efficient,
production to yield maximum output. It can be measured in he will organize the factors of production so well that output
terms of the quantity of output which can be obtained from per workers will increase. On the other hand, if other factors
a given input of labour, assuming that other variables are of production are inefficient productivity per man /hour will
constant. be low.
Labour is said to be efficient if it is capable of achieving a (9) Degree of socialization and division of labour: The
greater output within a given time without any fall in the efficiency of labour can be improved by the introduction
quality of work or of the product. Labour efficiency of division of labour and increasing the degree of
implies increase productivity per worker. specialization, since output is increased.

2021/10 Neco
Output of goods and services
Efficiency of labour = Input of resources
An increase in production as a result of the combination of
labour and other factors of production is
DETERMINANTS OF LABOUR EFFICIENCY A. division of labour B. efficiency of labour
(1) Education and training: These increases the skill of the C. labour force D. labour Market
worker and enable him to perform his job better as E. mobility of labour
almost all kind of labour requires training: Answer efficiency of labour(B)
formaltraining, on-the-job training; training through
practice and experience. All the types of training and 2019/22 Neco
formal education tends to make labour more efficient. The ability of workers to do more work during a given
(2) Good working conditions: The working conditions period of time is referred to as
under which a person works has a tremendous A. demand for labour B. efficiency of labour
influence on his productivity. Some are conducive to C. labour force D. mobility of labour E. supply of labour
effective physical and mental exertion, while others are Answer efficiency of labour (B)
not. A person who works in a very hot atmosphere,
quickly gets tired and so produces less. On the contrary,
a person who works in a cool environment can work for
339
2019/2020/3 (UI, IBADAN) OCCUPATIONAL MOBILITY OF LABOUR
Labour can be efficient when there are Occupational mobility of labour refers to the ease with
A. adequate tools to work with which workers can move from one job to another. The rate
B. high levels of employment C. limited vacancies of occupational mobility is higher among unskilled than
D. government restrictions skilled workers. This is because an unskilled worker has no
Answer Adequate tools to work with (A) specific training for any particular job, whereas the skilled
worker does. The unskilled worker can easily leave his
2004/27 Nov present employment for another one.
Labour efficiency can be improved by all the following An unskilled worker such as a cleaner in an office could
except easily change to become a labourer in the field orconsider a
A. prompt payment of wages carpenter who undergoes some training and ends up as a
B. technological improvement C. job security mason. This is a case of occupational mobility. He need not
D. increase in population leave his present place of domicile for this to take place.
Answer Occupational mobility may take place within the same
Increase in population (D) geographical location.

1987/7 UTME Exercise 14.7 FACTORS AFFECTING OCCUPATIONAL MOBILITY

Efficiency of labour is enhanced by OF LABOUR
A. involvement in own family affairs Encouraging Factors
B. mechanization processes 1. Urge for higher remuneration: A large number of
C. war against indiscipline people who move from one job to another do so in an
D. improved working condition and training attempt to increase their incomes. In other words,
many people see for new jobs with main aim of raising
their level of income.
MOBILITY OF LABOUR 2. High Qualification: Graduates, doctors, etc. People
Mobility of labour refers to the ease with which labour or with high qualifications like degree holders easily
workers can move from one occupation to another or from move from one job to another because they are
one geographical area to another. Labour is the most qualified to fill vacancies.
mobile of the factors of production, especially in the 3. Conducive Environment: Favourable climate. Many
geographical sense. people change their jobs because of the desire to move
to a better environment, e.g. moving from very cold
2019/2 Neco and rural areas to conducive environment, e.g. urban
The ease by which people move between occupations and centers, areas with moderate temperature, etc.
geographical areas is known as ____ of labour 4. Political Stability: Peaceful environment. People also
A. geographical mobility B. horizontal mobility change their jobs because of the desire to live in a
C. individual mobility D. mobility E. vertical mobility place with political stability (an area free from all
Answer forms of civil disturbance).
Mobility of labour (A) 5. Favourable Government Policies: Inducement. Many
governments encourage their citizens to move to other
1992/17 Nov countries to seek for greener pastures (get better jobs).
Mobility of labour means the Therefore, they freely issue international passports to
A. ease with which labour can change place or occupation almost all adults. This makes it possible for workers to
B. movement of labour resign from their present place of work to fill vacancies
C. recruitment of mobile labour in other countries.
D. availability of vehicles to convey labour from one place 6. Availability of Academic Institutions and Training
to another Centers: Opportunities for better skills. They train
E. movement of labour from place to place labourer to acquire the required qualifications and
Answer skills in industries. They encourage the holders to
Ease with which labour can change place or occupation (A) move around form one job to fill vacancies in other
occupations.
2009/49 UTME Exercise 14.8 7. Seeking for better conditions of service: Better
The mobility of labour is mainly determined by economic welfare:Many people seek for other jobs
A. the age of workers B. government policy with the major aim of improving their economic
C. trade unions D. wage rate differentials welfare. That is, people seek for new jobs in order to
have access to better conditions of service, like staff
quarter and canteen, official car, staff clinic, staff
school for children, long annual leave, pension and
other attractive fringe benefits.
340
8. Avoidance of Inconveniences of certain work:Some 10. Political instability: Constant civil disturbance in all
people move from one job to another because of the parts of a country prevents people from changing their
inconveniences involved. For instance, many people job. Mr. Peter who works in state B with little or no
move from blue-collar job to white-collar work: field civil disturbance may be reluctant to get another job in
work to office work, night guard to messenger, state A where there is a constant political crisis or
carpentry or repairer work to general business or terrorism.
trading, etc. irrespective of difference in income. 11. Professional association restriction: Some professional
9. Unbearable circumstances: Rigid rules/constant rift. bodies require intending members to have specific
Some people are compelled to change jobs because of qualification or skill before entry.
certain circumstances that can’t be endured or
tolerated. Some of them include the following: (i) GEOGRAPHICAL MOBILITY OF LABOUR
Strenuous work (ii) Constant disturbances (iii) Rigid This refers to the ease with which workers can move from
work rules (iv) Constant friction between boss and one geographical location to another. It can take place
subordinates or inter-staff rift (constant quarrel, etc). within a country for example in Nigeria, there is usually
10. Non-monetary disadvantages: Job dissatisfaction: movement of labour from the north to the south. On the
They are as follow: (a) Long hours of work, (b) other hand, mobility of labour could take place across the
Shifting of duty or night work (c) Insecurity (d) Poor national boundaries. Many workers have recently been
working (unhygienic) environment (e) Long distance moving to Nigeria from Ghana and other countries.
or poor means of transport to a place of work.
FACTORS AFFECTING GEOGRAPHICAL
DISCOURAGING FACTORS MOBILITY OF LABOUR
They include the following: Encouraging Factors
1. Disability and age restriction: Disability and old age 1. Urge for fertile land – better harvest: The strong
(45/50 years and above) prevent workers from easily desire for gainful involvement in agricultural
changing their jobs because employers discriminate production (especially farming and fishing) compels
against them. agricultural workers to migrate to more fertile land.
2. Family and Cultural ties: They prevent people from Thus areas with high level of soil fertility like Plateau
getting new jobs at distant place like in other states or state and towns located beside oceans or with network
countries. of rivers and streams like Port Harcourt, Warri, Lagos,
3. Illiteracy (low or lack of qualification): Inability to etc., have a high population of immigrants.
read and write or very low qualification prevents 2. Urge for higher knowledge: Higher qualifications.
people from getting another job because they are not The strong desire for the acquisition of higher
qualified to fill available vacancies. knowledge inspires numerous people to migrate to
4. Lack of capital for training: High cost of training and state or countries with tertiary institutions. A large
long duration. Lack of capital (money) or high cost and number of our fore-fathers migrated to foreign
long period of training prevents people from acquiring countries (overseas), e.g. Britain, America, etc, for the
modern skill or high qualification (degree) which purpose of obtaining degree.
would enable them to move from their present 3. Seeking jobs-greener pasture: A large number of
occupation (farming, fishing, etc) to another (clerk). unemployed graduates or persons move from one state
5. Specialization: People who specializes in one to another with the major objective of securing gainful
particular area, like eye specialist, dentist or people employment. Thus states with many expanding
with doctorate degree don’t easily move from one job industries have a large population of immigrants.
to another due to lack of vacancy elsewhere. 4. Seeking for conducive environment – better climate
6. Ignorance of vacancies-lack of useful information: and social amenities: State with favourable climates
People easily change their job if they were aware of the and many infrastructural facilities attract a large
existing vacancies elsewhere. Lack of information about population. A large number of people move from less
vacancies prevents people from easily getting other jobs. suitable climatic areas or areas without adequate social
7. Lack of transport fare: Lack of transport fare and/or amenities like rural areas to areas with suitable climate
initial capital for settlement in elsewhere prevents a and abundant social and economic amenities like urban
fisherman in the rural area from moving to the urban centres.
center to get a job of a messenger or a clerk. 5. Seeking for areas with political stability: A large
8. Trade union restriction: Some trade unions restrict their number of people are desirous of escaping from areas
members from frequently changing their jobs.
infested with civil disturbances, political and religious
9. Unfavourable government policies: Immigration
repression and war effects thus they move to areas or
barriers e.g. inability to obtain international passport,
hinder a change of job between countries. A Nigerian states that are relative calm or entirely devoid of
civil servant can’t get another job in Egypt if he does not political instability.
have international passport.

341
6. Seeking for Investment Opportunities: Resourceful 10. Anticipated difficulties of getting one’s desires:
(rich) people of investors e.g. businessmen and Anticipated difficulties of getting desired foodstuffs, schools
directors of companies move from one city or country for children, comfortable accommodation and conducive
to another seeking (looking) for investment environment hinder people’s movement.
opportunities so that they can know areas with high
economic prospects for setting up a new firm or their
branches. 2021/22 Neco
7. Favourable government policies: Many governments The movement of labour from southern part of Nigeria to
have easy or open door policy towards the citizens’ the northern part is an example of _____ mobility of
movement both within and outside the country. They labour.
therefore freely issue international passports to those A. geographical B. horizontal C. industrial
seeking for them. They constantly announce vacancies D. internal E. vertical
and where they exist. And they create other incentives Answer
for easy movement of people. Good example is NYSC Geographical (A)
scheme.

Discouraging Factors 2018/6 NABTEB

1. Family & Cultural ties: Many people are quite The ease and willingness of labour to move from one place
reluctant to dissociate from (leave) the homeland to another is called
(fatherland), family, friends, relative and move to A. vertical mobility of labour
distant places or other countries to live among B. occupational mobility of labour
foreigners. C. industrial mobility of labour
2. Unwillingness to venture into unknown territories: D. geographical mobility of labour
Many people are quite unwilling to venture into Answer
unknown territories especially foreign land without Geographical mobility of labour (D)
much knowledge or information about the area(s).
3. Inadequate fund: Lack of money for transport fare
and for a few days feeding at ones destination INDUSTRIAL LABOUR MOBILITY
frustrates people from migrating to a new distant This refers to the ease with which workers can move within
location. the same industry or from one industry to another. It has
4. Language barrier: A large proportion of people in two aspects.
underdeveloped countries are illiterate. They can’t read (a) Vertical industrial labour mobility:This usually takes
and write; and they can’t speak foreign languages like the form of promotion within the same industry or
English, French, etc. This seriously restrains (hinders) place of work. For example, a branch manager could
their movement to foreign lands (overseas). be promoted to a General Manager, the Vice Principal
5. Disability and old age: A large number of people can be promoted to a Principal.
can’t move to distant places or other countries because (b) Horizontal industrial mobility:this is also called
they are either disable or very old. lateral mobility of labour, it takes place when a
6. Ethnic prejudice - Apathy (discrimination): Certain worker moves from one industry to another but still
countries discriminate against foreigners. This makes them perform the same task and occupies the same rank.
to be unemployed or unable to initiate (start a business. This For example, an Accountant can leave the cement
knowledge hinders educated people’s movement to such factory at Benin for the textile mills at Benin, still an
countries. accountant on the same rate of pay.
7. Immigration barriers – unfavourable government
policies: Government may restrict the issuing of 2015/28
international passport. Secondly, they don’t make adequate The movement of labour from one grade to an entire
foreign exchange available to those who wish to travel to
different grade is an example of
other countries. Thirdly, many foreign countries have
restrictive immigration policy (a policy rule that does not
A. industrial labour mobility
permit foreigners to enter their countries). These prevent B. horizontal occupational mobility
people from moving into such countries. C. vertical occupational mobility
8. Ignorance of good opportunities: Many people, both D. geographical mobility
businessmen and applicants (jobless people) are not aware of Answer
either job (employment) or investment opportunities that Vertical occupational mobility (C)
exist somewhere else (in other countries). This prevents their
movement into such countries.
9. Unfavourable climatic condition: A very poor climate
condition of a place either it is extremely co ld or hold
prevents people from moving to such areas or countries.

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FACTORS INFLUENCING INDUSTRIAL LABOUR 5. Establishment of academic institutions: Government
MOBILITY should set up many academic institutions especially
1. Quality of training and experience possessed by the vocational and technical institutions to train people to
worker: Intense training on the job builds competence acquire different qualifications and skills. High rate of
in specialized areas. Highly trained workers within a literacy encourages mobility of labour.
definite industry are highly mobile within that industry. 6. Ensuring political stability: People move when there
A thoroughly trained and experienced financial expert is peaceful situation in a city or constant civil
will be highly mobile within the financial and banking disturbances prevent easy movement of people.
industry for example but may not be sought after 7. Formulation of favourable (open door) policies:
outside that industry. A legal expert on the law of Government should pursue (make) open door (liberal)
contracts may not be readily employable to handle policies to hasten movement of labour both internally
divorce cases, for example. and externally. She should free give international
2. Availability of incentives: Incentives presented by particular passports to all those who wish to travel to other
firms within the same industry also influences mobility of countries.
labour. A telecommunication engineer may easily change job 8. Encouraging non discriminating attitude:
from his present company to another which presents better Government should encourage the citizens to imbibe
incentives such as company sponsorship to participate in the virtue of friendship and non – discriminating
regular cross –border training programs and attendance at attitude towards foreigners. This encourages them to
learned conference. move into a country either as tourist or importers,
3. Quality of top management and team spirit of the students seeking for admission into schools or
organisation: Excellent quality of top management applicants seeking for employment, businessmen
translates to the building of good organizational spirit. An
seeking for investment opportunities.
organization where people seamlessly work as a team to
9. Creating incentives: Government should create
achieve company goals and objectives is preferred by
workers rather one where such team spirit or esprit de appropriate incentives (encouraging factors) for
corps is missing. Workers tend to stay with companies applicants, workers who are not fully engaged and
that manifest excellent team spirit. businessmen to move from one place to another in
4. Pace of career advance: All workers desire timely career order to get better jobs or make better investment.
advance. Career advance is ensured by regular
promotions and the granting of higher responsibilities. THE DEMAND FOR LABOUR
Naturally, a company within the industry known to ensure The demand for labour refers to the total number of people or
timely progress for its workers is more attractive to members of the labour force which the entrepreneur wish to
workers than one which does not. No worker wants a employ in a country in a given period.
dead end job. At the earliest sign of job stagnation the The demand for labour is a derived demand because labour is
worker will begin a job search for a better opportunity not required for its own sake but for what it can help to
even within the same industry. produce i.e. goods and services. Also, the demand for labour
is an ‘anticipated demand’. Labour demand is based on
GOVERNMENT MEASURES TO ENCOURAGE anticipated future demand for goods and services
LABOUR MOBILITY Factors Influencing demand for labour
1. Dissemination of information: Government should (1) The nature of industries: The quantity of labour
disseminate (pass) useful information about vacancies required would depend on the nature of the industries
(job) and investment opportunities to the public so that that is whether the industries are labour intensive or
people would be aware of where and when vacancies capital intensive. If the industries are labour intensive,
and business opportunity exist. the demand for labour will be high but if they are capital
2. Establishment of labour office: Government should intensive, the demand for labour will be low.
(2) The numbers of industries in a country: The higher the
set up labour offices (ministry of labour and
number of industries in a state, the higher the level of
productivity) in all state capital and major towns for
demand for labour and vice versa.
applicants to register their skills or qualifications and (3) The price of labour or wage rate:The lower the level of
the type of job they seek for. wages, the higher the level of demand for labour, and
3. Improving infrastructural facilities: Government vice versa.
should hasten development of different parts of states (4) Availability of other factors of production: The higher
with abundant modern basic amenities e.g. good the amount of other factors of production e.g. large
network of road, bridges, electricity, transport buses, parcel of land, machines and many entrepreneurs, the
ships and airplanes capable of carrying people to higher the level of demand for labour.
different and distant places. (5) Market size – level of demand for goods and services:
4. Labour intensive industries: Establishment of labour The larger the market size or higher the level of demand
intensive industries to create jobs for the youth. for goods and services like period of economic boom in
a large country, the higher the level of demand for
labour, and vice versa.
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(6) Availability of capital: The higher the amount of (3) The official school leaving age: If the school leaving
capital readily available for use or establishment of age is reduced, the proportion of the population
new industries and expansion of old ones in a state, available for employment will increase. This means
the higher the level of demand for labour. an increase in the supply of labour. But raising the
(7) Government policies: Government policies of high school leaving age will reduce the supply of labour
minimum wage rate, mechanized system of because fewer people will be available for work.
production, free importation, high tax rate, etc reduces (4) Retirement age (working age): The higher the age of
demand for labour, and vice versa. retirement or working age, the larger the supply of
(8) Level of capacity utilization – production output: labour, and vice versa.
The higher the level of output of goods and services in (5) Period of training: The longer the period of
a country, the higher the demand for labour, and vice schooling and/or training, the smaller the number of
versa. people who offer their services for employment, and
(9) Nature of the economy – boom or slump: The vice versa.
higher the level of economic activities, like period of (6) Government policies: They are favourable and
boom (inflation) or festival period, the larger the unfavourable. They raise supply of labour if the age of
demand for labour. And the lower the level of entry is reduced; women are allowed to work in all
economic activities like the period of slump economic sectors, workers retire at very old age,
(deflation), the less the demand for labour. immigration is not restricted etc. The reverse
(10) Level of employment attained: If the economy (opposite) reduces the supply of labour.
(country) has attained maximum or full level of (7) Number of disabled: The country the number of
employment, the demand for labour will be less. But disabled people in a country, the larger the supply of
if it has not attained full employment level, demand labour, and vice versa.
for labour will be higher. (8) Women’s role in the economy – Custom: If women
(11) Expectation of favourable economic conditions: forms a part of the labour force, the higher the supply
We recall that demand for labour is an ‘anticipated of labour and vice versa.
demand’. If there is a bright prospect for business (9) Sex distribution: The higher the number of women in
activities in the near future, the demand for labour the population relative to number of men, the less the
will rise, and vice versa. supply of labour and vice versa.
(10) Migration: If net migration is positive (immigrants
2021/23 Neco are more than emigrants), the higher the supply of
The demand for labour is _____ demand labour and vice versa.
A. competitive B. complementary C. composite (11) Working periods (hours): The higher the working
D derived E. effective hours per day and number of days per week, the
Answer smaller the supply of labour and vice versa.
Derived (D) (12) Level of wages: The higher the wage rate, the higher
Hint: The demand for labour is a derived demand because the supply of labour and vice versa.
labour is not required for its own sake but for what it can help to (13) Number of people who are willing to work: The
produce. The demand for labour will depend on labour higher the number of people who are willing to work
productivity, the price of the good and their overall profitability in a country in a given period, the higher the supply of
to a firm.
labour.
THE SUPPLY OF LABOUR
The supply of labour refers to the total number of people or 2000/16
members of the the labour force who make their services The supply of labour can be influenced by the
available for employment in a country in a given period A. size of the population
oftime. It simply implies the total working population of B. stage of economic development
thelabour force. C. size of the country D. extent of the market
Factors Influencing supply of labour Answer Size of the population (A)
(1) The size of population and population growth
rate:The larger the population size, the larger the
number of people who will make their services 2013/23 Neco
available for employment in a given period, and vice Supply of labour is not affected by
versa. A. entry requirement into a profession
(2) The age structure of the population: The higher B. price of the product C. school leaving age
number of youths or under aged and retired people in D. the size of the population E. wages and salary
a country, the smaller the supply of labour, and vice Answer Price of the product (B)
versa.

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1995/9 UTME 5. Prevailing climate (weather): A poor (bad) climatic
What is meant by labour supply? condition like prolonged heavy rainfall, severe
A. number of people in working population drought, etc, causes seasonal unemployment. They
B. number of men and hour they work lower level of employment. While favourable weather
C. number of hours during which the middle aged persons raises it.
work 6. Prevailing economic conditions: Favourable
D. number of work force multiplied by the hours they work economic conditions, like economic boom and period
Answer of inflation, raise level of employment. While a period
Number of work force multiplied by the hours they work (D) of slump (deflation – low level of economic activities)
make the level of employment to fall.
7. Prevailing system of production:
i. Labour – intensive industry: The adoption of
labour intensive form of production (labour is
more than machines) causes a rise in the level of
employment.
THE CONCEPT OF EMPLOYMENT, ii. Capital intensive industry: The use of many
UNDEREMPLOYMENT AND UNEMPLOYMENT machines in factories rather than labour (people)
causes a fall in the level of employment.
EMPLOYMENT 8. Lending policy: The lending policy of both
Employment is a state of having the factors of production government and financial institutions affect level of
engaged in productive activities. In relation to labour in employment. A rise in the level of lending raises
particular, Employment can be defined as an act of giving economic activities; and this raises level of
jobs to people by an institution in return for wages. employment.
Employment could be on full–time or part time basis. 9. Availability of entrepreneurs: A country with a large
Full employment of labour is a situation in which all number of people (entrepreneurs) who can easily raise
people who are legally qualified, willing to work and large capital (especially through sales of shares and
seeking job(or all members of the labour force) are stocks) for setting up both medium and large firms has
gainfully employed. a high level of employment.
In reality it may not be possible for everybody in a society 10. Trade union influence: A strong trade union bargain
to be gainfully employed at all times. Thus, full for and succeed in fixing high wage rate. This may
employment is said to exist if almost all members of the reduce level of employment if many employers cannot
labour force are gainfully employed. It is therefore, pay it.
assumed that full employment oocurs if about 95%– 98% 11. Level of export and import: A great rise in a volume
of the labour force is gainfully employed. of export, e.g. a rise in export of minerals like
petroleum products leads to a rise in level of
FACTORS INFLUENCING LEVEL OF EMPLOYMENT employment. While a great rise in volume of import
1. Level of investment: A high level of investment raises may reduce demand for locally made goods. This
level of economic activities. This creates many job causes retrenchment and a fall in the level of
opportunities, and many people will be employed and employment.
vice versa. 12. A rise in aggregate expenditure: A rise in total
2. Government policy: A high minimum wage rate expenditure in an economy creates demand for goods
causes retrenchment of workers; it also reduces the rate and services. This leads to a rise in the level of
of employing new workers. This lowers the level of employment.
employment. 13. Enabling environment:More social amenities:
3. Political stability/low rate of crime: Absence of a Creating of enabling environment in terms of social
severe political instability e.g. civil war as well as infrastructural facilities e.g. constant supply of
complete absence of high wave of crime, like electricity and pipe borne water, industrial estates,
kidnapping, armed robbery e.t.c. encourage both local network of good roads, well equipped hospitals,
and foreign entrepreneurs to set up firms. This raises railway, air and sea ports, reliable transport and
level of employment. communication system, etc, magnet (attract) both
4. Pricing policy of government: A high level of indigenous and foreign investors. And this leads to a
minimum price control raises income of farmers. This rise in level of investment and employment.
reduces unemployment in agricultural sector. While 14. Official school leaving age - Age of entry: If the
extremely low maximum price control reduces demand official school leaving age or age of entry into the
for labour in industries producing the affected goods labour is lower, the level of employment will be high.
and services.

345
1983/46 UTME TYPES OF UNEMPLOYMENT
Full employment is a situation in which (1) Structural Unemployment
A. every adult is employed It is an unemployment caused by a change in the
B. all adults who can work are employed production process (a change in the technique or
C. all persons who have attained the age of 15 years and method of producing goods) due to a change in
above are employed demand (a change in the type of goods which people
D. only the disabled are not employed or consumer wish to buy) from pen to biro, egusi
E. all those who are able and eligible to work can find soup/garri to fried rice and salad, from bicycle to
employment motor car/aeroplane, from typewriter to computer,
Answer from mud house to skyscraper (multi-storey
All those who are able and eligible to work can find building) etc.
employment (E)
The technicians (workers) who produce pen, egusi
UNDEREMPLOYMENT soup/garri, bicycles, typewriter and mud house do
This is a situation in which the factors of production is not have the skill to produce the new products (biro,
partially employed. Underemployment is a situation in which fried rice/salad, motor cars/aeroplanes, computer,
the labour force is partially employed or working below the skyscraper, etc) which are now in high demand.
productive capacity. Therefore, old workers are retrenched (terminated)
In some cases, a person can be working for long hours and and they are replaced with the new technicians (new
still be underemployed. When people are doing work that workers). Structural unemployment is, therefore,
could be done in few hours on full time basis or when more unemployment arising from change in the production
than required number of workers handle a particular work that process (technique of production) due to changes in
afew of them could handle properly, there is under
pattern of demand (a change in taste and fashion).
employment. Underemployment occasions waste: waste of
(2) Seasonal Unemployment
potential output, waste of resources used in payment; and
It is an unemployment caused by seasonal changes in
waste of human resources.
demand for workers. The demand for labour goes up
It is difficult to ascertain the level of underemployment in an
and down in different seasons or periods. At a season or
economy. However, under employment is rampant in the
period when the demand for a firm’s goods or services
service sector, in the commercial service, professional service
is very low, e.g. rainy season, some of its workers may
and the civil services as well as in the agricultural sector.
be laid off. Such retrenchment is called seasonal
Under employment is a form or partially a form of
unemployment.
unemployment. It can be tackled not just through the creation
(3) Voluntary Unemployment
of jobs but the creation of jobs that will ensure maximum
It occurs when people deliberately withdraw their
contribution by the workers.
services due to unsatisfactory conditions of work,
especially during industrial crisis or strike. It also arises
UNEMPLOYMMENT
from unwillingness to work.
Unemployment of labour in an economy can be defined as a
(4) Residual Unemployment
situationin whichpersons capable of working, willing
In every society, there are people who are handicapped.
andqualified by age, law, custom and other factors to work,
They are not fit to work on account of either physical or
are unable to find jobs.
mental disability. Many firms deem it imprudent
The degree of unemployment varies from one country to
(consider it unwise) to engage their services. And many
another, and from time to time in a country. In the developing
governments do not portray (show) serious concern
countries, thereis a high rate of unemployment.
either.
The unemployment rate is the number of unemployed people
(5) Search Unemployment
expressed as a percentage of the labour force. Therefore
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑒𝑚𝑝𝑝𝑙𝑜𝑦𝑒𝑑 It is due to failure (inability) of certain people,
Unemployment rate = × 100 especially skilled or learned people, to secure desired
𝑆𝑖𝑧𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑙𝑎𝑏𝑜𝑢𝑟 𝑓𝑜𝑟𝑐𝑒
employment or employment in their areas of
Example U1 specialization. Among those mostly affected are
A country XYZ, has 30 million people in the working class engineers, doctors. Many medical personnel prefer
age group (15-60) and 10 million of them are unemployed. remaining unemployed until they secure jobs in
Determine the unemployment rate for country XYZ. hospitals.
Solution (6) Frictional Unemployment
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑒𝑚𝑝𝑝𝑙𝑜𝑦𝑒𝑑 There is always a constant movement of labour (new
Unemployment rate = × 100
𝑆𝑖𝑧𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑙𝑎𝑏𝑜𝑢𝑟 𝑓𝑜𝑟𝑐𝑒 work force) into and (old workers retiring) from the
From then information given labour force as well as its movement between
Number of unemployed= 10million occupations, industries and states. And due to the time
Size of the labour force= 30million lag, a certain amount of labour is bound to remain
5,000,000
Unemployment rate = 30,000,000 × 100 unemployed for any given time.
= 16.67%
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(7) Cyclical Unemployment 7. High minimum wage rate: If the minimum wage rate is
Cyclical unemployment is due to inadequate demand extremely high, like ₦30,000 to ₦80,000 monthly, many
existing within an economy. In such a case the level of employers will retrench their workers because of inability
aggregate expenditure is insufficient to achieve full to pay them. This increases the number of unemployed
employment. Therefore, producers cut back production people.
and lay off workers. Cyclical unemployment is also 8. Inadequate government incentives: Governments in
referred to as demand deficiency unemployment. As West Africa are not making much effort to resolve our
income level pick up, so is demand and more people unemployment problems. They do not create enabling
are then employed by the manufacturers. If disposable environment for applicants to be easily absorbed
income falls again in the future, the workers are laid off (employed). For instance, granting of soft loans – interest
again and the cycle may repeat itself. free loans to applicants will enable them to be self
(8) Technological Unemployment employed as they will use them to set up small scale
This is caused by improvements in the technique of enterprises.
production. For example, more machinery may be 9. Immobility of labour: A large number of applicants
introduced in the industry to increase productivity. (unemployed people) are quite reluctant to move from
These may replace labour and lead to the retrenchment one pace to another to seek for jobs. This may be due to
of workers. lack of money for constant movement or reliable
(9) Casual Unemployment information about where vacancies exist. This makes
It usually occurs with jobs of unsettled nature or jobs which them to remain unemployed for a long time.
are not permanent. It is more common with unskilled 10. Adoption of capital intensive technique of
labour. For example, labour may be employed to work on a production: Many industries now adopt capital
part time basis during festivals or conferences. After such intensive technique of production. This reduces the
occasions, such labour may be laid off. number of workers in the factories. For instance, the
(10) Disguised Unemployment use of ATM (Automated Teller Machines) in banks
Disguised unemployment occurs if workers are not reduces number of workers (cashiers).
efficiently utilized in production or if they are 11. Economic recession – demand deficiency: A severe
underemployed. Unemployment is disguised because it is economic recession (total fall in demand of almost all
not immediately obvious to the casual observer that the goods and services) over a long period of time may
underemployed people are partially unemployed.
lead to retrenchment of workers. It also restrains
CAUSES OF UNEMPLOYMENT (prevents) employment of new workers. This causes a
1. Lack of capital: Inadequate number of industries. West rise in the level of unemployment.
African countries do not have adequate capital with which to 12. High cost and long period of training: A very high
set up sufficient number of both medium and large scale cost of acquiring high qualifications and a long period
industries to absorb (employ) people with modern skills and of training required to obtain a skill or certain
graduates. This makes them to remain unemployed for qualifications e.g. degrees discourages many people
indefinite (long) period. from working hard to get them. This makes them to be
2. Over population: If a country’s population size is greater unqualified to fill vacancies. This leads to
than optimum (the number of people is greater than the unemployment.
resources available), some of the people cannot secure jobs. 13. Lack of modern (required) skills or appropriate
They remain either underemployed or unemployed. qualification: Retrenchment mostly affects workers
3. Poor social amenities: Lack of social amenities and large with outdated skills. And people with outdated (old)
firms in rural areas compel the youths or school leavers to skills are very low qualifications remain unemployed
migrate to the urban centres to look for jobs. Due to lack of until they acquire modern skills or have higher
qualification of appropriate skills, they remain unemployed qualifications, e.g. HND degrees, needed in modern
for an indefinite period. industries.
4. Seasonal factors: Some people remain unemployed in certain
14. Change in technology:A change in technique of
seasons or periods (months) of the year because of fluctuation
production, especially from old method involving the
in demand for their products or services. This may be due to a
change in weather, end of contract, etc. use of old machine, e.g. computer, leads to
5. Excessive rural – urban migration: In developing countries, retrenchment of workers with old skills. This leads to
there is constant massive influx (movement of a large unemployment.
number) of rural dwellers to urban centres (cities) to seek for 15. Residual problem: Some groups of people remain
jobs. This increases the rate of unemployment as many of unemployed indefinitely on account of disability either
them cannot secure job immediately. physical (body) or mental (mind) body. They include
6. Faulty educational system: In many African states, the the blind, deaf, cripples, etc.
education system is faulty. It does not enable them excel
(perform well) in different economic sectors. Thus they
cannot be employed in industries.

347
EFFECTS OF UNEMPLOYMENT 3. Encourage Establishment of Own Enterprise:
1. Low standard of living (poverty): It brings about School leavers and job seekers should be assisted to
little or no income. And this leads to poverty, severe establish their own business enterprises. This requires
hardship, much suffering and a fall in the standard of retraining them in some areas of skill acquisition
living. outside their areas of study and giving them loan or
2. High burden of dependents: It increases amount of grants to start their own businesses.
unemployment allowances to applicants. It may lead to 4. Improve Labour Market Information System: This
budget deficit. require creating awareness to make job seekers aware
3. High crime rate: It leads to high crime wave, like of existing job vacancies anywhere in the country. The
armed robbery, cheating, forgery and other social vices government should come out with a policy that will
like prostitution. The cause insecurity of lives and reduce discrimination in terms of tribe, state and
property. physical disability in recruiting of workers to make
4. Low level of demand: A high level of unemployment labour more mobile.
affecting a large proportion of the labour force reduces 5. Industrialization: Industrialization is the fastest and
effective demand for goods and services. This lowers permanent means of job creation. The government
the level of output of goods and services in a country. should encourage development of new industries and
5. Underemployment: It compels graduates and doctors expansion of existing ones. The government should
to involve in menial (poorly paid) jobs, like bush come out with industrial policies that would attract
clearing, gutter cleaning, serving in restaurants, etc. foreign investors and encourage existing ones to
This discourages youths from vigorously pursuing expand.
education. 6. Infrastructural Development:The government should
6. High rate of emigration – brain drain: It compels embark on massive infrastructural development to
skilled labour to migrate to other countries in search of enable producers in the economy reduce cost of
greener pasture (better jobs). Thus they are not production and expand production. This implies
available at the time their services are needed. This provision of good roads, regular and uninterrupted
leads to acute shortage of certain skilled labour, power supply, railways, sea ports and industrial estates.
especially medical doctors and engineers. 7. Population control: The population growth of a
7. Low national output and meagre per capital country to a large extent determines the level of
income: A large number of unemployed people in a unemployment in the country. Practical population
country lowers the national output (total quantity of control measures should be introduced by making
goods produced in a country) due to the inability to artificial control measures free or affordable. The
contribute their quota to the national product. And it populace should constantly be educated on the
leads to a fall in per capital income. economic implications of high population growth.
8. Low level of saving and investment: Absence of 8. Efficient Management of National Resources: This
employment makes level of saving to be quite low or involves efficient economic planning and efficient
fall to zero. And inability to obtain loan or credit implementation of economic plans. The government
facilities causes a fall in the level of investment. should ensure that resources are efficiently utilized,
9. Threat to peace and stability (insecurity): It leads to cases of corruption are handled seriously, looted
insecurity of lives and property in a state as the resources are recovered and economic saboteurs are
unemployed people may be compelled to involve in well punished.
various forms of terrible crime.
2000/42
MEASURE TO ELIMINATE UNEMPLOYMENT Unemployment that arises because of introduction of new
1. Agricultural transformation: Agriculture should be machines and equipment in production is called
made attractive to the youths by providing tractors, A. cyclical B. structural C. seasonal D. disguised
sowers, harvesters for hiring at lower prices; subsiding Answer
agricultural inputs like fertilizers insecticides, Structural (B)
weedicides and supply of high yielding crops to Hint: Technological unemployment occurs when
farmers. Life in the rural farm areas should also be developments in technology (more machinery) and
made attractive by providing good roads, water and working practices cause some workers to lose their
electricity. These will reduce the rate of rural – urban jobs. Technological unemployment is considered to
migration and keep the youth in the farm. be part of a wider concept known as structural
2. Training and manpower Development: Educational unemployment.
policy should be such that trains youth in relevant areas
of manpower needs of the economy. The curriculum
should include courses that prepare students for self –
employment.

348
2009/4 work. The system encourages innovation. It however faces
A type of unemployment which occurs due to the danger of sacrificing quality for quantity if care is not
technological progress is called taken. The system is regressive as it encourages
A. frictional unemployment B. residual unemployment exploitation of workers. The worker earns less per unit on
C. structural unemployment D. mass unemployment higher output.
Answer
Structural unemployment (C) Fees: This approach involves charging certain amount for
certain services and it is usually adopted by consultants
2006/16 who are professionals. Examples include the lawyers,
Which of the following types of unemployment will be management, consultants, auditors, medical practitioners
prevented by the retaining of workers? and so on.
A. cyclical unemployment B. structural unemployment
C. frictional unemployment D. seasonal unemployment DIFFERENCES IN WAGES
Answer 1. Level of qualification: People with higher
Frictional unemployment (C) qualification like M.Sc holders receive more than
people or workers with less qualification like TC II or
2000/26 Neco Exercise 14.9 NCE holders.
The unemployment which occurs as a result of under 2. Level of productivity: Workers and industries with
utilization of labour is called extreme high level of productivity (larger output)
A. cyclical B. disguised C. frictional D. residual receives more than those with low productivity (very
E. structural low output).
3. Level of experience: Workers with much experience,
like 10 years experience receives more than people
WAGES with little or no experience.
A wage is the payment for labour service in the production 4. Level of skill: A skilled labour receives more than
of goods and service. It is the monetary compensation paid unskilled labour. A person who has a lot of skill with
for the use of an employee’s services. Wages are costs to which to perform or carry out different tasks receives
the employers for the use of the labour service. more than a person without a skill.
5. Strenuous nature of job: People who perform very
DIFFERENCES BETWEEN WAGES AND SALARIES strenuous work for many hours per day and many days
Wages Salaries per week receive more than a person who is involved
1. Payment for labour Payment for labour service on in a less tedious work for a few hours and day per
services on a daily or weekly monthly basis. week. For instance, a cashier in the bank receives more
basis. than a cashier in a single shop.
2.It entails short term or no Earner undergoes long term 6. Level of risk involved: More risky occupations
training. training. receive higher amount of wages than those with less
3. It is a variable cost. It is a fixed cost in the short risk. For instance, a pilot receives more than a driver.
run. A graduate in the armed force receives more than a
NB: (i) Both wages and salaries are in monetary terms. graduate teacher.
(ii) They are payment (rewards) for services rendered. 7. Period and cost of training: People who have undergone
(iii) They are the prices of labour. a long period of training like many years involving a very
high cost receive more than those who have only been
TYPES OF WAGE RATE trained for a short period. For example, medical doctors
Time Rate: In using the time rate, the labour is paid in and engineers receives more than people who are trained
for a very short period like a few weeks or months and
accordance with the number of hours worked. The salary
with little cost e.g. drivers, cook, etc.
earners who collect their salary on monthly or hourly basis
8. Level of responsibility: Workers with a high amount of
also fall under this category. The time rate system is good responsibility eg. Managing directors, senior managers,
for situations where output can be measured and where chief accountant, etc. receives more than workers with
high speed at work is not possible such as hospital and so less responsibility (duty) e.g. clerks, gateman, etc.
on. Workers under the time rate method of wage rate must 9. Trade union influence: Many trade unions and
be supervised to make them give their best. professional bodies fix minimum wage rate for their
Piece Rate: This is a method in which a worker is members. It is always higher than the legal minimum
remunerated or paid in accordance with the number of wage rate. And they always bargain or negotiate for a
higher rate of increase than the general rate of increase.
pieces produced. The system is good for use where the
Therefore, their members receive higher wage rate than
quantity produced can be measured and it can help in
non members.
increasing the level of productivity as the worker will be
keenly interested in punctuality and putting more effort to
349
10. Level of prosperity in different states and Wage fund theory of wages
industries: Workers in a very rich state or country The wage – fund theory of wages is an early nineteenth
receive more than those in a very poor state. A century theory which held that the amount of funds
graduate in Saudi Arabia or in developed countries e.g. available for wages was directly related to the amount of
USA, Britain, etc receive more than his counterpart in capital available, so that wages could not be increased
a very poor West African country. A graduate teacher unless the amount of capital was also increased. According
in private school in urban centre e.g. Lagos, Abuja, to this theory, capital depended on savings just as wages
Cairo, etc receives more than his counterpart in rural depended on capital.
areas (villages). Thirdly workers in wealthy (rich)
industries e.g. Shell, banks, etc with billions net profit Since savings are a definite sum in the economy there also
receive more than those in poor industries e.g. farming, exists a definite fund from which wages are paid. As a
fishing, teaching sector with little or no profit. result, only a given amount of workers can be paid at any
11. Government policy: It favours certain categories time. If the wages of some were increased, then others
(types) of works at the expense of others. It gives more would surely get less than the average wage, the average
wages and allowances to certain workers e.g. medical wage being determined by the given amount of savings and
doctors, nurses, members of armed forces, and less to the given number of workers. Wages therefore should be
other workers e.g. teachers, clerical staff, etc. This may based on the amount of capital available.
be due to the nature of the job and skills required. Although the wage-fund theory of wages is wrong in
12. Job prestige: A job with very high prestige like talking of fixed wage fund, it holds true in pointing out the
presidency or governorship earns a higher income than proportion between labour and capital ultimately
the one with less prestige e.g. accountant versus determines the level of real wages since it has a direct
governor (his excellence). influence on labour productivity.
13. Discriminatory practice: Gender discrimination.
Some employers discriminate against women or black Bargaining theory of wages
people, they give men and white higher wage rate than This is a theory of wage determination which holds that
women or black people. payable wages are the outcome of a process of bargaining
14. Forces of supply and demand: In an occupation in between labour and the representatives of management.
which supply of labour is always higher than the Equilibrium wages therefore, according to this theory,
demand, e.g. unskilled labour, the wage rate is lower should be arrived at by bargaining between labour and
than occupation in which the supply of labour is management, within the context of the prevailing situation
relatively low, e.g. medical doctor. in the labour market.

DETERMINATION OF WAGES The bargaining theory of wages has found more acceptance
Theories of wage determination in advanced countries like Britain, where bargaining is
Many economists have propounded theories on the subject used to settle a whole lot of labour and industrial matters,
of wage determination which has been a problem for many than in developing countries, where wages are still
years. Let us examine some of these theories before arbitrarily frozen or increased by government legislation.
looking at the determination of wages in practice:
1. Subsistence theory of wages. 2000/27 Neco
2. Wage-fund theory of wages. The process whereby wages/conditions of services of
3. Bargaining theory of wages. employees are jointly determined by the employee and the
4. Marginal productivity theory of wages. representative of the employees is called
A. bargaining power B. collective agreement
Subsistence theory of wages C. collective bargaining D. joint decision
This theory originated in France. According to it, the best E. union strike action
level of wages should be that at which wages are simply Answer Collective bargaining (C)
equal to the requirements for subsistence. The theory holds
further that if wages rise higher than the subsistence level,Marginal productivity theory of wages
there will be a population increase which will catch up with This is one of the current theories of wage determination. It
it and force it down to subsistence level again. Therefore, holds that the wages payable to labour tend to be equal to
wages must necessarily be equal to or lower than the the marginal product of labour in value. To bring this
subsistence level. about, the firm should continue to employ extra units of
labour until such a point is reached at which the extra
Although the subsistence theory of wages has failed in income gained by employing one more worker is equal to
advanced countries of the world where, clearly, wages have the wages paid to him. Therefore, in the labour market,
been rising without corresponding population growth, it wages are determined by their interaction with the marginal
has been found to apply in many third – world country productivity of labour on one hand and the supply of
today. laboiur on the other. Beyond the point where the two are
350
equal, any wage increase will cause a fall in the marginal
product of labour. Firms will then tend to retrench workers
until the two are parallel again.
While the theory is quite sophisticated and scientific, it has
not altogether held true in the economies of advanced
Western Europe and America where prices do not
determine, but are determined by wages.
2013/42 Neco
Wage rate is determined by the
A. average productivity of labour
B. fixed and average production of goods
C. marginal productivity of labour
D. marginal propensity ratio
E. total production of goods and services.
Answer Marginal productivity of labour (C) WAGE DETERMINATION IN A NON –
COMPETITIVE LABOUR MARKET
2000/22 In this market, the supply of labour is still competitive,
Wages are, to same extent determined by the since there are many individuals capable of supplying
A. marginal utility of labour B. average utility of labour labour of the required caliber. The buyers of the labour, i.e.
C. marginal productivity of labour the employers of the particular types of labour, however,
D. total output of labour are so few that each is individually capable of influencing
Answer Marginal productivity of labour (C) the wage rate by varying his demand for labour.
Let us suppose that these few buyers come together and
WAGES DETERMINATION IN PRACTICE IN THE form an employers’ association, in order that they can now
ABSENCE OF TRADE UNIONS operate as one body. Since labour will now be bought
In the absence of powerful unions, wages in the labour monopolistically (i.e. by a monopolistic purchaser in a
market are determined simply like any other equilibrium competitive demand situation), the workers, being price-
price, i.e. by the forces of supply and demand interacting takers, must accept the wage rate offered by the
freely. Also, like any other market, the labour market at monopolist, or reject it. The purchaser, on the other hand,
any time is either perfectly competitive or not. Let us now not being a price-taker, can freely alter the wage rate.
see how wages are determined in both situations, in the
absence of trade unions. As the monopolist is maximizing profit, and he has nobody
to compete with, he will employ fewer workers than under
DETERMINATION OF WAGES IN A competition, to enable him to pay lower wages as well. In
COMPETITIVE LABOUR MARKET this situation, the supply curve of labour is still sloping
In this market, there are so many individual suppliers of upwards, so that the more he employs the higher the wages
labour that no single one of them can do anything to he has to pay. To succeed in lowering wages, the
control the prevailing wage rates. monopolist will employ workers at the level where the
marginal cost and the marginal revenue product of labour
There are also so many buyers of labour that no one of
are equal. This is diagrammatically illustrated below:
them can influence the prevailing wage rate. Given this
situation, the equilibrium wage rate will be that at which
the supply and demand curves of labour intersect. At this
point, the wages payable will be equal to the marginal
product of labour, as recommended by the marginal
productivity theory of wages. In reality, this could occur in
a market for clerical and unskilled workers, for instance.
The diagram below illustrates the situation. The supply and
demand curves intersect at E, giving equilibrium wage rate
and labour quantity as W1 and Q1respectively.

351
The supply curve represents the average cost curve of the Note what is happening to the level of employment at the
monopolist. The demand curve shows the marginal revenue new wage rate, W2. The supply of labour increases from L1
product of labour. The marginal cost curve (MC) is drawn to L2, but the quantity demanded falls from Q1 to Q0, a new
above the average cost or supply curve because, as long as equilibrium having been created at b, where the demand
the supply curve is upward-sloping, the marginal cost will curve cuts the new supply curve. Thus, when a
be higher than the wages payable. monopolistic trade union enters into a previously
competitive labour market, it can force wages higher than
W1 and Q1 are still the respective equilibrium levels of the competitive level, but the level of employment will also
wages and employment under competition. The monopolist reduce as competitive purchasers cut back on their use of
employs at Q2 which is lower than Q1, and then goes ahead labour.
to pay the lower wages, W2, prevailing at that low level of
employment. This is because the monopolist will go on
employing workers until the last worker adds the same
amount to total revenue as to total cost.

The marginal cost of the monopolist is thus higher than

wages. Since he hires labour at that point at which
marginal cost is equal to marginal revenue product (A in
the diagram) and then pays wages corresponding to that
level, it means that the wages paid by the profit – seeking
monopolist are lower than the marginal revenue product.
Also, for this same reason, the volume of employment is
lower than it would be under competition.
Fig X
WAGE DETERMINATION IN PRACTICE IN THE
PRESENCE OF TRADE UNIONS
In the next section, we shall study trade unions in some
detail, first, however, let us see how they feature in the
labour market especially with regard to the determination
of wages and level of employment.

WAGE DETERMINATION UNDER

MONOPOLISTIC SUPPLY AND COMPETITIVE
DEMAND FOR LABOUR
Fig. X represents a situation in which, under perfect
competition and without a trade union, the equilibrium
wage rate and level of employment were fixed by the
forces of supply and demand at W1 and Q1 respectively.
Let us suppose that a union monopolisting the supply of Fig Y
labour entered into this situation. Fig.Y illustrates the THE ROLE OF GOVERNMENT IN DETERMINING
implications that this would have for the levels of wages WAGES
and employment. Government institutions and wage commissions set up by
the government help in determining wages especially in
The monopolistic trade union in fig. Y can do one of two public sectors. In fixing wages, the government agency or
things – either change (i.e. increase or decrease) in the wages commission takes a number of things into
level of wages or the level of labour supply. It cannot do consideration:
both at the same time. 1. The level of productivity: The general level of
Let us further suppose that the union decides to increase productivity in the country influences the wages paid.
the wage rate for its members to W2, either by negotiation The greater the level of production in the country, the
or unilateral action. Since the demand for labour is still, higher the wage rate. As the level of productivity
employers are at liberty to employ only as much as they increases, labor is paid a higher wage to compensate
want at the wage rate W2, at which the supply of labour is for its increased efforts and greater efficiency. This has
Q2. Observe that, by pushing wages as high as W2, the been one of the major reasons for wage increases in
monopolistic trade union has caused the supply of labour to Nigeria.
become perfectly elastic up to L2, since the new supply 2. The cost of living: The higher the cost of living, the
curve is now W2ABS. higher wages are likely to be. If people spend much
money to get the essentials of life,then there is a need

352
 to pay the workers higher wages to enable them to FUNCTIONS OF TRADE UNION
maintain a reasonable standard of living. But as the The following are functions of trade unions.
cost of living falls, wages may have to be reviewed 1. Collective bargain with employer: Collective
downwards in order to check inflation since the value bargaining is a process by which a trade union and the
of money has increased. In Nigeria, the higher level of management try to resolve their differences through
wages has been due partly to the higher cost of living. joints negotiations. The trade union continuously
3. Type of occupation: In many countries, the wage negotiates or collectively bargains with employers for
structure varies from one occupation to another. For raising the economic welfare of the workers in terms of
example, in Nigeria, the wage structures for the civil higher remunerations, better conditions of service,
service, the universities, the army, the quasi- greater security of job, long annual leave, medical care,
government establishments are different. The wage pension scheme, etc.
structure for each category of labour is based on the 2. To unite workers: It unites the employees in a manner
factors such as the degree of scarcity for labour, the that ushers in harmonious atmosphere which enable
risks involved, the estimated importance of the them to work diligently with their employers for the
occupation to society, etc. Various salary grade levels overall peace and progress of the organisation as well
are fixed for different categories of labour in the civil as the nation.
service. 3. To enter favourable contract with management: It
NB: Many government intervene in the determination of enters into a favourable contract with management on
wage rates. Almost all governments legislate the minimum behalf of its members, and thereby making workers to
wage rates for their citizens. And they ensure that all always and promptly receive their entitlements. That is
employers of labour don’t pay less than the field minimum trade union enables members to easily obtain their
wage rates of labour. However, economic conditions benefits through contractual right; and they are,
adversely affect the law in certain countries. In Nigeria, therefore, not subjected to the caprice and whim of
the national minimum wage rate was set at ₦30,000, which employer.
took effect from April 1, 2019. 4. To enlighten employees: It enlightens employees
Wages are determined by the interaction of the forces of about their rights and entitlements. And this enables
demand and supply in a free market economy. If the them to promptly have claims of their entitlement
demand for a certain type or category of labour is higher whenever due.
than its supply, wages will be high, but if supply is higher 5. To protect workers interest: It enlists all the
than demand, wages paid will be low. members in organisation and effectively represents
them and always protect their interest.
TRADE UNIONS 6. To ensure management’s compliance with law: It
A trade union is an association of workers formed to enable enforces employer to promptly comply with all
the members to take collective, rather than individual statutory regulations and other government directives
action against their employers in matters relating to their pertaining to the workers, especially minimum wage
welfare and conditions of work. legislation (law) and better conditions of service.
7. Collection of dues: It collects dues from members
TRADE UNIONS IN NIGERIAN INCLUDE periodically. The union accomplishes this by obliging
- The Nigerian Labour Congress. the employer to directly deduct such dues from
- The Nigerian Civil Services Union. employee’s salaries monthly.
- The Nigerian Bar Association.
- The Nigerian Union of Journalists e.t.c. PROBLEMS OF TRADE UNIONS
Labour Unions sometimes have legal status conferred on (1) High rate of unemployment: The high level of labour
them. unemployment weakens the bargaining power of trade
unions. Once many people are unemployed, the trade
2000/25 unions cannot exercise much control or a monopoly over
An association of workers in a particular industry, firm or the labour forces. The management or employers may
line of job is called threaten employees with dismissal since there are others
A. trade union B. trade association who are idle and who will readily takes their places.
C. chamber of commerce D. assembly of workers (2) Leadership and organizational problems:
Answer (i) Disagreement among trade union leaders: There are
Trade union (A) disagreements among the leadership of the various
trade unions due to differences in ideology and tribal
2006/2 UTME politics. There are certain times when the Nigerian
Minimum wage legislation will result in labour congress has called all workers out on strike
and was not heeded by other trade unions.
A. reduced income B. reduced labour productivity
C. greater demand for labour D. greater supply of labour
Answer Greater supply of labour (D)
353
 (ii) Some official of some trade unions do not have any METHODS OF CONFLICT RESOLUTION
good educational background: This makes for BETWEEN UNION AND MANAGEMENT
ineffective leadership. They cannot present 1. Reconciliation (further negotiation): Trade union often
convincingly argument during collective bargaining renews its vigour in preparation for further negotiation
session to counter the more logical and coherent around the conference table as an orderly and peaceful
argument of the management. procedure for resolving any deadlock between trade union
(iii) Corruption among the union leadership: There have and management. Such a reconciliation attempt may not
been reported cases of embezzlement and abuse of initially involve a third party (an outsider).
power by trade union leaders. This sometimes arises 2. Eliciting public sympathy (lobbying): Some trade
because of the members have a low level of unions, at times, draw public sympathy by making them
education to check effectively by excesses of their aware of their grievance vis – a – vis that of their
leaders. management. This compels some notable personalities,
(3) Government interference in decision making: like royal fathers, bishops, statesmen, social and human
Government sometimes may influence the appointment rights activists, etc. to persuade their employer for
of trade union leaders or it may appoint sole – consent. Publishing their grievances on the national
administrators to run trade unions. Such government dailies may achieve this aim.
appointees may dance to the tune of government. 3. Overtime ban: Workers may not participate in overtime
(4) Political pressures from the government: There are work. This reduces output; and it has adverse effects
certain times when the government passes laws or decree during the period of high demand.
banning strikes. This makes illegal strike action by trade 4. Strike threat: Some trade unions issue ultimatum of
union during the period of the ban. Sometimes a “wage three days, a week etc within which employers must
freeze” may be imposed on the economy, that is, comply with their request else they would embark on
legislation is made against a wage increase for a certain strike or any violent action.
period. Trade unions who find themselves in such 5. Slow down (Work to rule): If all peaceful attempts and
condition cannot embark on strikes or bargain for higher strike threat fail to yield the desired result, the union may
wages. embark on slow down (go – slow strike) or work to rule.
(5) Financial problems: Many trade unions do not have It involves reducing the speed with which workers
enough financial resources to sustain their members perform their jobs. This weapon reduces output and
during strikes. This put them in a weak position in thereby raising cost of the firm.
collective bargaining since management knows that 6. Picket lines: A trade union may compel its members
their threat to strike will be ineffective. (employees) to stay at the entrance (gate) of the
(i) Lack of strike funds: Many members may not be company’s premises without going into the premises.
willing to pay their union dues because of their low 7. Strike: The workers may resort to actual strike if the
income. Some of them also feel that the union conflict cannot be resolved through the above efforts. “A
leaders will make use of the money collected for strike is a stoppage of work collectively embarked upon by
their own selfish ends. They cannot foresee the all workers of an institution or members of a trade union”.
possible use of funds to maintain workers in future It is an effective instrument used by trade union to
during periods of strike. pressurize employers to concede to workers’ demands. It
(ii) Absence of unemployment benefits: In advanced lingers on until a side concedes to the other.
countries, unemployed people are paid some 8. Peaceful demonstration: Workers may embark on
compensation by the government in order to help peaceful demonstration. They march round the streets
them maintain a minimum standard of living. But with large cards upon which their grievances are boldly
in West Africa countries, the various governments written in order to drum home their demand. At times,
cannot afford to pay such benefits because of the they proceed to NTA premises to make their
high rate of unemployment. The threats of strikes grievances known to the public.
(and strikes) to obtain increased earnings improved 9. Involving other trade unions: The trade unions may
working conditions for its members. solicit the support of allied trade unions, and eventually
involve them in a general strike in an attempt to compel
TRADE DISPUTES employer to instantly comply with their demands.
A trade dispute or industrial dispute arises when 10. Violent demonstration: Some trade unions may
negotiations between the trade union and the management embark on violent demonstration as a drastic measure
fails, leading to disagreements between them. in showing their discontent with the prevailing
NB: A trade dispute can be declared by the trade union or situation – employer’s act of exploitation and neglect.
the management of an organisation, but in most cases, it is 11. Mediation and arbitration: Mediation occurs when the
declared by a trade union. parties appear before an impartial commission with their
grievances. And after a thorough investigation, it therefore
makes suggestions for resolving the conflict. However, the
commission verdict is not binding on the parties. And if
one of the parties fails to abide with it, they may resort to
354
 arbitration. Arbitration may be voluntary or compulsory. It 3. Miscellaneous limitations: Many people have levelled
is voluntary when both parties agree for a third party to criticism against trade union for its involvement in the
resolve their differences. And it is compulsory if the following:
government intervenes to compel them to submit their i. It enforces union recognition upon firms.
grievances to an impartial third party for adjudication ii. It often instigates workers to embark on
whose verdict (decision) is binding on both parties. nationwide strike which causes a lot of
inconveniences to the public. This is the major
ADVANTAGES OF TRADE UNIONS reason why many governments tend to curtail
1. Greater benefits and obedience: Union’s collective union activities.
bargaining with management compels the latter to accede iii. Some Union’ leaders at times indulge (involve) in
to the former demands of greater benefits than before. And corrupt behaviour and undemocratic practices.
worker are therefore at relative peace as they are on higher
2006/17 Nov
level of income and better conditions of service. Thus they
The last weapon of any trade union in dispute is
become more dedicated to their jobs, and they always tend
A. sit down action B. work to rule C. negotiation
to comply with all company’s rules and regulations.
D. strike down action
2. Industry harmony: The complementary role of trade
Answer
union in labour management ensures industrial
Strike down action (D)
harmony; thus it enables both parties (employer and
employees) to work together amicably.
2016/7 NABTEB
3. Contractual right: Trade union enables members to
An industrial action whereby workers refuse to go to their
have contractual right to greater benefits. As the union
place of work until their demands are met is called
enforces employer to enter into a long – term contract
A. work to rule B. total strike C. lock – out
regarding conditions of work, workers are
D. picketing
automatically entitled to specified rights without
Answer
individual worker, daily soliciting for them.
Total strike (B)
4. Enhances unity: Labour union enhances unity among
workers; and it makes them to act unanimously – to
EMPLOYER’S ASSOCIATION
speak with one effective voice.
Employers Association is a combination of employers
5. Enlightens employees: Trade union enlightens
formed primarily for collective negotiation with trade
employees about their individual rights, and it
union(s) as well as with government.
motivates them towards attainment of these
entitlements and other fringe benefits.
Functions
6. Protects workers’ interest: It continuously protects
1. It collectively negotiates with trade union(s) for the
workers’ interest, especially during a period of conflict
acceptance of employers directives.
resolution (during strike) when management constantly
2. It constantly discusses with government (appropriate
threatens workers or the executive with summary
ministry, like ministry of labour, trade, industry,
dismissal.
mining and power) all matters affecting their trade.
7. Greater productivity: Through collective bargaining
3. It relentlessly promotes their trade in the society.
process, trade union enables workers or members to be
4. It maintains cordial relationship with employees,
entitled to higher remunerations. This motivates them
governments as well as ensuring industrial harmony in
to work harder and achieve greater height in terms of
a country.
production output. That is, it causes a rise in labour
5. It pressurizes and/or persuades government to enact
productively as it enables them to have higher pay and
(make) laws and formulate policies (fiscal, monetary,
better conditions of service.
commercial and labour policies) favourable to their
trade or organisations.
DISADVANTAGES OF TRADE UNIONS
6. It takes unanimously action and applies necessary
1. Cost – push inflation: Trade unions has been machinery (measures) in conflict resolution especially
criticized for causing cost push inflation for
those involving their employees and the government.
successfully bargaining for higher wages. The increase
in salaries pushes up cost n firms and it can only be
INSTRUMENTS EMPLOYED BY MANAGEMENT
covered through increases in prices.
IN CONFLICT RESOLUTION
2. Monthly dues: It reduces workers’ pay through 1. Restriction: Prior to conflict management may overtly
monthly dues collected from them. The higher the dues (openly) restrict workers, especially new employees
the lower the workers’ net pay. from actively participating in unionism.
2. Peaceful negotiation (collective bargaining): They
collectively bargain with trade unions in order to resolve
the conflict (disagreement) amicably (peacefully).
355
3. Dismissal threat: Employers may intimidate Human capital is inherent in people and cannot be
employees or union’s executives with summary owned by an organisation. Therefore, the human
dismissal for the doption of ‘slow down tactic or strike capital. leaves an organisation when people leave.
action for pressurizing management to yield to their Human capital also encompasses how effectively an
demands. organisation uses its people as measured by creativity
4. Lock out: The management may institute a lock out
measure (temporary close down of a place of work
and innovation. Thus a company’s reputation as an
without pay) until the conflict is resolved. employer affects its human capital quality.
5. Strike breakers: An employer (a company) may hire
workers to operate the plant during strike period. Characteristics of Human Capital
6. Black list: The compile the list of workers who are 1. Human capital is an intangible asset. It is not
actively involved in the strike or violent demonstration something that can be seen or touched.
for summary dismissal (termination). 2. It forms an integral part of the individual because
7. Injunction: Employer’s Association may oblige a people's knowledge, skills, health and other
court judge to issue an injunction (a court order which personal attributes cannot be separated from them,
restrain a person or a group of persons from specified the way financial and physical assets are.
action) to restrain workers from embarking on slow 3. Human resources can be transformed into human
down action, strike or violent demonstration. capital with effective input of education, health
8. Summary dismissal: All affected staff may be
and moral values.
instantly dismissed and injected from staff quarter.
And management may issue an ultimatum of specific 4. Human capital is substitutable but not transferable
days within which the workers should re – apply under like land, labour or other kinds of capital.
stated conditions. 5. Human capital is highly mobile as it is a human
9. Reconciliation and arbitration panel: Employer’s factor.
Association may seek outsiders (government, industrial 6. Human capital is assessed by activity based on
diplomat, etc) intervention in resolving the conflict. It costing via time allocation. It becomes possible to
obliges an independent body or the government to set assess human capital risk. This occurs when an
up an impartial reconciliatory panel to proffer solution organisation operates below attainable operational
to the crisis. excellence level.

Human capital risk accumulates in four ways:

HUMAN CAPITAL DEVELOPMENT (a) Absence caused by incidences like sickness leave
Human capital is the measure of the economic value and industrial action.
of an employee’s proficiency, facility, or dexterity (b) Collaborative activities related to the expenditure
that is acquired or developed through training or of time of more than one employee within an
experience. It is the total stock or value of organisation; for example, meetings, phone calls
competencies, skills, knowledge, social and and instructor-led training.
personality attributes, including creativity, embodied (c) Knowledge activities related to time expenditure
in the ability to perform labour in order to produce by a single person including finding or retrieving
economic value. information, research, e-mails, messaging and
It is the skills and attributes a worker gains through blogging.
education and experience. Some economists refer to (d) Process activities (a form of knowledge
human capital as the workforce, but it goes beyond aactivities) in organizational contexts such as
that; it is adding value to someone to be useful to making errors, redoing of jobs, manual data
himself first and then to the society at large. It is transformation, stress and policies.
therefore the attributes of a person which makes him
productive in some economic contexts. Factors that affects the efficiency of human capital
1. Population: Human capital, as the name implies
The concept of human capital thus recognises the deals with human beings. So the population of a
education of a person as an investment which returns country affects its human capital either negatively
are in the form of wages and salaries and other forms or positively. A large population will tend to
of compensation. It is implicitly a recognition that not produce large human capital and a small
every labour is equal to another and that the quality of population will tend to produce small human
employees can be improved by investing in them. capital.

356
2. Poor investment in education: In most b. Human capital is substitutable but not transferable
developing countries such as Nigeria, enough like physical capital (land, fixed capital etc) which
budgetary allocation is usually not given to are transferable.
education to train and improve their human capital c. Human capital is motivated to perform efficiently
to bring about efficiency. while physical capital is maintained or serviced to
3. High Level of Illiteracy: This deters the perform effectively.
efficiency of human capital where it obtains. For d. Human capital has the extraordinary capacity to
instance, there is still a large number of people in grow cumulatively over a long period of time
Nigeria who are not literate. Such persons may not while physical capital experiences loss of value
be very productive. with age.
4. Political instability: A change of government e. Human capital is highly mobile while physical
brings about a disconnection in programmes capital is fixed capital.
geared towards development of human capital, as f. Human capital is an intangible asset, not owned by
the new government may come in with new the firm that employs it while physical capital
policies that may prove counterproductive. assets are tangible assets of the business.
5. Poor health facilities: The non-availability of an g. Human capital is expandable and self- generating
efficient health care delivery system brings about through experience (competence increases) unlike
a high death rate and a low ratio of doctor to physical capital whose efficiency cannot increase
patient as is the case of Nigeria. As a result, the with usage.
population is not a very healthy one. h. Knowledge can help enhance human capital and
6. Lack of manpower training: The failure and can increase the productivity of an organisation.
Industrial Training Fund (ITF) has affected the Physical capital, on the other hand, has no such
efficiency of human capital development in characteristics.
Nigeria as the number of people trained has
reduced drastically.
7. Insecurity: Insecurity caused by the various CONCEPT OF BRAIN DRAIN
religious and ethnics crises in Nigeria does not
create the right atmosphere for the efficiency of Brain drain is the emigration of highly educated and skilled
the country’s human capital. professional and technical manpower from the developing
to the developed countries. Very brilliant Nigerian Scholars
8. Lack of reward for excellence: This is another
especially in the fields of medicine, engineering and other
factor affecting the efficiency of human capital sciences leave Nigeria to work in United States of
as the morale of workers will be low if they are America, Russia, Europe and France. The brain drain may
not motivated adequately by their employees. be as a result of unemployment or underemployment
situation in the country. Often low wages may cause these
Distinction between Human Capital and Physical professionals to look for greener pastures in the developed
Capital countries where there they would be paid higher wages.
Human capital and physical capital (factories,
machines etc.) are similar in some respects. When a first class graduate of electrical, computer or
a. Both human and physical capital are assets and mechanical engineering takes up teaching of physics in a
means of production. secondary school, surely he is underemployed and he will
b. Both human and physical capital can be never be satisfied with the job and the salary. He would
leave the country for a more developed country where he
accumulated through investment by increasing
can get a job that is related to his field of study and his skill
their stock. would be highly valued.

They differ in some respects: EFFECTS OF BRAIN DRAIN

a. Human capital is the stock of competencies, skills, 1. Loss of Manpower: Brain drain reduces the supply of
knowledge, education, experience, social and vital professionals available in the developing
personality traits which assist production while countries. The exit of these professionals is a loss of
physical capital are the equipment and facilities labour force to the country.
(buildings, machines, tools, etc.) used to produce 2. Loss of output: Every worker in the country is in one
other goods and services. way or another contributing to the National Income
and welfare of the people. Brain drain denies the
country the contribution or output of these emigrants.

357
 They are expected to use their skills to solve the 6. Job Security: Ensuring job security for the workers
problems of the country. For example doctors are who are gainfully employed by the government and
expected to treat the sick people. Engineers are private sector will go a long way in solving the
expected to design simple tools and construct bridges, problem of brain drain.
and architects are expected to design low – cost 7. Value re-orientation: Nigerians should be taught to
buildings, but all these functions are lost to the country believe that our individual and collective hopes and
as a result of brain drain. aspirations can be met within the country. There is
3. Perpetuation of underdevelopment: Brain drain need for assurance that one need not be selfish in his
makes it difficult for the developing countries to dealings with the nation and fellow citizens, and that
develop as those who would bring about development government would provide the enabling environment
migrate to developed countries. and opportunities to develop ones potentials.
4. Increased level of poverty: This is due to general low
level of productivity arising from scarcity of highly
productive labour.
5. Decrease in wealth creation, employment and tax
revenue: More entrepreneurs taking their investments
abroad, contributes to the high rate of unemployment
and decreased wealth creation within the country, with
consequent reduction of tax revenue.
6. Problem of Depopulation: Brain drain depopulates
the ‘drained’ country and populates the draining
country.
7. Mentorship issues: As a result of brain drain, older
professionals are not available to mentor and train the
younger ones.
8. Brain drain reduces the military strength of a nation as
the younger and energetic segment of the population is
affected.

MEASURES TO REDUCE BRAIN DRAIN

1. Employment creation: The major cause of brain drain
is unemployment and underemployment. To reduce
brain drain, the government should provide adequate
employment for these high level educated persons. It is
mostly likely that when a person is employed in an
area relevant to his area of study, he would not have
the urge to travel to other countries to work.
2. Good wages: Academic professions will not likely
move to more developed countries if they are well paid
in their country. Their services are highly invaluable.
To this extent the government should place them on
special and attractive wages.
3. Taxation: The overseas earning of these professional
migrants can be taxed. This will however require the
cooperation and assistance of the government of the
countries to which these professional migrate. The tax
would be reinvested in programmes of national
development and it would serve as disincentive to
brain drain.
4. Infrastrutural Development: The improvement of the
country’s infrastructural facilities will also help stop
brain drain as it will improve the standard of living of
the citizens of the country.
5. Currency Stability and Insecurity tackling: Tackling
the problem of insecurity in the country and the
fluctuating value of our currency (naira) will also help
to stop the brain drain saga.
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2023/25 2003/1
The rate of growth of population is The population of country Y in 1970 was 60 million. From
A. the difference between birth rate and death rate 1971 to 1975 the total number of births was 25million and
B. birth rate less death rate plus net migration death stood at 3 million, 8 million immigrants and 4
C. initial population plus number of births and net million emigrants were recorded in the reporting period.
migration a. Present the above data in a table.
D. the number of immigrants plus number of births (bi) Determine the net migration with in the period.
Answer (ii) Calculate the population of the country in 1975.
The rate of growth of population is birth rate less death (c) What is the percentage increase in the population
rate plus net migration (B) of the country from 1971 to 1975?
Answer
2023/26
The Malthusian theory of population is best illustrated Year No of No of No of No of Total
birth death in immigra emigrant populat
when in million nt in in ion in
A. both population and food supply increases at the rate million million million million
B. population increases much faster than food supply
C. the size of the population and available resources are
equal 1970 - - - - 60
D. food supply increases much faster than population
growth 1971 25 3 8 4 86
Answer –
The Malthusian theory of population is best illustrated
when population increases much faster than food supply
(B)

2023/27
The dependency ratio of a country is the Or
A. total active population who depend on government for Year 1970 1971 – 75
survival Number of births in million - 25
B. number of children who depend on their parents for Number of deaths in million - 3
survival Number of immigrants in - 8
C. the children and aged who rely on the active population million
for support Number of emigrants in - 4
D. people who are cared for by their extended family million
Answer Total population in million 60 86
The dependency ratio of a country is the the children and (bi) Net migration = Immigrants – Emigrants
aged who rely on the active population for support (C) = 8 million – 4 million
Net migration = 4 million
2023/28 (ii) Total population in 1975 = 1970 population + net
When job vacancies are publicized, the government is migration + (number of births – numbers of
mainly trying to solve the problem of deaths, Total population = 60 million + 4 million +
A. residual unemployment B. frictional unemployment (25 million – 3 million)
C. technological unemployment = 64 million + 22 million
D. cyclical unemployment Total population = 86 million
Answer c. Percentage increase from 1970 to 1975.
When job vacancies are publicized, the government is Percentage increase =
mainly trying to solve the problem of frictional New population – old population 100
unemployment (B) × 1
Old population
8 million−60 million 100
2022/8 NABTEB = 60 million
× 1
The total number of workers that business owners are
26 100 2600
ready to employ at a given wage rate is referred to as = 60 × 1
= 60
A. employment of labour B. supply of labour
C. labour efficiency D. demand for labour = 43.33
Answer Percentage increase = 43.33%.
Demand for labour (D)

359
2009/1
The table below shows the natural growth rate of the
population of country N over a period of time. Use the
information contained in the table to answer the following
questions.
Year Birth Rate Death Rate Natural
per ‘000’ per ‘00’ Growth
Rate
1971 45 32 L
1972 39 P 12.50
1973 26 22 Q
1974 R 22.50 4.50
1975 26.50 22.50 S
1976 20.50 T 3.00
(a) Determine L, P, Q, R, S and T.
(b) With the use of a bar chart, graphically present the
changes in the natural growth over the years. (Use of
graph sheet is essential).
(c) Outline any three reasons for changes in birth rate.
Solution
1(a) Birth rate - Death rate = Natural Growth rate
L = 45 – 32 = 13
P = 39 – 12.50 = 26.50
Q = 26 – 22 = 4
R = 22.50 + 4.50 = 27
S = 26.50 – 22.50 = 4
T = 20.50 – 3 = 17.50

Year Birth Death Natural growth

Rate Rate rate
1971 45 32 13
1972 39 26.50 12.50
1973 26 22 4
1974 27 22.50 4.50
1975 26.50 22.50 4
1976 20.50 17.50 3.00

360
(b)

361
(ci) The higher the number of females in a population, 2015/25
the higher the birth rate and vice versa. Frictional unemployment occurs when
(ii) Early or late marriages is a major reason asEarly A. there is a change in the technique of production
marriages increases birth rates while late marriage B. job seekers lack information where job exists
reduces it. C. bard weather prevent work from progressing
(iii) Population control methods and compaigns can also D. job seekers have disabilities
reduce birth rates. Answer
(iv) Improved economic situations can affect birth rates There is a change in the technique of production (A)
particularly in developing societies.
(iv) Improved medical facilities increases birth rates. 2015/26
(vi) Changes in traditional attitudes and beliefs of people Which of the following will increase the demand for
to have large families can reduce birth rates. labour?
A. increased wage rate B. labour’s demand for output
2022/5 NABTEB C. low wage rate D. low marginal productivity of labour
The type of population which when combined with the Answer
available resources yields low output per head is called Low wage rate (C)
A. under population B. over population
C. optimum population D. population density
Answer
Over population (B) 1996/18
A population will reach its optimum size when
2022/6 NABTEB A. immigration is equal to emigration
Wages are determined in a competitive labour market by B. birth rate is equal to death rate
the following factors except C. national output per head is at the maximum
A. the forces of demand and supply D. gross national output is increasing
B. influence of government E. balance of payments is in equilibrium
C. gender influence Answer
D. influence of trade union National output per head is at the maximum (C)
Answer 1996/19
gender influence (C) The working population of a country include all the
following except
2019/41 A. employees in government service
In most developing countries, a large percentage of the B. self employed persons C. the unemployed graduates
labour force is engaged in D. the politicians E. the secondary school pupils
A. trading B. mining C. agriculture D. manufacturing Answer
Answer The secondary school pupils (E)
Agriculture (C)
2000/17
1992/16 Nov Majority of West African labour force is engaged in
Optimum population is attained when A. industrial production B. agricultural production
A. population is greater than resources and technology C. mining industry D. construction industry
B. population is less than resources Answer
C. population matches natural resources and technology Agricultural production (B)
D. there are too many people in a place
E. there are two few resources in a country 2006/18 Neco
Answer Which of the following is an objective of collective
Population matches natural resources and technology (C) bargaining
A. election of right leaders
1992/18 Nov B. good financial management
Labour unions perform all the following functions except C. resolving ethnic differences
A. educating members B. fighting for increase in wages D. settlement of trade dispute and grievances
C. protecting workers interest E. strike actions
D. protecting all employees interest Answer
E. guaranteeing members welfare Settlement of trade disputes and grievances (D)
Answer
guaranteeing members welfare (E)

362
1993/14 2000/6
A nation with a working population that is insufficient to When a country is underpopulated, it is better to use a
exploit its resources is said be method of production which
A. over-population B. under populated A. excludes migrant labour B. is land intensive
C. experiencing decreasing population C. is capital intensive D. is labour intensive
D. increasing population Answer
E. having optimum population Is capital intensive (C)
Answer
Under populated (B) 2000/12
Which of the following factors affects the supply of labour
2000/20 in an economy?
Hassan, an economics teacher in Lagos, resigned his A. size of the market
appointment and took up another job as a banker. The B. proportion of male to female workers
concept here involves C. size of the population to the number of jobs openings in
A. occupational mobility of labour the economy
B. horizontal mobility of labour Answer
C. vertical mobility of labour Size of the population to the number of jobs openings (C)
D. geographical mobility of labour
Answer
Occupational mobility of labour (A) 1997/22 Nov
Which of the following best explains the Malthusian
1993/24 theory of population?
The occupational distribution of population in most West A. increase in population causes hunger and death
African countries show the highest concentration in B. people should produce as many children as they could
A. agricultural and allied industries because passion cannot be controlled
B. mining and manufacturing C. the distributive trade C. the population grows at arithmetic progression while
D. commerce and industry E. mining and services food production grows in geometric progression
Answer D. when population increases, the prices of goods and
Agriculture and allied industries (A) services increases
E. the population increases faster than food supply
1993/25 Answer
The growth rate of population is the The population increases faster than food supply (E)
A. annual increase in population
B. total population of a country at a given time 1995/11 Nov
C. addition to the total population over a given period A capital intensive method of production implies
D. increase in the working population over a given period A. the use of more money than machines
E. percentage increase in population in a given year B. an equal use of both men and equipment
Answer C. the use of more machines than men
Percentage increase in population in a given year (E) D. the rationing of machines
E. the use of more money than capital
2012/10 Neco Answer
The use of more machines than men (C)

1995/18 Nov
The optimum population is desirable because it enables an
economy to attain maximum
A. per capital income B. foreign exchange
C. real income D. price level
E. population growth rate
Answer
Per capital income (A)

The population that brings about the highest income in the

above diagram is ____ million.
A. 10 B. 20 C. 30 D. 50 E. 60
Answer
30 (C)

363
1995/20 Nov (iii) Physical environment: The environment in which
Which of the following best describes a trade union? labour works helps to determines its efficiency as well
A. An association of market women selling a particular as its productivity e.g. harsh physical condition.
foodstuff at an agreed price (iv) Conditions of service: Reasonable wages and salaries
B. a union of market women who seek high prices for their with other relative incentives promptly paid encourage
products better service from labour.
C. an association of craftman and artisans who seek good
contract fees for their members 2006/14 Nov
D. a union of traders who collude to get high profits The primary aim of a census is to reveal the following except
E. an association of workers who seek better conditions of the
service for their members. A. sex distribution of population
Answer B. age distribution of population
An association of works who seek better conditions of C. number of deaths in the population D. total population
service for their members (E) Answer
Total population (D)
2004/25 Nov
Changes in age distribution of a given population are 2006/15 Nov
primarily caused by The minimum age of entry into the labour force is
A. government population policies B. birth and death rate A. fifteen years B. twenty years
C. poverty and famine D. technological development C. fixed by the employees
Answer D. different from country to country
Government population policies (A) Answer
Fifteen years (A)
2004/28 Nov 2006/27 Nov
Which of the following is not a reason for wage The ease with which labour can be transferred from one form
differential among occupation? of employment to another is known as the
A. length and cost of training B. supply of labour A. turn over of labour B. cost of labour
C. influence of trade unions D. age of workers C. concentration of labour D. mobility of labour
Answer
Answer Age of worker (D)
Mobility of labour (D)
2009/17
Interaction of supply and demand for labour determines 2006/49 Nov
A. production B. income C. wage D. profit Per capital income is low in some West African countries
Answer Wage (C) because their
A. population and output are high
2009/30 B. unemployment level and output are low
What is the effect of pursuit of higher education on the C. output is high and population is low
size of labour force? D. output is low and population is high
A. it makes labour force to be defective Answer
B. it brings higher wage rate Output is low and population is high (D)
C. it increases the size of labour force
D. it reduces the size of labour force 2014/2015/87 (UI, IBADAN)
Which of the following is not true of the theory of optimum
Answer It reduces the size of labour force (D)
population?
A. it is possible for a densely populated country to be under
2009/5 populated if it has insufficient labour to make the most
(a) Define labour effective use of its other factors
(b) Give four factors that affects the efficiency of labour B. the quantity of labour which combines with other factors,
in your country. gives the minimum output, is known as optimum population
Answer C. the quantity of labour, which combines with the other
(a) Labour can be defined as all human efforts of any kind factors, gives the maximum output is known as optimum
either skilled or unskilled, mental or manual directed population
towards the production of goods and services. D. the test of over population is whether it exceeds the
(b) Factors affecting the efficiency of labour. optimum
(i) Education and training: All kinds of labour require E. it is possible for a thinly populated country to be over
training which may include formal training on the job. populated if it has a poor supply of other factors
(ii) Availability of equipment and tools: Labour Answer
efficiency also depends on the equipment and tools The quantity of labour which combines with other factors,
available to workers. gives the minimum output, is known as optimum population
(B)
364
2014/2015/88 (UI, IBADAN) 2010/11 (NDU, BAYELSA)
Which of the following is the standard concept of measuring Assuming the total population is 100million, the civilian
and analyzing population growth? labour force is 50 million, and 47million workers are
A. the rate of natural increase B. the net migration rate employed, the unemployment rate is
C. the rate of population increase A. 3% B. 6% C. 7% D. 5.3%
D. the fertility rate E. all of the above Answer
Answer Labour force = 50 million
The rate of natural increases (A) Those employed = 47million
Unemployed = 3 million
2014/2015/89 (UI, IBADAN) Unemployed 100
Unemployment rate = ×
Which of these would NOT increase the population of a Labour force 1

country? 3 100
A. increase in death rate B. decrease in birth rate = 50 × 1
C. emigration D. migration E. better medical facilities = 6% (B)
Answer
Emigration (C) 2010/12 (NDU, BAYELSA)
Unemployment involving a mismatch of the skills required
2015/6 (UNIBEN, BENIN) for available jobs is called
A person that retains his skill but mvoes to a business A. frictional unemployment B. structural unemployment
organization in a different industry is involved in C. cyclical unemployment D. composite unemployment
A. horizontal mobility B. geographical mobility Answer
C. occupational mobility D. vertical mobility Structural unemployment (B)
Answer: Horizontal mobility (A)
2009/2 (NDU, BAYELSA)
2009/2010/53 (NDU, BAYELSA) If a person receives a higher wage than would be necessary to
The Malthusian theory of population growth is often said to induce him to work, he is said to be receiving
be A. rent B. profit C. interest D. gain
A. ambiguous B. over simplified C. pessimistic D. moratorium
D. optimistic Answer
Answer Pessimistic (C) Rent (A)

2009/2010/66 (NDU, BAYELSA) 2009/18 (NDU, BAYELSA)

If a person receives a higher wages than would be necessary Optimum population is desirable because it enables an
to induce him to work, he is said to be receiving economy to attain maximum
A. rent B. profit C. interest D. surtax E. income A. per capital income B. per capital output
Answer Rent (A) C. per capital real income D. per capital revenue
E. growth rate
2011/2012/25 (NDU, BAYELSA) Answer
The population level that yields the maximum output when Per capital output (B)
combined with available resources is known as
A. dependent population B. maximum population 2008/23 (NDU, BAYELSA)
C. active population D. optimum population Which of the following is the most important reason why
Answer Optimum population (D) wages differ among occupations?
A. length and cost of training B. supply of labour
2009/24 C. attractiveness of the job D. how tax is collected
Labour can be efficient when there are Answer
A. adequate tools to work with Length and cost of training (A)
B. high levels of employment C. limited vacancies
D. government restrictions 2015/23 (NDU, BAYELSA)
Answer Adequate tools to work with (A) As percentage of labour force, the unemployment rate
measures
2011/3 (NDU, BAYELSA) A. the number of people in an economy who do not have jobs
The total active population in the country is B. the number of people in an economy who have jobs
A. 400M B. 200M C. 520M D. 360M C. the number of people who are out of work and actively
Answer looking for work
Active population or labour force they are between 18 – 60 D. the number of people who are looking for work
years Answer
∴ II and III = 100 + 80 = 180 The number of people who are out of work and actively
180 720
360
× = 360million (D) looking for work (C)
1

365
2013/11 Neco 2012/23 Neco
The following are causes of reduction in population except The following are reasons for differences in reward for
A. disease outbreak B. fall in birth rate labour except
C. high level of emigration A. collective bargaining B. forces of demand and supply
D. high level of immigration E. increase in death rate C. period of training
Answer D. the amount spent in the course of training
High level of emigration (C) E. the level of productivity
Answer the amount spent in the course of training (D)
2013/12 Neco
The movement of a worker from one location to the other 1991/20
is called ____ mobility of labour. Which of the following is not a reason why people migrate
A. geographical B. lateral C. occupational from one place to another?
D. parallel E. vertical A. to find jobs and improve their standard of living
Answer Geographical (A) B. to live in a more suitable climate
C. for the sake of change and adventure
2013/22 Neco D. to escape from a religious, political or social situation in
The trade union instruments is used in which of the a country
following order? E. to buy foreign goods for sale in their country
A. collective bargaining, picketing, work to rule, ultimatum Answer
B. collective bargaining, ultimatum, work to rule, picketing to buy foreign goods for sale in their country (E)
C. picketing, collective bargaining, work to rule, ultimatum
D. ultimatum, picketing, work to rule, collective bargaining 1991/23
E. work to rule, picketing, collective bargaining, ultimatum Which of the following is the approximate working age
Answer group in Nigeria?
Collective bargaining, ultimatum, work to rule, picketing (B) A. 1 – 15 B. 15 – 65 C. 30 – 40 D. 40 – 65
E. 65 and above
2013/5 14.10 Answer
(a) What is efficiency of labour? 15 – 65 (B)
(b) Discuss four ways that an employer can use to
1991/26
motivate workers to achieve better efficiency.
The natural growth rate of a population is the
2012/11 Neco A. sum of the birth rate and the death rate
The headcount of all nationals of a country at a particular B. sum of the birth rate and the net immigration
time is called C. birth rate minus the death rate
A. population census B. population density D. birth rate divided by the net immigration
C. population explosion D. population E. death rate minus the net immigration
E. under population Answer
Answer Birth rate minus the death rate (C)
Population census (A) 1991/34
The productivity of labour does not depend only on its
2012/12 Neco
own effort and efficiency, but also on
Unemployment that takes a place because people have no
(i) The level of technical knowledge.
information about employment opportunities elsewhere is
(ii) The quality of other factors.
termed ____ employment
(iii) Racial qualities which allow persons from certain
A. disguised B. frictional C. open D. structural
races to have good physique and be very active.
E. voluntary
Answer Frictional (B)
1994/7
(a) Outline the main features of the Malthusian theory on
2012/22 Neco
population.
Which of the following is not a trade union in Nigeria?
(b) Explain the developments that render the theory
A. health Workers Union
irrelevant to the present day situation.
B. National Union of Petroleum and Natural Gas Workers
C. Nigeria Labour Congress Answer
The main features of the Malthusian theory on population
D. Nigerian Chamber of Commerce Industry Mines and
are
Agriculture
(i) That population was growing at a geometrical
E. textile and allied workers union
progression while food production was growing at
Answer Health workers union (A)
arithmetical progression.

366
(ii) That there is a tendency for all living things to grow 2019/30 NABTEB
beyond the food available to them. Improved labour efficiency can be measured by a/an
(iii) Unless population increase is matched with means of A. increased in input – output ratio
subsistence, negative and positive checks will come B. increase in output – input ratio
into force. C. decrease in output – input ratio
(iv) That population is essentially limited by the means of D. constant input – output ratio
subsistence. Answer Increase in output – input ratio (B)
(b) The theory has become irrelevant due to the 2019/4 NABTEB
following (a) Explain the concept of mobility of labour in
(i) The development in technical knowledge and Economics
mechanization of agriculture to increase food. (b) With the aid of relevant examples, explain four forms
(ii) Changes in social attitudes as regards family size. of mobility of labour
(iii) Increased efficiency in the transportation system Answer
enables more materials to be provided to areas that (a) The mobility of labour refers to the ease with which
needed them. labour or workers can move from one occupation to
(iv) The industrial revolution also changed the idea of another or from one geographical area to another.
land as a fixed factor of production. Labour is mobile if workers find it easy to move from
(v) Opening of new colonies which provided the needed one area to another or to change jobs.
land. (b) Forms of mobility of labour
(vi) The interdependency of nations as a result of (1) Industrial labour mobility: This refers to the ease
international trade. with which workers can move within the same
industry or from one industry to another. Industrial
2010/58 Neco labour mobility has two aspect
Wages to some extent, are determined by the (i) Vertical industrial mobility: This is the form of
A. amount of goods and services that wage can fetch promotion within the same industry or place of work
B. average productivity of labour for example, the vice principal of a school could be
C. marginal productivity of labour promoted to become the principal.
D. marginal utility of labour (ii) Horizontal or lateral mobility of labour: This takes
E. total productivity of labour place when a worker moves from one industry to
Answer Marginal productivity of labour (C) another but still performs the same task and occupies
2019/5 NABTEB the same rank. For example, an Accountant can leave
Census figures of most countries in West Africa are the Star Beer Factory at Aba for the textile mills at
inaccurate because of Aba, still an Accountant on the same rate of pay.
A. political fraud B. low per capital income (2) Occupational labour mobility: This refers to the ease
C. high degree of illiteracy D. high level of civilization with which workers can move from one job to another.
Answer High degree of illiteracy (C) For example, an unskilled worker such as a cleaner in
an office could easily change to become a labourer in
2019/4 NABTEB the fields.
The labour force refers to (3) Geographical labour mobility: Geographical labour
A. those who are willing, able and available to work mobility refers to the ease with which workers can
B. those who are grown – ups move from one geographical location to another.
C. those who are between the ages of O and 16 Geographical mobility of labour could take place in a
D. all adults minus students and the sick country. For example, in Nigeria, the movement of
Answer labour from the north to the East. It can be across
Those who are willing, able and available to work (A) international boundary. For example, workers to
Nigeria is from Ghana etc.
2019/6 NABTEB
Cyclical unemployment is associated with 2000/15 Neco
A. inadequate information B. trade fluctuations Labour is the most mobile factor of production but may be
C. structural changes D. seasonal change limited by
Answer Trade fluctuations (B) A. available medical facilities B. family and social ties
C. length of working hour D. size of the population
2019/7 NABTEB E. the regulations of trade unions
The process of negotiation between trade unions Answer Family and society ties (B)
representing the employees and employers is called
A. conciliation B. arbitration C. collective
bargaining D. wage negotiation
Answer Collective bargaining (C)
367
2000/8 2008/21 Neco
Labour intensive mode of production is good for a country with The disagreement between employees and employers of
A. high capital concentration B. high death rate labour is often referred to as
C. high population density D. high rate of illiteracy A. collective bargaining B. negotiation C. strike action
E. low population density D. trade dispute E. trade union
Answer High population density (C) Answer Trade dispute (D)
2003/12 Neco Exercise 14.12
2000/4 Neco Efficiency of labour implies
Highlight the factors responsible for the high population A. education and training B. good working condition
density in some parts of Nigeria
C. healthier workforce
Answer
D. increase productivity per worker accompanied by
(1) Increase in the birth rate.
(2) High level of income. improvement in the quality of output
(3) There is higher degree of immorality. E. the amount of incentives or remuneration given to
(4) The importance attached to the large family and workers
polygamy.
(5) Limited use of birth control methods or inadequate 2003/5 Neco
family planning. (a) What do you understand by the term under
(6) People tend to marry early. population?
(7) Government policy which has lessened the burden of (b) What are the effects of under population on a country?
parenthood. Answer
(8) There has been a fall in death rate. (a) Under population occur when the people within the
country are too few in number to the supply of enough
2008/9 Neco labour to tap the available resources fully, given the
existing level of technical knowledge. In this case, the
population is below the optimum and they do not
enjoy economies of large scale production.
(b) Effects of under population are
(1) The supply of labour will be relatively low.
(2) The size of the market will be relatively small.
(3) The level of output will be low.
(4) The level of income per capital and the standard of
living will be low.
(5) The size of experts may decrease

2008/24
Point A in the above diagram represents
A. optimum population B. over population
Which of the following does not affect a country’s
C. population explosion D. total population population?
E. under population A. birth rate B. death rate C. emigration
Answer D. unemployment
Optimum population (A) Answer Unemployment (D)

2008/10 Exercise 14.11 2008/25

The movement of a vice principal of a school to the rank of a The trade union in West Africa have achieved the
principal is known as _____ mobility following for the workers except
A. geographical B. horizontal C. lateral A. increased wages B. better condition of service
D. occupational E. vertical C. competitive determination of wage rate
D. improved welfare facilities
2008/11 Neco Answer Competitive determination of wage rate (C)
Mobility of labour can be encouraged through the following
ways except 2008/26
A. education and training The employers’ demand curve for labour is represented by
B. improved transport and communication the
C. membership of clubs and associations A. marginal product curve of labour
D. provision of government incentives B. total product curve for labour
E. the supply of infrastructural facilities
C. average product curve of labour
Answer Membership of clubs and associations (C)
D. total cost curve of labour
Answer Marginal product curve of labour (A)

368
2020/27 Answer
Doctors earn more than gardeners because they (a) Mobility of labour refers to the ease with which labour
A. saves lives B. are in short supply or workers can move from one occupation to another.
C. work extra hours D. are highly respected people (b) Obstacles to occupational mobility of labour.
Answer Are in short supply (B) (1) Availability of economic and social infrastructure.
(2) Immigration requirements and government policy.
2020/28 (3) Family and social ties.
Which of these would not increase the population of a (4) Conditions of service in one’s place of work.
country? (5) Need for special or natural skills, aptitude or ability
A. increase in death rate B. immigration 2006/5 Neco
C. increase in birth rate D. better medical facilities Discuss five economic consequences of under population.
Answer Answer
Increase in death rate (A) (1) The supply of labour will be relative low: The
available man power will be insufficient to manage
2020/29 effectively all the possible productive activities in the
The following factors can make labour more efficient country.
except (2) The size of the market will be relatively small: The
A. education B. incentives C. good working condition overall demand for goods and services will be
D. the level of output relatively low. This is due to low level of income per
Answer The level of output (D) capital and relatively fewer number of people in the
population.
2020/43 (3) The level of output will be low: This is due to the
In most developing countries, natural rate of population insufficient supply of labour, because of the relatively
increase is small size of the working population. Resources are
A. high B. low C. easy to ascertain D. very moderate not fully effectively utilized.
Answer High (A) (4) Deflation may occur: The low over all demand for
goods and services may lead to a continuous fall in the
2015/3 general price level. Less money may then purchase
(a) What is a trade union? more goods and services.
(b) Describe any four functions of trade unions. (5) Savings and investment will be low: Low level of
(c) Outline any two weapons used by trade unions to income brings about low production. People will have
achieve their objectives. less money to save. Capital formation and investment
Answer may both be low.
(a) A trade union is an organized body of employees set
up to negotiate with their employers for better working 2006/9 Neco
conditions for its members. (a) Explain the term trade union.
(b) Functions of trade union (b) Discuss briefly four problems facing trade union in
(1) To negotiate for improvements in the conditions of Nigeria.
service of their members. Answer
(2) They educate their members on civil and political (a) Trade union is an effectively organized body of
opportunities. persons or employees belonging to the same trade or
(3) They organize workers to participate actively in similar occupation which uses various instruments to
issues/matters that affect them. improve the working condition of the members.
(4) They offer social services to their members. (b) Problems facing trade union in Nigeria
(5) They organize workers into an effective functional (1) High rate of unemployment: Since many people are
group. unemployed, the trade union cannot exercise much
(c) Weapons used by trade union control over the labour force. The management of
(i) Collective bargaining employers may threaten employees with dismissal.
(ii) Work to rule. Since there are others who are idle and who will
(iii) Threat to strike. readily take their places.
(2) Political pressures from the government: There are
2000/5 times where the government passes law or decrees
(a) What is mobility of labour? banning strikes. This makes illegal strike actions by
(b) What factors serve as obstacles to occupational trade unions during the period of the ban. At times, a
mobility of labour? “wage freeze” may be imposed on the economy that is
legislation is made against a wage increase for a
certain period.

369
(3) Government inference in decision making: 2012/24 Nov
Sometimes, government may influence the The type of unemployment commonly found among school
appointment of trade union leaders or it may appoint leavers seeking jobs is
sole administrators to run trade unions. Such A. cyclical unemployment B. residual unemployment C.
government appointees may dance to the tune of seasonal unemployment D. frictional unemployment
government. Answer
(4) They face financial problems in executing their Frictional unemployment (D)
programmes in some cases. 2019/6 Neco Exercise 12.13
(i) What is a declining population?
2006/12 (ii) State and explain five consequences of a declining
(a) Mention two similarities and two differences between population.
wages and salaries. 20001/15 Neco
(b) Discuss three reasons why teachers can earn more than An ageing population is a population
gardeners. A. in which young people exceed old people
Answer B. in which the old people are working
(a) Similarities C. with many young people
(1) They are payment for labour. D. with a high dependency rate
(2) They are determined by the interaction of the forces of E. with increasing number of old people
demand and supply Answer
Differences With increasing number of old people (E)
(1) Wages refers to payment to labour on a daily or
2001/18 Neco Exercise 14.14
weekly basis while
The movement of people from villages to cities in search of
Salaries refer to the payment made to labour on a white collar jobs is known as
monthly basis. A. emigration B. immigration C. job search
(2) The reward for labour may be inform of commission D. rural – urban migration E. urban – rural migration
or proceeds from the sale of goods and services while
Salaries are paid on monthly basis. 2001/16 Neco
(b) Reasons why teachers can earn more than gardener One of the problems of conducting a census includes
(1) Length of training: A teacher requires a long length of A. high rate of rural – urban migration
training than a gardener. A teacher is a skilled job and it B. high birth rate C. increased number of old people
requires some years and higher wage. On the other hand, a D. poor geographical distribution of population
gardener does not require any special training that is why E. poor town planning in urban areas
his job earns a lower wage than a teacher. Answer
(2) Cost of training: The cost of training a teacher is far more Poor town planning in urban (E)
than that of a gardener.
(3) Degree of responsibility: A teacher bears a great amount of 2014/20 Neco Exercise 14.15
responsibility but a gardener bears a less responsibility. A The natural increase in population is defined as
gardener earns a lower wage than a teacher. A. birth + death rate B. birth rate – death rate
C. birth rate ÷ death rate D. birth rate × death rate
2019/23 Neco E. birth rate – death rate + immigration
If labour force in a country is 120 million and 55million 2014/42 Neco
are unemployed, what is the unemployment rate?
A. 40.5% B. 45.6% C. 45.8% D. 55.4%
E. 58.7%
Answer
55,000,000 100 550
× = = 45.8% (C)
120,000,000 1 12

2012/15 Nov
Which of the following does not affect the mobility of
labour?
A. population size B. marriage C. social unrest
D. trade union activities In the diagram above, a shift in SS t othe right while DD
Answer remains constant will result in a/an
Trade union activities (D) A. decrease in wage rate and labour force
B. decrease in wage rate
C. increase in both wages rate and labour force
D. increase in wage rate E. unchanged wage rate
Answer Decrease in wage rate (B)
370
1994/2 2019/2020/25 (UI, IBADAN)
Use the data in the table below to answer the question that A country is said to attain optimum population when
follow. A. resources are adequate to cater for the growing
No of persons in thousand population
Age group 1955 1960 B. output per head is at its highest point
0 – 16 150 143 C. total production increases with a given volume of
17 – 45 51 107 resources
46 – 60 29 33 D. national resources increase as population increases
Above 60 15 17 Answer
(a) What is the percentage increase in the working Output per head is at its highest point (B)
population between 1955 and 1960?
(b) Calculate the ratio of dependent population to the 2014/2015/85 (UI, IBADAN) Exercise 14.16
working population 1955. Population density refers to
(c) Calculate the ratio of dependent population to the A. densely populated urban centres
working population in 1960. B. the total area divided by the total population
(d) Has the dependency ratio increased or decreased C. densely populated rural areas
between 1955 and 1960? D. the total population divided by the total area
Answer E. all of the above
(a) Total working population in 1955 = 51 + 29 = 80
Total working population in 1960 = 107 + 33 = 140 2002/24 UTME
The difference in working population = 140 – 80 = 60 The equilibrium wage in an economy is determined by the
60 100 A. public service B. workers’ union C. rate of inflation
Percentage increase = × 1 = 75%
80 D. supply and demand for labour
(b) Dependent population in 1955 Answer
0 – 16 = 150 Supply and demand for labour (D)
15
Above 60 =
165
Working population in 1955 = 51 + 29 = 80 2002/26 UTME
165 33 Improved labour efficiency can be measured by
Ratio of dependent population = 80 =
16 A. an increase in output – input ratio
13:16 B. a decrease in output ratio
(c) Dependent population in 1960 C. the constancy of input – output ration
0 – 16 = 143 D. an increase in input – output ratio
17
Above 60 = Answer
160
Working population in 1960 = 107 + 33 = 140 An increase in output – input ratio (A)
160 8
Ratio of dependent population = = = 8:7 2003/19 UTME
140 7
(d) Dependency ratio decreased between 1955 and 1960 The best method of production in an under populated
country is
2014/2015/35 (UNIZIK, AWKA) A. labour –extensive B. land – intensive
The population level that yields the maximum output when C. capital – intensive D. labour intensive
combined with available resources is known as Answer
A. dependent population B. maximum population Capital intensive (C)
C. optimum population D. active population
E. productive population 2003/45 UTME
Answer Occupational mobility is applied to factors of production
Optimum population (C) means the ease by which
A. factors can be transferred from one place to another
2019/2020/8 (UI, IBADAN) B. factors can be transferred from one form of use to
The major characteristic of an underdeveloped nation is another
A. over dependence on foreign products C. resources can be transferred from one place to another
B. dominance of the industrial sector D. resources can be transformed from one form to another
C. high per capital income Answer
D. efficient and sensitive financial sector Factors can be transferred from one form of use to another (B)
Answer
Over – dependence on foreign products (A)

371
2003/46 UTME 2007/3 UTME
The labour force of a country can be determined by An upward review of the retirement age will affect
examining the A. wage rate B. tax rate C. supply of labour
A. sex distribution of the population D. demand for labour
B. occupational distribution of the population Answer
C. age structure of the population Demand for labour (D)
D. geographical distribution of the population
Answer 2007/5 UTME
Age structure of the population (C) The Malthusian theory of population has been rendered
ineffective by
2003/48 UTME A. natural disasters B. birth control measures
A country is said to be overpopulated when C. technical progress D. government policies
A. there are too many able – bodied men and women in the Answer
country Technical progress (C)
B. the resources are more than enough to cater for the
population 2007/8
C. the size of the population is greater than the annual The labour force of a country best describes
budget A. people within the working age
D. the resources are inadequate to cater for the population B. people within the retirement age
Answer C. the number of people in paid employment
The resources are inadequate to cater for the population (D) D. the number of people receiving pension
Answer
2004/14 UTME People within the working age (A)
The purpose of conducting a census is to enable a country to
A. plan her capital inflow and outflow 2007/9 UTME Exercise 14.17
B. determines the growth rate of population The movement of people from rural to urban areas affects the
C. determines the optimum level of population A. sex distribution of population
D. plan her growth and development B. geographical distribution of population
Answer C. age distribution of population
Plan her growth and development (D) D. occupational distribution of population

2004/16 UTME
Maximum wage legislation seeks to
A. fix wages above the equilibrium wage rate 2014/2015/86 (UI, IBADAN)
B. set wages below the equilibrium wage rate To calculate the annual natural growth rate of a country’s
C. deter employers from exploiting their employers population, one has to know the country’s annual birth rate
D. ensure an upper limit to the wages payable and
Answer A. the size of that country
Ensure an upper limit to the wages payable (D) B. the rate of immigration into that country
C. the population census of that country
2006/3 UTME D. the annual death rate
If children and the aged dominate the population of a E. the gross domestic product (GDP) of the country
country, this results in Answer
A. an increase in the national income The annual death rate (D)
B. a reduction in the importation of capital
C. an improvement in the standard of living
D. a fall in the standard of living 1978/45 UTME
Answer Which of these would NOT increase the population of a
A fall in the standard of living (D) country?
A. increase in death rate B. decrease in birth rate
2006/9 UTME C. emigration D. migration E. better medical facilities
Mobility of labour is higher when there Answer
A. are alternative jobs in the same location Increase in death rate
B. is a monopoly of jobs in one location
C. is intense competition for jobs in the same location
D. are not alternative jobs in the same location
Answer
Are alternative jobs in the same location (A)
372
1978/46 UTME 1980/9 UTME
The optimum population of a country is reached when Which is NOT a cause of high population growth in
A. all factors of production have been fully employed Nigeria?
B. the productive effort per man is at its highest with a A. family planning unit of Nigeria
given volume of resources B. improved medical facilities
C. the total population of a country increases C. reduction in death rate
D. the natural resources of a country increases D. improved hygiene E. increased birth rate
E. the working population of a country increases Answer
Answer Family planning unit of Nigeria (A)
The productive effort per man is at its highest with a given
volume of resources (B) 1980/30 UTME
Which of the following is the standard concept for
1979/1UTME measuring and analyzing population growth?
Which of the following is not true of the occupation A. the rate of natural increase B. the net migration rate
distribution of the labour force in West Africa? C. the rate of population increase D. the fertility rate
A. a large percentage of the labour force is engaged in agriculture E. all of the above
B. agriculture is the most important occupation in West Africa Answer
C. the manufacturing sector employs a large percentage of the All of the above (E)
population
D. agriculture does not constitute an important source of paid 1981/32 UTME Exercise 14.18.
employment Which is NOT an important factor responsible for high
E. the public sector forms an important source of paid concentration of population in some parts of Nigeria?
employment A. climatic influences
Answer B. development of trade and markets
The manufacturing sector employs a large percentage of C. soil fertility D. processing of petroleum oil
the population (C) E. concentration of education facilities
Answer
1979/2 UTME Processing of petroleum oil (D)
Which of the following is not true of the theory of
optimum population?
1981/45 UTME
A. it is possible for a densely populated country to be
One of the probable effects of an increased minimum wage
under – populated if it has insufficient labour to make the
in Nigeria is
most effective use of its other factors
A. to create voluntary unemployment
B. the quantity of labour, which combine with the other
B. to decrease the wage rate
factors gives the minimum output, is known as optimum
C. to increase the level of employment
population
D. to create involuntary unemployment
C. the quantity of labour which combined with the other
E. to increase the demand for labour
factors gives the maximum output is known as optimum
Answer
population
To create involuntary unemployment (D)
D. the test of over – population is whether, it exceeds the
optimum, it is possible for a thinly populated country to be
1982/3 UTME
over – populated if it has a poor supply of other factors
To calculate the annual growth rate of a country’s
Answer
population, one has to know the country’s annual birth rate
The quantity of labour, which combine with the other
and
factors gives the minimum output is known as optimum
A. the size of that country
population (B)
B. the rate of immigration into that country
C. the population census of that country
1979/19 UTME
D. the annual death rate
The country will be over population when
E. the gross domestic product (GDP) of that country
A. the birth rate is high
Answer
B. the death rate is low
The annual death rate (D)
C. the growth rate is high
D. the population is increasing more than the resources of
the country
E. unemployment is high in the country
Answer
The population is increasing more than the resources of the
country (D)
373
1982/4 UTME 1984/11 UTME
We can classify the people of Nigeria into three broad age An ageing population refers to the preponderance of
groups; Group one 0 – 15 years, Group two 16 – 64 years, A. middle – aged people in the population
group three, 65 years and above. Group two is the most B. young people in the population
important economically because C. women in the population
A. it is the dependent population of Nigeria, economically D. old men in the population
B. all students in Nigeria are in this group E. old people in the population
C. more than 50% of all Nigerians are in this group Answer
D. it is the most expensive group of the economy Old people in the population (E)
E. it is the productive group of the economy
Answer 1984/14 UTME
It is the productive group of the economy (E) The population level that yields the maximum output when
combining with available resources is known as
1982/20 UTME A. dependent population B. maximum population
Population growth can be calculated as C. active population D. productive population
A. birth rate + death rate +migration rate + immigration Answer
rate Optimum population (E)
B. birth rate – death rate + migration rate – immigration rate
C. birth rate + death rate– migration rate + immigration rate 1985/6 UTME
D. birth rate–death rate – emigration rate + immigration rate Optimum population is desirable because it enables an
E. birth rate – death rate economy to attain maximum
Answer A. per capital income B. per capital output
Birth rate–death rate – emigration rate + immigration rate (D) C. per capital real income D. per capital revenue
E. growth rate
1996/20 Answer Per capital income (A)
Wages are determined by the 1985/7 UTME
A. marginal utility of labour The age distribution of a population is NOT influenced by
B. marginal productivity of labour A. birth rate B. death rate C. patterns of immigration
C. average productivity of labour D. patterns of migration E. school leaving age
D. marginal property to consume Answer
E. quantity of the commodity that the wages can fetch School leaving age (E)
Answer Marginal productivity of labour (B)
1985/8 UTME Exercise 14.19
1983/5 UTME One theory of population contends that population tends to
The natural growth rate of a population is the increase much faster than the supply of food, and that if
A. sum of the birth rate and the death rate the growth in population is not checked, it will be checked
B. sum of the birth rate and the net migration rate by natural forces like misery, disaster and food shortages.
C. birth rate minus the death rate This theory was propounded by
D. birth rate divided by the net migration A. Prof. Paul Samuelson B. Adam Smith
E. death rate minus the net migration C. David Ricardo D. Rev. Thomas
Answer Birth rate minus the death rate (C) E. Prof. Ojetunji Aboyade
1985/26 UTME
1983/44 UTME Which of the following factors is most responsible for the
Age structure in Nigeria is such that the working age group concentration of population around the oil fields in Eastern
is in the years Nigeria?
A. 1 – 15 B. 15-65 C. 30-40 D. 40-65 A. establishment of industries
E. 65 and above B. presence of mineral deposits
Answer 15 – 65 (B) C. transportation facilities D. favorable soils
E. favourable climatic conditions
1984/5 UTME Answer Presence of mineral deposits (B)
In discussing the reasons why wages differ between
occupations, which of the following should be regarded as 1986/9 UTME
a cardinal point that needs to be emphasized? Mobility of labour is NOT affected by
A. length and cost of training B. demand and supply A. optimum population B. marriage and family
C. attractiveness of the job D. influence of trade unions C. regulation of trade unions D. period of training
E. government intervention Answer
Answer Demand and supply (B) Optimum population (A)

374
1986/10 UTME 1990/42 UTME
A country has a population distribution as shown below Which of the following is likely to hinder labour mobility
Age group in years Corresponding percentage in Nigeria?
Above 60 25 A. higher wages elsewhere B. cultural similarities
15 – 60 60 C. good accommodation elsewhere
0 – 14 15 D. ignorance of job opportunities elsewhere
The dependency ratio is Answer Ignorance of job opportunities elsewhere (D)
A. 3:2 B. 1:3 C. 2:3 D. 1:5
Answer 1990/43 UTME Exercise 14.20
Dependency ratio = dependent : independent If birth rate is constant and death rate declines, population
40 60 A. falls B. expands C. stabilizes D. oscillates
2 3
i.e 2:3 (C) 1991/43 UTME
The higher the dependency ratio the
1987/43 UTME A. larger the proportion of the employed relative to the
Which of the following best explains the structural unemployed
changes in the population of a country? B. smaller the proportion of the active labour force relative
A. positive changes in the size and ethnic composition of to the inactive
the population C. smaller the number of the non – working age groups
B. a decrease in the size of the population relative to the active labour force
C. an increase in the birth rate which is higher than the D. lower the birth rate
decrease in the death rate Answer Lower the birth rate (D)
D. changes in the age, sex and occupation composition of
the population 1991/44 UTME
Answer The age distribution of a country’s population is of
Changes in the age, sex and occupation composition of the economic importance because it affects the
population (D) A. pattern of expenditures B. size of the army
C. optimum size of firms D. location of industries
1987/48 UTME Answer Size of the army (B)
Frictional unemployment
A. is total unemployment minus structural unemployment 1992/5 UTME
B. occurs when the unemployed are persons with specific Age group (years) Distribution (%)
training Above 60 30
C. occurs when the number of job seekers exceeds the 15 – 60 45
number of vacancies 0 – 14 25
D. occurs when people are changing jobs The estimated dependency ratio of the population
Answer distribution shown here is
Occurs when people are changing jobs (D) A. 11:9 B. 9:11 C. 7:3 D. 3:7
Answer
1988/50 UTME Dependency ratio = dependent: independent
The group of unemployed members of a community, who 55 : 45
are physically handicapped or disabled, is generally 11 : 9
classified under unemployment as 11:9 (A)
A. frictional B. cyclical C. residual D. hidden
Answer 1992/6 UTME Exercise 14.21
Residual (C) Population (million) Food Production
(million tonnes)
1989/43 UTME 50 220
Optimum population is the population of which
70 210
A. death rate is at a minimum B. per capital income is at
a maximum C. population is at a maximum 90 225
D. death rate is equal to birth rate
Answer 100 275
Per capital income is at a maximum (B) In the data above, what is the optimum population in
million?
A. 50 B. 70 C. 90 D. 100

375
1992/7 UTME 1993/9 UTME
The major objective of the current campaign for family If 502.75 million tonnes of grains are consumed annually
planning in Nigeria is to by a population of 88.5 million people, the per capital
A. reduce the death rate grains consumption will be
B. limit the number of women a man can marry A. 6.00 tonnes B. 5.68tonnes C. 0.60 tonnes
C. keep the population growth rate constant D. 0.57 tonnes
D. raise the standard of living of the population Answer
Answer Total output
Per capital output = Total population
Raise the standard of living of the population (D)
502.75
Per capital output = 88.5
1992/8 UTME
The migration of young people from rural to urban areas in = 5.68 (B)
Nigeria should help to raise the
A. standard of living in the urban areas 1994/8 UTME Exercise 14.22
B. total productivity of labour in the rural areas Every economy requires an accurate census because it
C. marginal productivity of labour in the rural areas assists in
D. marginal productivity of labour in the urban areas A. solving inflation problem
Answer B. providing a sound frame work for policy formulation
Marginal productivity of labour in the urban areas (D) C. stimulating economic activities in the national economy
D. solving unemployment problem
1993/6 UTME
The working population refers to
A. a population where the average age is falling 1994/9 UTME
B. the population within the 0-14 age bracket The population of country X in 1990 was 35 million, the
C. the economically active segment of the population births were 450,000 while it recorded 210,000 deaths. If in
D. the dependent population the same year, its immigrants were 20,000 and 10,000 of
Answer its citizens left the country. Calculate the total population
The economically active segment of the population (C) of the country at the end of 1990
A. 24,250,000 B. 25,350,000 C. 34,750,000
1993/7 UTME D. 35,250,000
Which of the following is NOT responsible for the Answer
rural/urban drift in Nigeria? B–D–I–E
A. the infrastructural facilities in cities = 450,000 – 210,000 + 20,000 – 10,000 = 250,000
B. declining fertility of rural farm lands 35,000,000 + 250,000 = 35,250,000 (D)
C. rural electrification programme
D. higher living standards in urban areas 1994/10 UTME
Answer If the actual population in a country is less than the
Rural electrification programme (C) optimum population, then
A. it is desirable to have a larger population
1993/8 UTME B. it is necessary to have an improved technology to
An accurate census is important to a country because it helps sustain the population
A. in solving unemployment problem C. it is desirable to have a smaller population
B. to ensure equitable population redistribution relative to D. the available resources are inadequate to sustain the
natural resources population
C. in deciding on the creation of more local governments Answer
D. in providing a sound basis for formulating development It is desirable to have a larger population (A)
policy
Answer 1994/11 UTME
In providing a sound basis for formulating development Unemployment can be reduced by
policy (D) A. restricting the productive base of the economy
B. adopting capital intensive techniques of production
C. adopting labour intensive techniques of production
D. adopting a mixture of labour and capital intensive
techniques of production
Answer
Adopting labour intensive techniques of production (C)

376
1994/18 UTME 1997/6 UTME
An increase in the supply of labour in a factory while other When a country’s population is experiencing increasing
things remain equal will lead to return, that country is said to be
A. an increase in the wage rate and an increase in the A. over populate B. economically poor
number of people employed C. over producing goods and services
B. a decrease in the wage rate and a decrease in D. under populated
employment Answer
C. an increase in the wage rate and decrease in Underpopulated (D)
employment
D. a decrease in the wage rate and an increase in 1997/7 UTME
employment In a country, if the proportion of people who are below 15
Answer years is 45% and those above 60 years is 30%, this
A decrease in the wage rate and an increase in employment (D) implies that the
A. dependency ratio is high B. population is optimum
1994/43 UTME C. active population is large
If national income rises by 6% and population rises by 3% D. population is growing according to Malthus theory
per capital income will Answer
A. rises by 6 percent B. fall by 3 percent Dependency ratio is high (A)
C. fall by 6 percent D. rise by 3 percent
1997/8 UTME
Answer Rise by 3 percent (D)
One of the objectives of Nigeria’s current population
policy is to
1995/6 UTME A. reduce the birth rate B. reduce the emigration rate
The problem of conducting census include
C. increasing the birth rate D. enhance longevity
A. high rate of rural – urban migration
Answer
B. poor geographical distribution of population
Reduce the birth rate (A)
C. high birth rate in the country
D. poor town planning in urban 1997/28 UTME
Answer Poor town planning in urban areas (D) One of the dangers of the localization of industries is
A. residual unemployment B. mass unemployment
1995/7 UTME C. structural unemployment D. cyclical unemployment
An ageing population is a population Answer
A. with a high dependency ratio Structural unemployment (C)
B. with many young people
C. in which the number of old persons is increasing 1998/5 UTME
D. that is dominated by very old people Given that B = Births, D = Deaths, X = Emigrants, M =
Answer Immigrants. The population of a country over a period of
In which the number of old persons is increasing (C) time will rise if A
A. B = D and X > M B. B – D = O and M > X
1995/8 UTME Exercise 14.23 C. D – B = O and M = X D. X – M and D > B
The population of Ohala L.G.A was 480,000 in December, Answer
1980, out of which 60% were females if within one year B – D = O and M > X (B)
no births were recorded, but 5% of the male died, what 1998/6 and 7 UTME
will be the population of the L.G.A in December, 1981? Use the table below to answer question 6 and 7 population
A. 96,000 B. 192,000 C. 288,000 D. 470,000 Age range in years % of population
1960 1990
1997/5 UTME
60 and above 35 38
Given that at the beginning of 1973, Nigeria with a birth
18 – 59 40 42
rate of 3% per annum had a population of 75million. This
1 – 17 25 20
implies that in that year
A. the population increased by 2.25million
B. there were 2.25 million 1998/6
C. the government have to make provision for 2.25milion The dependency ratio between 1960 and 1990 is
children A. increased by 5% B. increased by 2%
D. 2.25million children were born C. decrease by 2% D. decrease by 5%
3 Answer
Answer × 75 = 2.25 1960 = 35 + 25 = 60, 1990 = 38 + 20 = 58
100
60 : 58
The population increased by 2.25 million (A) Decrease by 2% (C)
377
1998/7 UTME 2008/44 UTME
In 1990, the difference between the dependent population
and the active population ratio
A. 22% B. 20% C. 16% D. 4%
Answer
Dependent 38 + 20 = 58
Active population = 42
58 – 42 = 16
16% (C)

2000/30 UTME From the shaded area of the diagram above, an appropriate
The age distribution of a country’s population determines population policy will be to
the A. encourage early marriages B. discourage immigration
A. male – female ratio B. total age of all working class C. discourage polygamy D. encourage the use of
adults C. ratio of the dependent to the working group contraceptives
D. percentage of married women Answer Encourage early marriages (A)
Answer
Ratio of the dependent to the working group (C) 2008/45 UTME
The population of a country will decrease if
2000/41 UTME A. the death rate exceeds the birth rate
In the diagram below, if W1W2W3 and W4 are different B. immigration is equal to migration
wage rates, the minimum wage rate is C. the birth exceeds the birth rate
A. W1 B. W2 C. W3 D. W4 D. there is rapid economic growth
Answer
The death rate exceeds the birth rate (A)

2008/49 UTME Exercise 14.24

If the active population is 50 million and unemployed is 5
million, what is the unemployment rate?
A. 10% B. 45% C. 55% D. 90%

2009/47 UTME
High dependency ratio is influenced by
A. high infant mortality rate B. the level of income
C. high birth rate D. inadequate medical care for children
Answer Inadequate medical care for children (D)
Answer W2 (B)
2009/48 UTME
2001/41 UTME
Occupational distribution of population determines the
The reduction of high fertility rate is a measure in
A. size of population available and willing to work
population control designed to make the
B. population density of a place
A. female population higher than the male
C. dependency ratio of a country
B. female and male population equal
D. size and categories of the labour force
C. male population higher than the female
Answer
D. growth in population more sustainable
Size and categories of the labour force (D)
Answer Female population higher than the male (A)
2009/50 UTME
2001/46 UTME When workers have a union, the supply of labour is said to be
If the labour force in a given community is 2,000,000, A. monopolisitc B. oligopolistic C. monopsolitic
those in the wage employment are 200,000 and the D. competitive
unemployed are 80,000, what is the unemployment rate in Answer
the community? monopolistic (A)
A. 0.04% B. 40.0% C. 10.0% D. 4.0% Hint: When workers have a union, the supply of labour is
Answer said to be monopolistic. By forming the union, the rights
𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑝𝑒𝑜𝑝𝑙𝑒
Unemployment rate = × 100 and interest of workers under the union are protected, and
𝐿𝑎𝑏𝑜𝑢𝑟 𝑓𝑜𝑟𝑐𝑒
they would normally use it t influence and control the
80,000
=
2,000,000
× 100 = 4.0% (D) supply of labour.

378
2010/50UTME 2012/46 UTME
The amount of labour depends on the In a village of 50 persons, 10 immigrated, 25 died and 5
A. number of skilled labour available emigrated in a year. Determine the total population
B. marginal productivity of labour A. 10 B. 20 C. 30 D. 50
C. skill of labour D. price of other inputs Answer
Answer marginal productivity of labour (C) r = rate of growth of population
r = birth rate – death rate + immigration – emigration
2010/44 and 45 UTME r = 50 – 25 + 10 – 5
Use the table below to answer questions 44 and 45 r = 30 (C)
Year Population (000) Working population (000)
2000 25 14 2012/50 UTME
2001 30 19
2002 40 32
2003 60 49

2010/44 UTME
What is the population growth rate in 2003?
A. 33.3% B. 20.0% C. 11.0% D. 50.0%
Answer
60 – 49 = 11% (C)
2010/45UTME
The percentage of working population in 2002 is From the diagram, the minimum wage OW will lead to
A. 50% B. 25% C. 8% D. 80% A. full employment of resources B. unemployment
Answer C. inflation D. full employment of factors of production
32 100 Answer: Full employment of factors of production (D)
× 1 = 80% (D)
40
2013/43 UTME
The quality of labour force in Nigeria can be improved by
2011/46 UTME A. establishing more tertiary institutions
Optimum population enables an economy to attain the B. creating sufficient job opportunities
highest level of C. encouraging the study of science and technology
A. industrial development B. income per head D. establishing more skills acquisition centres
C. revenue generation D. economic development Answer
Answer Income per head (B) Establishing more skills acquisition centres (D)
2013/44 UTME
2011/47
The effect of emigration on a country’s population is
A change from one industry to another by a worker is an
A. decrease in the population
example of B. decrease in job opportunities
A. geographical mobility B. horizontal mobility C. increase in population
C. professional advancement D. vertical mobility D. increase in dependency ratio
Answer Vertical mobility (D) Answer
Decrease in the population (A)
2011/48 UTME
The money paid per hour for work done is 2014/44 UTME
A. salary B. wage rate C. cost D. bonus An accurate census figure is an important tool for planners in
Answer A. providing employment B. siting industries
Wage rate (B) C. providing social amenities
D. allocation of resources
Answer
2012/45UTME
Providing social amenities (C)
The Malthusian theory was concerned about the
relationship between 2014/45 UTME
A. population growth rates of the rich and the poor nations An accurate population census is important in order to
B. population density and national income A. produce more food for the growing population
C. population growth rate and natural resources B. provide employment opportunities for the people
D. age distribution of population C. estimate a country’s per capital income
Answer D. fast tract industrial development
Population density and national income (B) Answer
Fast track industrial development (D)

379
2015/6 UTME 2018/6 UTME
One of the major problems of census in Nigeria is The establishment of industries in rural areas will help to
A. inadequate skilled personnel B. high dependency ratio reduce
C. distribution of census figures A. urban – rural migration B. rural – urban migration
D. high cost of conducting census C. rural-rural migration D. urban – urban migration
Answer Answer
Inadequate skilled personnel (A) Rural – urban migration (B)
2015/21UTME 2018/8 UTME
Geographical distribution of a population is affected by The number of people who are qualified to work and who
A. low birth rate B. the availability of skilled manpower offer themselves for employment is called
C. the availability of agricultural land A. migrant labour B. working population
D. high birth ratenomic rent C. labour turn over D. mobility of labour
Answer The availability of agricultural land (C) Answer
Working population (B)
2016/4 UTME
According to the demographic transition theory, Africa can 2018/21 UTME Exercise 14.26
be said to be at stage The population density of a town made up of 50 square
A. 2 and 3 B. 3 only C. 2 only D. 1 and 3 kilometer land area and 100 million people is
Answer 2 only (C) A. 50,000 people per square kilometer
B. 0.2 million people per square kilometer
2016/49 C. 0.5million per square kilometer
A country where the available population is unable to D. 20 million people per square kilometer
guarantee efficient utilization of available resources is
experiencing
A. under population B. over population
2023/1 Neco
C. high population density D. optimum population
Answer Under population (A)
The table below shows a hypothetical four years growth in
population of a particular town.
2017/8 UTME Year Population (in Working
The natural growth of population is calculated as thousands) Population (in
A. birth rate + death rate B. labour force + dependent thousands)
C. death rate – birth rate D. birth rate – death rate 1999 105 45
Answer 2000 85 25
Birth rate – death rate (D) 2001 65 35
2002 70 48
2017/9 UTME 14.25
The study of age structure of a population is important a. Determine the population growth rate in 2000, 2001
because and 2002.
A. determines the exchange rate b. Calculate the percentage of working population in 1999
B. provide the government with statistics on the prevailing
and 2000.
interest rate
c. State and explain two advantages of working
C. reveals the cost of living
population.
D. provides the government with statistics on present size of
the labour force

2017/37 UTME
A well conducted census is important for
A. economic planning B. providing economic opportunities
in the rural areas
C. distribution of educational materials in the cities
D. revenue generation
Answer
Economic planning (A)

2018/1 UTME
Occupational distribution of population is mainly influenced by
A. economic factors B. religious factors
C. geographical factors D. social factors
Answer
Economic factors (A)

380
 2000/19 Neco Exercise 15.1
Agriculture is considered the main stay of West Africa economy
AGRICULTURE because
Agriculture can be defined as the production of crops and A. it accounts for 90% of foreign exchange earnings in Nigeria
rearing of animals for man’s use. It involves the B. it has encouraged operation ‘Feed the Nation’
C. it provides employment for over 65% of the labour force in
production of food, feed, fibre and other goods by the
West Africa
systematic raising of plants and animals. D. it supplies food items for subsistence only
The practice of Agriculture is as old as human race. E. large plantations of oil palm, cocoa, rubber and groundnuts
Agriculture contributes immensely to the wellbeing of exist in West Africa
people. It represents a vital sector of the economy which
has become highly indispensable. Today, most West 2014/2015/74 (UI, IBADAN) Exercise 15.2
African countries except Nigeria which depends largely on Which of the following sectors of the economy is
crude oil will be nowhere if the contribution of agriculture estimated the largest employer of labour in the country?
is taken away from their employment levels, their quest for A. construction B. agriculture C. distribution
food and shelter, exports and national inputs. D. mining and petroleum E. transport and communication

2021/27 Neco 2007/24 Neco Exercise 15.3

Which of the following sector is the largest employer of Which of the following is not a contribution of agriculture
labour in Nigeria? to industrial development?
A. Agriculture B. Banking C. Education D. Mining A. provision of food for the industrial sector
Answer B. provision of funds for industrial development
Agriculture (A) C. provision of raw materials
D. supply of labour to the industrial sector
2001/22 Neco E. supply of machinery the industrial sector
Which statements about agriculture in Nigeria are true?
I. It provides food for the teeming population.
II. Over 75% of the population is engaged in agriculture. COMPONENTS OF AGRICULTURE
III. Agriculture products serve as raw materials to local (1) Crop production/crop farming: It involves the
industries. growing of both cash crops and food crops. Cash
IV. It serves as a source of heavy equipment to local crops in West Africa include cocoa, palm oil, palm
industries. kernel, soya beans, groundnuts, cotton, rubber, raw
A. I and II only B. I, II and III only tobacco, ginger, coffee and kolanuts. Food crops
C. I, III and IV only D. II and III only produced in West Africa include rice, cassava, millet,
E. I and IV only beans, guinea corn, plantain, yams, maize, cocoyam,
Answer sorghum, fruits and vegetables. These crops are either
I, II and III only (B) for sale or domestic consumption.

2014/27 Neco (2) Livestock farming: This involves the rearing of

Agricultural activities boost industrial development animals and processing of animal products for human
through the following ways, except consumption. Animal products includes cattle,
A. creating market for industrial products poultry, sheep, goats, pigs, horses e.t.c. Animal
B. ensuring adequate raw materials for industries products form an important source of protein.
C. ensuring availability of labour (3) Forestry: Forestry deals with the growing of trees for
D. facilitating importation of goods timber and the tapping of forest resources. Forest can
E. yielding revenue to both government and private be natural and artificial. Natural forest are those that
individuals grows naturally while artificial forest are those that
Answer are grown by man to supply products.
Facilitating importation of goods (D)
(4) Fishery:This is a branch of agriculture, which deals
with production and management of fish and other
2007/23 Neco
Agricultural production in Nigeria could be improved aquatic animals. They can be for sale and for family
through consumption.
A. control of plant diseases B. land fragmentation
C. payment of excise duty 2000/20 Neco
D. the introduction of low yielding crops Which of the following is not a component of agriculture?
E. the use of traditional implements A. crop production B. Fishery C. forestry
D. livestock production E. mining
Answer
Control of plant diseases (A) Answer Mining (E)
381
SYSTEM OF AGRICULTURE IN WEST AFRICA Characteristics
(1) Peasant or subsistence agriculture 1. It requires a large amount of capital for purchase of
Peasant agriculture is mainly for self-subsistence. It machines, large farmland etc.
involves the use of small farm holdings to meet the food 2. It is owned by fairly rich individuals, a group of
requirements of the family and the surplus is sent to the people, organisation, e.g. firm.
local market for sale. The labour is mainly supplied by the 3. They use various modern farming machines like
farmer and his family in peasant agriculture, the farmer plough, tractors, cultivators, harvesters, etc.
make use of simple implements such as how, cutlass, et.c. 4. They mainly cultivate cash crops e.g. cocoa, rubber,
The system is mixed cropping is also used (where two or sugarcane, palm trees etc.
more crops are planted together on the same plot of land). 5. The output is entirely meant for sale. They are
processed into raw materials for both local industries’
Characteristics use and for export.
1. It requires little or no capital. 6. The output of yield is usually very large.
2. It is owned by very poor people, hence it is referred to
as ‘peasant farming’. Advantages
3. Primitive tools like cutlass, hoe, axe, etc. 1. It raises level of export.
4. They mainly cultivate food crops e.g. cassava, yam, 2. Government earns a lot of foreign exchange from their
bean, plantain, tomatoes, onion, pepper, etc. export.
5. They are meant for family’s use. However, a little 3. It makes much revenue to be available to the
quantity may be sold if output is large. government through export tax, profit tax and income
6. The yield is usually very small. tax.
4. Some plantations, e.g. rubber plantation, employ many
Advantages people.
1. It leads to increase in agricultural output. 5. It makes raw materials to be available for our local
2. It absorbs about 50% of our labor force; i.e. very many industries’ use.
people, especially women are involved in peasant 6. Their output eliminates or reduces volume of import of
farming. Thus, it reduces level of unemployment. foreign raw materials.
3. It checks rural – urban migration. 7. They enable workers to acquire agricultural skills.
4. It makes abundant food items to be available in our 8. They create effective demand for agro-based
local markets. industry’s products, e.g. chemical fertilizers,
5. It reduces import of foodstuffs. insecticides, etc.
6. It conserves our foreign exchange reserve due to
reduction in importation of foodstuffs. Disadvantages
1. It raises level of import as most of the machines are
Disadvantages imported.
1. The owners are underemployed. 2. The import of agricultural machines and inputs
2. It discourages the youths, especially females, from reduces our foreign exchange reserve.
skill acquisition or pursuit of education or career. 3. It may cause balance of payments problem if the value
3. It lowers their level of enlightenment; it makes them to of the import is quite high.
be dirty and timid.
(3) Mechanization
(2) Plantation agriculture Mechanised agriculture involves the use of modern
This is capital – intensive system of faming, capital in machinery and equipment, such machineries include
terms of machines, tools, improved seedlings and artificial tractors for clearing, ploughs, ridges e.t.c. Mechanized
plant nutrients. Highly developed plantations have many farming is used on large scale farms. Such large scale
facilities such as staff quarters, offices, laboratories, a farms may produce food crops or cash crops.
good road network, water supply, electricity, and so on.
Highly developed plantations in West Africa were mostly Characteristics
owned by foreigners who could raise the required capital. 1. It requires a huge amount of capital for purchase of
Some plantations are owned by corporations such as the machines, farmland, etc.
Agricultural Development Authorities and the Nigerian 2. It is mostly owned by rich individuals and
Institute for Oil Palm Research: plantation agriculture is organisations e.g. firms, governments, etc.
more common in the forest regions, and it is mostly 3. They use modern machinery and equipment mentioned
associated with tree crops, such as cocoa, rubber, coffee, above.
oil palm, e.t.c. 4. They cultivate cash crops like rubber, cocoa,
groundnut, sugar cane, etc.
5. Output is meant for export and local industries’ use.
6. The output of yield is usually very large.
382
Advantages Disadvantages
1. It facilitates agricultural production. 1. It raises level of import of capital goods – machines
2. It raises level of export. which reduces our foreign exchange reserve.
3. It brings in a lot of foreign exchange which quickens 2. Those that employ foreigners reduce our foreign
the rate of economic development. exchange reserve as foreigners repatriate their
4. It makes revenue available to the government through earnings.
taxation. 3. It requires a lot of capital which individuals cannot
5. A part of their output is processed for local industries’ afford.
use; this reduces volume of import of raw materials. 4. The long period of maturity of some crops, like 10 –
6. It releases labour to other economic sectors; i.e. it 15 years, before harvesting discourages many people
makes labour to be available in other economic from being involved.
sectors.
7. It encourages the use of agricultural machines and (5) State farms/farm settlements
These farms are owned by local governments or state
modern farming inputs e.g. fertilizers and improved
governments. Young school leavers or farmers are allotted
seedlings.
farmlands and given necessary farm input such as seeds or
8. It leads to a large output.
seedlings, fertilizers, machinery e.t.c. They are usually
operated on a large scale and modern techniques of
Disadvantages
farming are employed.
1. It raises level of import of capital goods – machines
which reduces our foreign exchange reserve.
2. Those that employ foreigners reduce our foreign Characteristics
1. It requires a huge amount of capital
exchange reserve as foreigners repatriate their
2. It is a public corporations; i.e. government ownership.
earnings.
3. They use modern agricultural machines.
3. It requires a lot of capital which individuals cannot
4. Majority of them cultivate cash crops, like rubber,
afford.
palm trees, cocoa. While a few plant food crops e.g.
4. It requires high technical know-how (skills) which
rice, beans, etc.
poor people cannot attain.
5. Some practice mixed farming; while many cultivate
(4) Commercial farming: only one crop, like rubber, cocoa, etc.
This involves the production of crops mainly for sale. 6. The entire output is meant for sale both in local and
Farming may be carried out on a large scale using modern foreign markets.
techniques or on a relatively small scale using traditional 7. It is usually very large hundreds of tones or bags.
techniques.

Characteristics Advantages
It has the same characteristics as those with mechanized 1. It is involved in large scale farming; therefore, it reaps
system of farming. benefits of large – scale production.
2. It employs thousands of labour, and it thereby reduces
Advantages level of unemployment.
1. It makes a large amount of agricultural output to be 3. It makes a large quantity of food items and produce to
available for both domestic use and export. be available for domestic use and export.
2. It makes raw materials to be available for our local 4. It makes abundant raw materials to be available for
industry’s use. local industries.
3. It employs a large number of people. 5. It makes a lot of revenue and foreign exchange
4. It raises the level of export. available to the government.
5. It brings in a lot of foreign exchange. 6. It fosters economic growth and development as the
6. It reduces level of import of food items and raw firms and their workers create demand for goods and
materials. And it thereby conserves our foreign services of many industries.
exchange reserves.
7. It reduces the rate of rural-urban migration as they are
mostly localized in rural areas.
8. It makes revenue available to the government through Disadvantages
payment of taxes by firms and individuals involved. 1. Being a public corporation, it often incurs losses which
9. It raises standard of living of the firm’s employees. are borne by tax payers.
2. It uses a lot foreign capital goods, e.g. machines and
vehicles. Their import reduces our foreign exchange
reserve.

383
(6) Co-operative farming 2008/15 Neco Exercise 15.5
Co–operative farming is where a number of individual or Subsistence farming means producing food
farmers pool their resources (land, money material e.t.c.) A. crops for export B. crops mainly for sales
in order to derive the economies of large scale production. C. crops for import D. in order to satisfy the government
A situation where farmers come together, they are in a E. mainly for the needs of the immediate family
position to raise more capital to acquire the required farm
inputs. Co – operative farmers could specialized in the 2007/16 Neco Exercise 15.6
production of one or more crops. Plantation farming can best be defined as cultivation of
A. crops using holes and cutlass for farming
Characteristics B. food crops for personal consumption
1. The capital requirement is fairly large. C. food for use by the family
2. It is collectively owned by a group of farmers. D. large scale farms of cash crops
3. They adopt labour intensive technique. E. livestock for commercial purposes
4. They use modern implements, like tractors, plough,
harvesters, etc.
5. They cultivate cash crops, like cocoa, cotton, rubber, IMPORTANCE AND CONTRIBUTION OF
groundnut, etc. AGRICULTURE TO WEST AFRICAN COUNTRIES
6. They cultivate only one cash crop. (1) Provision of food: Agriculture provides food for the
7. The output is meant for sale. population of West African countries. It supplies food
8. The yield is usually large. to people in different sector of the economy. Food
stuffs supplied by agriculture include yams, beans,
Advantages rice, plantain e.t.c.
They are similar to those of farm settlement. (2) Creation of Job Opportunities: Agriculture is the
largest employer of labour in West Africa. Many
Disadvantages people depend on agriculture for their livelihood.
1. Mismanagement adversely affects their performance. More than 65% of the economic active population is
This makes them to sustain losses. engaged in various agricultural activities.
2. Inadequate capital slows down their growth.
3. Mistrust of members adversely affects performance. (3) A source of government revenue: Agriculture yields
revenue for the government of West African
2006/16 Neco countries. Many West African governments earn
The system of agriculture which involves the growing of substantial amount of income from duties on
food crops for family consumption is known as ____ agricultural imports and exports and also some
farming income is derived from taxes levied on farmers.
A. cooperative B. commercial C. mechanized
D. peasant E. plantation (4) Source of Exchange Earnings: Many West African
Answer: Peasant farming (D) countries depend largely on agricultural exports
products for their foreign exchange earnings. Foreign
1990/1 exchange earned from the export of agricultural
In subsistence agriculture products is used to pay for imports. Capital goods and
A. production is basically for consumption skills are imported which help in economic
B. several export crops are grown development.
C. farmers make use of fertilizers
D. government supplies the farm input (5) Source of income to farmers: Many farmers depend
E. mechanized agriculture is practiced on farming as a source of income for meeting their
Answer Production is basically for consumption (A) family needs.
2002/19 Neco (6) A source of labour for industry: With the increasing
Which system of farming is likely to leave the farmer in mechanization of agriculture and industrialization,
perpetual poverty? labour is released from the agricultural sector to work
A. commercial B. cooperative C. mechanized in the growing number of industries.
D. plantation E. subsistence (7) The provision of raw materials for industry:
Answer: Subsistence (E) Agriculture supplies many of the raw materials required
2013/17 Neco Exercise 15.4 by the domestic industries in West Africa. This has not
A civil servant who cultivates a small vegetable garden for only alleviated the problem of high rate of dependence
personal consumption engages in _____ agriculture on foreign raw materials but has also helped in ensuring
relatively steady supply for local use.
A. communal B. pastoral C. mechanized
D. plantation E. subsistence

384
(8) A market for manufactured goods: Agriculture 5. Poor implementation of government agricultural
provides the necessary market for many industrial policies: Government had formulated various
goods. Products of manufacturing industries are agricultural policies and launched several agricultural
utilized by the agricultural sector. These encourages programmes to promote agriculture. Unfortunately,
agricultural productivity and help in the expansion of they are not properly implemented to achieve
industries that produces such agricultural input. government objectives. This has greatly contributed to
(9) Stimulus to industrialisation: Agriculture has helped low agricultural output.
in activating industralisation. Modernising and 6. Poor transport and communication system: They
mechanising agriculture helps to free labour for discourage many people especially the educated
industrial development. Also, when farmers enjoy people from being properly involved in agricultural
patronage, their purchasing power is increased with a activities. This has hindered agricultural production.
resultant improvement in rural welfare and 7. Inadequate research institutes: Research centres in
stimulation of industrial development. Nigeria are not sufficient to resolve agricultural
(10) Contribution to National Output: The consideration problems. Secondly, they mainly concentrate on only
of the national output of a country cannot be one aspect of agricultural like farming, while other
dissected from the issue of people’s well being. With aspects are neglected. Thirdly, research findings are
the exception of Nigeria which derives 80% of the not properly implemented. They are not made known
national income from crude oil, most West African to farmers. These adversely affect agricultural
countries have agriculture contributing substantially production.
to the national output. 8. Inadequate extension officers: We do not have
sufficient number of extension officers to train farmers
PROBLEMS OF AGRICULTURE IN NIGERIA
and other agricultural workers and implement
1. Inadequate farmlands: Small parcels of land are
agricultural policies and programmes. This adversely
owned by individuals or communities who are quite
affects agricultural production.
unwilling to dispose of them to enthusiastic
9. Resistance to agricultural innovation: Peasant
agricultural workers or resourceful farmers who can
farmers are generally unexposed to formal education.
adopt the modern methods of mechanised system of
The illiterate farmers hold on to some traditional
farming to increase agricultural output. The land –
beliefs and ideas, which make them view modern
tenure system has greatly hindered agricultural
agricultural practices with suspicion. For this reason,
activity.
they resist change and frustrate attempts to make them
2. Use of traditional agricultural implements: As
adopt modern farming techniques for improved
observed earlier, most of the farming done in West
productivity.
African countries is peasant, subsistence farming.
10. Inefficient farming systems: Another good
Peasants in the rural areas who dominate West African
explanation for the low productivity of agriculture in
farming make use of primitive implement such as
West Africa is the system of farming employed by
hoes, cutlasses and axes. The use of these traditional
peasant farmers. The most common system of farming
farming tools is very energy – sapping. As a result,
is shifting cultivation; a system in which a piece of
farmers get tired quickly and their efficiency is
land is farmed for one or two years and then
affected, resulting in low output per head.
abandoned to life fallow, in order to recover by natural
3. Unfriendly climatic conditions: Another serious
means all the fertility lost. In the meantime, the farmer
constraint facing agriculture in West Africa is the
shifts his operations to another piece of land. This
uncharitable climatic condition prevailing here. In
system of farming leaves much of the available
Nigeria, for example, daily temperatures in the far
employed land under – utilized, resulting in low
northern towns like Monguno and Kukawa, which
productivity.
border the desert, are always at extremes, i.e. either too
11. Inadequate marketing facilities: Agricultural
hot or too cold. Farmers are human beings and this
products, especially food crops, suffers lack of
kind of situation tends to keep them away from work
adequate marketing facilities. To begin with, these
for many hours a day. In addition, these Sahelian areas
crops are produced in the rural areas. Their evacuation
experience scanty, irregular rainfall and violent winds
to the urban centres where a large demand exists is
from the desert, while irrigation facilities lie beyond
often hampered by the dearth of good access roads.
the reach of the peasant farmers.
This results in a surplus in the rural areas and very low
4. Lack of credit facilities: With the spread of
prices overall. Thus, the farmers are discouraged from
educational facilities, many farmers are becoming
seeking to increase their productivity. Related to this is
enlightened. Some now seek to improve their farming
the almost total lack of storage facilities, which means
by taking loans from credit institutions. Unfortunately,
that purpose cannot be kept until a market is found for
these credit facilities are still not easily available,
them.
because of the insistence of the lenders on collateral
which farmers are often unable to provide.
385
12. Absence of storage facilities: Almost all West 3. Educating farmers to eliminate illiteracy: Special
African countries neither have adequate storage education centres should be set up to train people to
facilities for agricultural products like fresh fish, meat, acquire basic technique of agricultural production in
fruits, ingredients, vegetable, etc, in the rural areas nor various aspects of agriculture e.g. farming, fishing,
in the urban centres. And the supply of foodstuffs to livestock, etc. This will enable them to increase their
the market cannot be regulated; thus their prices output.
fluctuate widely. This reduces agricultural workers’ 4. Provision of capital and credit facility: The
income. And it does not encourage people to fully governments should direct central, agricultural and all
participate in agriculture. other banks in West Africa to grant loans to
13. Lack of irrigation activity: The dried farmlands are agricultural workers on liberal terms. Also cooperative
not properly irrigated. This reduces crops’ yield. credit facilities to extend credit to agricultural workers.
14. Lack of government participation: Many These enable them to acquire large fertile land,
governments in West Africa do not take keen interest modern farm implements and inputs and hire labour to
in agriculture. Almost all agricultural activities are left work on enlarged farmlands. This will undoubtedly
on the shoulders of individuals especially peasant lead to increase in agricultural output.
farmers or rural dwellers. The three tiers of 5. Improved transport and communication system:
government are not very much involved in agriculture. The transport and communication system should be
This adversely affects agricultural activities. properly modernized. This will encourage many
15. Rural – urban migration: The energetic young men people, especially the educated people to develop keen
and women constant move to urban centres in search interest in agriculture.
of gainful employment. Thus agricultural activities are 6. Discouraging rural – urban migration: The youths
left on the shoulders of old feeble men and women should be encouraged to fully participate in
who cannot cultivate large farmlands. This makes agricultural activities in rural areas. This can be
agricultural output to fall. achieved through provision of loans to them,
16. Effects of pest and disease: Many crops are attacked modernizing the rural areas with social amenities, etc.
by pests and crops’ disease. They lower their rate of 7. Provision of agricultural equipment and inputs:
growth and reduce their yield. Government should set up firms to produce cheap
17. Natural disasters: Natural disasters also add to the agricultural implements like plough, ridges, fish nets
problem of low agricultural productivity in West etc and inputs like chemical fertilizers, improved
Africa. Long periods of droughts result in the loss of seedlings, bird (fowl), fish and animal feeds and
large numbers of livestock and crops. On the other species of plants, birds and animals. They should be
hand, heavy flooding and erosion often render whole made available to agricultural workers at subsidized
farming efforts fruitless. Sometimes, farmers and their prices. These efforts will raise crop yield and quantity
families are forced to vacate their homes on account of of fish, fowl and animals.
earth tremors which could result in volcanic eruptions. 8. Participating in irrigation scheme: The government
of West African countries should build simple dams in
MEASURES TO IMPROVE AGRICULTURE the arid zones to conserve rainfall and flood water
1. Reform of the land tenure system: To increase the which can be channeled through canals to irrigate dry
level of productivity in agriculture in the West African farmlands and to make the keeping of livestock
sub – region, there is a need to reform the system of possible throughout the year. Also multiple dams can
land use and ownership. This will require decisive be built along river Niger and Benue and their
action by the governments in the sub – region. The tributaries to make the irrigation of the surrounding
land reforms should make it possible for a farmer to dry and possible throughout the year. This will
acquire a large expanse of land for relatively long – enhance soil fertility and increase crops yield.
term use, as against fragmentation, which impedes 9. Provision of storage facility: The governments
mechanization. The land reform should also address should provide storage facilities like freezers in major
the wasteful practice of shifting cultivation, with a urban markets and agricultural centres in the rural
view to making more land available for agriculture. areas to preserve vegetable and perishable foodstuffs
2. Adoption of modern technology in agriculture: The like fresh fish, fruits, meat, ingredients, etc. This will
government of West African countries should ensure their regular supply to the market and stabilize
encourage farmers to adopt modern techniques of their prices at higher level.
farming especially the use of agricultural machines 10. Efficient implementation of government policy: All
like tractors, ploughs, ridges, harvesters and farm governments policies concerning agriculture should be
inputs such as modern seeds, chemical fertilizersand properly implemented in order to promptly achieve
insecticides. This will enable them to increase increased agricultural output.
agricultural input.

386
11. Development of infrastructure: The government 18. Setting up anti-erosion and anti-desertification
should provide basic amenities, e.g. good roads, schemes: West African governments should carry out
electricity, potable water, hospitals, modern markets, more schemes to check water and wind erosion as well
etc in rural areas. She should also make transport as desert encroachment. This will assure the farmers in
buses available to convey agricultural products to the sub – region that their governments are concerned
urban markets to fetch high prices. This will induce about their welfare and productivity.
them to settle down in such villages and fully
participate in agricultural activities. 1994/30 UTME
12. Pest control: The spraying of crops like cocoa, The major factor that causes fluctuations in the supply of
rubber, etc with insecticides will raise crops yield and agricultural produce is
constant treatment given to livestock will make them A. high price B. pests C. weather D. variations
healthy; and they can be sold at high prices. E. rural – urban migration
13. Provision of good networks of extension services: Answer
The problem of peasant resistance to modern farming Weather (C)
techniques can be minimized or completely overcome
by the provision of a large network of extension 1997/25 UTME
services. Extension workers should be equipped with The most important requirement for increasing agricultural
good means of transportation and dispatch right into output in Nigeria is
the rural areas where the peasants are. The extension A. for the government to go into large scale farming
agents should be trained to interact with the local B. to employ relevant foreign technology and reform the
farmers in the local languages, in order to eliminate land tenure system
their suspicions and win their confidence. In this way, C. to increase farmers’ incomes and improve the farming
modern farming techniques can be introduced to the techniques
rural peasants whose productivity will then increase. D. to employ more extension workers
14. Price stabilization and market creation: Part of the Answer
reasons why agricultural productivity is low in West To increase farmers’ incomes and improve the farming
Africa is the low morale of the farmers because of the techniques (C)
very low and fluctuating market prices of their
products. To arrest this situation, government agents 2019/28
could be made to buy up the produce from the farmers Agricultural productivity may be increased if
and resell to consumers. This will assure the farmers A. educational institutions are established in rural areas
of a ready market for their output and a stable, B. commercial banks are established in rural areas
predictable income from sales. C. more infrastructural facilities are provided in rural areas
15. Provision of good networks of feeder roads: This is D. labour intensive method of agriculture is encouraged
closely related to the creation of markets. Provision of Answer
good networks of access roads connecting the urban More infrastructural facilities are provided in rural areas (C)
centres to the rural areas eases the evacuation of
agricultural products from the producers to the urban 1995/30 UTME
markets. Such network of feeder roads may make it In recent times, agriculture in Nigeria tends to lose its vital
easier for the peasants to find markets for their labour force as a result of
products outside their villages. A. lack of an effective agricultural policy
16. Provision of planned residential areas: The special B. employment opportunities in the oil sector
planning of residential areas by government authorities C. rural – urban drift D. prices of agricultural products
will also help to solve part of the problems of Answer
agriculture in West Africa. At least, it will put a stop to Rural – urban drift (C)
the haphazard location of residential houses which
encroach on farmlands, thereby causing a shortage of 2022/28 NABTEB (Dec) Exercise 15.6*
land for agricultural activities. Describe five problems facing agriculture in Nigeria.
17. Establishment of natural disaster relief funds: A
fund, from which emergency aid can be disbursed to 2000/27 UTME Exercise 15.7
farmers who suffer crop failures on account of natural One problem in the marketing of agricultural products in
disasters like locust or bird invasion, drought or Nigeria is
erosion, should be created at the central government A. the seasonal nature of the commodities
level. This will serve to assuage the uncertainty of B. high price of the commodities
farmers about the future and thus spur them on to C. inadequate storage facilities
greater productivity. D. the changing tastes of consumers

387
2017/2 UTMEExercise 15.8 4. Efficient production and distribution: Poor
The most important function of agriculture to the Nigerian distribution and marketing of agricultural produce
economy is make it difficult for farmers to get good returns for
A. the guarantee of food security their hardwork and investment. Hence, it is part of the
B. technical skill development aims of Nigerian agricultural policy to manage
C. technological development production of agriculture commodities and their
D. industrial development distribution to ensure that both producers and
consumers get the highest satisfaction.
2019/26 Neco Exercise 15.9
The problems of agricultural development in Nigeria Types of agricultural policies in Nigeria
include the following except We shall now examine the different types of agricultural
A. adequate storage and processing facilities policies, their specific objectives and policy instruments.
B. inadequate credit facilities C. land tenure The ten different types of agricultural policies in Nigeria
System D. poor transportation system are:
E. problem of pest and diseases 1. Development policy: Developmental agricultural
policy aims at increasing food supply and reducing the
AGRICULTURAL POLICIES real prices of foodstuffs. The policy instruments are
Agricultural policy is a body of laws, instruments and the irrigation of arid areas, the reclamation of swampy
statements of commitment made by the government of a or marshy lands and large-scale processing and storage
country in order to promote the growth and development of agricultural output.
of agriculture. These various agricultural policies have 2. Compensatory policy: The aims of this policy are to
different objectives. To achieve these objectives, different make up for possible or actual losses incurred by
policy instruments are used. Policy instruments are the farmers due to natural hazards such as inadequate
means and methods used to achieve an objective. rainfall, erosion or drought. Policy instruments include
the subsidization of farm machinery and fertilizers
Broad aims of agricultural policies in Nigeria purchase, as well as the insurance of livestock and
These broad aims are as follows: crops by the government.
1. Change of motive: Agricultural policy in Nigeria is 3. Remedial policy: Remedial policy aims at correcting
aimed at changing the motive of peasant farmers in anomalies existing in the present practice of
agriculture. The motive of the average peasant in his agriculture while preventing future unfavourable
farm enterprise is imply to produce enough for the situations. Policy instruments usually employed
feeding of himself and members of his immediate include pest and diseases control measures, as well as
household. erosion control.
4. Regulatory policy: Regulatory agricultural policy has
2. Use of new techniques: Agriculture in Nigeria is not the aim of regulating and improving standards and
largely mechanized. Nigerian agriculture is basically a quality of crops produced. It is pursued through the
cutlass-and-hoe affair. This use of low-level technology instruments of produce inspection and quarantine laws.
makes agriculture uninteresting and unrewarding by the 5. Punitive policy: The policy is aimed at discouraging
drudgery it brings and the low productivity it causes. the disobedience of regulatory policies and enforcing
Agricultural policy in the country aims at doing away regulatory schemes. Policy instruments for this include
with old techniques and introducing innovative the use of extension services and the establishment of
techniques which lead to maximum yield and farm institutes and schools and colleges of agriculture.
productivity. 6. Educational policy: An agricultural policy is
educational when it aims at educating and informing
3. Optimum use of resources: Another broad goal of
producers and consumers and at producing
agricultural policy is to ensure the allocation of farm
resources in the best possible way in order to increase administrative and extension staff. Policy instruments
efficiency. For example, shifting cultivation is commonly for this include the use of extension services and the
practiced among Nigerian farmers. This leads to wastage establishment of farm institutes and schools and
and underutilization of available arable land. Again, the colleges of agriculture.
seasonal nature of farming activities results in temporary 7. Demonstrative policy: Demonstrative policy aims at
unemployment of farmers during the off season. collecting and collating information through research
Agricultural policy aims at reversing these by bringing and demonstrating the practicability of various
about all year – round utilization of farm resources, agricultural projects. The instruments for carrying out
including labour, as one way to deal with the problem of this policy are pilot and experimental schemes, farm
unemployment and under-employment. settlements, as well as agricultural shows and
exhibitions.

388
8. Supervisory policy: The aims are to ensure that FAILURE OF AGRICULTURAL POLICIES IN
people make full use of subsidized inputs and adopt NIGERIA
certain recommended practices. Livestock Agricultural policies in Nigeria also have had a record of
management and health schemes, as well as biological failures. Some of these failures are:
and mechanical input schemes, are among the policy 1. Creation of ‘emergency contractors’: Some
instruments used to execute this policy. agricultural policies in the country have only resulted
9. Supportive policy: The aims of a supportive in fraudulent enrichment of those in the contract
agricultural policy are to provide inputs beyond the business. When such policies come into effect, a
means of peasant farmers. Policy instruments include whole set of new contractors also come into existence
the provision of rural roads, water, electricity, dykes, only to fritter way the funds allocated by government
irrigation pumps, as well as the establishment of agro for agricultural projects. This failure, however, is
– industries. mainly due to inadequate supervision of contractors
10. Organizational policy: Organisational agricultural handling the projects.
policy aims at speedy structural transformation and 2. Slow growth rate: The agricultural policies have not
modernization of agriculture, stimulation of resulted in rapid growth in the output of food crops
cooperative farming and boosting of a business and other agricultural products, as expected. The rates
approach to modern agriculture. Schemes of agro- of growth of population and demand for food are still
business, socialized farming and corporate farming are higher than the rate of food production.
among the policy instruments used in this policy. 3. Confusing policy statements: Some of the
agricultural policies are stated in such a way that they
ACHIEVEMENTS OF AGRICULTURAL POLICIES confuse the public. Where policy statements are
IN NIGERIA ambiguous, the policies themselves are bound to fail.
1. Revival of abandoned projects: During the Nigerian For example, the Operation Feed the Nation (OFN)
Civil War of 1967 – 1970, for example, many farms and Green Revolution campaigns failed to achieve
and plantations in Biafra – held areas were abandoned. their objectives because they were each seen as a
This caused both unemployment and a fall in total political programmes of the government of the day.
agricultural output. However, during the Second 4. Contradiction of policies: Some agricultural policies
National Development Plan period of 1970 – 1994, the in Nigeria are found to be opposed to one another. For
adopted agricultural policies led to the rehabilitation of instance the Policy on credit (1970-74) encouraged
such abandoned farms. small, individual unit agricultural practice, while
2. Use of extension services: Agricultural policies in another policy was encouraging group and cooperative
Nigeria also have led to the creation of wide network approach to agriculture. Such conflicting policies often
of extension services. Extension workers can now be fail to achieve their objectives.
sent to various parts of the country where they ensure 5. Negation of policy: Sometimes, government action is
that peasant farmers get adequate supply of farm commonly found to be opposition to stated policies
inputs such as fertilizers and put these to good use. In thereby negating the policy in question. For example,
this way, achievements of optimum resource –use and the period 1970 – 80 witnessed a massive importation
allocation in agriculture is made. of food into the country by the government, yet
3. Creation of agro-service stations: A noteworthy agricultural policies of the period emphasized self-
achievement of agricultural policies in Nigeria is the sufficiency in food production. Again, while some
creation of many farm service centres all over the policies encouraged agricultural cooperative
country. These centres supply farmers with expert movements, in which private individuals’
advice, inputs (fertilizers and pesticides), mechanical contributions are hardly recognized, government made
services (tractor hire and repairs) and technical aid in the economy more and more capitalistic, such that the
the form of on-the-spot advice to farmers by experts. greatest reward and pride came from individual
4. Commercialization of agriculture: Another major achievement.
achievement of the agricultural policies adopted in
Nigeria since 1970 is the commercialization of GOVERNMENT POLICIES AT IMPROVING
agriculture. Prior to 1970, agriculture was more or less AGRICULTURAL PRODUCTIVITY IN NIGERIA
a rural occupation for peasants, but the situation has The government of Nigeria has taken a number of
since changed. Nigerians are now aware that programmes in an effort to revamp the agricultural sector.
agriculture can be a well-paying occupation. This These include:
explains why retiring public officers in the country (1) Direct participation: The government has directly
today often take to agriculture. participated in agricultural productivity in Nigeria. It
did this through the establishment of the following
programme.

389
(a) Nation Accelerated Food Production Project (III) Difficulties in securing land: The authorities were
(NAFPP): not able to secure land easily for their agricultural
This project was initiated in 1973 with the objective activities taking into consideration the land tenure
of speeding up the production of the major food crops system in Nigeria.
which include rice, millet, sorghum, maize, wheat (IV) Poor management: The projects of the RBDA’s were
and cassava in areas that favours the production of not efficiently managed.
these crops. The agricultural institutes in Nigeria
were given the responsibility to research on and 2019/17 Neco
develop these crops as follows: The agricultural policy in Nigeria that is aimed at
(i) The National Cereals Research Institute, Ibadan developing land and water resources is referered to as
was entrusted with the responsibility to research, A. Green Revolution B. Land use decree C. National
advise, promote and co-ordinate the activities of accelerated food production project (NAFPP)
NAFPP in the areas of rice and maize D. Operation Feed the Nation (OFN) E. River Basin
production. Development Authority
(ii) The National Root Crop Research Institute, Answer
Umudike was charged with the research and River Basin Development Authority (E)
promotion of Cassava production.
(iii) The samasu cereals research centre in Zaria was (c) Operation Feed the Nation (OFN):
given the charge to improve and promote It was launched in 1976 by the General Olusegun
production of sorghum, millet and wheat. Obasanjo regime with the aim of increasing food
(iv) The international institute for tropical production in the country. The government undertook the
Agriculture (IITA) Ibadan w made the nation supply of essential farm inputs. The programme created
coordinator of all the operation of NAFFP. awareness of the importance of food production in the
rural areas of the country.
PROBLEMS OF NAFPP
(i) The programme’s objective is to accelerate food PROBLEMS OF OPERATION FEED THE NATION
production. However it suffered serious setback ranging (i) The funds meant for farmers went into the hands of
from adequate funding, poor management by the institutes those who were not farmers but who had access to the
entrusted to research and coordinate the project to lack loans.
commitment on the part of the government that initiated (ii) The farmers inputs which were provided by the
the project. government did not reach the farmers in time and in
some cases did not get to the farmers at all.
(b) River Basin Development Authorities (RBDA): (d) Green Revolution Programme (GRP):
Eleven River Basin Development Authorities which were It was launched in 1980 by Shehu Shagari administration.
based on the major rivers of Nigeria were established in
1973. These includes the following: the Sokotio Rim Objectives
(Sokoto), the Hadeja – Jamare (Kano), the Chad (Borno), (i) To make Nigeria self reliant in food production by
the upper Benue (Yola), the lower Benue (Benue and removing all obstacles to increase food production.
Plateau), the Cross River (Cross River), the Anambra –Imo (ii) To diversifying Nigerians source of foreign exchange
(Anambra and Imo), the Niger (Kaduna, Kwara & Niger), by expanding agricultural export commodities.
the Ogun – Oshun (Oyo, Ogun, Oshun & Lagos), the Green revolution programme include livestock
Benin – Owena (Delta, Edo & Ondo) the Niger Delta production, land cultivation for food and export crops
(Rivers & Bayelsa). and fisheries.

The objective of RBDA was to develop the land and water PROBLEMS OF GREEN REVOLUTION PROGRAMMES
resources of Nigeria for agricultural purposes. It were (i) Shortage of funds.
meant to explore and harness all the identified water (ii) Dishonesty on the part of the ministries and
resources in Nigeria for agricultural expansion. coordinating committees.
OTHERS:
PROBLEMS OF RBDA’S (e) National Grains and Roots Cultivation Programme.
(I) Inadequate planning data:Adequate information on (f) Integrated Rural Agricultural Development Projects.
the viabilities of these rivers was not obtained before (g) Agricultural Credit Guarantee Scheme.
expanding the programme. This gave rise to the (h) Operation Food First (OFF) Under MAMSER by
increase and reduction in number of the authorities. Babangida.
(II) Inadequate funding: The functions of these (i) Directorate of food, Roads and Rural Infrastructure
authorities were not able to secure land easily for (DFRRI) under Babangida regime.
their agricultural activities are capital intensive. (j) The Establishment of Export Processing Zone (EPZ)
in Calabar.
390
2010/13 (2) The Marketing Board/Commodity Board System
Which of the following is an Agricultural Development for cash crops and food crops
Programme in Nigeria? Before the commodity board was set up in 1976, what
A. Integrated Rural Development Programme existed in Nigeria was marketing Boards. A
B. National Seed Multiplication Programme marketing board is a statutory body established by the
C. New Partnership for African Development government for the procurement and sale, internally
D. Operation Feed the Nation E. River Basin Scheme and externally, of specified commodities. The
Answer marketing board appointed licensed buying agents
Operation feed the nation (D) who in turn appointed sub – agents who helped to
collect agricultural produce from farmers. The
(2) Mechanised farming: The government has also produce were collected, graded and transported to
encouraged mechanized farming through the Lagos and were taken over by the Nigerian Produce
provision of equipment hiring services to farmers at a Marketing Company which could sell them to
very cheap rate. domestic industries or export them.

(3) Irrigation farming: Through the establishment of re The marketing boards are mainly concerned with the
– organization of River Basin Authorities, the marketing of cocoa, groundnuts, palm produce,
government has channeled the abundant water cotton, beniseed, soya beans, copra, coffee and
resources to agriculture. ginger.
(4) Manpower Training and Development: It is one of
the government policies to train and develop skilled FUNCTIONS OF MARKETING BOARDS
personnel in agriculture. It does this through the (1) The marketing of agricultural produce: The
establishment of agricultural universities, awarding of marketing boards were responsible for the purchase
scholarship to deserving students. and sale of agricultural produce in which they deal.
They help to provide ready market for farmers. At the
(5) Marketing: The government assists farmers in the beginning of each crop season, they announced the
marketing of their agricultural products. prices of the produce in which they dealt. They
(6) Supply of farming inputs: The government supply appointed licensed buying agents who helped to
such farming inputs as fertilizers, insecticides, arrange the purchase of the crops from farmers. The
seedlings e.t.c. to farmers at a very low rate, and produce was collected, graded and transported to the
sometimes free of charge. port of disposal. The final disposal (export or salets
domestic industries) was done by the Nigerian
(7) Research and Development programmes: The Produce Marketing Company Limited.
government establishes research and development
centres for the benefit of farmers. (2) Price stabilization: The marketing board stabilized
producer prices. At the beginning of each crop
MARKETING AGRICULTURAL COMMODITIES season, they fixed minimum prices for the crops they
In Nigeria, the marketing system for agricultural were concerned with. Their licensed buying agents
commodities can be classified into the following: bought at those prices from farmers. Such prices were
(1) The traditional marketing systems for food groups only altered during the crop season or very rare
which are mainly consumed locally – This is occasions. Producers prices were stabilized within the
basically under three arrangement seasons.
(a) The presence of long chain of distribution: (3) Financing research: Marketing boards provides
There are large number of middlemen between funds for research purposes. They encourage research
the producers and the consumers. in the crop they were concerned with. Research was
(b) The direct supply of food to consumers by carried out in order to develop improved seeds, new
farmers.Many rural producers take foodstuffs to methods of crop multiplication and crop diseases
the market for direct sale to the consumers. control methods such as use of insecticides.
(c) There is also traditional marketing arrangement (4) The promotion of economic development: The
between states: This is predominantly in the various marketing boards allocated funds to
north – south and south – north directions. appropriate government authorities or bodies by way
Products such as kolanuts, palm oils, fruits, of grants, loans, e.t.c. for the purpose of promoting
vegetables and plantain are taken to the north in economic development. The funds which were used
exchange for dried meat, cowpea, groundnut etc. to finance development projects came from the
accumulated reserves of the Boards.

391
(5) Encouraging local processing of agricultural (5) Financial constraint: As public corporations they
products: They supplied produce and encouraged the were supposed to be funded by the government.
local processing of agricultural produce in order to Often the funds required to carry out their functions
allow easy storage. They sell agricultural produce to were not adequately released. Thus the prospects
local industries. They also help to encourage undertaken by the board would not be effectively
industrialization. executed.
(6) The encouragement of the growth of co-operation (6) Manpower problems: The marketing boards made
marketing societies: They encourage the formation of research findings available to farmers to enable them
cooperative marketing societies. They acted as their improve the quality of their products. This required a
buying agents and helped the marketing board to large number of manpower to meet the needs of many
purchase agricultural produce from farmers. They farmers not only in their numbers but also in their
help to encourage employment and raise the income languages as majority of the farmers were illiterates.
of those who formed the cooperative.
(7) Poor Working Attitudes of Agents: As a government
(7) Fixing of prices of the product: The marketing
agency or public corporation, the workers regard the
boards fixed the prices at which the products were
business as ‘no man business. Thus they are not keen
brought. The prices were usually fixed before the
in achieving the objectives for which the boards were
start of the planting season. This eliminates the fear
set up. This has reduced productivity.
of price fluctuations which usually discourage
farmers especially where they have bumper of harvest
(8) Poor Communication System: Communication
and price falls. By this, farmer received stable prices.
system in the agricultural areas is quite poor.
(8) They offer useful advice to farmers on how to Factually, over 65% of agricultural areas don’t have
improve on their agricultural productivity. communication facilities. This eliminates frequent
(9) The boards help in the grading of products. contact between produce agents and farmers.
(10) They provide social amenities; research and (9) Problems of buying and storing excessive crops.
development centre and sees to the general welfare of (10) Bureaucratic delays in decision making and
farmers. implementation of actions

PROBLEMS OF THE MARKETING BOARDS COMMODITY BOARDS

(1) Fixing prices to pay to farmers: It had been very The marketing board and the Nigerian produce Marketing
difficult for the marketing boards to fix reasonable Company were abolished following a federal government
prices to be paid to farmers. This was a difficult task announcement on 29th June, 1976. They were replaced by
as the price were fixed before production starts, and Commodity Boards which formally came into being on
the prices did not have to change every year but must April 1, 1977. This was necessitated by the increase in the
remain the same for some years. number of states which made it uneconomical to have a
marketing board for each state.
(2) Smugglers: All the producers were not comfortable
with the fixing of prices of goods that were yet to be The Commodity Board system was made up of a price
produced. Some farmers preferred to sell to fixing authority and seven Commodity Boards. These
smugglers at higher prices especially when the world Commodity Boards operated on a nationwide basis, cutting
market prices were higher than the prices paid by the across state boundaries. They covered the major food
marketing boards. The activities of the smugglers also crops and export crops.
affected the revenue of the marketing boards.
The Commodity Boards were:
(3) Transportation: Transportation facilities were (i) Cocoa Board – responsible for cocoa, coffee and tea.
inadequate as these crops were produced on remote (ii) Groundnut Board – responsible for groundnuts,
rural areas. Evacuation of the products created serious beniseeds, ginger, sheanut and soyabeans, and other
problems as some of the roads to the producing areas related crops.
were not motorable. (iii) Palm Produce Board – responsible for palm oil, palm
kernel and copra.
(4) Political interference: The marketing boards were (iv) Rubber Board – responsible for rubber.
under the control and supervision of the relevant (v) Cotton Board – it dealt with cotton and other fibres.
ministries. This created bottlenecks in decision (vi) Grains Board – It handles all grain foods such as
making and management functions of the boards as maize, guinea corn, rice, millet, etc.
some of their activities must be approved by the (vii) Root Crops Board – It handles tubers and root crops.
ministry.

392
 FUNCTIONS OF THE COMMODITY BOARDS 2023/29
(1) To encourage the production of crops for local Many workers are employed in the agricultural sector of
consumption and processing. developing countries because
(2) To organize the marketing of Nigeria’s major A. they practices mechanized system of farming
agricultural commodities both at home and abroad. B. labour intensive method is mostly adopted
(3) They guaranteed minimum prices at which farmers C. wages in the sector is high
sold to the Board. D. abnormal profits are made
(4) They ensure maximum returns for the farmer’s labour Answer
while ensuring stable and reasonable prices for Many workers are employed in the agricultural sector of
consumers. developing countries because labour intensive method is
mostly adopted (B)
HOW TO IMPROVE THE MARKETING OF
AGRICULTURAL PRODUCE 2014/4 Neco
1. Provision of modern markets: Both federal and state State and explain five roles of the agricultural sector to the
governments should ensure the availability of built economic development of Nigeria.
modern markets in different states to facilitate the Answer
sales of agricultural produce. Roles of agricultural sector to the economic development
2. Improvement in transportation network: Cheap and of Nigeria.
efficient means of transportation would facilitate the (1) Provision of food: Agriculture provides food for the
evacuation of agricultural products for sale. To growing population of West African countries.
achieve this, more feeder roads, better highways and (2) Provision of raw materials: Agriculture provides raw
railways should be built. materials required by the infant industries.
3. Improvement in communication systems: This (3) Agriculture creates large market for the economy of
includes improvements in postal system, telephone and West African countries.
radio messages, etc. Transactions would be facilitated (4) It is a source of revenue generation.
because of availability of adequate information in the (5) Source of exchange earnings: The export of
market. agricultural products yields foreign exchange to the
4. Construction of storage facilities: Adequate storage West African countries.
facilities should be set up; e.g. grain silos, cold rooms
etc. to ensure proper storage of agricultural produce 2003/10 Nov
until they are sold. What measures can be taken to improve agricultural
5. Establishment of agro-based industries: The production in your country?
government should set up (and encourage the setting Answer
up) of home based industries which makes use of local (1) The income of the farmers should be improved.
agricultural products as raw materials. This would (2) Adequate supply of farming input.
ensure a guaranteed demand for products. (3) Mechanised farming should be introduced.
6. Encouraging the formation of agricultural (4) Storage facilities should be provided for farmers at
marketing cooperatives: This would enable members cheap rate.
pool their resources for bulk purchasing of inputs and (5) The transportation of agricultural produce should be
sale of agricultural products. Farmers would also find improved.
it easier to dispose of their agricultural products.
7. Fixing of maximum prices: The pricing of all 2007/42 Neco
agricultural produce should be fixed and strictly Which of the following factors will not be considered in
regulated. This prevents middlemen from buying them communicating timber wood processing industry?
at prices that are below the fixed prices. A. constant power supply B. functional infrastructures
8. Provision of credit to farmers: The government C. good transportation and communication network
should make it easier for farmers to obtain loans from D. government policy and political influences
banks for production and marketing of agricultural E. supply of raw materials
produce. The farmers would therefore find it easier to Answer
raise adequate capital for marketing of their produce. Government policy and political influence (D)
9. Importation ban on Substitute Commodities: There 2009/18 Neco
is the tendency for Nigerians to prefer imported foods Which of the following is not an example of agricultural
including agricultural produce. However, if foreign industry?
ones are prohibited, there will be higher demand for A. cocoa processing B. garri processing C. iron ore
the local produce. D. livestock production E. palm oil extraction
Answer Iron ore (C)

393
2009/25 Neco 2001/11 Nov Exercise 15.11
The following are measures used to encourage agriculture (a) Highlight three problems militating against
expansion in Nigeria except agricultural production country.
A. educational programme (b) In what ways are the problems being solved by your
B. effective control of pests and diseases country?
C. increase in cost of agricultural inputs
D. provision of agricultural bank loan and credit facilities 2005/41 Nov
The single largest employer of labour in West Africa is
E. provision of infrastructure facilities
A. mining B. agriculture C. transportation
Answer
D. government
increase in cost of agricultural inputs (C)
Answer Agriculture (B)

1995/16 Nov
2023/10 Neco Exercise 15.9*
One of the factors responsible for the low productivity in
a. What is Mechanized Farming?
agriculture in West Africa is
b. Discuss five economic importance of Agriculture
A. excess use of fertilizers B. land reform decree
to Nigeria development.
C. industrialization D. land fragmentation
E. utilization of unknown farm inputs
1990/21 Exercise 15.10
Which of the following is not a component of agriculture? Answer
Land fragmentation (D)
A. forestry B. land tenure C. piggery D. fishing
E. poultry
2018/18
1991/5 The following are problems encountered by farmers in
Discuss five contributions made by agriculture to the Nigeria except?
industrial development of Nigeria. A. adequate research and extension services
Answer B. climatic problems and diminishing soil fertility
Contributions of agriculture to the industrial C. illiteracy and the conservative attitude of the farmers
development of Nigeria are: D. insufficient capital E. poor transportation network
1. Agriculture provides Nigerians with food and increase Answer
in food means increase in the well being of the Adequate research and extension services (A)
citizens.
2. The industrial sector depends on agriculture for some 1994/6
of its raw materials e.g. sugar cane, palm produce, The primary objective of the agricultural Credit Guarantee
cotton e.t.c. Scheme is the provision of
3. Agriculture provides revenue for farmers and A. guarantee for loans granted by banks for agricultural
government of Nigeria. purposes
4. Agriculture provides employment to many Nigerians B. agricultural inputs to facilitate credit from banks
who would have been jobless. C. agricultural products for banks to guarantee credit
5. It provides a market for industrial output as farmers D. loans for every farmer
purchase goods e.g. hoes, cutlass, fertilizer, e.t.c. for E. agricultural products for farmers
use. Answer
6. Agriculture produce cotton, rubber e.t.c earns foreign Guarantee for loans granted by banks for agricultural
exchange for the country. purposes (A)

1990/9 Nov 2017/7

Highlight the problems that face agriculture in your The system of agricultural which involves the cultivation
country. of crops and rearing of animals for family consumption
Answer only is termed
Problems that face agriculture in your country A. peasant farming B. plantation agriculture
(1) Inadequate capital. C. commercial farming D. subsistence farming
(2) Use of crude implements. Answer: Peasant farming (A)
(3) Illiteracy.
(4) Poor access to credit facilities. 1997/25
(5) Inadequate social amenities. The largest employment sector in a typical West African
(6) Lack of storage facilities. country is
A. construction B. transportation C. petroleum
D. agriculture E. manufacturing
Answer: Agriculture (D)
394
2003/29 2007/9 Nov
One of the factors responsible for low agricultural (a) What is commercial farming?
production in West Africa is (b) Outline any five roles which commercial farming can
A. inadequate labour B. shortage of land play in the economic development of your country.
C. inadequate implements D. inadequate research Answer
Answer (a) Commercial farming: This involves the production
Inadequate implements of crops mainly for sale. Farming may be carried out
on a large scale using modern techniques or on a
1992/5 Exercise 15.12 relatively small scale using traditional techniques.
Discuss the different types of agricultural systems that (b) Roles which commercial farming can play in the
exist in West Africa economic development of your country
(1) Provision of food.
2011/29 Neco (2) Sources of capital.
The problems of illiteracy among farmers in Nigeria can (3) Provision of raw materials.
be solved by (4) Sources of exchange earnings.
A. effective pricing policy (5) Creation of job opportunities
B. improving telecommunication network
C. promoting agricultural marketing board
D. providing adequate irrigation scheme 2012/7 Nov
Answer: Promoting agricultural marketing board (C) (a) What is subsistence farming?
2010/26 (b) State any two objectives of agricultural policies in
The role of government in promoting agricultural West Africa.
development includes the following except (c) Outline any four ways through which agricultural
A. paying the wages of all farmers production can be improved in West Africa.
B. establishing and funding research Answer
C. formulation of policies (a) Subsistence farming: This is a small – scale farming.
D. provision of rural infrastructure It is usually owned and managed by individual farmers
Answer and the members of his families. Subsistence farming
Paying the wages of all farmers (A) dominates the system of farming in West Africa.
(b) Objectives of agricultural policies in West Africa
(i) Research and development programmes: The
2010/27 government establishes research and development
The following are advantages of large scale agriculture except centres for the benefit of farmers.
A. the use of simple implements (ii) Supply of farming inputs: The government also
B. use of sophisticated implements supplies such farming inputs as fertilizers, insecticides,
C. increase in employment seedling e.t.c. to farmers at a very low rate, and
D. integration of crop and animal farming sometimes free of charge.
Answer (c) Ways through which agricultural production can be
Use of simple implements (A) improved in West Africa.
(1) The government should discourage rural – urban
migration.
2012/26 Neco Exercise 15.13 (2) The farmers should have more access to soft loan so as
The problems of low agricultural productivity could be to increase their investment in agriculture.
solved through the following ways except (3) There should be improvement in the provision of
A. granting soft loans to farmers social amenities in the rural areas.
B. mechanization of agriculture C. provision of food (4) The farmers should be educated through formal and
D. the use of irrigation E. the use of research non formal education.
2012/26 Nov Exercise 15.14
Which of the following is responsible for the low level of
2012/27 Neco
productivity by farmers?
Agricultural activities contribute to the development of
A. inadequate farm labour B. poor storage facilities
mankind in the following ways except
C. poor transportation D. primitive methods
A. employment opportunities
B. processing of raw materials
C. provision of food D. source of raw materials
E. source of foreign exchange
Answer
Processing of raw materials (B)
395
2003/15 Neco 2013/27 Neco
Which of the following is a major export crop in Nigeria? Effective pricing policy for agricultural production can be
A. cocoa B. coffee C. copper D. kolanut achieved by implementing the following, except
E. soya beans A. encouraging the existence of numerous middlemen
Answer Cocoa (A) B. establishing marketing board
C. introducing price control measures
2003/22 Neco
D. providing modern and adequate storage facilities
Which of the following is not a component of agriculture?
E. providing subsidy to farmers
A. crop farming B. drilling C. fishing D. forestry
E. livestock farming Answer
Encouraging the existence of numerous middlemen (A)
Answer Drilling (B)
2018/16 NABTEB Exercise 15.15
2008/27
The following can be classified as livestock farming
Agriculture plays a dominant role in our country because
products except
A. it is the main source of energy
A. cotton B. pig C. goat D. cattle
B. it employs more than 50% of the total labour force
C. it supplies all industrial inputs 1995/16 Nov
D. there are large plantations of cocoa, groundnut and palm oil One of the factors responsible for the low productivity in
Answer agriculture in West Africa is
It employs more than 50% of the labour force (B) A. excessive use of fertilizers B. land reform decree
C. industrialization D. land fragmentation
E. utilization of unknown farm inputs
2015/27 Answer Land fragmentation (D)
One reason for low agricultural productivity in most West
2016/16 NABTEB
African countries is that
Which of the following is not a system of agriculture in
A. farmers are not capable of cultivating cash crops
Nigeria?
B. it does not provide income to farmers with large
A. peasant farming B. plantation agriculture
families
C. cooperative farming D. industrial agriculture
C. farmers find it difficult getting help from financial
Answer
institutions
Industrial agriculture (D)
D. it is not the only source of raw materials for agro –
based industries 1991/11 Nov
Answer Cocoa, groundnut, rubber, cotton and palm produce are
Farmers find it difficult getting help from financial classified as
institutions (C) A. food crops B. forest crops C. cash crops
D. tree crops E. non – economic crops
1991/3
Answer Cash crops (C)
Agriculture plays a dominant role in West African
economies because 1192/12 Nov
A. the Green revolution in Nigeria is Agricultural One of the factors responsible for the improvement in
B. it supplies all the foodstuff consumed in Ghana alone agricultural production in Nigeria is
C. there are large plantations of cocoa, groundnut and oil A. land fragmentation B. rural – urban drift
palm in West Africa C. infrastructural development
D. It is the main source of revenue in Sierra Leone alone D. inadequate farm labour
E. it employs more than 50% of the total labour force in E. availability of raw materials
West Africa Answer Infrastructural development (C)
Answer 1993/23
It employs more than 50% of the total labour force in West The location of timber and plywood industries in West
Africa (E) Africa is mainly influenced by the
1991/39 A. availability of transport B. good climate
Palm oil is located in Bendel State because the state C. availability of power supply
A. imports raw materials for the industry D. adequate labour supply
B. has a poor soil which is unsuitable for other crops E. presence of luxuriant forest
C. is a palm tree growing area Answer
D. government does not engage in the growing of other crops Presence of a luxuriant forest (E)
E. has the highest demand for palm oil in Nigeria
Answer Is a palm tree growing area (C)

396
2002/42 Nov 2008/22 Exercise 15.17
Which of the following measures will not improve The Nigerian Institute for Oil Palm Research (NIFOR) is
agricultural production in West Africa? located at
A. increased cost of inputs A. Abeokuta B. Benin C. Ogbomoso D. Sagamu
B. provision of modern storage facilities E. Warrri
C. mechanization of agriculture
D. effective control of pests and diseases
Answer Increased cost of inputs (A) 2008/25 Neco
Palm oil produced in large quantity in the south eastern
1997/16 Nov Exercise 15.16 part of Nigeria because it
A system of farming aimed mainly at producing food for A. has a poor soil which is unsuitable for other crops
one’s family is called B. has enough labour to work in the palm oil industry
A. extensive farming B. commercial farming C. has the highest demand for palm oil in Nigeria
C. rotational farming D. subsistence farming D. imports raw materials for oil palm industry
E. mechanized farming E. is a palm tree growing area
1992/10 Nov Answer Is a palm tree growing area (E)
Which of the following is not a contribution of agriculture
to industrial development? 2008/26 Neco
A. provision of food for the industrial sector The major factor for locating a latex factory is the
B. provision of raw materials for industries availability of
C. provision of funds for industrial development A. labour B. limestone C. market
D. release of labour to the industrial sector D. rubber plantation E. transport and communication
E. supply of machineries to the industrial sector Answer Rubber plantation (D)
Answer 2006/21 Neco Exercise 15.18
Provision of fund for industrial development (C) Which of these is a problem of agriculture in Nigeria?
1992/32 Nov A. high level of farmer’s education
Which of the following sectors is the largest employer of B. high per capital income C. land fragmentation
labour in Nigeria? D. the practice of monoculture
A. manufacturing B. commerce C. mining E. the use of modern implements
D. construction E. agriculture
Answer Agriculture (E)
2019/49 2006/22 Neco
Exploitation of forest resources becomes a major problem The people charged with the responsibility of transferring
when agricultural research findings to farmers are the
A. communities fight over ownership A. extension workers B. politicians C. professors
B. they are not renewed C. they are neglected D. research officers E. teachers
D. the supply is fixed in the long run Answer
Answer Research officers (D)
They are neglected (C)
2019/27 Neco
2006/26 Nov Which of the following is an agricultural programme
One of the contributions of agriculture to economic developed to increase productivity in Nigeria?
development is A. Farm Settlement Scheme B. Green Revolution
A. improvement in the land tenure system C. National Fertilizer Production Programme
B. increase in the import of farm products D. Operation Feed the Nation
C. creation of market for manufacturing industries E. River Basin Development Authority
D. rural – urban drift Answer
Answer National Fertilizer Production Programme (C)
Creation of market for manufacturing industries (C)
2000/30
Which of the following is not a problem facing agriculture
in Nigeria?
A. high population growth rate B. illiteracy
C. inadequate extension workers D. pests and diseases
E. poor road network
Answer
Inadequate extension workers (C)
397
1989/9 (iii) Provision of adequate infrastructure such as roads and
Discuss the important role played by agriculture to the utilities in the farming areas.
economy of your country. (iv) Promotion of all year round cultivation through
Answer provision of irrigation scheme.
Importance of agriculture in the economy of my country (v) Provision subsidies on agriculture inputs so that
(i) It provides food for the populace, this ensuring that farmers can afford them.
the people are well fed.
(ii) It provides raw materials needed by the industrial 2018/2019/21 (NDU, BAYELSA)
sector e.g. cocoa for Bournvita and maize for The largest coffee growing country in the world is
cornflour. A. France B. Brazil C. Ethiopia D. Italy
(iii) Agriculture provides revenue for farmers and the Answer Brazil (B)
agricultural sector generates a sizeable part of the
national income. 2018/2019/25 (NDU, BAYELSA)
(iv) Agriculture offers employment to many Nigerians The country which is the largest producer of rubber in the
who would have been jobless. world is
(v) Agriculture provides a market for industrial products A. China B. Mali C. Malaysia D. Japan
such as hoes, matchets, fertilizers and insecticides. Answer Malaysia (C)
(vi) It fetches foreign exchange of the country following
the export of its raw materials. 2018/26 (NDU, BAYELSA)
(vii) It serves as a source of tax revenue in that the export The country which is the largest producer of tin in the
duty imposed on exported raw materials is a source of world is
revenue to the government. A. Japan B. South Korea C. Finland D. China
Answer China (D)
2004/5 Neco
Discuss the importance of agriculture to the Nigerian 2018/2019/59 (NDU, BAYELSA)
economy Which of these three West African countries have
Answer economic deposits of iron ore?
Importance of agriculture to the Nigerian economy A. Nigeria, Mali and Upper Volta
(1) Provision of food: Agriculture provides raw B. Niger, Mali & Mauritania
materials required by the infant industries. C. Nigeria, Guinea and Sierra Leone
(2) Provision of raw materials: Agriculture provides D. Mali, Senegal and Sierra Leone
raw materials required by the infant industries. E. Liberia, Sierra Leone & Togo
(3) Agriculture creates large market for the economy of Answer Nigeria, Guinea and Sierra Leone (C)
West African countries.
(4) It is a source of revenue generation for the 2009/2010/12 (UNIZIK, AWKA)
government. Subsistence production means that goods and services are
(5) Source of exchange earnings: The export of A. produced for consumption only B. sold to others
agricultural products yields foreign exchange to the C. sold in the country D. produced for the market
West African countries. Answer Produced for consumption (A)
2017/4 2013/2014/35 (UNIZIK, AWKA)
(a) What is subsistence farming? As a country gets more developed, the percentage of
(b) Distinguish between crop farming and livestock labour engaged in agriculture tends to
farming with specific examples. A. remain constant B. decrease steadily
(c) Identify four measures that the government of your C. switch over to trading D. increase steadily
country can adopt to boost agricultural production. E. decrease gradually
Answer Answer Decrease gradually (E)
(a) Subsistence farming is a system of farming in which
crops and livestock are raised for the farmer’s 2019/2020/23 (UI, IBADAN)
farming consumption and not for sale. The problem of food shortages in Nigeria can be curbed by
(b) Crop farming is the cultivation of both food crops A. practicing subsistence farming
such as plantain, cassava and cash crops such as B. practicing mechanized farming
cocoa, oil palm e.t.c. while livestock farming C. increasing extension services
involves the rearing of animals e.g. poultry, sheep, D. reestablishing marketing boards
goats. Answer Practicing mechanized farming (B)
(ci) Granting easy credit to farmers to expand their farms.
(ii) Improving the land tenure system and ensuring easy
access to land
398
1980/20 UTME 1982/48 UTME
By subsistence production we mean All of the following EXCEPT ONE are normal functions
A. goods and services are produced of the Marketing Boards in Nigeria
B. goods and services are sold to others A. price stabilization
C. raw materials are produced in the country B. efficient marketing of agricultural crops
D. none of these C. provision of funds for building access roads
Answer D. development of the agricultural industry
Goods and services are produced for consumption (A) E. establishment of agro – allied industries
Answer
1980/39 UTME Provision of funds for building access roads (C)
In a subsistence economy
A. there is no shortage of goods and services 1983/14 UTME
B. the state is the sole owner of resources Palm oil industry is located in Bendel state because use the
C production is largely oriented towards consumption in state
the rural A. imports raw material for palm oil industry
D. there is no exchange of goods and services B. is a palm tree growing area
E. women predominate in all economic activities C. soil is unsuitable for other crops
Answer D. government does not engage land for other crops
Production is largely oriented towards consumption in the E. land is suitable for oil palm
rural sector (C) Answer
Is a palm tree growing area (B)
1981/20 UTME
Which of the following statements is NOT true about 1983/42 UTME
agriculture in West Africa? Agriculture plays a dominant role in West African
A. agriculture employs over 60 percent of West Africa economies because
occupied population A. the Green Revolution in Nigeria is agricultural
B. agricultural production is the basis for excise taxes in B. it supplies all the foodstuff consumed in West Africa
West Africa C. there are large plantations of cocoa, groundnut and
C. many West African countries depends on agricultural palm oil in West Africa
exports for foreign exchange earnings D. it is the main source of revenue in Nigeria
D. agriculture supplies West African industries with raw E. it employs more than 50% of the total labour force in
materials West Africa
E. agriculture provides incomes to West African farmers Answer
who engage in it It employs more than 50% of the total labour force in West
Answer Africa (E)
Agricultural production is the basis for excise taxes in
West Africa (B) 1990/50 UTME
1982/37 UTME Agriculture is central to Nigeria’s economic development
Which is NOT responsible for the decline in food because
production in West Africa? A. Nigeria’s comparative advantage lies mainly in agro-
A. neglect of agriculture by many people allied industries
B. drift of young people from rural to urban areas B. agricultural is the largest employer of labour
C. influences of weather and climate C. agriculture account for an insignificant domestic
D. many of the countries do not face balance of payment product
problems D.Nigeria earns limitless foreign exchange from
E. lack of good prices for agricultural products on the farm agriculture
Answer Answer
Many of the countries do not face balance of payment Agriculture is the largest employer of labour (B)
problems (D)
1992/26
1982/38 UTME Exercise 15.19 Farmers’ income may fall if they produce more cash crops
The most dominant economic activity which employs the for export because
largest number of people in West Africa is A. foreign demand is inelastic B. the price of the crops
A. manufacturing B. transport C. government will rise C. of domestic currency depreciation
D. agriculture E. the petroleum industry D. of export duties
Answer
Foreign demand is inelastic (A)

399
1992/27 UTME 1999/24 UTME
Under the Nigerian structural adjustment programme, the A major obstacle to rapid agricultural development in
marketing of agricultural commodities in Nigeria has been placed Nigeria is the
under A. ineffective use of crude implements
A. the marketing boards B. the commodity boards B. inability of farmers to adopt modern technology
C. the river basin authorities D. private investors and C. introduction of the Green Revolution Programme
individuals D. declining population growth rate
Answer Answer
Private investors and individuals (D) Inability of farmers to adopt modern technology (B)
1994/31 UTME
The system of agricultural practice which involves hunting, 2001/27 UTME Exercise 15.21
gathering and growing of food crops for family consumption is In the agricultural sector, improved extension services
only described as facilitate
A. peasant agriculture B. plantation agriculture A. acquisition of techniques B. arable crop production
C. cooperative farming D. subsistence farming C. mobility of labour D. livestock production
Answer
Subsistence farming (D) 2004/17 UTME
1995/29 UTME Exercise 15.20 The marketing of agricultural commodities in Nigeria is
Which of the following statements are TRUE of agriculture in hampered by
Nigeria? (I) it provides food for the growing population (II) a large A. lack of adequate storage facilities
proportion of the population is engaged in agriculture (III) B. the existence of farmers associations
Agricultural products are used as raw materials by the local C. the existence of commodity exchange
industries (IV) it serves as a source of heavy equipments to local D. the abolition of marketing boards
industries Answer
A. I and II only B. I, II and III only Lack of adequate storage facilities (A)
C. III and IV only D. II and III only
2005/19 UTME
1995/31 UTME Agricultural backward linkage effect means the
The government can influence the prices of agricultural products establishments of
by A. subsidiary industries to increase the number of
A. fixing minimum prices when agricultural output is low industries
B. fixing maximum prices in years of bumper harvest B. main industries to increase output
C. the use of buffer stock and stabilization funds C. industries to reduce imports
D. paying all farmers producing identical crops a uniform amount D. subsidiary industries to feed the main industry
of money
Answer
Answer
Subsidiary industries to feed the main industry (D)
The use of buffer stock and stabilization funds (C)

1997/24 UTME 2007/7 UTME

The suggestion that peasants in Africa have backward bending A country would develop the agricultural sector first so as
supply curve of output implies that to
A. increase their output B. decrease their output A. stabilize the prices of industrial products
C. keep their output constant D. hoard their output B. create a market for the industrial sector
Answer Increase their output (A) C. stabilize the prices of agricultural products
D. create a market for the agricultural sector
1997/26 UTME Answer
What is the effect of inelastic demand for agricultural products on Stabilize the prices of agricultural products (C)
the income of farmer?
A. a price rise results in its fall B. a price falls results in its fall 2009/41 UTME
C. a price fall results in its rise The marketing of agricultural product in Nigeria can be
D. a price rise leaves the income unchanged improved by
Answer A. a massive production of farm produce
A price falls results in its fall (B) B. re-establishing the marketing boards
Hint:When demand is inelastic a drop in price that spurs more C. establishing more agricultural banks
quantity being sold results in lower revenue and profit for D. processing of farm produce
the agricultural producer. Inelastic demand is a serious Answer
problem for farmers. When price falls the increase in Re – establishing the marketing boards (B)
quantity does not make up for the revenue loss due to the
lower price.
400
2011/38 UTME 2015/33 UTME
Agricultural production in Nigeria is constrained by Training farmers on the improved farming techniques is
A. ineffective use of stablisation measures the major activity of
B. inadequate demand C. poor implementation of A. intermediate workers B. middlemen C. extension
policies workers D. creditors
D. balance of payment deficits Answer
Answer Extension workers (C)
Poor implementation of policies (C)
2015/44
2013/35 UTME The supply of agricultural products is mainly determined by
In order to add value to Nigeria agricultural produce, there A. consumers’ taste B. consumers’ income
is need to C. technology D. consumers
A. cultivate high breed crops Answer
B. process them to finished goods Technology (C)
C. adopt modern storage methods 2015/50 UTME
D. advertise them in European markets The supply of farm produce is mainly determined by
Answer A. consumers’ income B. weather condition
Advertise them in European markets (D) C. population D. consumers’ taste
Answer
2013/36 UTME Weather condition (B)
The main for low agricultural produce in West Africa is
A. the presence of large scale agro – allied industries
B. high dependency ratio C. over dependence on
agriculture for subsistence
D. the use of crude implements in farming process
Answer
The use of crude implements in farming process (D)

2014/35 UTME
An important role of Agriculture in Nigeria’s economic
development is the
A. processing of raw materials for industries
B. regulation of price system
C. provision of infrastructure
D. provision of employment
Answer
Provision of employment (D)
2014/36 UTME
An advantage of large – scale farming over peasant
farming is in the area of
A. providing research and massive employment of labour
B. redistributing national income to various regions of the
country
C. encouraging the use of traditional implements
D. encouraging urban – rural migration
Answer
Providing research and massive employment of labour (A)

2015/2 UTME
One of the major problems of agricultural sector in Nigeria is
A. low literacy level of farmers B. small size of farms
C. pest attack on crops D. inadequate modern farm
implements
Answer
Inadequate modern farm implements (D)

401
 2008/29
INDUSTRIALISATION Industry can be defined as
Industrialisation can be defined as a trend whereby more A. several firms producing different commodities
and more industries are being established in a country. B. group of firms producing similar commodities
Better still, it can be defined as a deliberate effort by the C. different firms producing equal number of commodities
government and private individuals to set-up industries D. many firms producing for export.
both in the rural and urban areas of the country. Answer
The industrial nations are, Germany, France, Switzerland, Group of firms producing similar commodities (B)
Norway, China, USA, etc.
2014/2015/75 (UI, IBADAN) Exercise 16.2
Industries contribute to national economic development
2006/24 Neco
Industrialization means because they
A. a process of establishing or increasing productive A. utilize local raw material
activities B. a process of wooing investors B. employ an increasing number of labour
C. an act of creating utilities C. provide recreational facilities
D. siting an industry in a particular place D. use modern machines which replace human labour
E. the act of manufacturing goods E. all of the above
Answer
a process of establishing or increasing productive activities (D)
Hint: This is the best option for the candidate.
DEFINITION OF INDUSTRIAL CONCEPTS
Attempts will be made to define and explain some key
2019/27
A country is described as industrialized if concepts that are very crucial to the subject of discussion,
A. the contributions of industries to national income is high such as plant, factory, firm and industrial estate.
B. traditional and modern sectors co-exist
C. the country adopt import promotion strategy Plant
D. primary industries dominate the economy A plant can be described as a series of machinery,
equipment and apparatus that are put in place for the
Answer
The contributions of industries to national income are high (A) purpose of productive activities. They are used to process
the raw materials and other input into finished goods.
2009/28 Neco Exercise 16.1
One of the roles of industrialization in economic Factory
A factory is the building that houses all productive
development in Nigeria is
A. employment generation B. environmental pollution resources, plant, equipment and the like. ‘Factory’ in
C. target of enemy’s attack precise terms can mean a distinct productive outfit. In most
D. unemployment E. uneven development cases, the factory in a modern industry set up is often
separated from the administrative building for obvious
reasons.
INDUSTRY
An industry is a collection of firms that are engaged in the
same line of production. For instance, in the banking Firm
industry, we have banks such as Fidelity Bank Plc., First A firm is a productive or business establishment engaged
Bank of Nigeria Plc., Guaranty Trust Bank Plc., etc. in the production of goods or delivery of services. It is a
business unit of an industry that has a distinct and
autonomous management.
2015/35
An industry is best described as
A. firm that sells a set of closely related commodities Industrial estate
B. a factory that produces different lines of products It is a well developed area with modern infrastructural
C. a group of firms that sells a closely related set of products facilities e.g. good roads, portable water, electricity,
D. industrial concern that is into production and selling of hospitals, schools, modern markets, etc. by the government
goods in which different industries are located for the purpose of
rapid industrial development. Opportunities for residential
Answer
A group of firm that sell a closely related set of products (C) housing are often not allowed in such an area.

402
Structure of industry ii. They employ the services of mainly women.
It is the classification of all industries into three broad iii. They produce final or consumable goods.
groups. iv. They are found mainly in Tropical African countries,
(i) Primary sector – agriculture and extraction of raw e.g. Nigeria and Ghana.
materials.
(ii) Secondary sector – manufacture and construction, b. Consumer Goods Industries
including electricity and gas. i. The industries deal with the turning of raw materials
(iii) Tertiary sector – commerce and services. into consumable goods.
ii. They are normally located in cities, e.g. Lagos, Ibadan
2000/29 UTME and Kaduna
A primary industry is concerned with
A. clearing and cultivation of land only c. Heavy Industries
B. the operation of small scale enterprises i. They are also secondary industries.
C. the economic activities of primary producers ii.Products are heavy or bulky.
D. extraction of resources in their raw state iii.
They employ the services of mainly males.
Answer Extraction of resources in their raw state (D) iv.Examples include metallurgical petroleum and ship
building industries.
TYPES OF INDUSTRY v. However, heavy industries are commonly found in
(1) Manufacturing industry: This involves the making Lagos, Ibadan and Kaduna.
of goods or articles by hand (traditional
manufacturing) or by machine (modern Difference between Heavy and Light Industries
manufacturing). Manufacturing is the conversion of Heavy and light industries differ from one another in a
raw materials into finished consumer or producer number of ways. These include:
goods. Examples of consumer goods include tomato 1. Heavy industries are usually large-scale in nature
paste, milk, beverages, shoes, bags etc. while light industries are relatively small in plants and
Manufacturing is a growing sector in Nigeria; It is products.
concerned with activities of those who engage in 2. The products of heavy industries are usually heavy,
processing and turning raw materials produced in the e.g. ships, aeroplanes, iron and steel while products of
primary industry into finished products. Examples of light industries are light, e.g. cigarettes, bread, razor
manufacturing industries are shoe making, food blade and office pins.
processing, plastic processing and textile processing. 3. Usually, the turnover of heavy industries is heavy,
while it is small in light industries.
Characteristics of Manufacturing Industries 4. Heavy industries employ the services of more males
1. Nigerian manufacturing industries rely on imported while light industries may employ the services of more
skilled labour from foreign countries. females than males.
2. Most industries also depend on foreign countries for
their raw materials.
(2) Construction industry: Construction industry is
3. They do not easily source their raw materials from
concerned with all the activities of those who engage
within the country.
in assembling of goods manufactured into useable
4. Industries are concentrated in few locations, especially
form. All the various components that are extracted
in urban centres.
and manufactured are converted into usable forms
5. Most manufacturing industries are mainly light
through construction. Firms in the construction
industries.
industry build and form structure by fitting parts
6. These industries are also labour-intensive, i.e. they
systematically. Firms in the industry include those
require large labour force to operate.
that build houses, dams, roads, bridges, airports and
7. Emphasis is on the production of consumer goods.
seaports.
8. Their products are mainly consumed in the local
markets.
Examples of construction industries are:
9. Manufacturing industries are largely small-scale.
i. Road construction.
ii. Building construction.
Classification of Manufacturing Industries
iii. Airport construction.
Manufacturing industries can be grouped into three
iv. Bridge construction.
main classes which are light, consumer goods and
v. Furniture construction.
heavy industries.
a. Light Industries
i. These are secondary industries which produce
relatively light weight goods such as matches,
television sets, fans, books and pencils.
403
(3) Mining industry: The mining industry consists of 15. Income to miners: People who are miners have used
firms which extract mineral resources from the the medium to generate income for themselves.
earth’s crust. They include those that extract 16. Provision of essential goods: Essential goods such as
petroleum, coal, iron, tin, gold, diamonds, e.t.c. In cement, gold, plastic rubber and tyres are normally
Nigeria, petroleum accounts for over 80% of total produced through mining activities.
mineral output and contribute significantly to export 17. Ornamental use: Solid minerals such as diamonds,
earnings. gold etc. are used as ornaments and as jeweler.

Uses of Minerals (Positive Roles) Problems facing mining of minerals in Nigeria

1. Source of employment: Very many people are 1. Inadequate capital: Fund is always inadequate for the
engaged in the mining sector, at various stages. They exploration or mining of minerals in the country.
therefore derive income and livelihood. 2. Inadequate personnel: The technical personnel
2. Foreign exchange earning: The export of minerals needed to explore minerals are not trained and they are
like petroleum, coal and tin, provides foreign exchange grossly inadequate.
for the country. 3. Environmental pollution: There is massive
3. Revenue generation: Taxes paid by mining environmental pollution of land, air, water and oil
companies including export and import duties on spillage in areas where mining occurs.
minerals are sources of revenue to the government. 4. Poor transportation network: Most of the areas
4. Improvement of standard of living: Money earned where minerals are located are inaccessible by good
from minerals is used to provide social and basic roads and rail system.
amenities which improves the standard of living of the 5. Use of outdated topographical maps: Most of the
people. topographical maps used in exploring minerals in the
5. Acquisition of skills: The presence and extraction of country are outdated.
these minerals enable people to acquire different skills. 6. Constant conflicts: There is the problem of constant
6. Provision of essential goods: Essential goods or conflicts between the local people and the prospecting
products are derived from minerals, e.g. petroleum companies.
provides kerosene, petrol, grease, engine oil and 7. High level of sabotage: There is the problem of high
aviation fuel. rate of sabotage by unpatriotic people in the mining
7. Raw materials for industries: Raw materials like areas.
limestone are used by cement industries; iron ore is 8. Difficult terrain: Most of the miners experience
used by the iron and steel industry. difficult terrain during the search for minerals and this
8. Growth of ancillary industries: The presence of eventually increases their operational cost.
minerals of mining activities generally leads to the 9. Fluctuations in world prices: There are fluctuation in
establishment of ancillary industries that can promote world prices of most minerals and these discourage
mining activities in the country. explorations.
9. Growth of cities: Cities like Enugu, Jos and Warri 10. Poor management: Poor management is associated
have grown due to the presence of coal, tin and with the exploration and mining of minerals in
petroleum respectively. Nigeria.
10. Infrastructural development: The presence of
minerals in an area leads to the development of (4) Transport industry: This is involved in the
infrastructures like roads, electricity, telephone and movement of goods, services and persons from one
pipe-borne water in these areas. place to another. it includes the use of road vehicles,
11. Training and retraining of personnel: Mining strains, boats, ships, aircrafts e.t.c.
activities in Nigeria have led to the training and
retraining of personnel in order to be efficient in (5) Electricity industry: Electricity industry consists of firms
mining operations. which generate electric power by using various sources
12. Production of geological maps: The exploration of such as coal, gasoline, gas, water etc.
minerals in the country has led to the production of
certain geological maps.
13. Transfer of Technology: The presence or mining of Industries can also be classified into primary, secondary
minerals in the country normally leads to the transfer and tertiary industries
of technology from industrialized nations. a. Primary Industries
14. Improvement of balance of payments: The i. These industries are concerned with the extraction of
exportation of minerals to foreign countries has helped raw materials provided by nature.
to improve the balance of payments between the two ii. They are also called extractive industries.
countries involved in international trade. iii. Examples are mining, fishing, lumbering, farming and
livestock production.

404
b. Secondary Industries 4. Perishability: Services perish with fluctuating
i. These industries turn raw materials into consumable or demands. Services can perish as they cannot be stored
finished goods. for future use. For instance, an empty bus, an unrented
ii. Examples are construction, building, textile, ship apartment, or an idle mechanic’s time represents
building, iron and steel and chemical industries. business lost forever. However, when the demand for a
service is stable, perishability will not be a problem.
c. Tertiary Industries
i. These are concerned with the rendering of services. Commercial activities of the Service Industry
ii. It could be direct services like trading, banking, One major branch of the service industry is commerce.
teaching, medical and transportation.
iii. It could also be indirect services like the jobs of police, Commerce
customs, soldiers and navy. Commerce can simply be defined as all those activities
involved in the distribution and exchange of goods and
SERVICE INDUSTRIES services. Commerce deals with the various activities such
The service industry consists of the ‘soft’ part of the as communication, warehousing, insurance, advertising
economy; that is, where people offer their knowledge and and banking which enable the produced goods to reach the
time to improve productivity, performance, potential and final consumers. The above named activities or services
sustainability. The basic characteristic of the service are referred to as auxiliaries to trade
industries is the production of ‘service’ instead of ‘end
products’. Such service is in ‘intangible goods’ and Features of Commerce
includes attention, advice, access, experience and Commerce has the following features or characteristics:
discussions. 1. Economic and Productive activity: Commerce is
an economic and productive activity. A trader
The Service Industries involves the provision of services to buys and sells goods to earn profit and wealth. It is
business as well as to the final consumers. Service could expressed in monetary terms.
be described as those intangible activities or products that 2. Profit: The motive of commerce is profit
provide satisfaction for humanity. It may not necessarily maximization. Gifts of goods to friends and
be tied to the sale of tangible products. relatives are not commerce. Profit drives the
It involves doing something for the consumers; it could be engine of commerce.
personal or indirect services. The people pay for the 3. Marketing: Commerce involves maketing. It
services directly or indirectly. involves the exchange, distribution and promotion
of products. It is done on a regular basis.
Marketing is done to create goods and satisfy
The service sector (also known as the tertiary sector) customers.
provides services to other businesses as well as the final 4. Component of business: Commerce is a
consumer. It is a fast growing industry in the world over, component of business. It deals with goods
and employs about 30 percent of the Nigerian labour force. produced in industries. Industries produce and
commerce dispose the goods.
To produce a service may not require the use of tangible 5. Creation of Utility: Commerce creates place and
goods as raw materials. However, when such use is time utilities to satisfy consumers’ needs. It
required, there is no transfer of the title (permanent transports goods from place to place to create
ownership) to the tangible goods. utility. It stores produces for future uses which
creates utility.
Characteristics of the Service Industry 6. Optimization utilization of resources: The
1. Intangibility: Services cannot be seen or felt success and progress of commercial activities
physically, tasted or even smelt like other products. requires effective and efficient utilization of
For example, the work of a lawyer, doctor, teacher and resources. This implies that maximum output is
banker cannot be seen or felt physically. generated using minimum cost. It refers to the
2. Inseparability: Services usually cannot be separated proess of making the most of the resources
from the provider of the services. That is, services are available in order to achieve the objectifves.
created, dispensed and consumed simultaneously. 7. Facilitation of Exchange of goods and services:
3. Heterogeneity: Service is heterogeneous. It is not Commerce is all about buying, selling and
possible to standardize output among other providers exchange of goods and services. It is the exchange
of the same service as with tangible goods which and distribution of goods and services to the final
cannot be standardized. For example, two teachers consumer to satisfy their wants. Commercial
cannot teach the same topic the same way; although in activities that facilitate exchange are banking,
the end, the same knowledge will be imparted to the insurance, tourism, communication, warehousing
learners. advertising, etc.
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Commercial Occupation The services satisfy human wants; hence, they are part of
This is the type of occupation in which people who engage production. The service provider has a direct contact with
in it try as much as they can to see that the goods and the consumer.
services produced by others reach the final consumers as
and when due. Examples of commercial workers are: 2. Indirect Service: Indirect service includes services
Bankers, Transporters, Traders, Insurers Advertisers etc. rendered to the general public but they are not paid for
by the members of the public directly. The government
Types of Commercial Occupation will pay from taxes and levies paid by the public.
Activities of those who engage in commercial occupation Therefore, those involved render indirect services and
are: are paid indirectly by the public, e.g.
1. Trading: Trading is concerned with the activities of i. Doctors working in public hospitals
all the people who engage in the act of buying and ii. Customs officers
selling of goods and services. When trading activities iii. Police force
occur within a country, wholesalers and retailers are iv. Civil servants
engaged while foreign trade involves import and v. Law makers
export. vi. Soldiers
2. Banking: Banking as a commercial occupation is
concerned with the activities of those engaged in the Roles or contributions of the service industry to
provision of credit, payment and saving facilities. economic development of Nigeria
3. Warehousing: Warehousing is concerned with the The service industries do contribute greatly to the
activities of those who help to store goods pending the economic development of Nigeria in the following ways:
time they are needed. This will bring about steading 1. Economic Growth: The service industry, through its
supply of goods. activities in the economy, does contribute towards the
4. Advertising: Advertising shows the activities of those growth of the economy.
engaged in informing potentials buyers and sellers of 2. Generation of employment: The service industry,
the existence of goods and services. Advertising through all its activities in trading, banking,
creates awareness for the products, e.g. advertising transportation and communication, helps to generate
agents abundant employment for the people.
5. Insurance: Insurance is concerned with the activities 3. Aids to trade: Service industry, through banking,
of people who undertake to protect individuals or warehousing and transportation, does assist in
businesses against risk in their day-to-day operation. enhancing trading in the economy of the nation.
These people are insurers, insurance agents and 4. Generation of Revenue: Service industry generates
brokers. revenue both for the government and the people who
6. Transportation: Transportation is concerned with the are engaged in the industry.
movement of goods and services to where they are 5. Diffusion of ideas and technology: Through the
needed. This is concerned with all the activities that activities of people engaged in the service industry,
ensure as effective transportation system. Those who new ideas and technology are transferred from one
engage in these services are drivers, pilots and sailors. country to another.
7. Communication: Communication includes all 6. National Integration: Through the service industry,
activities which promote rapid transmission of different regions in the country are brought in constant
messages between senders and receivers or from one touch with one another. This enhances national
place to another, e.g. courier service providers and integration and interaction among the people in a
telephone operators. country.
8. Tourism: Tourism is concerned with all the activities 7. Stimulation of other sectors: The service industry
of those who engage in creating tourist attractions in does stimulate the growth of other sectors like
different tourist centres, e.g. guides in national parks. manufacturing and construction industries.
8. Infrastructural development: The service industry,
Types of Service Occupation through its activities in the economy, stimulates the
1. Direct Service: Direct service includes personal development of infrastructures like roads, telephones,
services rendered for direct consumption and are paid electricity and pipe borne water.
for directly by those who enjoy the service. Those who 9. Diversification of the economy: The service industry
engage in this form of occupation are: also helps to ensure the diversification of the economy
i. Housemaids through its branches like tourism.
ii. Stewards 10. Manpower development: Many people are trained in
iii. Family doctors different areas, e.g. doctors, lawyers, musicians,
iv. Entertainers teachers, police and army.
v. Barbers
vi. Lawyers in private practice
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1998/16 (7) Presence of other firms or industries: An
Which of the following is not a type of industry? industrialist may be encouraged to set up his firm
A. export B. construction C. mining where other firms exist which produce identical
D. manufacturing E. transport commodities. This is done to enjoy certain
Answer advantages which accrue to firms as a result of being
Export (A) located in a particular area. Such advantages include
a concentration of skilled and semi – skilled labour,
LOCATION OF INDUSTRY adequately developed infrastructure etc.
The location of industry refers to the siting of an industry
(8) Favourable Climate: Industries may be set up in
in a particular place due to the presence of certain factors
certain areas because the natural conditions which
which favour its establishment.
exist there favour their growth. The effect of natural
factors in the location of business is important in
FACTORS THAT INFLUENCE THE LOCATION OF
extractive industries. Crops are usually produced
AN INDUSTRY
where the climate and soil favour the growth of such
(1) Easy access to raw materials: The source of raw
crops.
materials may encourage an entrepreneur to locate his
industry in a particular place. This is true if the raw (9) Proximity to financial institutions: Industrialists
materials are heavy or bulky, or lose weight through require sufficient capital for the efficient running of
manufacturing and have higher transportation costs than their businesses. The existence of sources of capital
the finished products. Examples of raw materials such as banks and other financial institutions could
oriented industries are cement making and saw mills. therefore play an important role in industrial location.
(2) Proximity to market: Another important factor which Most financial institutions are situated in urban
the industrialists take into consideration is the final centres and this accounts for the high concentration of
disposal of his products. He may therefore site his industries.
industry at a place where it would be easy to sell his (10) Political influence: Many politicians use their
goods. This is a major reason for the location of many influence to divert certain industries in certain areas
industries in urban centres which have a high population
in order to catch the people’s votes during elections.
concentration and where income is higher. Industries
would be market oriented if the finished products are
fragile, perishable and bulky or costly to transport.
REASONS FOR GOVERNMENT PARTICIPATION
(3) Nearness to source of power: Industries would be IN THE LOCATION OF INDUSTRIES
attracted to areas where the necessary power supply is (1) To ensure even development: Sometimes government
available. An industrialist would site his industry in a may locate or encourage the location of industries to
place where there is regular power supply to drive the ensure industrial dispersal and make for a balanced and
machine used in production and also locate their even industrial development of the country.
industries near source of water supply. (2) To develop certain areas – industrial estates: Some
governments concentrate on the development of certain
(4) Nearness to source of labour: An industrialist may site
his industry where the necessary labour is available. areas like industrial estates or “Development Areas” in
Many industries are located in the urban centres of West order to encourage industrial development. And such areas
Africa which provide the pool of labour required. are well developed with modern social amenities like dual
carriage ways, reliable supply of electricity and portable
(5) Availability of good transport and communication water, well equipped hospitals and schools, efficient
facilities: A good road and efficient transportation communication and transport system, large modern
system is required to transport raw materials to the markets, etc. These external economies (amenities) act as a
industry, finished products to the markets, and workers
magnet to potential foreign or large scale indigenous
and from their places of work. A good and efficient
investors.
transportation system helps to reduce total production
costs. It allows quick movement of commodities, (3) To control rural – urban migration: Industrialist may be
thereby reducing waste. Good means of communication encouraged to set up firms in rural areas to create
such as telephones, post offices, e.t.c. facilitates employment opportunities for the rural population.
business transactions. (4) To reduce congestion: A government may compel
prospective investors to locate their firms at the periphery
(6) Government policy: Government policy may also (outskirts) of big cities like Badagry in Lagos, in order to
account for the location of an industry in a particular reduce both house and traffic congestions, pollution of
place. One major policy of the government is to ensure cities centres and other attendant effects.
even development. For this reason, industries may
sometimes be sited where maximum profits would not
be made.

407
 (5) To diversify economy of an area: Many governments 5. Stimulating generally the social and economic life of
deliberately site a variety of industries in a particular the rural dwellers.
area or state in order to avoid mass unemployment that 6. Tapping the resources of the country side easily. For
might result from the decline of the major industry. example, agricultural products could be used as
For instance, the decline of the oil industry in Nigeria industrial raw materials.
will have devastating effects on Delta and River States
if there are no existing and expanding industries like ADVANTAGES OF LOCATING INDUSTRIES IN THE
services, construction and manufacturing industries to RURAL AREAS
absorb (employ) the redundant workers in the oil (1) It checks the drift of energetic young people from the
industry. rural areas to the towns and cities.
(6) To ensure availability of certain goods/services in a (2) Labour is likely to be cheaper in the rural areas.
particular area: Many governments inspire some (3) Transportation and accommodation problems of staff
enterpreneurs to locate their firms in specific areas or are likely to be less acute.
states with acute shortage of their products or services. (4) It creates abundant employment opportunities to rural
For instance, a government may oblige a large bank dwellers.
like First Bank or a manufacturing company like (5) The industrial atmosphere would be more peaceful,
Nigeria Bottling Company to set up its branch in a free from traffic congestion.
state or in a rural area with relatively low banking (6) It leads to the development of large markets in the
services and acute shortage of soft drinks. rural area for local raw materials and skills.
(7) To exploit idle resources: In order to ensure effective (7) It enables the firms to have access to cheap large
exploitation and utilization of idle resources, government parcels of land.
may enforce entrepreneurs to set up firms in areas with (8) It makes cheap raw materials to be constantly
abundant natural resources like minerals, rich agricultural available to the firms.
resources – abundant rivers with fishes and fertile soil. For (9) It would bring about development and improvement
instance, the government may oblige: mining firms to in the standard of living in the area.
exploit its ore in Plateau state, sawmills to exploit
commercial trees in Delta state, canning firms to exploit DISADVANTAGES OF LOCATING INDUSTRIES IN
abundant fishes in Delta, Lagos, River and Ondo States, THE RURAL AREAS
etc. 1. The industry may have to provide mostbasic
(8) To prevent industrial pollution of residential areas: infrastructure at its own expense as they may not be
The government sometimes intervenes and prevents available, thus raising the unit cost of production.
industrialists from setting up industries in residential 2. Skilled workers from the urban areas may be
areas to prevent pollution of such areas in order to unwilling to work in the rural areas, unless they are
reduce hazards to human life. given substantial incentives.
(9) For political reasons: The location of an industry in 3. There may not be suitable accommodation that could
an areas is sometimes done to favour party loyalties be rented for use as factories and offices. The
who come from such an area. business may have to build its own houses at great
(10) To ensure even distribution of income: Government expense.
direct industries to different parts of the country in 4. It is more difficult for workers to find alternative
order to ensure equitable distribution of income. More employment, if they lose their jobs for one reason or
industries are located to states or areas with lower per the other.
capita income and less to states with high per capita 5. Damages and losses may be suffered when moving
income. This ensures equal standard of living the goods to the market in urban areas.
throughout the country. 6. The market for finished goods may be small or non –
existent in the rural areas.
REASONS FOR THE ESTABLISHMENT OF
INDUSTRIES IN RURAL AREAS REASONS FOR GOVERNMENT OWNERSHIP OF
1. Ensuring a fairer distribution of industrial activities, INDUSTRY
and thus allowing for the even development of the 1. Provision of public utilities: Certain services are
country. indispensable for the successful running of a state. Thus
2. Ensuring a rise in the income of rural dwellers leading to government established and ensure efficient running of
such industries in order to avoid chaotic situation which
an improvement in their standard of living.
their absence of inefficient running might cause. Among
3. Generating employment which would help to check
these enterprises are: electricity corporation, water board,
the rural – urban drift of the population. hospitals, schools etc.
4. Giving an incentive for the development of the economic
and social infrastructure in rural areas which would
encourage people to establish their businesses.

408
2. Strategic industries: Some industries are of great 1982/31 Exercise 16.3
strategic importance to a state. That is, they play key role What is the most important factor influencing the location
in upholding the territory of a nation. Thus they are not of the iron and steel industry at Ajaokuta?
left in the hands of those in the private sector. They are A. availability of labour in the area
only established and run by the government. This B. access to transport facilities
prevents foreigners from easily evading the country or C. nearness to raw materials D. availability of power
disgruntled individuals from constantly threatening the E. nearness of technical and engineering school
peace in the state. Among such industries are defence
industry, Sea and Airport Authority, Airways
1984/30 Exercise 16.4
Corporation, etc.
The most important factor in determining the location of
3. Heavy capital requirement: Large capital
the cement industry in Nigeria today is
requirement in large or complex industries compels
A. capital and government policy
governments of various countries to directly
B. the nature of the product, infrastructure and government
participate in the ownership and running of certain
policy
industries. It is because individuals or a few group of
C. nearness to the market and source of power
people cannot provide such capital.
D. price of the product and source of labour
4. Dispersal of industries: The establishment of
E. raw materials
industries by government brings about their dispersal
(locating them in different states or areas). And this
LOCALISATION OF INDUSTRY
ensures even development.
The localization of industry refers to the concentration of
5. Avoidance of foreign monopoly: The adoption of
many firms of an industry (i.e. firms producing similar
nationalization policy (government ownership of
goods or services) in a particular area due to the presence
industry) in a country is meant to eliminate foreign
of favourable factors. Such firms produce commodities
and/or private monopoly. And this ensures moderate
which belong to the same industrial group e.g.
prices and effective distribution of the products to
Concentration of many leather craft industries in Kano.
every part of the country.
6. Avoidance of duplication of resources: Ownership
NB: Agglomeration of industries refers to the
and running of certain industries by one body – the
concentration of many industries in a particular place.
government eliminates duplication of resources. This
brings about effective distribution and proper use of
FACTORS THAT ENCOURAGES LOCALISATION OF
such resources.
INDUSTRY
7. Development of infrastructure: Government
(1) The access to raw materials: Many firms which use
participation in the ownership and running of
the same raw materials as inputs may be encouraged
industries brings about a rapid development of
to locate their industries in places where the raw
infrastructural facilities, especially in the areas in
materials are found.
which such industries are located. Before a large
industry is established, by the government for instance, (2) The availability of a pool of skilled labour: Many
she always ensures proper development of the entire firms which produce similar goods may be
area with good roads, bridges, if necessary reliable encouraged to be located in a place where the
electricity and pipe borne water supply, hospitals, required type of labour is available.
schools, staff quarter, etc. (3) The presence of technical economies: The existence
8. Elimination of high prices: Ownership and running of technical knowledge, skills, or materials which are
of certain industries by the government easily brings adaptable across related industries can cause an
about granting of subsidies to the public corporations. industry to become localized in a particular place.
Thus they only charge very little or no price. Many firms which use the same type of spare parts or
components in production may be established near an
1990/2 Nov industry who produces such components or spare
Location of industry can be defined as the parts.
A. concentration of an industry in a place
B. way an industry is located (4) Government policy: The role of the government may
C. place where an industry is located sometimes lead to localization of industry. The
D. siting of an industry in a place government could encourage the setting up of many
E. place where an industry can be found firms of an industry in a particular place for certain
Answer reasons.
siting of an industry in a place (D) (5) The availability of marketing facilities: Many firms
which produce identical products may be established
in a place where they have facilities for marketing
their products.
409
(6) Favourable natural conditions: The presence of 6. Social services: With the concentration of industries
ideal natural conditions which favour the production in a given area, many facilities such as pipe borne
of a commodity may encourage the establishment of water, electricity, sanitation services, recreation
many firms which produce the commodity in the facilities, schools, e.t.c. become readily available for
area. the people living in the surrounding environment.
(7) The availability of infrastructural facilities: The 7. External economy of scale: The concentration of
presence of adequate infrastructural facilities such as industries in a given area enables the firms to pool
good roads, a regular power supply, an efficient their financial and human resources together to carry
banking service and a regular water supply may out projects that will be of benefit to them.
encourage many firms of an industry to set up in an 8. Encourages keen Competition: It induces the various
area, leading to localization. firms to compete with one another, especially those in
the same industry. This enhances their efficiency and
(8) Predominant Culture and Technology: Certain leads to production of high quality goods and
culture manifest preference for some products. This services.
logically leads to the localization of the industry in 9. Easy identification of common problems: It is easier
producing such a product. For example, some kinds for the firms to identify common problems and
of locally- produced textiles called asooke and adire proffer solutions to them.
are worn in south western, Nigeria. Naturally, the 10. Encourages Cooperation among firms: It leads to
majority of producers of these particular textiles the development of trade associations for the purpose
along with the technology involved are found in that of bulk purchasing of raw materials, industrial
region and the industry is practically based there. conflict resolution etc,
11. It helps in the creation of employment opportunities
(9) Joint research and training centres: Many firms for young school leavers.
which produces similar commodities may be 12. Localization of industry helps to improve the
encouraged to establish themselves in an area in order standard of living.
to set up a joint research or training centre. The cost
of setting up a centre may be prohibitive for a single DISADVANTAGES OF LOCALISATION OF INDUSTRIES
firm. If the work is undertaken jointly, the cost to 1. Competition: The concentration of industries in a
each firm will be lower. particular area brings about competition for the
possession of raw material and factors of production.
ADVANTAGES OF LOCALISATION OF INDUSTRIES It also leads to increase in the cost of factor input.
1. Specialization of firms: As a result of industrial 2. Uneven Development: Localization of industry
concentration of firms in a particular area, one firm causes uneven development of a country. It is against
benefit from others. There is usually interdependence balanced economies development or dispersal of
of firms as some firm specialize in the production of industries. It makes some area to be more developed
certain products, while others specialize in other than others.
products. 3. Rural depopulation: In Urban areas, with the large
2. Supply of skilled labour: Localization of industries concentration of industries and availability of such
brings about reservoir of skilled labours for the local social facilities like pipe borne water, electricity,
industries. A new firm may establish itself in a place hospital, transport and modern network
because it can easily obtain the services of available communication, the young school leavers are
skilled labour. attracted to the area. Such rural – urban drift makes
3. Development of subsidiary industries: The the urban centres to be over–populated, while the
concentration of industries in a particular area gives rural areas are under–populated.
rise to subsidiary industries which are established to 4. Accommodation problem: The more industries are
cater for the major ones. For example, the located in an area, the more people are attracted to the
establishment of a textile industry gives rise to the centre in search of job. This may continue up to a
establishment of starch and dyeing industries. point that getting a decent accommodation at
reasonable rate becomes a problem.
4. Large market: The industries located in a given area
5. Cyclical unemployment: Unemployment problems
buy raw materials in bulk. The finished goods are
are likely to arise in an area where an industry is
sold through the middlemen who specialized in that
highly localized if there is a fall in demand for its
field. As the industrial area develops, it becomes a
product as a result of economic slump. The industry
centre for business activities.
would decline and many workers have to be
5. Improvements in Infrastructures: The presence of
retrenched, resulting in mass unemployment.
many firms encourages the provision of improved
infrastructural facilities such as water, electricity,
transportation and communication.
410
6. Inadequate social services: As more and more (4) The formation of trade associations for the purpose of
people are drifted to the industrial areas, time shall bulk buying of inputs helps to reduce the prices of
come when the social services will become such input as larger discounts are obtained.
inadequate. This will eventually lead to high transport (5) The division of labour and specialization brought
cost, shortage of water, inadequate school, e.t.c. about by concentration of firms or industries lead to
7. Traffic congestion: The concentration of industries in increased efficiency and mass production.
towns and cities leads to increase in the number of (6) Improved infrastructural facilities reduce both initial
vehicle plying the road. There is usually traffic jam in and operating costs. They lead to increased
the cities. efficiency, thereby encouraging higher productivity.
8. Target of destruction: Localization of industries
leads to the concentration of people and economic 2014/2015/36 (UI, IBADAN)
resources in a given location, thus making the area If a firm doubles its output and its cost increased by 60%
very vulnerable to attacks. In times of war, such areas the firm is experiencing
may become bomb target. A. increasing cost B. economies of scale
9. Problems of expansion: If industries are congested in C. decreasing returns D. decreasing costs
an area, the chances of getting land within the vicinity E. none of the above
for further expansion becomes very slim. Answer
10. Pollution Problems: The production firms in the area Economies of scale (B)
may cause pollution of both water and air which have
adverse effect on the other firms and people. 2017/30
In an industrial area, the location of industries is
1999/42 Nov
particularly influenced by
The concentr0ation of industries in a particular area is
A. extent of the division of labour B. external
known as
economies C. internal economies D. nearness to
A. location of industries B. localization of industries
financial institutions
C. industrialization D. industrial congestion
Answer
Answer Localization of industries (B)
External economies (B)
2011/33 Neco
1996/14 Nov
Localization of industries means
The advantages a firms enjoys because of its location in an
A. a combination of firms
industrial area are known as
B. concentration of firms in an area
A. external economies of scale
C. location of industries in a street
B. comparative cost advantage
D. siting an industry in an area
C. internal economies of scale
E. siting of a firm in a particular place
D. absolute cost advantage
Answer Concentration of firms in an area (B)
E. diminishing marginal advantage
Answer
External economies External economies of scale (A)
External economies are the cost saving advantages which
accrue to an industry as a whole or to firms located in an 2019/35 UTME Exercise 16.5
area, usually as a result of their closeness, association or Firms are often set up close to each other in order to take
inter – relationship. advantage of
NB: These are the advantages of localisation A. supply of skilled labour B. agglomeration economies
External economies lead to an increase in production in C. internal economies of scale
the following ways. D. external economies of scale
(1) The concentration of a pool of skilled labor enables
the localized firms to get the required labour easily. 2014/2015/35 (UI, IBADAN) Exercise 16.6
(2) The emergency of subsidiary firms which produce External economies are
components or inputs for the main industry helps to A. the advantages accruing to firm as a result of its
encourage production since there is a regular supply expansion
of components or inputs. B. the advantages accruing to one firm as a result of the
(3) Some firms uses inputs and by – products of other existence of other firms in the same locality
firms located in the same area. Such by – products are C. benefits derived by a firm as a result of its own external
readily obtained at relatively low price. This economies policy
encourages production. D. economies reaped only by firms that are externally
focused
E. bound to increase the cost of production

411
External diseconomies (c) Pottery: This has to do with the production of
They are those disadvantages which arise when very many different local pots made from clay. These
industries or firms are located in an area or as a result of a products are used for various domestic
whole industry growing too large. These disadvantages purposes like cooking, water fetching and
were discussed under disadvantages of localisation. rituals. However, it is important to note that
NB: These are the disadvantages of localisation
pottery products are becoming extinct because
2014/2015/23 (UI, IBADAN) of the modern metal and plastic products
Diseconomies of scale operates when produced by modern industries. Pottery
A. doubling inputs brings about more than proportionate activities are common among the people of
increase in output Illorin, Kwara State; Abuja; some parts of
B. doubling inputs leads to a doubling of output Auchi and Sobe in Edo State; and Ikot Ikpene
C. doubling input brings about less than proportionate in Akwa Ibom.
increase in output (d) Textile/Cloth Weaving: The textile/cloth
D. increase in revenue weaving craft industry is involved in the
Answer making of local cloth like adire and aso-oke
Doubling input brings about less than proportionate used for different traditional purposes, such as
increase in output (C)
marriages, chieftaincy ceremonies, house
2017/2018/30 (NDU, AWKA) Exercise 16.7 warming, and even for normal casual wear.
If the cost of production for a firm continues to increase as This local craft industry is common among the
its output rises, the firm is said to be experiencing people of Ibadan and Iseyin in Oyo State and
A. large scale production B. profit maximization some northern parts of Nigeia like Zaria,
C. economies of scale D. diseconomies of scale Kaduna, Kano, Bida and Okene. Auchi and
Ewohimi people in Edo State are also noted for
2014/2015/32 (UI, IBADAN) Exercise 16.8 his business.
Diseconomies of scale can be caused by the following (e) Wood Carving: This craft industry specializes
EXCEPT in sculpturing activities. Wood is carved in
A. managerial inefficiency B. increased resource cost
different forms for decoration in homes and
C. large market D. inefficient business environment
E. technology
offices. Many sculptures are human images
while others are animal images. The basic raw
LOCAL CRAFT INDUSTRY IN NIGERIA material here is hard wood. One notable wood
The local craft industry in Nigeria refers to those carving centre is Benin City in Edo State.
activities engaged in by craftsmen and women Other areas involved in wood carving activities
making use of the raw materials found within their are Ondo, Oyo, Anambra and Akwa Ibom
immediate environment. This industry makes use of states of Nigeria.
simple tools thereby specializing in a particular type (f) Canoe Building Industry: Local canoes are
of products based on their artistic ability. Some built using particular special types of hard
examples of local crafts include: wood from the forest. These local canoes are
used for fishing and transportation purposes
(a) Leather Works: Leather is made from hides along the creeks and rivers. It is a craft
and skin derived from animals like cattle and business that is common in the riverine areas
goats. This raw material is needed in large and it serves as a major means of livelihood of
quantities to produce abundant leather the people in such areas. The Niger Delta
products. This type of industry is mostly found creeks, Niger Benue valley, Okitipupa area of
in Bida. Kano, Suleja, Sokoto and Oyo areas of Ondo State, Opobo in Rivers State and Epe in
Nigeria. Lagos State are examples of areas involved in
(b) Blacksmithing: This local craft industry canoe craft activities.
engages in producing items like cutlasses, hoes,
MEASURES TO PROMOTE INDIGENOUS INDUSTRY
spears and other metal products used for 1. Provision of capital: Sufficient capital in form of
various purposes like farming and war. This short, medium and long term loans should be made
local craft industry is common with the people available to local investors to set up small, medium
of Awka and Nnewi in Anambra State and and large industries.
Benin City in Edo State.

412
2. Training of manpower: All tiers of governments should 14. Organising trade fairs: Government should annually
set up higher institutions to train people to acquire organize large trade fairs to exhibit and promote sales of
modern skills especially technical skills which would locally made goods both in local and foreign market.
enable people to ensure effective production of modern 15. Provision of subsidies and industrial estates:
goods. Government should provide industrial estates for local
3. Provision of basic amenities: Government should industries and grant them subsidies. These reduce their
provide all necessary social amenities in different parts of cost of production; and their products could be sold at
the country. They should ensure continuous and efficient affordable or competitive prices both in local and foreign
production and effective distribution of the locally made markets. Thus, they can always survive and keenly
goods to all parts of the country. compete with foreign firms.
4. Enlarge market size: Much efforts should be made to
motivate people towards buying of local goods. The Factory-based Manufacturing Industry
goods should be distributed to all parts of the country. The factory-based manufacturing industries in Nigeria
The income of workers should be increased, advertising
will be done through a zonal classification of
and sales promotion programmes should be undertaken to
arouse the public interest towards the buying of locally Nigerian manufacturing states, grouped into four
made goods. major industrial zones. These are the northern
5. Local sourcing of raw materials: Much efforts should industrial zone, the western industrial zone, the
be made to ensure sourcing of adequate raw materials. Midwestern industrial zone, and the southeastern
And other capital goods e.g. machines, genuine spare industrial zone.
parts, delivery vehicles, etc. should be made available to 1. Northern Industrial Zone: The main industrial
local industries. areas within the northern zone include Jos, Kano,
6. Conducting researches: All necessary researches should
be made available to local industries. Kaduna and Zaria. And the notable industries in
7. Ensuring political stability: Government should ensure the areas are textiles, food processing, rolling mills
constant political stability. This brings about peaceful and bottling companies. Kano, however, has the
atmosphere for the growth of local industries. largest concentration of such industries.
8. Development of entrepreneurial and managerial 2. Western Industrial Zone: The western industrial
skills: Absence of these skills is a major hindrance to the zone has most of its industries located in places around
development and growth of local industries. Thus,
Sagamu, Otta, Ifo, Agbara and Ewekoro in Ogun
government should establish appropriate tertiary (higher)
institutions like universities of technology and State. There also are industries in Ibadan, Oyho State
management to train people to acquire these essential as well as in Ile-Ife and Osogbo in Osun State. Others
skills. And much capital can easily be raised without are Apapa, Isolo, Ikorodu, Ikeja, Surulere, Ogba,
borrowing from banks but through sales of shares, stock, Mushin and Epe all in Lagos State. In these areas,
etc. to set up medium and large industries. And their there are textile industries, bottling companies,
effective management can be guaranteed. chemical and allied products companies and cement
9. Ensuring high productivity: Workers should be made
factories, among others. Lagos State has the largest
to produce more output per period (hour, day, etc).
Incentives or good conditions of services should be made concentration of factories in the western industrial
available to workers so that they could put in their zone and in Nigeria.
maximum efforts. 3. The Mid-western Industrial Zone: This zone
10. Granting tax holidays: All pioneers (newly established) includes Edo and Delta States. In Delta State, the
industries should be exempted from payment of profit main industries are the African timber and
and excise taxes for a minimum period of 10-15 years. Plywood Company, Sapele, Osse Rubber Estate,
This enables them to have sufficient money for running
iron Ore Milling at Aladja, and the Oil Refinery in
and expanding their firms.
11. Protection of infant industries: All newly established Warri. In Edo State, the major industries include
industries should be protected against foreign timber and plywood at Mkorowa, Oil Milling at
competition. the Nigerian Institute for Oil Palm Research
12. Formulation of good policies and laws: All tiers of (NIFOR), Iguoriakhi and Rubber Processing at
government should make favourable policies and good Iyanomo and Benin in Edo State.
laws that would create enabling (conducive) environment 4. Southeastern Industrial Zone: Here, the main
for the growth of local industries.
centres of industrial activities are Enugu, Onitsha,
13. Adoption of modern technology: Government should
encourage local industries to adopt modern technology Calabar and Port Harcourt, the industries include:
like use of complex machines e.g. automated or remote (a) Coal, limestone and palm produce in the
control machines in factories, ATM in banks and modern Enugu area.
system of organisation and marketing. (b) Rolling mills at Aba and Onitsha.
(c) Cement factories at Nkalagu and Calabar.
413
MEASURES TO PROMOTE INDUSTRIALIZATION 12. Development of infrastructural facilities: Both
1. Provision of capital: There should be capital inflow federal and state governments should modernize
into the industrial circle. Government should make (develop) our infrastructural facilities. They should
adequate capital – medium and long term loans to be build dual carriageways, more dams, water reservoirs
readily available to all firms and individuals. This and buy many transformers to ensure constant supply
enables them to set up large firms. of electricity and pipe borne water. They should also
2. Government direct participation: Government improve transport, postal and communication system
should be actively involved in setting up industries etc. These ensure rapid industrial development.
especially large industries whose capital cannot be
provided by the private sector. This makes complex ROLE OF INDUSTRIALIZATION IN THE
(big) industries like iron and steel complex, ECONOMIC DEVELOPMENT OF A COUNTRY
petroleum refinery, cement factory, etc to be The essence of industrialization is to increase national
available in a country. output i.e. to increase quantity of manufactured goods in a
3. Granting tax concession: Federal government country.
should grant tax concession to pioneer industries for a 1. Diversification of the economy: It makes a country
period of 10 years. This gives them financial strength not to rely on only one economic sector like
(more money) for expansion. agriculture or mineral. It rather makes the economy to
4. Protection of infant industries: Newly established be broad-based.
industries should be protected against foreign firms’ 2. Efficient exploitation of local raw materials: It leads
competition. This is done by restricting the to effective exploitation and use of all available local
importation (buying) of their products (goods). This materials in a country.
create demand for local goods. 3. Increases foreign exchange earning: Additional
5. Establishment of industrial estate: Federal foreign exchange which may be earned through
government should establish industrial estates exportation of industrial goods could be used to
properly developed with many infrastructural finance importation of capital equipment and skilled
facilities. This reduces development (initial) cost of manpower required for economic development.
new firms and it encourages both local entrepreneurs 4. Improvement of technical skills/manpower
and foreigners to set up firms in a country. development: The process of industrialization has
6. Formulation of industrial policy: Federal government aided the transfer of technology to West Africa.
should formulate appropriate industrial policies to boost Indigenous labour is trained in the various skills
industrial activities. required for industrial production.
7. Establishment of developmental banks: Federal 5. Processing of raw materials: It has led to proper
government should establish more developmental banks, processing of our agricultural and mineral products
like Bank of Agriculture (BOA), Bank of Industry, into semi-finished goods before export. They have
(BOI), Nigeria Export and Import Bank (NEXIM) etc. higher value and income than the ordinary or
which will lead to the setting up of many large industries unprocessed products.
in Nigeria. 6. Improved balance of payments: Increase in volume of
8. Efficient implementation of indigenisation decree: export of both agricultural and mineral products and
Federal government should ensure efficient decrease in import of some industrial goods have led to
implementation of the indigenisation policy so that improvement in our balance of payments position; it has
indigenes can effectively control the economy. This reduced or eliminated our balance of payments deficit.
eliminates foreign monopoly. 7. Increase in economic growth: Industrial activities
9. Establishment of more academic institutions – have greatly increased our various economic activities
training of manpower: Much more efforts should be and a rise in output of all sorts of goods and services.
made to train very many people in tertiary institutions, It has led to decrease in economic growth and
like university of technology, polytechnics, etc. to development.
acquire technical skills to man (run) our industries. 8. Provision of agricultural machines and inputs:
10. Easy access to imported capital goods: Federal Industries manufacture different types of agricultural
government should liberalize laws relating to importation machines and inputs e.g. tractors, harvesters, ploughs,
of capital goods, especially machines, vehicles, raw insecticides, chemical fertilizers, improved seedlings,
materials, etc. This makes them to be easily available to feeds, cutlasses, hoes, etc. This has led to mass
all industries. production of agricultural goods for both local and
11. Development of other economic sectors: Federal foreign market.
government should ensure proper development of other 9. Creating a wider market for the agricultural
economic sectors, especially agriculture, mining and sector: Industries may make use of agricultural
commercial sector ensures quick distribution and sale of products as raw materials, thereby agricultural
industrial goods. They quicken the rate of industrial productivity increases.
development.
414
10. Increases government revenue: The amount of revenue (f) Development of infrastructure: Infrastructural
derived by government has increased by way of more facilities, like good roads, electricity, pipe borne water,
excise duties, royalties company taxes etc.This has enabled hospitals, schools, railways, air and sea ports, etc
government to quicken economic development. should be properly developed throughout West
11. Increase in employment opportunities: Industries African countries in order to encourage industrialists
employ a large number of people. They create market for and other entrepreneurs’ especially foreign investors.
products of all economic sectors. This stimulates economic (g) Establishment of assembly plants and manufacture of
activities and a rise in gross domestic products. spare parts: Government should set up assembly plants to
12. Raises standard of living: It has led to increase in quality assemble different parts of large machines and vehicles.
and quantity of goods and services produced in a country. Secondly, essential spare parts fabrication plants for our
And this makes people to have and consume more high industries’ machines should be set upwhich will use local
quality goods and services than before. It raises their raw materials and indigenous labour.
general standard of living. (h) Establishment of labour – intensive industry: West
African countries should lay much emphasis on
INDUSTRIALIZATION STRATEGIES establishment of labour intensive industries as they absorb
A number of strategies can be adopted in the process of (use) more labour than machines.
industrialization. These strategies are most relevant to Note: Labour intensive industry is an industry that
under – developed (West – African) countries. employs more labour (people) than machines. While
capital – intensive industry is an industry that uses more
(a) Export promotion: This involves deliberate efforts by machines than labour.
government to encourage the production of a variety (i) Small scale versus large scale industrial development
of products for export. It is a strategy which is used to strategies: The small scale industries scheme involves
diversify the export base and to create more favourable deliberate efforts by government to encourage the growth
balance of payments. Exports could be promoted of small scale industries such as rice mills, oil palm mills,
through such ways as granting tax concessions to etc.
export – based industries, liberalizing the export At present, many West African countries are encouraging
licensing procedure and allowing exporters to retain the establishment of small scale industries by providing
their proceeds of foreign exporters exchange, etc. loans, use of tax incentives, etc. They are meant to provide
(b) Import –substitution Industry: This involves employment opportunities and reduce the rural – urban
deliberate government policy to encourage domestic drift of population, etc.
production of certain commodities which would be A large scale industrial scheme involves deliberate policy
otherwise be imported. It is a strategy which is by government to encourage the growth of certain large
pursued in order to create a more self – reliant scale industries which are thought to be indispensable for
economy and to improve the balance of payments the production of certain basic goods. These include iron
through a reduction of importers. This strategy could and steel plants, petrochemical industries, petroleum
be encouraged by adopting strict import control refineries, etc.
measures such as quota, bans, etc. And through tax
concessions granted to import – substituting industries. PROBLEMS OF INDUSTRIALISATION IN WEST
(c) Sourcing for local raw materials: Much effort should AFRICA
be made both by government and private (local and (1) Inadequate capital: In West Africa, it is difficult to get
foreign) investors to source for (obtain) local raw capital, money and equipment. This is due to high level
materials for their industries. This reduces demand for of poverty.
foreign raw materials. (2) Inadequate Industrial Manpower: West African
(d) Protection of Infant Industry: Infant industries are countries lack adequate supply of men with skills,
industries that are newly established and their products technical know – how and experience.
cannot compete favourably with those of old foreign (3) Inadequate infrastructural facilities: Industrialization
industries. Thus they should be protected with the aid revolves around the availability of such infrastructural
of tariff against foreign competition until they are facilities like good roads, power supply, water, e.t.c.
matured. (4) Political instability: Many West African countries
(e) Diversification of the economy: West African experience frequent changes in government and internal
governments should establish different types of crises, thereby discouraging both local and foreign
industries, like textile, vehicle, pulp and paper, flour, investments. This is unhealthy to industrialization in West
brewery, cement, foodstuffs, service mining, Africa..
processing and agricultural industries, etc, to produce (5) Small size of markets for industrial goods: Due to the
varieties of goods with high quality to satisfy the needs high rate of poverty in West Africa, demand tends to be
of different segments of the society. This reduces the low compared to what is obtained from advanced
high propensity for foreign goods and a fall in the countries. This discourages the establishment of
volume of import. industries.
415
(6) High cost of production: Most of the chemical SOLUTION TO PROBLEMS OF INDUSTRIALIZATION
inputs in production are imported into West Africa. IN WEST AFRICA
This increases cost of production and discourages 1. Effective training of manpower: Much more efforts
investors from establishing industries in West Africa. should be made to train very many people in tertiary
(7) Competition from industrialized nations: This institutions like universities of technology to acquire
factor also hampers the industrialization of West technical skills to man (run, manage) our industries.
African countries. 2. Provision of more capital: Federal government
(8) Low level technology: Many indigenous firms in should set up more development banks to provide
West African cannot buy sophisticated (modern) adequate medium and long term loans to industrialist.
machines and adopt modern techniques in production. Also other forms of loans and credit facilities
They rely on (use) old machines and adopt traditional (overdrafts) should be constantly made available to
and primitive method of production. This lowers the businessmen through commercial banks for setting up
rate of industrial growth. cottage (small) industries.
(9) Inadequate financial institutions: West African 3. Establishment of more basic infrastructures: The
countries do not have sufficient number of large three tiers of government should build more social
banks, like industrial or development banks that can amenities, especially network of good roads, reliable
readily grant medium and long term loans to business communication and postal system, improved transport
men and governments for setting up large industries. system, reliable power and water supply, etc to
Commercial banks and finance houses, are unwilling enhance (improve) performance of industries.
to grant short and medium term loans to business men 4. Ensuring political stability: Both federal and state
because of their inability to present good collateral government should device measures of quickly
security. This slow down the rate of development of tackling all political crises in order to create conducive
industries. environment that would encourage local entrepreneurs
(10) Poor Management of industries: The existing and bring in foreign investors.
industries are not efficiently managed due to 5. Favourable government policies: Federal
inadequate number of people with managerial skill government should formulate good policies and make
and business acumen in West African countries. The suitable laws that would boost industrialization
large enterprise like iron and steel companies, (encourage both local and foreign investors to set up
refineries, etc established in West Africa sustain industries in West Africa).
heavy losses due to poor management and high level 6. Ensuring constant power supply: Federal
of corruption. government should properly tackle the perennial
(11) High level of corruption: Corruption is quite problem of frequent power interruption in order to
rampant in West African countries. Embezzlement reduce running cost of industries. It ensures their
and bribery are common features (things) in public survival.
corporations. Even important goods cannot be bought 7. Effective protection of infant industries: Our infant
(or imported) and sold without bribery. They make industries should be properly protected against the
local industries to constantly sustain losses. It hinders keen competition of foreign firms. This quickens the
industrial growth. sales of local goods; and infant industries can survive.
(12) Political influence and government policy: Certain NB: Infant Industry simply refers to those industries
government policies do not encourage that produce goods and services locally and which are
industrialization. For example, enforcing too young to compete in the world market as their
entrepreneurs to locate their new firms in areas that products are less superior. They still need time and
are not viable has negative effects. Also other incentive to develop. They are therefore protected by
constructionists policies like high tax and interest the government from foreign competition with the use
rates have bad effects on their operation. of tariff, subsidy and other form of import restriction
(13) Inadequate raw materials: Many industries do not until they are fully developed.
have sufficient raw materials for their full capacity 8. Widening market size for industrial goods: More
operation at all times. This is due to either their ban efforts should be done to create effective demands for
or inability to have access to foreign exchange for local goods. This can be done through increase in
their purchase as well as inability to source for local income of our people and effective advertising and
raw materials. This has retarded our industrial sales promotion programmes both at home and abroad.
growth. These ensures continuous sales of our goods.
9. Embracing modern technology: Local industries
should be encouraged to buy sophisticated (modern)
machines and adopt modern techniques in production
of goods.

416
10. Provision of more capital goods: Sufficient capital 2023/31
goods like raw materials, machines and their genuine One factor that may not promote industrial development is
spare parts, generators, delivery vans, trailers, lorries, A. granting old firms tax exemptions
tankers, etc. should be made available to all local B. local firms entering into partnerships with foreign firms
industries. C. setting up industrial estates with modern amenities
11. Elimination of corruption/vices: All tiers of D. granting capital to firms at reasonable interest rates
government should wage war against corruption. More Answer
power should be given to anti-corruption agencies, e.g. One factor that may not promote industrial development is
EFCC, to prosecute and terminate corrupt officers. granting old firms tax exemptions (A)
Also other vices like armed robbery, kidnapping, etc
should wiped out. 1995/33 UTME
12. Effective management of industries: More efforts Infant industries denote industries which
should be made to ensure efficient running of A. are introducing new products
industries. This can be achieved through (i) B. are too young to compete in the world market
recruitment of qualified or capable personnel both C. produce baby food and mother care products
indigenes and foreigners (ii) efficient auditing system D. are allowed time enough to mature for recognition
(iv) increase in worker’s productivity (ensuring that Answer
workers are fully engaged at all times). are too young to compete in the world market (B)
13. Effective government participation: Federal and 1981/16 UTME
state governments should be much involved in the The infant industry argument for protection in developing
establishment of large industries; and they should countries recognizes the need to employ tariff to protect
ensure their effective maintenance and efficient A. industries producing baby food and clothing
management. B. industries owned by infants C. newly set up industries
14. Export drive (export promotion): The output of D. industries in which infants will be taken care of
large industries cannot entirely be sold in the local E. industries that behave like infants
markets. Thus much efforts should be made to sell a Answer
part in other countries. Thus government or owners of Newly set – up industries (C)
firms should export their products and promote their
sales in foreign countries. This widens market for their 2017/44
products; thus they can operate their firms at full Infant industries can be described as
capacity (always produce large output). A. newly established instustries
15. Granting tax concession: New companies should be B. industries enjoying tax holidays
exempted from payment of profit excise taxes for C. industries producing baby products
atleast 10-15 years. This enables them to have D. newly commercialized industries
sufficient money for production and expansion. Answer: Newly established industries (A)
16. Ensures high or moderate level of income for
people: Industrial (manufactured) goods cannot be 1979/50 UTME Exercise 16.9
easily sold except the people have money. Effort Infant industries are
should therefore be made to raise peeople’s level of A. baby food and baby clothing factories
income through employment, proper training for self – B. those which are introducing new products
employment, granting of short term loans to C. cases of arrested development
applicants, etc. These create market for industrial D. industries temporarily protected by tariff barriers until
goods. mature enough to compete on world markets
E. industries that are allowed to remain permanent cases of
2023/30 adolescence
Industries are sometimes located in areas which are not
profitable so as to
A. encourage rural-urban migration 1999/43 Nov Exercise 16.10
B. be able to reap internal economies of scale Which of the following is not a problem facing
C. be able to even-out development industrialization in West Africa?
D. bring about external economies of scales A. scarcity of capital
Answer B. adequate supply of unskilled labour
Industries are sometimes located in areas which are not C. poor infrastructural facilities
profitable so as to be able to even-out development (C) D. limited market for industrial goods

417
2008/26 Neco 2002/7 Nov
The establishment of industries in rural areas will lead to (a) What are infant industries?
the following except (b) Give four reasons why it is necessary to protect infant
A. creation of employment opportunities for the rural industries.
populace B. discouraging rural – urban migration Answer
C. even development of both rural and urban centres This refers to those industries that produce goods and
D. reduction of per capital income of rural dwellers services locally and which are too young to complete
E. speedy development of infrastructural facilities in the in the world market.
rural areas b (1) It helps in the local sourcing or raw materials.
Answer (2) It improves the standard of living of the people.
Reduction of per capital incomes of rural dwellers (D) (3) It creates employment opportunities for young
school – leavers.
(4) It helps in the production of consumer goods
1990/32 Nov locally.
The advantages a firms enjoys because of its size are
called 2002/15 Nov
A. comparative cost advantages One of the disadvantages of localization of industries is
B. absolute cost advantages A. social disorder in the urban centres
C. external economies of scale B. unemployment in the urban areas
D. internal economies of scale C. over population in the rural areas
D. diminishing marginal advantages D. under population in the urban areas
Answer Answer: Unemployment in the urban areas (B)
Internal economies of scale (C)
2002/36 Nov
2000/33 West African countries have encouraged industrial
An industry that is involved in the manufacturing of fragile development through the
or perishable products should be located close to A. expansion of port facilities
A. source of labour B. source of power B. liberation of foreign trade C. restrictions on imports
C. source of raw materials D. the market E. the road D. award of contracts to foreigners
Answer: The market (D) Answer
Restrictions on imports (C)
2019/31 Neco
Firms whose output is either bulky or perishable will 1996/13 Nov Exercise 16.12
benefit more from which of the following locational All the following are ways by which government
factors? encourages industrialization in Nigeria except
A. nearness to financial institutions B. nearness to labour A. funding of technical education B. tax increases
C. nearness to market D. proximity to electricity C. relaxation of industrial policies
Answer: Nearness to market (C) D. establishment of industrial development bank
2019/30 E. provision of basic amenities
Which of the following is a major advantage of
establishing a tomato processing factory in a country? 1993/8
A. local consumption will decrease The rural areas of West African countries lack industries
B. more unskilled labour will be employed because
C. foreign exchange will be conserved A. rural people are not meant to work in industries
D. it will attract more tourists B. rural people are uneducated
Answer C. of adequate infrastructure D. of low population
Foreign exchange will be conserved (C) E. they are not suitable for industries
Answer Of adequate infrastructure (C)
1992/34 Nov Exercise 16.11 1993/9
Which of the following is a disadvantage of localization of An entrepreneur will locate his industry in a place
industries? A. nearest to his home town
A. reducing the cost of production B. where the cost of production will be minimized
B causing structural unemployment C. nearest to his wife’s hometown
C. encouraging the growth of unskilled manpower D. where the government directs him to locate it
D. encouraging subsidiary industries E. where there is no other industry
E. aiding cooperation among firms Answer
Where the cost of production will be minimized (B)

418
2016/33 NABTEB 2015/32
Which of the following is not a purpose of Location firms of an industry is not influenced by
industrialization in Nigeria? A. availability of raw materials
A. provision of employment opportunities B. existence of other firms
B. increasing per capital income of the country C. nearness to the source of money supply
C. provision of sufficient ammunitions for wars D. government policy
D. enhancing the welfare of the people Answer
Answer Existence of other firms (B)
Provision of sufficient ammunitions for wars (C)
2019/44 NABTEB
In Nigeria, the location of steel industry at Ajeokuta is due to
2016/43 NABTEB
A. the availability of transport network
The major factors influencing the location of a cement B. the proximity to source of power
factory is the C. the proximity of large deposits of iron ore
A. availability of market B. wish to the entrepreneur D. political consideration
C. availability of limestone D. presence of a good road Answer
network The proximity of large deposits of iron ore (C)
Answer
Availability of limestone (C) 2012/14 Nov
A mining industry is usually located near the
2009/32 A. market B. source of raw material supply
Manufacturing involves the process of C. source of finance
A. making goods available B. providing finished products D. reservoir where there is much water
C. changing items to new states Answer
D. providing capital goods only Source of raw material supply (B)
Answer
changing items to new states (C) 2020/31
The best location for a firm is where
2013/32 Neco Exercise 16.13 A. raw materials are readily available for use
Which of these is not an advantage of localization of B. a market place is situated
industry? C. power is being generated
D. it can achieve its profit maximizing objectives
A. a pool of skilled labour is made available
Answer
B. creates employment opportunities
Raw materials are readily available for use (A)
C. encourages urban – rural migration
D. external economic of scale 2000/24 Exercise 16.14
E. health competition which leads to innovation An industry can best be described as
A. a place where goods are processed
2010/22 Neco B. a place where different firms produce different goods
Which of the following is a merit of localization of C. an aggregation of individual firms producing similar
industries? commodities
A. brings about invention and innovation D. the concentration of various firms in the same locality
B. causes migration
C. causes shortage of social amenities 2010/28
D. causes structural unemployment The following are all factors determining the location of
E. creates avenue for congestion industry except
Answer A. minimum wage rate B. availability of labour
Brings about invention and innovation (A) C. nearness to raw materials D. proximity to market
Answer
2010/24 Neco Minimum wage rate (A)
Which of the following is a problem of industrialization in
Nigeria? 2003/10
A. balance of payment position Which of the following is an advantage of localization of
industry?
B. excise tax reduction
A. development of subsidiary firms
C. political influence and government policy
B. creation of parallel markets C. development of slums
D. repatriation of profits D. attraction of foreign capital
E. tariffs protection incentives Answer
Answer Development of subsidiary firms (A)
Political influence and government policy (C)

419
2003/20 1998/15
Which of the following is necessary for the survival of One of the advantages of localization of industry is that
small firms in West Africa? firm
A. access to land for development A. make abnormal profits B. are given tax holidays
B. inadequate collaterals for bank loans C. are unified under one management
C. government assistance in the form of loans and tax D. pay high wages E. can have a large pool of skilled
holidays D. high transportation labour
Answer Answer
Government assistance in the form of loans and tax Can have a large pool of skilled labour (E)
holiday (C)
2017/28
1990/30 An industry whose product loses considerable weight after
Where there is localization of industry processing must be sited close to
A. firms make low profits A. the source of finance B. a ready market
B. firms are always in disagreement with one another C. a power station D. the source of raw materials
C. there is a large pool of skilled labour Answer
D.all the firms are under one management The source of raw materials (D)
E. firms operate at a loss
Answer 1990/4
There is a large pool of skilled labour (C) The concentration of industries in a particular area is
known as
1994/7 A. location of industries B. industrial concentration
Which of the following is not an advantage of localization C. localization of industries D. industrial congestion
of industries? Answer
A. enjoyment of external economies localization of industry(C)
B. development of a pool of skilled labour for the industry
2009/27 Neco Exercise 16.17
C. development of subsidiary industries
The concentration of firms in one area is referred to as
D. development of organized market
____ of industries
E. growth of conurbation
A. location B. localization C. multiplication
Answer
D. proliferation E. pluralization
Growth of conurbation (E)

2011/10 Neco Exercise 16.15

1993/5 Nov
An advantage which a firm derives as a result of increase
Localization of industries refers to the
in its size and expansion of its output is known as
A. concentration of the firms of an industry in a particular
A. external diseconomies B. external economies
area B. siting of industries in different areas
C. independent economies D. internal diseconomies
C. zoning of industries
E. internal economies
D. government policy of influencing the location of
industries
E. siting of two industries in the same area
2011/32 Neco Exercise 16.16
Answer
An industry is a Concentration of the firms of an industry in a particular area (A)
A. collection of plants
B. company where goods are produced 2023/17
C. group of firms with similar product A small scale firm located within an industrial estate will
D. place where production takes place enjoy
E. unit of production A. government protection and funding
B. technological economies of scale
2002/30 Neco C. external economies of scale
What should not be considered when siting an industry? D. financial economies of scale
A. availability of capital B. availability of computers Answer
C. nearness to source of power A small scale firm located within an industrial estate will
D. nearness to raw materials enjoy external economies of scale (C)
Answer
Availability of computers (B)

420
1993/32 Nov 2014/30 Neco
A possible disadvantage of localization of industries in An industrialized economy stand the benefit of enjoying
West African cities is that it may the following except
A. makes the cities vulnerable to enemy attack in times of war A. development of infrastructure
B. reduce unemployment in the localized area B. development of skilled manpower
C. aid the growth of subsidiary industries in the cities C. employment generation
D. develop a pool of skilled labour in the cities D. increase in national income
E. increase the standard of living of most of the workers in E. reduced technical know – how
the cities Answer Reduced technical know – how (E)
Answer
Make the cities vulnerable to enemy attack in times of war (A) 2014/51 Neco
A group of firms producing similar products is referred to
2003/8 Nov as a/an
A possible disadvantage of localization of industries in A. company B. conglomerate C. factory
West African cities is that it may D. industry E. plant
A. make the cities vulnerable to enemy attack in times of Answer Industry (D)
war
B. reduce unemployment in the localized area 1992/6
C. aid the growth of subsidiary industries in the cities Outline the ways in which the federal government has
D. develop a pool of skilled labour in the cities encouraged industrialization in Nigeria in recent years?
Answer Answer
Make the cities vulnerable to enemy attack in times of war (A) Ways in which the federal government has encouraged
industrialization in Nigeria.
2007/28 Neco
(i) There are better system of road networks, especially
Which of the following is not an advantage of localization
the express roads, efficient telecommunications,
of industry?
electricity and water supply system.
A. availability of social amenities
(ii) The federal government gives tax concession to
B. development of subsidiary industries
pioneer industries for a specified number of years
C. highly organized markets
during which the company will not pay tax.
D. supply of skilled labour E. traffic decongestion
(iii) The government protects infant industries through
Answer
high import duties, outright ban or placement of quotas
Traffic decongestion (E)
on imported commodities which competes with those
2001/47 Neco of home industries.
Infant industries denote industries which (iv) The government has also established industrial estates
A. are allocted time enough to mature for recognition and thus reduced the problem of locating industries in
B. are introducing new products urban towns.
C. are too young to compete in the world market (v) Increases of industrial loans which have enabled more
D. produce food and mother care products businessmen to obtain loans and establish more
E. produce food for a small sector of the population. industries.
Answer
Are too young to compete in the world market (C) 2015/5 Exercise 16.19
(a) What are infant industries?
2000/13 Nov Exercise 16.18 (b) State any four reasons for protecting infant industries?
The major factor for locating the Portland cement factory (c) Outline any three ways by which industries can be financed
at Ewekoro in Nigeria is the availability of in West Africa?
A. market B. unskilled labour C. electricity
D. raw materials 2014/9 Neco
2000/25 Nov State and explain five measures that could be taken to
One of the problems facing the industrial sector in West increase the pace of industrialization in Nigeria?
Africa is Answer
A. increasing capacity utilization (1) There should be a wider market.
B. creation of industrial estates C. high cost of credit (2) There should be capital inflow into the industrial
D. growing domestic market circle.
Answer (3) Stable political climate should be guaranteed.
High cost of credit (C) (4) The development of small scale industries should be
encouraged.
(5) Economic crimes must be eliminated.

421
2009/42 Neco 2005/11 Nov
The process of building up a country’s capacity to process Give five reasons why governments in West Africa desire to
raw materials for the production of goods is known as have their countries industrialized
A. firm B. industry C. industrialization (1) The governments should provide the basic infrastructural
D. location of industry E. localization of industry facilities necessary for industrialization.
Answer (2) There should be capital inflow into the industrial circle.
Industrialization (C) (3) There should be more training facilities for the
development of the work force.
2011/6 (4) Economic crimes must be eliminated.
(a) Differentiate between a firm and an industry. (5) The development of small scale industries should be
(b) Explain any five factors that can influence the location encouraged.
of a cement factory.
Answer 1980/4 UTME Exercise 16.20
(a) A firms is an independently administered business unit Which would you NOT consider an agro – based industry in
carrying out production, construction or distribution Nigeria?
activities or a unit of ownership while an industry is a A. a diary enterprise producing milk
collection of firms that are engaged in the same line of B. a yam flour mill
production. C. a poultry industry D. a fertilizer plant
(b) Factors that influence the location of a cement E. none of the above
factory.
(1) Nearness to the source of raw materials: The sources 1983/3 UTME
of raw materials should determine the location of Which of the following items is NOT an argument for locating
industry especially where the raw materials are bulky. industries in rural areas?
(2) Nearness to the market: Goods and services are A. rural areas supply agricultural raw materials
produced in anticipation of demand. It is therefore, B. the pace of development will be quickened in rural areas
very necessary that one should consider locating his C. employment will be provided for rural inhabitants
industry in an area where the demand for the product D. capital is easily available in rural areas
or market is large. E. suitable humid climate is sometimes found in rural areas
(3) Nearness to source of power and water supply:It is Answer
important that while establishing an industry one Capital is easily available in rural areas (D)
should consider the supply of qualified workers whose
services are required at all cost. 1983/38 UTME
(4) Availability of good transport and communication Which of the following is NOT an advantage of localization of
system: A good and efficient transport system is industries?
required to transport raw materials to the industry, A. reaping of external economies
finished products to the markets and workers to and B. development of a pool of skilled labour for the industry
from their places of work. Good means of C. development of subsidiary industries
communication facilitates business. D. development of organized markets
(5) Availability of source of capital and financial E. growth of conurbations
institutions: Industrialist requires sufficient capital for Answer
the efficient running of their businesses. Growth of conurbations (E)

2007/7 Nov 1985/27 UTME

Highlight the importance of industrialization in the rapid The petro – chemical industries are located in the River State
economic development of a country of Nigeria due to
(1) Manpower training and development. A. favourable climate B. favourable soil
(2) It improves the standard of living of the people. C. oil deposits D. palm oil products E. coal deposits
(3) It helps in the production of consumer goods locally. Answer
(4) It creates employment opportunities for young school Oil deposits (C)
– leavers.
(5) It brings about a rapid economic development. 1986/29 UTME
(6) Cost of living will be highly reduced. Which of the following advantages of localization of industries
may also be a disadvantage?
A. external economies B. concentration of industries markets
and of people C. development of organized markets D.
reduced costs of research
Answer
Concentration of industries and of people (B)
422
1987/31UTME 1991/28 UTME
Which of the following is a disadvantage of regional Industries tend to be located closer to market centres than
concentration of industries? to the sources of major raw materials if the
A. development of congested urban areas A. products are relatively cheap to transport to market
B. existence of regional unemployment centres
C. high cost of labour D. immobility of labour B. products are relatively more expensive to transport than
Answer the major raw materials
Development of congested urban areas (A) C. raw materials are bulky
D. raw materials can also be imported
1988/30 UTME Answer Raw materials are bulky (C)
Localization of industries refers to the
A. tendency to concentrate industries in particular areas 1992/29 UTME
B. siting of industries in certain areas Firms are often set up close to each other in order to take
C. deliberate policy of influencing location of industries advantage of
generally A. supply of skilled labour
D. zoning of industries B. agglomeration economies
Answer C. internal economies of scale
Tendency to concentrate industries in particular areas (A) D. external economies of scale
Answer
1989/27 UTME External economies of scale (D)
Industries that can be randomly located are characterized by
1992/30 UTME
A. relatively low transport cost for both raw materials and
The consumer goods industry is predominant in the
output and factor mobility
industrial sector of the Nigerian economy because of the
B. relatively heavy transport cost for raw material or
A. availability of market and most of the raw materials
output
required
C. constant returns to scale
B. availability of the necessary machinery required
D. significant economy of scale
C. experience of Nigerian producers
Answer
D. relatively lower cost of production on such goods
Relatively low transport cost for both raw material and
Answer
output and factor mobility (A)
Availability of market and most of the raw materials
required (A)
1990/27 UTME
Which of the following factors is the most important in 1993/30 UTME
siting a petro-chemical plant? One of the most important factors that should be
A. nearness to the source of raw materials considered in the location of an industry is
B. nearness to the source of power A. nearness to the financial centre
C. availability to labour B. assured patronage by government functionaries
D. proximity to financial institutions C. availability of inputs and market
Answer D. availability of adequate security
Nearness to the source of raw materials (A) Answer Availability of inputs and market (C)

1990/28 UTME 1995/32 UTME

Which of the following will be the effect of allowing only The crucial factors which determine the location of
economic factors to dictate the location of industries in petroleum refineries in Nigeria are availability of raw
Nigeria? materials and
A. a more even development of the different parts of the A. capital B. political consideration C. nearness to
country will be assured source of power D. labour
B. there will be an unbalanced spread in the distribution of Answer
industries Political consideration (B)
C. the less developed parts of the country will be able to
attract more industries 1997/27 UTME
D. only the government will be able to finance the Plywood industries are often located near the source of
establishment of industries A. finance B. labour C. power supply
Answer D. raw materials
There will be an unbalanced spread in the distribution of Answer
industries (B) Raw materials (D)

423
1997/29 UTME 2002/44 UTME
One of the dangers of localization of industries is One of the major factors militating against
A. residual unemployment B. mass unemployment industrialization in Nigeria is the
C. structural unemployment D. cyclical unemployment A. inadequacy of infrastructural facilities
Answer B. absence of government participation
Structural unemployment (C) C. frequent breakdown of equipment
D. failure to get foreign partners and supports
1998/26 UTME Answer
A factor that influence the location of a firm near its Inadequacy of infrastructural facilities (A)
market is the
A. transportation of bulky raw materials 2002/47 UTME
B. external economies C. high cost of transporting One of the problems arising from the localization of
finished goods D. availability of skilled manpower industries is
Answer A. high prices of output B. the exportation of output
High cost of transporting finished goods (C) C. the scarcity of foreign exchange
D. structural unemployment
1999/28 UTME Exercise 16.21 Answer
Concentrating industries in one place is advantageous Inadequate infrastructural facilities (D)
because there are grains in terms of
A. external economies B. internal economies 2004/15 UTME Exercise 16.22
C. economies of scale D. cost economies A major cause of the slow pace of industrialization in
Nigeria is inadequate
2000/26 UTME A. raw materials B. landmass C. skilled labour
Industries contribute to national economic development D. communal labour
because there are gains in terms of
A. employ an increasing number of labour 2005/15 UTME
B. utilize local raw materials The major contribution of the petroleum industry to the
C. provide recreational facilities Nigerian economy is the
D. use modem machines which replace human labour A. generation of revenue for the oil companies
Answer B. provision of employment opportunities for communities
Utilize local raw materials (B) C. generation of revenue for government
D. promotion of industrial harmony
2001/28 UTME Answer
A disadvantage of concentrating industries in an area is Generation of revenue for government (C)
that it could
A. lead to collusion – among the firms 2005/17 UTME
B. result in environmental pollution Localization of industries in Nigeria is mainly influenced by
C. bring about diseconomies of scale A. market size B. population groupings
D. increase the cost of production C. raw materials D. external economies
Answer Answer
Result in environmental pollution (B) External economies (D)

2001/31 UTME 2006/5 UTME

An industry is a A major factor militating against rapid industrialization in
A. company producing unrelated commodities Nigeria is
B. group of firms producing related commodities A. poor market facilities B. poor transport facilities
C. group of firms producing distinct commodities C. epileptic self – reliance D. improves the terms of trade
D. firm producing differentiated commodities Answer
Answer Leads to growth and development (B)
Group of firms producing related commodities (B)
2007/6 UTME
2002/30 UTME Industrialisation is a prerequisite for balanced economic
The benefit that accrue to a firm as a result of an growth because it
improvement in the industry it belongs to are called A. enhances productivity in the manufacturing sector
A. internal economies of scale B. economies of scale B. expands employment opportunities in urban areas
C. market economies D. external economies of scale C. encourages trade liberalization
Answer D. stimulates development of all sectors
external economies of scale (D) Answer Stimulates development of all sectors (D)
424
2008/38 UTME 2010/40 UTME Exercise 16.24
A major consideration in locating a cement factory is the In developing countries, government influence the location
availability of of industries in order to
A. skilled labour B. power C. infrastructural facilities A. spread development B. encourage entrepreneurs
D. limestone C. redistribute wealth D. encourage industries to earn
Answer Limestone (D) high profits

2009/43 UTME 2012/40 UTME

In Nigeria, the location of a steel industry at Ajaokuta is A sugar industry is best located near the source of
due to A. labour B. raw materials C. power D. capital
A. the availability of transport network Answer
B. the proximity of source of power Labour (A)
C. the proximity of enlarge deposits of iron ore
D. political consideration 2012/41 UTME
Answer An important contribution of small scale industries to the
The proximity of source of power (B) Nigerian economy is in the area of
A. technological development
2009/44UTME B. foreign exchange earnings
Industries for consumer goods are concentrated in urban C. raw materials processing
centres as a result of D. labour employment
A. large market B. power supply C. government Answer
policy D. weather conditions Foreign exchange earnings (B)
Answer
Large market (A) 2013/37 UTME
The most important determinant for the location of a brick
2009/45 UTME industry is the availability of
The current industrial development strategy in Nigeria is A. market B. power supply C. water
aimed at encouraging D. raw materials
A. small scales industries B. medium – scale industries Answer
C. small and medium scale industries Market (A)
D. medium and large scale industries
Answer 2014/29 UTME
Small scale industries (A) One of the challenges facing the banking industry in
Nigeria is
2009/46 UTME A. ensuring technological security
Activities in the oil and gas industry are classified into B. provision employment C. providing loans for
A. oil exploration and distribution investment D. creating more money
B. refining and marketing of finished products Answer
C. upstream and downstream D. exploration and drilling Providing loans for investment (C)
Answer Exploration and drilling (D)
2014/37 UTME
2010/23 UTME A major disadvantage of localization of industry is
An industry’s supply curve is more likely to be elastic A. the risk of structural unemployment
when firms are B. over – utilization of installed industry capacity
A. enjoying free entry and exit C. the risk of seasonal unemployment
B. operating below capacity D. under utilization of installed industrial capacity
C. operating at full capacity Answer
D. maximizing profits Under utilization of installed industrial capacity (D)
Answer
Operating at full capacity (C) 2014/38 UTME
One major factor that determines the location of an
2010/39 UTME Exercise 16.23 industry is
Localization of industries refers to the A. tax exemption grant B. its proximity to the market
A. spread of firms producing different products C. the capital base
B. concentration of firms of an industry D. the social responsibility of the firm
C. siting of industries near the market Answer Its proximity to the market (B)
D. siting of firms producing different products

425
2015/20 UTME 2017/2018/31(NDU, AWKA)
Localization of industry is mainly determined by A major consideration in locating a cement factory is the
A. diseconomies of scale B. population growth availability of
C. division of labour D. access to the raw materials A. skilled labour B. power C. infrastructural facilities
Answer Access to raw materials (D) D. limestone
Answer Limestone (D)
2016/45 UTME
One of the major factors militating against 2019/2020/24 (UI, IBADAN)
industrialization in Nigeria is The major factor that influenced the citing of
A. low level of foreign investment petrochemical industries in Rivers State is
B. frequent breakdown of equipment A. nearness to market B. the availability of skilled
C. inadequacy of infrastructural facilities manpower C. the availability of power supply
D. government participation D. the availability of raw materials
Answer Inadequacy of infrastructural facilities (C) Answer
The availability of raw materials (D)
2016/46 UTME
One of the factor that is considered in the location of a 2014/2015/76 (UI, IBADAN)
cement industry is nearness to Infant industries are
A. market B. raw materials C. infrastructural facilities A. baby food and baby clothing factories
D. skilled manpower B. those which are introducing new products
Answer Raw materials (B) C. cases of arrested development
D. industries temporarily protected by tariffs barriers until
2018/9 UTME mature enough to compete on world markets
Which of the following is an advantage of localization of E. industries that are allowed to remain permanent cases of
industry? adolescence
A. development of subsidiary firms Answer
B. creation of parallel markets Industries temporarily protected by tariffs barriers until
C. development of slums mature enough to compete on world markets (D)
D. attraction of foreign capital
Answer Development of subsidiary firms (A) 2014/2015/78 (UI, IBADAN)
Which of the following is NOT an advantage of
2009/2010/17 (NDU, AWKA) localization of industries?
“Localization of industry” refers to the A. reaping of external economies
A. concentration of the firms of an industry in a particular area B. development of a pool of skilled labour for the industry
B. sitting of industries in rural areas C. development of subsidiary industries
C. even spread of industries D. development of organized markets
D. government policy of influencing the location of E. growth of conurbation
industries Answer Growth of conurbation (E)
Answer
Concentration of the firms of an industry in a particular
area (A) 2014/2015/79 (UI, IBADAN)
2013/2014/37 (NDU, AWKA) The crucial factors which determines the location of
A major cause of the slow pace of industrialization in petroleum refineries in Nigeria are availability of raw
Nigeria is inadequate materials and
A. skilled labour B. communal labour C. raw materials A. capital B. political consideration
D. land mass E. insecurity C. nearness to source of power D. labour
Answer E. availability of seaports
Skilled labour Answer
Labour (D)
2017/2018/29 (NDU, AWKA)
The advantages which firms obtain directly from 2018/2019/47 (NDU, BAYELSA) Exercise 16.25
expanding their operations are referred to as If the cost of production for a firm continues to increase as
A. internal economies of scale its output rises, the firms is said to be experiencing
B. external economies of scale A. large scale production B. profit maximization
C. economies of localization C. economies of scale D. diseconomies of scale
D. economies of resource allocation E. increasing return to scale
Answer
Internal economies of scale (A)
426
2018/2019/53 (UNIZIK, AWKA)
The following are all factors determining the location of
industry except
A. minimum wage rate B. availability of labour
C. nearness to raw materials D. proximity to market
Answer
Minimum wage rate (A)

2019/2018/79 (DELSU, ABRAKA)

The current industrial development strategy in Nigeria is
aimed at encouraging
A. small–scale industries B. medium scale industries
C. small and medium scale industries
D. medium and large scale industries
Answer
Small – scale industries (A)

2012/1 (OAU, IFE)

The following is the main difference between firm and
industry
A. industry is the group of firms producing related
products
B. industry is the group of firms in the manufacturing
sector
C. industry is a group of firms in different sectors of the
economy
D. industry is the group of firms with a single pressure
group
Answer
Industry is the group of firms producing related products
(A)

2011/10 (OAU, IFE)

The following are the advantages of internal economies of
large scale production except
A. financial economies B. administrative economies
C. technical economies D. market preference
Answer
Market preference (D)

427
 (2) The level of economic development: The levels of
NATIONAL INCOME AND ELEMENTARY economic development or state of technical know –
THEORY OF INCOME DETERMINATION how is another factor that influences the national
income of a country. For example, if a country is
NATIONAL INCOME developed, it is expected that her national income will
National Income can be defined as the total monetary be relatively high.
value of goods and services that are produced in a country
during a particular year. It is the value of a nation’s total (3) People’s attitude towards work: The only way to
output. build national income is through production. In order
It could be said that the national income is the summation to produce large volume of output, the citizens of the
of all money generated by all factors of production during country must be hardworking. In a country where the
a given year in a country. These are rent for land, interest citizens are only interested in money and other good
for capital, wages for labour and profit for things of life, the productivity will be low, and since
entrepreneurship. volume of production equals national income, this
means that the national income will be very low.
National income can also be referred to as the total (4) Political stability: If a country is to achieve high
monetary value of goods and services produced within an national income figure, production must be
economy plus net income from abroad. At all times, the maintained at a very high level, and if this must be
national income of a country is equivalent to the amount of achieved, political stability is very important. If a
all expenditure made in the economy for the purpose of country is politically stable, then its national income
economic activities. The income of the government refers is likely to be low.
to the revenue it raises through taxation and borrowing.
(5) Bad management: A country’s national income
revolves around government economic policies. If
National income is usually represented by the symbol
there is inefficient allocation of resource, corruption
“Y”,Volume of production is also an alternative name for
national income as it represents the market value of goods or other forms of malpractice and bad management of
the country’s resources, then national income figure
and services produced in an economy.
Therefore, National income = Volume of production. will be low.
(6) Population: Large population stimulates
REASONS FOR NATIONAL INCOME MEASUREMENT consumption and this determines the size of a
(1) It helps us to determine the standard of living in a country’s national income. Consumption destroys
country. national income.
(2) It is a measure of economic development.
(3) It helps in the calculation of per capital income and 2013/51 Neco
per capital output. National income is the
(4) It is used to determine the total income earned by the A. difference between income from abroad and payment to
foreigners B. GDP minus depreciation
citizens of a country who carry out economic
C. GDP plus net factor income from abroad
activities during a given year. D. net foreign investment
(5) It enables us to know the contribution made by the E. total value of all goods and services
various sectors of the economy. Answer Total value of all goods and services (E)
(6) It can be used as a basis for comparing the standard
of living and the level of economic development NATIONAL INCOME ACCOUNTING AND
between two or more countries. CONCEPTS
(7) It is used to determine the pattern of expenditure in a National income accounting is a set of rules and
country. techniques for measuring the total flows of output
(8) It can be used to assess the effectiveness of produced and inputs used by the country.
development plans and economic progress.
(9) It can be used as an effective tool in the allocations of Personal income
scarce resources. This is the amount of current income received by persons
from all sources including transfer payments from
CAUSES OF DIFFERENCES IN NATIONAL INCOME OF government and business. It is the total incomes the person in
COUNTRIES OR REASONS WHY COUNTRIES DIFFERS an economy usually receive i.e. their actual receipts from all
(1) Availability of natural resources: The stock of sources. It also includes net incomes of unincorporated
factors of production are not equally or evenly business and non – profit institution and non – monetary
distributed among nations. Therefore, the quantity income, such as the estimate of the value of homes occupied
and quality of a country’s natural resources could be by their owners. The major monetary components of personal
the major determinants of the size of her national income are labour income, rental income, proprietor income,
income. dividends, interests and transfer payments.
428
Disposable income amount of money a country has to spend each year
This is part of income which is left after personal income to maintain its present level of economic production.
tax is deducted, that is personal income less taxation. It is It is expressed as a percentage of GDP. By removing
the amount left for spending and saving. It is also known the capital cost from GDP gives you the net
as take – home. domestic product. While changes in CCA may
confirm economic trends, it is still a backwards –
1990/46 UTME looking figure. CCA that is too high a percentage of
Disposable income is an income which GDP indicates poor economic growth.
A. is available for consumption and savings CCA is calculated asa percentage of gross domestic
B. pensioners receive from the government product (GDP). The percentage of GDP not
C. is payable to the disabled members of the community allocated to the CCA is called net domestic product
D. accrues to the environmental sanitation authorities for and represents investment spending.
refuse disposal
Answer Gross National Product (GNP)
Income which is available for consumption and savings (A) This refers to the value of goods and services produced
within a country during a year plus net income from
Gross Domestic Product (GDP) abroad. It is the sum of all value added in the economy at
This is the total monetary value of all final goods and factor cost and it is equivalent to the gross national
services produced in a country within a period of one year, income. It is calculated as
by the residents of the country regardless of whether they (i) In a closed economy: This is an economy where the
are citizens or foreigners. It emphasizes the geographic country does not participate in international trade i.e.
aspect of production, that is, value of output within a no import and export. In a closed economy, GNP is
country (i.e. domestic production), It therefore excludes calculatedas
the earning of citizens or their investment abroad, but GNP = AE = GDP
include the earning of foreigners or earnings from foreign GNP = AE = C + G + I
investment in the country.
(ii) In an open economy: This is one where the country
participates in international trade. In order words,
GDP measures the monetary value of goods and services
there is foreign sector which is made up of exports
produced within a country during a given year and
and imports.
irrespective of the nationalities of the producers. The value
GNP = AE = GDP + NI
of such goods and services are usually measured at what is
GNP = AE = C + G + I + (X – M)
known as market price or ultimately at factor cost.
Where
AE= Aggregate Expenditure
The GDP of a country should be equal to the total
C = consumption or consumers’ expenditure
expenditure made in the country for the purpose of
G = government expenditure on goods and services
economic activities.
I= Net Domestic Investment.
GDP = AE = C + I + G
NI = X – M = Net income from abroad.
Where AE = Aggregate (total) expenditure.
X = Export
C = consumption or consumers’ expenditure
M = Import
G = government expenditure on goods and services.
X – M = Net Export
I= Net Domestic Investment.
NB: NI = X – M
Net Domestic Product (NDP)
This is the GDP less depreciation. In this case, allowances are Net National Product (NNP)
made for the “wear” and “tear” of capital (i.e. capital This is the Gross National Product less depreciation. Net
consumption). Net Domestic Product can be defined as the National Product is also known as Net National Income
total monetary value of all final goods and services produced (NNY). It is the net value added to a country wealth during
by all the residents of a country and earnings from their a given year. It is calculated as
investment (whether citizens or foreigners) after allowances NNP = GNP – Depreciation
have been made for depreciation. It is calculated as NDP = NNP = C + G + I + (X – M) – D .
GDP – Depreciation = C + G + I – D. Where
Where C = consumption or consumers’ expenditure C = consumption or consumers’ expenditure
G = government expenditure on goods and services G = government expenditure on goods and services
I= Net Domestic Investment. I= Net Domestic Investment.
D = Depreciation X – M = Net income from abroad.
X = Export
NB: Depreciation represents the capital consumption M = Import
allowance. The capital consumption allowance D = Depreciation
(CCA), sometimes referred to as depreciation, is the
429
Depreciation or capital consumption allowance OTHER RELATED TERMS
Depreciation is the fall or reduction in the value of assets GNP IN CURRENT PRICE
as a result of usage, wear and tear, obsolescence or total This occurs where GNP is calculated at prices prevailing
replacement. That is, it is the value of capital goods which during the same year of measurement. GNP at current
is used up in production during a given period. price incorporates inflation at the current rate, or at market
Depreciation reduces the monetary value of capital price.
equipment as well as national income.
GNP AT CONSTANT PRICE
Per capital income or GNP per head This occurs when GNP is measured at the price ruling in
This is the average national income of a country. It is the an arbitrary base year. This attempts to remove inflation in
national income of a country per person, if the income GNP by holding the GNP figure constant. Thus, GNP at
were to be divided equally among the citizens. It is instant price is real GNP because the effect of inflation has
calculated as follows. been isolated from the GNP figure.

(i) As a basis of total population GNP GAP

Real GNP This refers to output that could have been produced if the
GNP per person = economy were to be fully employed, but which in fact
Total population

(ii) As a basis of working population goes unproduced. It is calculated as potential or budgeted

Real GNP GNP minus actual GNP.
Per capital income =
Working population
GNP DEFLATOR
Year 2000 Year 2007 This is also called implicit GNP deflator. It is a price index
GNP at current price (₦M) 200,000 270,000 with current year quantity weights measuring the average
population (million) 200 240 change in price of all the items in the GNP. That is, it
From the information above calculate: compares two sets of GNP figures which yield an index
(i) Percentage increase, in GNP between the years. number of price changes. It is calculated as
GNP in current price 100
(ii) GNP per head of the population in 2000 and 2001. GNP Deflator = ×
GNP in constant price 1
Solution
(i) % increase in population
Nominal GDP 100
=
GNP in Current Year − GNP in constant or base year
×
100
GNP Deflator = ×
GNP in constant or base year 1 Real GDP 1
270,000×106 − 200,000×106 100
= 200,000×106
× 1
GNP deflator could also be seen as an index number derived
70,000×106 100
by dividing current price GNP by constant price GNP.
= 200,000×106 × = 35%
1
GNP Factors limiting the use of per capita income as a
(ii) Per capita income = Total population measure of comparing standards of living between
(a) Year 2000, we have per capital income to be countries
200,000×106 (i) The choice of appropriate exchange rate is a problem
Per capita income = 200×106 = ₦1,000
in the sense that there are changes in exchange rates
(b) Year 2007, we have per capital income to be over time which may not necessarily reflect
270,000×106
Per capita income = 240×106
= ₦1,125 differences in domestic price levels in different
countries.
2011/51 Neco (ii) The scope of subsistence production differs and so the
Per capital income is the value of goods and services produced may not be
A. national income divided by population accurately estimated in different countries.
B. national income minus output (iii) Leisure and pleasure as well as non-material
C. national income multiplied by population advantages enjoyed by people (which cannot be
D. national income plus output accurately estimated in monetary terms) vary from one
E. population divided by national income country to another.
Answer (iv) The share of military production in total output vary
National income divided by population (A). from that of another country.
(v) Other factors such as cultural, social, political, etc.
may make accurate comparison impossible.

430
MEASUREMENT OF NATIONAL INCOME Solution
The most commonly measured aspect of national income (₦M)
in West Africa is the GDP. This is because it is difficult to Wages and salaries 20,000
calculate income or value of output generated by citizens Profits and interest (+) 15,000
abroad. It is also difficult to ascertain the output Rental income 4,000
attributable to the use of foreign factors of production. Total domestic income 39,000
Deduct:
National income can be computed in three ways:
Computation error 1,000
(1) Income Approach (Income method):This is a
GDP at factor cost (Income base) 38,000
method of measuring national income whereby the
total income earned by the citizens of a country who
Add Net Income From Abroad
carried out economic activities both within and
Income from foreign assets (Exports) 40,000
abroad are added up. The income approach is a
Payment to foreigners (Imports) (–) 18,000
method of national income accounting whereby the
Gross National Income or GNP (Income base) 22,000
income earned by the factors of production are added
60,000
up. Such incomes are net interest, net wages, net rent
Deduct:
and net profit. It excludes transfer earnings such as
Depreciation 5,000
pension, unemployment benefits, student grants, etc.
Net National Income (NNY) 55,000
This is so because transfer earning are not income
that occur as a result of performing economic
NB: Government pension, unemployment benefit and
activities.
student grants are excluded from the calculation because
The income approach measures national income at they are transfer earnings.
factor cost or price. This method gives us the net
income (NY) which occurs to economic activities. It PROBLEMS OF THE INCOME METHOD
is calculated as follows (1) Double counting due to transfer payments: Gifts to
NNY= GNP – D – Ta beggars, value of scholarship, pensions to retired
Where workers, unemployed benefits may be included
NNY= National Income leading to over – estimation.
GNP =Gross National Product (2) Inadequate statistical data: This is due to the
D = Depreciation presence of large informal and self – employment
Ta=Taxation sectors. Records of income are most often either
poorly kept or not kept at all in the subsistence or self
NB: employed sectors.
(i) Government pension, unemployment benefit and (3) Services not paid: These include services of house
student grants are excluded from the calculations wives and voluntary organizations. Their values are
because they are transfer earnings. difficult to ascertain because they are not paid for.
(ii) Transfer earnings or income is regarded as a gift to (4) Retained earnings by firms (ploughed – back
someone who has not earned the money given to profits): Parts of the income of firms which are not
him by contributing anything to production. paid as dividends, but retained for re – investment
may not be included.
Example: NI 1 (5) Frequent price changes: Rapid increases in prices
From the information given, compute the country’s Net may lead to over estimation of national income.
National Income (NNY) (6) Income from capital gains: This is often mistaken to
S/N ITEMS AMOUNT be transfer payments, leading to underestimation of
(₦M) national income.
1. Wages and salaries 20,000 (7) Problem of owner – occupied houses: The value of
2. Profits and interest 15,000 rent which owners of houses would have paid if they
3. Rental income 4,000 do not live in their own houses is most often
4. Government pension 2,000 underestimated.
5. Income from foreign assets held by 40,000 (8) Problem of measuring the value of depreciation:
Nigerians. Values of depreciation is not easy to estimate.
6. Unemployment and social benefit 8,000 (9) Problem of assessing net income from abroad:
7. Payment to foreigners on foreign 18,000 Many payments made to other countries do not pass
assets held in Nigeria through official channels, making national income
8. Depreciation 5,000 estimation difficult.
9. Residual computation error 1,000
10. Student grants 6,000
431
(2) Expenditure approach: This is a method of Solution
measuring national income whereby the amount of Computation of GNP at factor cost and net national
expenditure made in the economy of goods and income, using expenditure approach
services by individuals, government and private (₦M)
investors during a year are added up. Such Personal consumption Expenditure (C) 100
expenditure do not include expenditure on Government Expenditure (G) 68
intermediate or capital goods, such as expenditure on Net Private Domestic Investment (I) 70
raw materials. For expenditure to be part of national Increase in Stock 8
income measurement, it must have been made on Total Final Expenditure at Market Prices 246
economic activity. The procedure for calculating Add Exports 69
national income, using the expenditure approach is GDP at Market Price 315
given as. Deduct: Indirect Taxes 55
Y = GDP = C + G + I + (X – M) 260
Y = GNP = C + G + I + (X – M) + P Add subsidies 6
Where GNP at factor cost (Expenditure Base) 266
Y= National Income Deduct Import 64
C = Personal consumption expenditure 202
G = Government Expenditure Deduct depreciation 40
I = Net private Domestic Investment. Net National Income (NNY) 162
X = Export
M = Import
X – M = Net Export PROBLEMS OF EXPENDITURE METHOD
P= net property income (1) Difficulty in measuring value of imports and
exports: Many payments do not pass through official
2009/48 Neco channels and are therefore difficult to estimate.
Using expenditure approach to estimate National Income, (2) Double counting: Intermediate expenditures are
Y is equal to often included, leading to double – counting and over
A. C + I + G + X – M + P – V B. C + I + G + X – M + P estimation.
C. C + I + G – X – P D. C – I + G + X – M + P (3) Problems of measuring value of capital
E. C + I – G + X – M – P depreciation: Capital depreciation is difficult to
Answer measure and leads to wrong estimation.
C + I + G + X – M + P (B) (4) Abundance of owners–occupied houses: Rent would
have been paid by landlords if they do live in their
own houses is sometimes ignored.
Example: NI 2 (5) Frequent price changes/changes in the value of
From the information provided below, calculate the GNP money: This makes determination of value of goods
at factor cost and Net National Income. The figures are and services difficult.
given in million naira. (6) Payments in kind: Sometimes payments are made in
((₦M)) the form of goods and services. Value of such goods
Personal consumption expenditure 100 and services are sometimes difficult to determine.
Personal Domestic Investment 70 (7) Inadequate data due to the presence of a large
Export of Goods and Services 69 informal sector: Records of expenditure of
Government Expenditure 68 households and business units in the informal sector
Taxes on Expenditure 55 are most often not kept.
Import of Goods and Services 64
Depreciation 40 (3) Product or output Approach: These measures the total
Subsidies 6 monetary value of all final goods and services produced in
Increase in stock 8 the country at market price. However, the value of such
final goods and services may or may not include the value
of intermediate products. The product approach is divided
into two.

(I) Gross basis: This method measures the country’s

national income by simply adding up total monetary
value of all goods and services produced by the
country irrespective of the stages of production. The
greatest problem associated with the gross basis is
that of double counting due to the inclusion of the
value of intermediate goods.
432
Example: NI 3 The effect of inflation could be isolated from the
From the data provided below extracted from an economy current year national income, using GDP deflator as
that produces only three commodities, you are required to follows:
calculate GNP at market prices and GNP at constant prices GDP in current price 100
GDP Deflator = ×
for 2010 and 2011. GDP in constant price 1
25,000 100
Output and Product cost = × = 184%
13,600 1
Products Quantity produced Market price per
in tonnes unit Assuming that production has not risen within the periods,
2010 2011 2010 2011 then inflation has led to 84% (ie 184% –100%) increase in
Oil 1,000 2,000 ₦5 ₦10 GDP.
Groundnut 500 800 ₦4 ₦5 (II) Value added or net basis approach: This is an
Cocoa 500 200 ₦2 ₦5 extension of the output approach. The value
Solution added approach is a method of national income
Computation of GNP at current or market price measurement whereby the total values added in
GNP At Current GNP At Current the economy at the various levels of production
2010 Price 2011 Price are summed up in order to derive the national
Products Output Value of Output Value income figure. Where the value added is the
unit price Gross unit price of difference between the sales value of a firm’s
output Gross output, and the cost of its material input. This
output approach assumes that the process of production
2010 (₦) 2011 (₦) is continuous until the finished goods reach the
Oil 1,000 × 5 5,000 2000 × 20,000 final consumers. The output of a firm usually
= 10 = form part of the material input of another firm. It
Groundnut 500× 4 = 2,000 800 × 5 = 4,000 eliminates the double counting of intermediate
Cocoa 500× 2 1,000 200 × 5 = 1,000 goods.
Total 2,000 8,000 3,000 25,000
From the calculation above, it could be seen that GNP at Example: NI 4
current 2010 prices is ₦8,000 and GNP at current 2011 The following data were extracted from the national
prices is ₦25,000. income record of a closed economy where production
activity took place in two firms. Use the data to answer the
ii. GNP at constant prices: The GNP is usually calculated question that follow:
at the unit price of the base year. According to the Items Firms X ($M) Firm Y ($M)
question above the base year is 2010 while 2011 is the Sales 6,000 12,000
current year. Therefore, in calculating GNP at constant Raw materials 3,000 1,800
prices, 2011 quantity will be multiplied by unit prices Profit and rent 120 4,200
of 2010. Capital allowance 480 1,200
Products Qty Unit price Value in 2010 Labour cost and interest 2,400 4,800
Prod. per ton (ai) Which of the item in the table is an intermediate
2011 2010 i.e. at constant input and what happens to the intermediate inputs
prices in the computation of national income?
Oil 2,000 ₦5 10,000(2000 × 5) (ii) Calculate the GDP of the country.
Groundnut 800 ₦4 3,200 (800×4) (b) Determine the Net Domestic Product of the
Cocoa 200 ₦2 400 (200× 2) country.
13,600 Solution
2011 GNP at 2010 constant price. (i) The intermediate input amount, is the raw
From the calculation above, it could be seen that GNP materials. It is usually excluded or deducted in
at constant price is ₦13,600. This means that if the national income measurement so as to avoid
quantity produced in 2011, were measured at the double counting.
prices ruling in 2010 the GNP value would have been (ii) From the information made available, two
less compared to what it was when calculated at 2011 methods of national income measurement could be
market prices. adopted and they must produce the same result.
The methods are:
The increase in GNP from ₦13,600 to ₦25,000 is (iii) Value added (Product) approach or Income
partly due to inflation, and partly due to increase in approach
productivity.

433
(1) Using value added approach (8) Problems of depreciation and application of
Items Firms X Firm Y Total different principles in measurement of capital
($M) ($M) ($M) consumption: Estimation of value of depreciation is
Sales 6,000 12,000 18,000 not easy and different principles may be used leading
Less raw 3,000 1,800 4,800 to inaccurate measurement or to different values of
materials national income.
GDP 3,000 10,200 13,200
GENERAL PROBLEMS OF NATIONAL INCOME
(2) Using income approach ACCOUNTING
Items Firm X Firm Y Total 1. Double counting: The national income accounting is
($M) ($M) ($M) prone to danger of double counting because of the
Profit and rent 120 4,200 4,320 inability to: (i) determine all types of transfer
Labour cost and 2,400 4,800 7,200 payments. (ii) separate all inputs from output in order
interest to know value added. And the failure to do this
correctly leads to double counting.
NDP 2,520 9,000 11,520
2. High rate of illiteracy: Illiterate people regard
Capital allowance 480 1,200 1,680
national income accounting exercise as a means of
GDP (Income 3,000 10,200 13,200
assessing their incomes for taxing purpose. Thus they
base)
obstructs statisticians’ efforts.
3. Inadequate record: The statisticians cannot lay hands
(ii) Computation of NDP on reliable record of production out, income and
(NDP = GDP – Depreciation
expenditure. It is because individuals, small scale
GDP less Firm X Firm Y Total firms and government departments do not develop
capital ($M) ($M) ($M) tradition of systematic keeping of record. This
Allowance 3,000 11,200 13,200 prevents them from obtaining accurate national
480 1,200 1,680 income figure.
NDP 2,520 90,200 111,520 4. Predominance of subsistence production: It is fairly
difficult to place monetary value on goods and
NB: services that are not sold but consumed by their
GNY = GNP = GNE producers. They include housewives services, services
Where: people rendered either to themselves or freely to others
GNY = Gross National Income as well as food items, e.g. garri, fishes, etc. consumed
GNP = Gross National Product by the producers. This leads to under – estimation of
GNE = Gross National Expenditure. national income figure.
5. Effects of inflation: Inflation which changes the value
PROBLEMS OF THE PRODUCT OR OUTPUT of money upset the national income calculation. For
APPROACH this reason, adjustment has to be made if there is to be
(1) Large subsistence production: It is difficult to any meaningful comparison between the national
measure the value of self – consumed goods and income of one year with that of another year.
services in the subsistence sector e.g. in subsistence 6. Inadequate statisticians: West African countries do
farming. not have sufficient number of experts to participate in
(2) Value of services not paid for: It is difficult to national income accounting exercise. It is mainly
measure the value of services not paid for such as undertaken by unqualified and inexperienced
those of housewives and voluntary organizations. personnel whose performance leads to inaccurate
(3) Double counting: It is difficult to estimate the value national income figure.
of input and business expenses especially in the 7. Effect of depreciation: In calculating the net income,
informal sector, thereby leading to the double it is necessary to know the rate of depreciation. But
counting. most times, it is difficult to ascertain the life of capital
(4) Frequent price changes/change in the value of equipment. It is not easy to know the actual value of
money: This makes it difficult to estimate accurately depreciation of capital. To compound the problem, the
the value of output. rate of wear and tear of capital is not constant
(5) Welfare services provided by the government: throughout the life span of capital.
Values of welfare services are often under estimated. 8. Effect of over estimation: It is not always easy to
(6) Inadequate data: Records of value of output are ascertain the exact amount of income, expenditure or
often not kept in the informal sector. output. The tendency here is to make a rough estimate
(7) Problems of classification: It is sometimes difficult of what the national income figure is expected to be.
to distinguish a capital good from a consumer goods This may lead to the over or under estimation of
e.g. car, generator. national income figure.
434
9. Difficulty of determining all profits: We can living to a large extent depends on the value of money
determine profits of large firms especially from their (i.e. the purchasing power of money). What a dollar will
balance sheets. But profits realized by small firms, buy in different countries varies. Some countries may be
individual traders, contractors, artisans, etc are quite having a high rate of inflation while others may be
difficult to estimate. having deflation. The per capita income may therefore
10. Inadequate foreign record: The net property income not give a true picture. In addition, the interference of
from abroad is difficult to calculate accurately because some governments in the determination of foreign
of lack of knowledge of exact number of Nigerians’ exchange rates may not show the true demand and supply
investment in abroad and foreigners’ investment in this conditions of the various currencies.
5. There are differences in working conditions and
country.
opportunity cost of output: National income figures do
11. Difficulty of assessing rent: We can easily determine
not take into consideration the differences in working
values of rent of tenants. But it is fairly difficult to conditions and the real cost of increasing national output.
assess the rent of owner-occupied houses both in urban Although a country may have a high level of national
and rural areas. income, this may have been achieved by increased
12. Illegal business: Constant or daily smuggling of working hours and poor social relations. In addition, in
goods into and out of the country make it difficult to the measurement of national income cognizance is not
obtain accurate net foreign trade (to know actual value taken of hazards such as environmental pollution, urban
of export and import). congestion, etc., which may reduce economic welfare.
13. Unknown expenditures: We can easily determine the 6. The People’s hardship is not revealed: The estimates
expenditures made by firms and government. But it is do not reveal the sufferings endured by the citizens in
fairly difficult to estimate expenditures incurred by order to get it increased, and the estimates do not expose
households (individuals) and foreigners in a period, the work conditions of the citizens even when it is
especially those in rural areas. possible that the increase in national income was
achieved through economic hardships in term of poor
LIMITATIONS IN THE USE OF NATIONAL INCOME living conditions, urban congestion, environmental
ESTIMATES hazards, pollution and working long hours with little pay.
1. They do not reveal how national income is 7. They are unreliable for the measure of standard of
distributed: The national income figure tells us the living: As a measure of the standard of living, it is not
overall income of the state in a particular period. The reliable due to the inaccurate records of data collected
estimates do not reveal how the income is distributed both during the computation of the national income
among the people of the country. It fails to show whether estimates, and the population figures. When two
it is widely distributed or just concentrated in the hands inaccurate estimates are used for the calculation of the
of some few rich persons. per capita income, the result is bound to be faulty and
2. There may be differences in compiling the estimates: fairly unreliable in the comparison of the standard of
Difference in compiling the national income estimates living of one country with another.
makes it a fairly unreliable data in the computation of the 8. They do not include subsistence production: It does
per capita income. In the calculation of the income not measure subsistence production – goods that are
estimates in the developed nations, all relevant income consumed by their producers. For example, output of
product or expenditure data are well kept both in the farmers, fishermen, etc. which are either wholly or partly
urban and rural areas, unlike what is found in the less consumed, services of housewives, free services either to
developed countries, West Africa inclusive. Good oneself or to others, etc. are not included in the national
records are found mostly in the towns while such records, income figure.
especially among the rural farmers and the self- 9. They do not reveal pattern of expenditure: National
employed, are almost non-existent. This shows that priority or pattern of expenditure varies from one country
estimates from the developed countries will be higher to another. Some countries spend a lot of money on
than those from the less developed ones, thus making the armaments (nuclear weapons); while others lay emphasis
comparison of their per capita income inaccurate. on capital goods. Some European countries, for instance,
3. They do not reveal rate of inflation: When inflation spends a lot of money on winter clothes and heating.
occurs, the prices of goods and services go up and the Africans regard such expenditure as unnecessary, and
resultant effect is that a particular amount of money now don’t form a part of our national expenditure. Although,
buys fewer goods than it did before the inflation. The these expenditures lead to increase in the gross national
effect of this is to increase the national income estimates. expenditure, they don’t lead to a rise in the living
This will tend to suggest that the standard of living has standard of the people.
increased while it has actually decreased. 10. There may be population changes and problems of
4. There are differences in the internal value of money: population statistics: The size of national income may
Although it is possible to convert the national income not in itself be a true measure of economic welfare
figures of different countries to the same currency (by because of changes in population and different
using foreign exchange rates) there is still a limit to its population sizes. To get a better picture, the per capita
use in comparing standards of living. The standard of income has to be used. But for purpose of comparison,

435
 problem arises. The per capita income may have been 6. Availability of large scale enterprises: The
calculated by using wrong population data. Some availability of a large number of medium and large
countries do not have reliable data. The use of per capita scale enterprises in a country, like those of USA,
income estimates would not give the correct picture in enables a large amount of high quality goods e.g.
such countries. machines, vehicles, electronics, foodstuffs, etc to be
11. The needs of various countries are not the same: In produced in a period. It leads to a great rise in the
some cases a large percentage of the National Income national income figure.
may be used in overcoming a natural disadvantage which 7. Level of development of infrastructural facilities:
is not present in the other. For example, plenty of fuel is Well-developed infrastructural facilities like dual
needed to keep houses warm in Norway while there is no
carriageways, constant supply of electricity and pipe-
need for house heaters in the Sudan. Again, cow is highly
borne water, modern sea and airports, reliable postal,
valued as a source of food in Nigeria, while many Indians
do not eat beef. Although a country may have high transport and communication system, etc foster
National Income figures, if a large percentage is used to production, distribution and exchange of goods in a
overcome natural hazards or is made up of things which country. This raises national income figure.
many of the population do not need, the citizens may not 8. Government policy: Good government policies
be better off. encourages everybody, both indigenes and foreigners
12. There are differences in the structure of production: to actively involve in all economic activities. This
In some countries there is a large subsistence sector. In leads to a rise in the gross domestic products.
such countries, the level of output is more likely to be 9. Stability of the economy: Constant stability of certain
grossly underestimated than in a country with a market economic variables, especially level of prices,
economy. Non-marketed output which is important in the exchange rate, taxes, interest rate, etc encourages
underdeveloped economies tends to be neglected. production and it make the national income figure to
rise, and vice versa.
DETERMINATION OF THE NATIONAL INCOME 10. Quantity and quality of factors of production: A
A country’s national income is determined by the very high quantity and quality of factors of production
following factors: available in a country make the national product to
1. Availability of natural resources: The availability of rise, and vice versa.
abundant natural resources like rich minerals, suitable 11. Attitude to work: The higher the people’s eagerness
climate, fertile soil, vibrant forest with many commercial towards work i.e. positive attitude, the higher the
trees and wild animals, network of good rivers with many national income figure, while a negative attitude is
fishes, and their effective exploitation raise the level of worrisome and damaging to the economy.
output and a rise in the national income figure. 12. Size of labour force: The higher the size of the labour
2. Availability of skilled labour: Availability of force, all things being equal, the higher the national
abundant skilled labour, especially technical skill and income figure, and vice versa.
being properly involved in different production
activities in a country raise the level of output of goods SOURCES OF NATIONAL INCOME STATISTICS
and services. It leads to a rise in the national income (1) Foreign trade figures: The value of imports and
figure. exports can be determined from these.
3. Political climate: If it is stable it will accelerate economic (2) Pay rolls of various establishment: Private and
activities but if it is unstable it will destabilize the economy public, from which income can be estimated.
and scare away local and foreign investors. (3) Income tax returns: They contain details of income
4. Availability of capital: The availability of a large and tax payable.
amount of capital in form of machines, vehicles, (4) Economic survey: These include household surveys
equipment, factory buildings, raw materials and other in which an idea of the general pattern of expenditure
forms of social capital like good roads, educational can be got. There are also industrial and agricultural
and health care facilities, dams for generating surveys to determine industrial and agricultural inputs
electricity, hygienic water supply, reliable transport and expenditure patterns.
and communication system in a country enables the
citizens to be properly involved in all forms of REASONS FOR MEASURING NATIONAL INCOME
production and distributive activities. They lead to a (1) National income figures are used for economic
rise in output of goods and services. planning: National income figure enables the
5. Availability of modern technology: The use of government to ensure effective economic planning. It
sophisticated (modern) machines and applying new or guides the government in making important polices
most recent techniques of production as well as and ensuring proper planning for today as well as for
efficient management, effective method of marketing future.
the goods in both local and foreign markets make (2) It enables us to determine per capita income: It
output to rise very high. This leads to a rise in the enables us to know the per capita income (income per
national income figure. person in a country). The per capita income is
436
 obtained by dividing the national income figure with STRUCTURE AND TREND OF NATIONAL INCOME
the population size. Therefore the national income The components of Nigerian national income or GDP and
figures is an indispensable (very important) factor in the changes in the contribution of the various sectors to
knowing income per person. national output can be seen by looking at national income
(3) It is used to measure economic progress: National figures for two periods.
income progress figures provides information about Structure of national output (income) 1960
the performance and growth rate of the economy. By Sector ₦ Percentage
comparing the figures for different years it will be Million share of
possible to known what is happening to the economy GDP
as a whole. It can show whether the rate of economic 1. Agriculture (livestock, 1423.8 63.4
growth is high or low. crop farming, fishing,
(4) It serves as an instrument of comparison: It serves forestry)
as a yardstick of comparing level of wealth or 2. Mining and quarrying 19.8 0.9
standard of living among different countries. 3. Manufacturing and craft 80.6 3.6
Countries with higher per capita income enjoy higher
4. Electricity and water 7.5 0.3
standard of living than those with low per capita
supply
income.
5. Building and construction 67.4 3.0
(5) It influences foreign investors: It enables everybody,
6. Distribution 203.2 9.1
especially foreigners, to know the level of wealth
(national income) of different countries. This 7. Transportation and 97.8 4.4
influences foreigners’ investment decision. They communications
invest more on countries with higher national 8. Others (Education, health, 344.5 15.3
incomes (per capita income) than those with less general government e.t.c.)
national incomes. Total 2244.6 100
(6) It forms the basis for contributions to international
organizations: Contributions to such international Structure of National Output (Income) 1975
organization as the United Nations, the Sector ₦ Percentage
Million share of GDP
Commonwealth of Nations, etc. is often based on the
1. Agriculture (livestock, 3,372.7 23.4
degree of prosperity of different countries. One way
crop farming, fishing,
of determining the level of prosperity is the use of forestry)
national income estimates. The rich countries with 2. Mining and quarrying 6,552.3 45.5
higher per capital income will be expected to 3. Manufacturing and craft 6839 4.7
contribute more than the poorer countries with a low 4. Electricity and water 58.7 0.4
level of income per capital. supply
(7) It provides basis for aids and technical assistance: 5. Building and construction 821.4 5.7
In giving aid and technical assistance, world 6. Distribution 971.2 6.7
organization such as the United Nations and the 7. Transportation and 325.0 2.3
World Bank sometimes gives priority to the poorer communications
countries with a low level of income per capital. 8. General government 901.8 6.2
(8) It leads to re-distribution of income: Through the 9. Education 376.4 2.6
income method, we become aware of the incomes of 10. Health 132,0 0.9
different communities, states, local governments or 11. Other services 215.3 1.5
Total 14,410.7 100
groups of people. And the government can therefore
ensure proper re-distribution of income among the From the tables above, it is seen that the GDP of Nigeria in
people or states in order to reduce income inequality 1960 was N2,244.6 million, while it rose to N14,410.7
gap in the society. million in 1975. This represented a mean annual growth
(9) It serves as an instrument for revenue allocation: rate of about 34% within the period. The per capital
We cannot allocate revenue based on the principle of income also increased from ₦43.5 in 1960 to N187.85 in
derivation without the knowledge of the national 1975.
income figure. The exercise enables the government
to know the output of different states or areas. Thus The table of the major components of national output in
she allocates more revenue to states with more output 1960 shows that agricultural activities alone accounted for
than the states with less output. over 60% of GDP. Distribution as a single component
comes next with a 9.1% share of GDP. Mining and quarry
contributed little to the GDP in 1960 (i.e. less than 1%).
The dominant position of agriculture and the relative
unimportance of mining activities in terms of their share of

437
GDP continued until the end of the 1960 period. From the FACTORS DETERMINING A COUNTRY’S STANDARD OF
early 1970s, mining and quarrying took over from LIVING
agriculture as the major contributors to the GDP. This was (1) Level of National Income or Output: The
mainly as a result of the increased production of petroleum fundamental reason for the differences in the levels of
and allied products. There was also an upward trend in the living between different countries is the difference in
share of manufacturing and construction activities during their levels of national income. The level of national
the period. By the middle 1970s increased revenue led to income depends upon the total volume of production
increased construction activities. in the country. Those countries having higher national
income or output enjoy higher standard of living.
MONEY INCOME AND REAL INCOME Nigeria has comparatively low national income hence
Money income of a country is the amount of income (in the standard of living cannot be high.
monetary terms) earned by factors of production excluding (2) Natural resources: This includes mineral deposits,
transfer payment in a given year or flow of goods and sources of fuel and power (such as coal and
services produced in an economy. electricity) fertility of the soil and fisheries around the
coast, etc. Nigeria has abundant natural resources and
However, money, as a medium of exchange, and a hence its standard of living would be higher, if the
measuring device, has one major disadvantage. This is the resources were fully developed.
change in its size from time to time due to inflation in the (3) Distribution of National Income: If there is large
system. Hence, there is a difference between money inequality in the distribution of income, then the
income and real income. standard of living of a few rich people will be very
high, while the living standard of the masses of the
Real income is the basket of goods and services which the people will be extremely low.
money income can obtain. (4) Nature of the labour force: The greater the
proportion of workers to the total population and the
In terms of the National Income, Real national income is longer their working hours, the standard of living will
obtained by dividing the money national income by the be higher. The nature of the labour force will be
price index. affected by the original qualities of the people, their
health, adaptability, ability to organize themselves
If, for example, the Gross National Product of a country corporately in production and skill that they learn
was ₦80billion in 1992 and ₦320billion in 2002, it means through training and education. In West African
money income has grown four fold during this period. But countries, each have abundant labour supply, the
if during this same period, prices have doubled, then real problem is that the labour force is not skilled or
income in 2002 would be ₦160billion measured by 1992 trained. Productivity tend to be low and the standard
naira value. This means that twice as many goods and of living is low.
services were produced in 2002 as in 1992. (5) Political stability: A stable government promotes
NY confidence and thereby encourages savings and
Real Income= Price Index
investment in long term projects. Production is
Where therefore greater which in turn improves the standard
NY= National Income of living.
From the scenario above, when the price lndex was 2, the (6) Technical knowledge: Technical knowledge is the
real income became ₦160billion result of research and invention. The standard of
NY ₦320billion
Real Income= = = ₦160billion. living is higher in developed countries because of the
Price Index 2
development of new techniques to harness and use
STANDARD OF LIVING natural resources.
A country’s standard of living can be defined as the (7) Organization of the factors of production: The
national income per head (per capital income) of the available factors of production must be combined in
population. It also refers to the level of welfare attained by the right proportions, in their right places and in the
individuals in a country at a particular time. right ways for production. This is a responsibility of
entrepreneur. The lack of entrepreneurs retards
Standard of living refers to the good things of life progress.
including social amenities available in a country, which (8) Capital equipment: The effectiveness with which
make life worth living. That is, the extent of economic natural resources and the labour force are used
welfare which are affordable by the citizens of a country. depends almost entirely and the capital equipment
Income per capital is one of the indices for measuring with which they can be combined. Thus coal and
differences in the standard of living between countries. other mineral resources need machinery to extract
them from under the surface. Similarly, the output per
worker can be vastly increased if the right capital
equipment is given to him.
438
(9) Size of Population: Relative to its resources, if a THE RELATIONSHIP BETWEEN STANDARD OF
country is over-populated, it has crossed the optimum LIVING AND COST OF LIVING
size of population. This bring down the per capita The cost of living depends on the prices of goods and
income which is the most important single factor that services consumed. If the prices of goods and services are
determines the standard of living. high, this means an increase in the cost of living since
(10) Under Development: Economically, Nigeria is people have to pay more money to obtain them. If the
underdeveloped in agriculture, trade, industry, prices increase, people purchase fewer goods and services.
transport, banking, etc. That is why the country’s They therefore consume less. And this means a fall in their
output is low and the national income is low, standard of living.
resulting in a low standard of living.
On the other hand, if prices of goods and services fall,
(11) General Price Level: Another factor determining the
people will be able to obtain them in greater amount and
standard of living of people is the general price level
variety. This means a fall in the cost of living. They would
in the country. Given the national income, the
also purchase high quality goods and services. This will
standard of living of the people will be lower when
increase their level of consumption and their standard of
the price are high and higher when the price are low.
living will increase.
Different price levels prevail in different countries.
This also accounts for the differences in standard of Therefore a rise in the cost of living reduces the standard
living of the people between different countries. of living while a reduction in the cost of living increases
Other things being equal, if the price level in country the standard of living. It is the cost of living that
A is higher than in B, the standard of living will be determines the standard of living.
lower in A than in B.
ELEMENTARY THEORY OF INCOME DETERMINATION
MEASURES ADOPTED TO IMPROVE STANDARD OF
The Circular Flow of Income
LIVING
The circular flow of income is a diagrammatic
(1) Economic development: A conscientious effort must
representation of the flow of productive resources, income
be made by the government in the country to promote
and products from one sector of the economy to the other.
all round economic activities, this will bring about
The diagram itself shows how income and all other
rapid economic development. This will raise the
resources move or flow from one sector of the economy to
national income and, therefore, standard of living.
the other. For the purpose of circular flow of income, the
(2) Family planning: Family planning programmes
economy is usually divided into two sectors as shown
should be pursued on a nationwide scale. This will
below:
reduce the size of the families and make available
1. Household, private or consumer sector: This sector
larger share of income per head. The standard of living
consists of private individuals who render services in
will therefore rise.
production and consume the finished products
(3) Spread of education: Educational facilities should be
produced by the business sector. They own the factors
well established so that people learn the value of richer
of production and consume finished goods and
and fuller life. This also helps in raising the family
services.
income.
2. Business sector: This sector acquires productive
(4) Improvement in the means of transport and
resources from the household in order to produce
communication: This is a powerful influence in
goods and services. It consists of government and
raising the standard of living as it will enable
private investors.
interaction with people who have a higher standard of
living and unconsciously imitate them to achieve same
HOW RESOURCES, INCOME, GOODS AND
mark.
SERVICES FLOW FROM ONE SECTOR OF THE
ECONOMY TO THE OTHER.
COST OF LIVING
Let us illustrate with a simplified situation: a primitive
Cost of living refers to the total amount of money spent to
community where there are only two persons: the firm
obtain the goods and services which will enable one exist
(producer) and the household (consumer). The firm
at a particular time. Cost of living refers to the money cost
produces goods which it sells to the consumer who in
of such things as food, shelter, clothing, medical facilities,
return sells his factor services (factors of production) to the
education, recreation, etc.
firm. In other words, the producer buys the factor services
The cost of living largely depends on the prices of goods (labour, land, skill and capital) of the household and it
and services which an individual consumes. If the prices of pays him money in terms of wages, rent, interest and
goods and services are high, the cost of living will be high profits (dividends).
because he has to spend much money to obtain goods and It uses them to produce goods and services which it also
services. But if prices are low, less money will be spent, sells or gives out to the household in return for money.
and so the cost of living is low. And the household who also uses the money to buy goods
439
from the firm. This circular movement of income (money) interrelated. This relationship between income and
is referred to as ‘Circular Flow of Income and Goods consumption, income and savings, and investment and
between a Household and a Firm’. It is a simplified savings as exemplified in the simple Keynesian equation
circular flow model of a capitalist state. thus:
(i) Y = C + S.
It is important to note that the above illustration ignores
(ii) Y = C + I
the third decision maker – government who collects taxes
From (i) S = Y – C
and she expends them on goods and services. It also
(ii) I = Y – C
assumes that all the incomes of consumers are spent on the
S = I i.e. savings is equal to investment
goods and services; that is, there is no saving. Similarly,
Where
all the money received by the firm are entirely used to buy
Y = Income
factor services – there is no reserved profit (no saving).
C = Consumption
Thirdly, we assume that it is a closed economy – there is
S = Savings
no external trade – goods and services don’t move in and
I = Investment.
out of the community. These shows that it is a very
simplified illustration of the circular flow of income
between a producer and a consumer. SAVINGS
Saving is the proportion of households’ disposable income
which is not spent on consumable goods and services. In
the case of firms, savings is the proportion of profit which
is not distributed to owners as return on investment, it can
be referred to as retained or undistributed earnings.

Reasons for saving

1. For future use: People set aside a part of their
incomes in order to acquire their desire goods and
services in future; like to pay rent, school fees,
transport fare, to buy house or building materials, to
buy household equipment e.g. television, chairs,
radios, beds, clothes, etc.
2. For investment: Many people save money with which
to set up firms, shops, to build houses, to set up
workshops and to start other types of business in order
to generate incomes.
3. For unforeseen contingencies: People endeavor to
The figure above shows the circular flow of income save so that they can pay for unexpected expenses:
between firm (producer) and household (consumer) medical expenses (paying for cost of illness), legal
expenses, entertainment of unexpected visitors, cost of
Summary accident and other emergencies.
I. Firstly, flow of factors of production (factors’ inputs) 4. Government: The government also saves so as to
from households (individuals) to firms to assist the accumulate foreign exchange (foreign currencies) or
latter in the production of goods and services. gold for economic growth and development.
II. In return, the firms make payments to individuals in 5. For protection in old age/legacy: Some people also
terms of rent, salary, interest and individuals. save so that they can have sufficient money for
III. Secondly, flow of goods and services from the protection during pension or old age. While others
factories (firms) to consumers–household or save for legacy, or to buy life assurance policy (long-
individuals. term saving scheme until death) in order to give a
IV. In return, the households give money out in payment large amount of money to their families.
for the above goods and services acquired from the 6. For earning interest/dividends (speculation): People
firms (manufacturers). save a huge amount of money and put it in the bank –
fixed deposit account to earn interest. Some people
SAVINGS, INVESTMENT AND CONSUMPTION save money for the purpose of buying shares, stocks
Determination of National income using saving, and debentures in public liability companies and
investment and consumption approaches government securities in order to earn high interest
It is important to make a careful study of savings, and dividends.
investment and consumption. This is because they are very
critical on national income determination. Also, it has to
be pointed out that income, savings and consumption are

440
FACTORS THAT DETERMINE/INFLUENCE SAVINGS (2) Marginal propensity to save: This is the rate of
1. Size of income: The major factor that determines the changes in savings with respect to income. It is
level of saving is the amount of income in a given calculated as:
period. The higher the income, the larger the amount (i) As a basis of National Income (Y)
of money that could be saved per period. Change in savings ∆S
MPS = =
2. Government policy: Government can force people to Change in income ∆𝑌
save. Some government force their civil servants to (ii) As a basis of disposable income (Yd)
Changes in savings ∆𝑆
register for National Provident Fund (NPF); while MPS = =
Changes in disposable income ∆𝑌𝑑
other force them to involve in house saving scheme,
pension scheme, etc. Many governments encourage Saving Function
their citizens to save through the use of monetary It is a concept that relates amount saved to income. When
policy (increase in interest rate) and fiscal policy income is zero, saving is negative. It is possible to save a
(decrease in tax rates especially income tax. part of borrowed money, but it is not a constant tread or a
3. High rate or interest: People are more keen to save if the good behaviour. It is therefore generally assumed that
rate of interest is high. That is, a rising interest rate induces whenever income is zero, saving is not only nil, but people
many people to save. However, some people also consider either borrow (negative saving) for survival or they
the real rate of interest (or interest rate adjusted for withdraw from previous saving. Alternatively, they sell
inflation) and not the nominal rate or interest. their property in order to be alive. The amount borrowed
4. Political stability:The level of saving depends on or withdrawn is termed as ‘Negative Saving’.
political stability in a country. During this period of
Saving Function’s Slope
peace and harmony, amount of saving is generally
The slope of the saving function or saving line marked ‘S’ is
high; while the period of war witnesses a negligible
mainly determined by the MPS. If the MPS is quite small, the
(very small) saving figure.
5. Availability of financial institutions: Many people are
saving function is less steep. And if it is large or almost one, it
encouraged to save if there are banks and other financial is therefore quite steep.It is important to note that saving, as a
houses in their neighbourhood where people can deposit and function of income is positively related to it. That is, as income
withdraw their money at any time. Some financial houses, increases, saving also rises and vice versa.
especially insurance companies, motivate (encourage)
people to save through constant advertising programmes and
personal call of their staff or agents at offices and houses
canvassing for saving i.e. persuading people to save. This
action raises the level of saving in a community.
6. Level of taxes: The higher the level or rates of taxes,
especially income, poll, profit and property taxes, the lower
the level of saving.
7. Culture: The level of saving is high among the society that
practice monogamy like European countries. And it is very
low among nations that adopt polygamy or extended family
system, especially African countries.
8. Presence of social security: Availability of social security
scheme, like pension and other government guaranteed
security schemes, e.g. old people’s home makes people to
be sure of good standards of living during old age. This
reduces level of saving; and it raises level of consumption.

COMPONENTS OF SAVINGS
(1) Average propensity to save (APS):This is the The slope of a saving line is given by the equation
proportion of average disposable income that is S= –a + (1 – b)Y
desired to be saved. It is calculated as. NB:{0 < (𝟏 − 𝒃) < 1 }
(i) As a basis of national income (Y):
Savings S
APS = Income = Y Where
(ii) As a basis of disposable income (Yd) -a= autonomous savings
Savings S (1 – b) = Marginal Propensity to Save
APS = =
Disposable income 𝑌𝑑 b= Marginal Propensity to Consume
But MPS < 1 and MPS + MPC = 1

441
1998/30 Note: The consumption expenditure is obtained from
An increase in marginal propensity to save will lead to this algebraic expression or equation:
A. an increase in marginal propensity to consume C = a + bY
B. a decrease in the level of consumption Where C = consumption
C. an immediate decrease in the Net National income a = Autonomous Consumption Expenditure
D. an increase in the level of consumption b = MPC.
E. a decrease in the level of saving Y = Present Income
Answer
A decrease in the level of consumption (B) FACTORS THAT DETERMINE/INFLUENCE
CONSUMPTION
CONSUMPTION 1. Size of income: This is the major factor that
It simply means the total sum of current spending on determines the level of consumption. The higher the
finished goods and services. Consumption take the greater level of income, the higher the consumption
part of national income. It is calculated as C = a + by. expenditure. A sudden increase in income may bring
Where C = current spending on finished goods and about a rise in the level of consumption; whilst a great
services. fall in income reduces consumption expenditure.
b = Marginal Propensity to Consume (MPC) 2. Government policy: Government policy of
a = Autonomous consumption. compulsory saving, like NPF, pension and Housing
NB:The autonomous consumption may be regarded as Saving Scheme, reduce the level of income and a fall
aggregate or total consumption that does not depend on in consumption expenditure.
income. 3. Taxation: The higher the rates of taxes, the lower the
Consumption reduces the national income figure. So, the level of consumption as taxes reduce people’s income
higher the consumption, the lower the national income. and firm’s profits. However, some governments
eliminate or reduces taxes among the poor; and new
Some related concepts companies are exempted from payment of profit tax.
(i) Consumption Expenditure: It is expenditure on 4. Subsidy: The higher the level of subsidy on goods and
consumer goods. That is, it is expenditure on goods services, the lower the cost and prices of the goods.
meant for personal use; and they don’t assist in the This raises level of consumption. They also raise the
production of other goods. It is mainly determined by level of subsidy of essential commodities. These have
current disposable income (abbreviated as DY). the effects of raising the general level of consumption.
(ii) Autonomous consumption: It is amount of 5. Interest rate - level of saving: The higher the rate of
consumption that is independent of income. That is, it interest, the higher the level of saving, and the lower
doesn’t depend on the present income. In other words, the amount of money that will be devoted to
it is amount of consumption that occurs (via consumption.
borrowing) in absence of income or when one is not 6. High propensity to save: Some people are very frugal
working. And it is only possible through borrowing, i.e. they don’t spend money foolishly or they spend as
drawing on past saving or relying on members of the little as possible. They have high propensity to save
family or friends. irrespective of the rate of interest; this reduces
(iii) Autonomous expenditure: It is expenditure that is consumption expenditure.
made possible not from present income (DY)’ but 7. Redistribution of income: The equitable (even)
from other sources, like borrowing, aid etc. That is, it distribution of income; that is, giving more to the poor
is expenditure that is made possible via borrowing, than the rich, raises the general level of consumption
begging for alms or withdrawing from previous in a society.
saving. Autonomous is an adjective which means 8. Level of credit facility: Availability of credit facilities
‘independent of’. Simply, it is an expenditure that does e.g. trade credit, especially from retailers to final
not depend on (it is not derived or obtained from) consumers’ raises level of consumption. While low
present income. level or absence of credit facilities reduces it.
(iv) Induced consumption expenditure: Induced 9. Level of economic activities and profit: boom and
consumption is consumption that is absolute slump: The higher the level of economic activities like
independent on the current income (DY). That is, it is during inflation (boom), the higher the level of profit,
amount of consumption arising from, or only made employment, income and consumption.
possible through, current earnings (from the present 10. Presence of social security: Availability of social
income). While induced expenditure (or induced security scheme, like pension and other government
consumption expenditure) is expenditure obtained guaranteed security schemes, e.g. old people’s home
from current income. Simply, it is amount of money makes people to be sure of good standard of living
spent from the present income. during old age. This reduces level of saving; and it
raises level of consumption.

442
ELEMENT OR COMPONENTS OF CONSUMPTION MPC = 0.9 and MPS = 0.1
(1) Average Propensity to Consume (APC):This is the MPC + MPS = 0.9 + 0.1 = 1
proportion or average disposable income that is ∴MPC = 1 – MPS
devoted to current consumption. It is calculated as. OR MPS = 1 – MPC
(i) As a basis of National income (Y) Also,
Amount Consumed C APS = 0.2 and APC = 0.8
APC = = Y
Income APS + APC = 1
(ii) As a basis of Disposal income (Yd) APS + APC = 0.2 + 0.8 = 1
Amount Consumed
APC = Disposable income =
C ∴APS = 1 – APC
𝑌𝑑 OR APC = 1 – APS
(2) Marginal propensity to consume (MPC):This is the
rate of changes in consumption with respect to Example CC 3
changes in income. It is calculated as: If an individual earns an annual income of ₦60,000.00 and
(i) As a basis of National income (Y) spends ₦4,000.00 on the consumption of goods and
Changes in consumption ∆C services, calculate his average propensities to consume and
MPC = = ∆Y
Changes in national income to save.
Solution:
(ii) As a basis of Disposal income Total income = ₦6,000.00
Changes in consumption ∆C
MPC = = Consumption expenditure = ₦4,000.00
Changes in disposable income ∆𝑌𝑑 𝐶 4000 2
APC = = 6000 = 3 = 0.67 or 67%
𝑌

Since APC + APS= 1

APS = 1 – APC = 1 – 0.67 = 0.33 or 33%

Example CC 4
If Tunde’s salary increases from ₦180 to ₦200, and his
saving raises from ₦26 to ₦30, his extra or additional
saving is ₦4.00 due to an additional income of ₦20.00.
His Marginal propensity to save is:
Change in savings ∆S
MPS = = ∆𝑌
Change in income
30−26 4
MPS = 200−180 = = 0.2
20

Exercise 17.1
National income and Consumption line The daily income of Tejiri increases from ₦300.00 to
Example CC 1 ₦450.00 and she increases her level of consumption by
Mr. John’s salary is ₦100 and he spend ₦80 on ₦50.00, Calculate the marginal propensities to save and to
consumption. Find his APC. consume.
Solution
Amount Consumed C 80
APC = = = = 0.8
Income Y 100

Example CC 2
If Mr. John’s salary rises from ₦100 to ₦120, he spends
₦98.00 (₦18 extra) on consumption, find his MPC.
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 ∆𝐶 98−80 18 9
MPC= = = = = = 0.9
𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜𝑚𝑒 ∆𝑌 120−100 20 10
NB: From the above explanation, you might have
observed that:
Income (Y) = Consumption (C) + Saving (S)
Y=C+S
₦100 = ₦80 + ₦20
S=Y–C
C = Y – S (As already discussed above)
443
Consumption and Saving Schedules and Marginal (iv) To increase residential building (shelter investment):
Propensities to Consume and to Save Another reason for investment proposal is to add to the
number of residential buildings (houses) in a community
(1) (2) (3) (4) (5) or state. It is important t note that the above three types of
Disposable Consumption Marginal Net Marginal investment have inverse relationship with real interest
income Expenditure, Propensity Saving Propensity rate. However, rate of interest does not have much
after taxes, ₦ to = (1)- to Save influence on the constructing of residential building
₦ Consume, (2) (MPS), ₦
₦
(houses in developing countries like Nigeria as the
A. 9,000 9,110 890 -110 110 majority of the houses are constructed with private
= 0.89 = 0.11
1000 1000 business profit (traders, contractors, etc) and interest free
B. 10,000 10,000 850 0 150
= 0.85 = 0.15 staff loan (for senior workers mostly in the oil industry).
1000 1000
C. 11,000 10,850 750 +150 250
= 0.75 = 0.25 Nevertheless, high interest rate and inability to qualify
1000 1000
D. 12,000 11,600 640
= 0.64 +400 360
= 0.36
for bank loans have obstructed (prevented) low-income
1000 1000 earner from building their dwelling houses.
E. 13000 12,240 +760

FACTORS THAT DETERMINE/INFLUENCE

From the table above, when disposable income is ₦9,000,
INVESTMENT
consumption expenditure is ₦9,110. In other words, there
1. Return on investment: The higher the level of profit
is no saving at all. When disposable income rises to from investment, the higher the level of investment and
₦10,000, consumption expenditure also rises to ₦10,000. vice versa.
The change in disposable income from ₦9,000 to ₦10,000 2. Interest rate: The higher the rate of interest, the lower
is ₦1,000, while the change in consumption expenditure the level of investment and vice versa.
from ₦9,110 to ₦10,000 is ₦890. The marginal propensity 3. Expectation of business trend: It has been said that
to consume when disposable income rises from ₦9,000 to expectation of a large profit in the future is the most
₦10,000. important factor that determines the level of investment,
₦890 90 except social capital investment which are mostly
= = 100= 0.89
₦1,000 undertaken by the government. If investors are optimistic
about high demand for their goods and services and they
are sure of high profit, they set up firms even though the
INVESTMENT interest rate is high. If they are pessimistic about business
This is the total expenditure on capital goods not meant for trend (low demand for their products and likelihood of
present consumption. Investment is an injection as it adds sustaining losses), they don’t set up business unit.
to the value of wealth in the country as a whole. 4. Availability of capital: Availability of large capital
Investment encourages further production and a rise in the (money or capital goods like machines, vehicles,
national income in the economy. buildings, etc.) encourages everybody to be involve in
business activities. This raises the level of investment.
Investment Motives 5. Availability of entrepreneurs: The larger the number of
(i) To increase fixed capital goods: To add to fixed businessmen in a state, all things being equal, the higher
capital assets, like plants or factory buildings, the level of investment, the number of capable
machines, vehicles, schools or firm’s buildings and indigenous entrepreneurs’ who are willing to set up firms
other fixed items that assist in the production of goods in under developed countries is quite small. This has
and rendering of services. compelled many governments to motive (encourage)
foreign investors to come to West Africa to establish big
companies. This has raised the level of investment.
(ii) To increase capita stock: To add to inventory or
6. Political stability: Political stability leads to increase in
stock of goods. They may either be goods for stores
the level of investment. It encourages foreign
meant for sale (articles of trade) or raw materials
businessmen to come into a country to set up firms. In a
(goods in the factories) meant for the production of period of civil disturbances or war, many (foreign)
other goods. investors are unwilling to make new investment; and this
lowers the level of investment. While the period of peace,
(iii) To increase socio-capital investment: A fourth type harmony and progress witnesses a high level of
of investment can be identified as social capital investment.
investment. Almost all governments are very eager to 7. Level of saving: A level of saving, to a large extent,
increase their social capital – infrastructural facilities determines the level of investment. In the olden days,
(social amenities) like tarred roads bridges, dams for saving was the major factor that determines the level of
generating electricity, boreholes, water reservoirs for investment. Presently, many people still use their
increasing supply of hygienic water, hospitals, schools, accumulated saving to set up new businesses, especially
etc. meant for facilitating (quickening) production when the interest is very high and there is no possibility
activities. of obtaining loan. Therefore, the higher the level of
saving, the higher the level of investment.
444
8. Government policy: During the period of severe Formulae for Multiplier
inflation, many governments deliberately reduce the 1. Multiplier (M) =
level of investment through fiscal and monetary Total increase in national income (∆Y)
M= Increase in Expenditure (∆E)
policies in order to raise the value of money and
reduce the cost of living. But during deflationary ∆Y
M=
∆E
period or economic recession. Governments 1
deliberately raise the level of investment through 2. Multiplier =
MPS
various policies. 1
=
9. Level of income (per capita income): The higher the 1−MPC
level of income (wealth) or per capita income in a 3. Multiplier = invert of the fraction of MPS. If MPS is
country, all things being equal, the higher the level of 1/3, therefore M = 3.
investment as the citizens will be able to create
effective demand for (buy) the goods and services. Other related terms
This stimulates further investment. 1. Investment Expenditure and the Multiplier
∆Y
10. Level of consumption:The higher the level of Multiplier (K) = ∆I
consumption in a country, the higher the level of
investment. ∆Y = Multiplier (K) ×Change in investment (∆I)
11. Situation of the economy: A country in which ∆Y = K× ∆I
economic variables, like exchange rate, level of prices, 2. Consumption Expenditure and the Multiplier
∆Y
etc. are quite stable has a high rate of investment while Multiplier (K) = ∆C
modern technology (capital-intensive technique) leads ∆Y = Multiplier (K) × Change in consumption (∆C)
to mass production of high quality goods. This makes ∆Y = K × ∆C
profit and income to rise rapidly. It stimulates 3. Government Expenditure and the Multiplier
investment. ∆Y
Multiplier (K) = ∆G
THE CONCEPT OF MULTIPLIER (K) ∆Y = Multiplier (K) ×Change in government
Multiplier can be defined as the ratio of change in national Expenditure(∆I)
income to the change in the initial expenditure that brought ∆Y = K × ∆G
about it. It measures the number of times by which
changes in aggregate expenditure in the economy must be Examples involving calculation of simple multipliers
multiplied in order to present us with the result in change
in the national income. Simply, the multiplier is a change Example ME 1
in the national income as a result of a change in Find the multiplier if total increase in the national income
expenditure. is ₦7.5million as a result of an initial investment of
It is closely related to the concept of elasticity. Modern ₦1.5million.
∆Y 7.5 15 2
income analysis indicates that an increase in investment Multiplier = = 1.5 = ×3=5
∆I 2
increase national income by an amount which is greater
than itself. For example, if the government invest ₦200M
Example ME 2
in the economy as a result of which the national income
If government budgets ₦40 billion in year, and MPS is
increases to ₦800M, then we say that the multiplier
1/5. What will be the total increase in the national income?
coefficient is 4. Changes in aggregate expenditure usually 1 1
arise from any of the following independent variables Multiplier =
MPS
= 1/5 = 5
i. Increase in private investment – I Therefore, the total increase in the national income
ii. New government spending – G ∆𝑌 = K × ∆𝐸
iii. Increase in exports – X = 5 × 40= ₦200billion.
iv. Additional household consumption expenditure – Example ME 3
C a. If the marginal propensity to consume is 0.75,
NB: Multiplier is usually represented by the symbol ‘k’ calculate the multiplier.
b. By how much must consumption expenditure be
MULTIPLIER FORMULA increased to increase income by ₦2,000.00?
Multiplier formula depends on the nature or component of Solution:
autonomous expenditure multiplier. However, each of the 1 1 1
a. K = = 1−0.75 = 0.25 = 4
autonomous expenditure is a reciprocal of marginal 1−𝑀𝑃𝐶
propensity to save (MPS). Let us consider some of the ∆𝑌
b. K=
formulae of multiplier. ∆𝐶
₦2000
4= 𝐶 ; 4C = ₦2,000.00
Consumption Expenditure = ₦2,000 ÷ 4 = ₦500.00
445
Example ME 4 Exercise 17.2
What is the total increase in the national income if If the marginal propensity to consume is 0.6, by how much
government invests ₦30million on the construction of a will national income increase if government expenditure is
road, and the MPC is 3/5? increased by ₦4,000.00?
1
Multiplier =
MPS
Exercise 17.3
But MPC + MPS = 1
3 2 Find the multiplier if the MPC is 3/4.
∴ MPS = 1 – MPC = 1 - 5 = 5
1
∴ K = 2/5 =2.5 Exercise 17.4
If MPC is 0.75 and the investment expenditure changes
∆Y = K × ∆G from ₦100 million to ₦140 million in a given economy,
30 ×5
∴ ∆Y = 2.5 ×₦30M = 2 = 15 × 5 find the level of equilibrium in the economy.
∆Y = ₦75million

Example ME 5 TYPES OF MULTIPLIER

Find the initial investment if the total increase in the 1. Income multiplier: It is the one we have been
national income is ₦45million and the MPC is 2/3. discussing all along. It is ratio of a change in national
MPC + MPS = 1 income to a change in expenditure. Income multiplier
MPS = 1 – MPC, is used to raise the level of national income to a
MPS = 1 – 2/3 = 1/3 desired level if the government is aware of the
And the invert of the fraction of MPS (1/3) gives the economy’s multiplier. For example, if a country’s
multiplier = 3 multiplier is 4, and the government wishes to raise the
∆Y national income to full employment level without
K=
∆I inflation by ₦10million. This can be done perfectly by
∴ K × ∆I = ∆Y investing ₦2.5million into the economy.
∆Y 45
∆I = = = ₦15million
K 3
2. Employment multiplier: It is a ratio of a change in total
employment that brought it about. If the government
Example ME 6
wishes to create employment for 20,000 people, an
(a) If the marginal propensity to consume is 0.5. what is
investment or expenditure on a project that creates direct
the multiplier?
employment to 4,000 people can enable her to achieve this
(b) With consumption of ¾, multiplier is
noble objectives if the multiplier is 5.
Solution
1 1
(a) Recalling that multiplier (K) = 1−MPC = MPS 3. Balanced budget multiplier: It is the ratio of a
1 1
= = change in national income to balanced-budget change
1−0.5 0.5
k = 2 times in government expenditure. In other words, it is the
1 1 total increase in national Income divided by the
(b) K = 3 = 1 = 4 times balanced-budget change in government expenditure. A
1−
4 4
The multiplier of 2 and 4 indicates the number of time that balanced-budget change in government expenditure
the current national income figure will be multiplied in has the effect of raising the national income by the
order to give us new national income figure, resulting from change multiplied by the balanced-budget multiplier.
multiplier effect. The balanced budget multiplier has a lesser effect than
the income multiplier because balanced-budget
Example ME 7 increase has negative effect on consumption on MPC
If the marginal propensity to save in 0.5, calculate. while increase in expenditure does not. Balanced-
a. The multiplier. budget change occurs when increase in taxes is equal
b. The level of investment which is required to raise to increase in government expenditure. That is, the
income by ₦3,000.00 additional revenue realized from increasing tax rate is
Solution: equal to the increase in government expenditure. This
1 1 implies that if the government realizes ₦10million as a
a. K = = 0.5 = 2
1−𝑀𝑃𝑆 result of increase in tax rates, the ₦10million is
∆𝑌
b. K= entirely spent on goods and services. Thus, a balanced
∆𝐼
₦3000 budget increase occurs if increase in the tax rates leads
2= I
to a proportionate increase in government expenditure.
2I= ₦3,000.00 While balanced budget decrease occurs if a decrease in
I = ₦3,000 ÷ 2 = ₦1,500.00 the tax rates leads to a proportionate decrease in
government expenditure.

446
Factors affecting the size of Multiplier In the words of Lipsey & Steiner, the accelerator has three
1. MPC: Consumption brings about expenditure i.e. it main prediction and conclusions and they are as follows:
causes a rise in expenditure. Therefore, a rise in i. The amount of net investment will be a multiple of
marginal propensity to consume raises the size of the the increase in sales because the capital-output ratio is
multiplier. greater than one.
2. MPS: Saving implies, or leads to a fall in expenditure. As ii. For net investment to be constant, sales volume must
marginal propensity to save rises, total expenditure falls. rise by a constant amount every year.
And this causes a decrease in the size of the multiplier. iii. Rising rather than high levels of sales are needed to
3. Tax rates: An increase in tax rates compels the public increase net investment.
(consumers) to reduce their amount of expenditure as it
makes people to have less income. Thus a rise in the tax rate
reduces the size of the multiplier, and vice versa.
4. Level of import: The size of the multiplier is mainly Basically, the accelerator emphasizes that changes in the
affected by the amount of expenditure within the country. demand for consumer’s goods lead to a greater change in
An increase in our expenditure in other countries (import) the demand for producer’s goods. The principle to be
does not lead to a rise in the size of our multiplier. Our noted here is that there is a given capital stock required to
expenditure on import is a leakage from the economy. It produce a given level of output. The ratio of capital stock
leads to increase in income and employment in abroad required to produce a given value of output is known as
(other countries). Thus a rise in the level of import reduces capital output ratio.
the size of the multiplier.
5. Marginal propensity to spend (level of total
expenditure): The higher the level of total expenditure in a
country, the higher the size of the multiplier. FLUCTUATION IN NATIONAL INCOME
6. Amount of income and profit repatriated: Large parts of Economic activities flow from one year to another. The
foreign workers’ (expatriates) incomes or salaries are sent to flow is affected by aggregate demand such as consumption
their countries. Also large part of foreign firms’ profits are and investment. If either of these components changes
sent to their head office in abroad. This reduces the total national income will change along with it. Most economic
expenditure in a country. And it causes a fall in the size of time series exhibit upward or downward trend in the
the multiplier. national income either in the short run or long-run. The
Note: Anything, e.g. leakages that leads to a fall in short run fluctuations are commonly known as trade or
expenditure reduces the size of the multiplier. While those, business cycle.
e.g. injections (investment), that leads to rise in expenditure
raise the size of the multiplier.
TRADE OR BUSINESS CYCLE
1989/47 UTME
A business cycle is more or less a regular pattern of
The multiplier is defined as
fluctuation in the level of economic activities. It indicates
A. the ratio of the change in income to the change in
the stages that businesses as well as nation pass through
investment
overtime. The conclusion to be drawn here is that to
B. the change in investment divided by the change in
demonstrate the trend or flows in economic activities that
income
1 1 nation may go through are period of recession,
C. D. recovery/expansion, peak or boom period. The period
MPC 1−MPS
Answer indicates that neither good time nor bad time last forever.
The ratio of the change in income to the change in This is shown below
investment (A)

THE ACCELERATOR THEORY OF INVESTMENT

Accelerator is the theory that relates the level of
investment to the rate of changes in national income. It is
the reciprocal of multiplier. The principle of accelerator
simply says that “a small change in production of
consumer goods usually leads to a greater change in the
production of capital goods used in the production of the
consumer goods. The principle is based on the idea that the
demand for capital goods is derived from the demand for
consumer goods which the former has to produce. It
explains net investment in relation to growth in aggregate
Phases of a trade cycle
expenditure. Therefore, the society’s stock of capital goods
brings about increase in investment activity and that
depends entirely on the level of income or production.

447
LEAKAGES AND INJECTIONS IN NATIONAL INCOME It is important to state that the national income equilibrium
i. Leakages (Withdrawal): Leakages represents those is not constant. It fluctuates. And an increase or a decrease
economic variables whose presence or existence in in national income equilibrium is mainly caused by:
the economy reduces the size of national income. The i. Increase or decrease in aggregate expenditure.
variable that causes leakages in the size of national ii. Increase or decrease in MPC (consumption).
income includes: (a) consumption (b) taxation (c)
savings The equilibrium level of income can be determined by
(d) Imports (e) Decrease in investment and using the following methods:
government expenditure respectively. (i) The saving and investment method.
ii. Injections: Injections refers to those economic (ii) The consumption and investment method.
variables whose presence or existence in the economy
increase the size of national income. It is an THE SAVING AND INVESTMENT METHOD
investment spending made by investors especially This method portends that the equilibrium level of income
firms and government that brings about greater is a state whereby the total amount that people wish to
income. briefly, it is investment expenditure. save is equal to the total investment of the business
The injection include: community. If the national income is greater than what
(a) Investment. obtains at the equilibrium point or the national income is
(b) Increase in Government Expenditure (Budget lower than the situation at the equilibrium point, there is
deficit). disequilibrium.
(c) Export etc.
In the case of the former, the implication is that people are
Leakages have adverse or negative relationship with saving more and consuming less. There will be tendency
national income and it causes a fall in the national income for demand to fall and for the business community to cut
equilibrium. While injection has direct or positive down production until the equilibrium is attained. In the
relationship with national income; and it causes a rise in case of the latter, the implication is that people are saving
the national income equilibrium. less and consuming more and there will be a consequent
pressure on demand to increase and on people to want to
spend more as well as the business community to increase
production until the equilibrium is established.

EQUILIBRIUM LEVEL OF NATIONAL INCOME

It refers to the level of national output at which there is no
tendency for national income to either increase or
decrease, and:
i. Aggregate Expenditure equals real National
Income (total expenditure = total output).
ii. Investment equals saving, or
iii. Aggregate demand equals aggregate supply (total
output of goods/services in a country in a given
period).

The concept of equilibrium implies a state in which there

is no tendency to move away. If any situation warrants the
moving away, there will be tendency again to want to get
back to the state of equilibrium. The National Income Equilibrium Curve

It occurs at the point where any of the major components In the curve above, SS is the saving curve, II is the income
of aggregate expenditure, like consumption function, curve and E is the equilibrium level of income. Any
investment function or aggregate expenditure function, position to the right of E indicates an excessive national
crosses the 45° line. It is a level of natural output at which income and any position to the left indicates a shortage in
there is no tendency for real national income to either the national income, either of these two situations result in
increase or decrease; and the economy is in a state of a disequilibrium position. At point E where there is an
balance. It is therefore regarded as the ideal level of intersection between saving and investment, the
national income. equilibrium level is established.

448
THE CONSUMPTION AND INVESTMENT METHOD Example CM 1
This second approach to the equilibrium level of income In an economy C = 200 + 0.75Y is the consumption where
determination operates from the point of view of aggregate C is consumption expenditure and Y is national income.
demand as in consumption plus investment or Investment expenditure is ₦4,000. Calculate equilibrium
consumption demand plus investment demand. level of income and consumption expenditure.
Solution
i. At equilibrium,
AS = AD
Y=C+I
Y = 200 + 0.75Y + 1
Y – 0.75Y = 200 + 4,000
0.25Y = 4,200
4,200
Y = 0.25 = ₦16,800
ii. Consumption Function, C = 200 + 0.75Y where Y in
the income in the economy.
So at national income 16,800, consumption
expenditure is
C = 200 + 0.75 (16,800)
The equilibrium level of income (Y=E) occurs at the point = 200 + 12,600 = ₦12,800
where the 45° line and the aggregate demand (C + I) curve
intersect and that is point E, which is equal to the
aggregate supply (national output).
Example CM 2
Let us give a quick highlight on equilibrium scenarios From the information below extracted from a given
depending on the prevailing economy economy, compute the national income level.
a. Consumption and Investment combined as aggregate C = 450 + 0.75y, G = 50 and 1 = 200.
expenditure (C+I) – Market Economy Solution
At equilibrium At yeq: AD = AS = AE = C + G + I, and AS = Y
AS = AD Where AD and AS = Aggregate demand and supply
Y= C+I respectively, and AE = Aggregate expenditure.
b. Aggregate expenditure including government Y = 450 + 0.75y + 50 + 200
expenditure (C+I+G) – Governed Economy Y = 700 + 0.75y
At equilibrium Y(1 – 0.75) = 700
AS = AD 0.25Y = 700
Y= C+I+ G 700
Y= = ₦2,800
c. Aggregate expenditure in an open economy. 0.25
This comprises of a net export component (export –
import)
At equilibrium
AS = AD Exercise 17.5
Calculate the equilibrium level of income in the economy.
Y= C+I+G+(X–M)
If C = 500 + (0.9)Y; and
Hint: C = a + by
Investment Expenditure = ₦3,000.
Where
Y= National Output (Income)
E= Aggregate Expenditure
AS= Aggregate Supply
AD= Aggregate Demand
I= Net domestic Investment
C= Consumption Expenditure
G= Government Expenditure
X= Exports
M= Imports

449
Example CM 3 FACTORS INFLUENCING NATIONAL INCOME
A given economy has the following national income date EQUILIBRIUM
3 1. Aggregate expenditure components: An increase in
C = 5,000 + Y; I= 2000, G= 3,000 X= 500 and M = 800
4
the aggregate expenditure i.e. less saving scenarios
(a) Formulate an equation for equilibrium level of income
causes an increase in both national income and
(b) Determine the national income equilibrium
equilibrium national income, while a decrease in the
Solution
aggregate expenditure i.e. more saving scenarios
(a) This is an open economy problem using the aggregate
causes a fall in both national income and national
expenditure approach as it comprises of a net export
income equilibrium.
component (export (X)– import (M) )
2. Changes in price level: A rise in the price level
At equilibrium
prompts a rise in national income equilibrium. While a
Aggregate Supply = Aggregate Demand
decrease in the price level causes a fall in the
y= C+I+G+(X–M)
equilibrium national income.
C = a + by
3. Level of tax rate: A rise in the level of tax rate reduces
y= a + by +I+G+(X–M)
income, and a fall in the consumption expenditure.
y – by = a +I+G+(X–M)
And it has the effect of reducing national income and
y (1 – b) = a +I+G+(X–M)
a + I + G + (X– M) national income equilibrium. While a fall in the tax
∴y= rate increases real income, and a rise in consumption
(1 – b) expenditure. It leads to a rise in equilibrium.
Where 4. Changes in exchange rate: A fall in the exchange rate
y= national income causes an increase of Net Export (NE) function; and it
a= autonomous consumption has the effect of raising the equilibrium national
b= marginal propensity to consume income, while a rise in the exchange rate causes a
I= net domestic Investment decrease in Net Export function; and it leads to a
C= consumption Expenditure decline in the national income equilibrium.
G= government Expenditure 5. Marginal propensity to spend/MPS: An increase in
X= exports marginal propensity to spend causes a rise in the
M= imports aggregate expenditure and this has the effect of
a +I+G+(X–M) increasing the National Income Equilibrium. While a
(b) y𝑒𝑞 = (1 – b) decrease in marginal propensity to spend causes the
5000 + 2000 + 3000 + (500– 800) aggregate expenditure to decrease and this makes the
y𝑒𝑞 = 3
(1 – 4) national income equilibrium to decline. Similarly, if
1000 − 300 the marginal propensity to save rises, the national
y𝑒𝑞 = 1 income equilibrium declines, and vice versa.
4
y𝑒𝑞 =9700× 4 = ₦38,800 2023/32
National income is calculated mainly to
A. determine how income is to be shared
B. help firms generate more funds
C. determine the level of sectoral performance
D. determine aid to be received from other nations
Answer
45° LINE National income is calculated mainly to determine how
It is the line that bisects the 90° angle in which vertical and income is to be shared (A)
horizontal axis intersect. And it indicates quality between
income and expenditure. It is important to note the 2023/33
following true statements about the 45° line. To overcome the problem of double counting under
(i) It has positive slope; that is, it slopes upward from left the expenditure approach
to right. A. value added method is used
(ii) Its slopes is equal to one (unity). B. only spending on final goods are considered
(iii) It is called 45°C line because it forms an angle of 45° C. proper accounting standards must be used
with both vertical and horizontal axis. D. spending on intermediate goods and inputs are
And any point on the 45° line is where expenditure is considered
equal to income. Answer
To overcome the problem of double counting under
the expenditure approach value added method is used
(A)
450
2023/36 2015/31
Money is able to function more as a medium of exchange The difference between the gross domestic product (GDP)
when and gross national product (GNP) is
A. more people engage in subsistence farming A. depreciation B. transfer payment
B. there is a fall in production C. net income from abroad D. direct taxes
C. there is specialization of labour Answer: Net income from abroad (C)
D. individuals and nations are self-sufficient
Answer 2015/33
Money is able to function more as a medium of exchange In national income accounting, the term net is used to
when there is specialization of labour (C) indicate that a value
A. includes income of foreigners
2023/34 B. excludes income of citizens C. includes depreciation
The Net National Product (NNP) of a country is $50m D. excludes depreciation
while the depreciation allowance is $10m. the Gross Answer: Excludes depreciation (D)
National Product (GNP) is
A. $30m B. $40m C. $60m D. $500m 2009/32 Neco
Answer The correct relationship between income (Y), consumption
Gross National Product (GNP) = NNP + Depreciation (C) and savings (S) is
= 50 + 10 A. C = Y + S B. S = Y + C C. S = Y + S
= $60m (C) D. Y = C + S E. Y = C – S
Answer
2022/18 NABTEB Income (Y) = Consumption (C) + Savings (S) (D)
Two methods used in measuring a country's national 2009/49
income include which of the following? These are major sources of national income statistics
A. Output and income methods except
B. Fiscal and expenditure methods A. aids, gifts and grants B. foreign trade figures
C. Monetary and income methods C. general economic surveys D. income tax returns
D. Net income and national methods E. pay rolls of establishment
Answer Answer
Output and income methods (A) Aids, gifts and grants (A)

2022/49 NABTEB (Dec) 2009/50 Neco

In an open mixed economy, the national income identity is Marginal propensity to consume (MPC) is equal to
C Y ∆C ∆Y 1
A. Y = C + I + X - M B. Y = C + I + G A. Y B. C C. ∆Y D. ∆C E. MPC
C. Y = C + I + G - S D. Y = C + I + G + X - M Answer
Where G = Government expenditure. ∆C
C = Consumer expenditure. ∆Y
(C)
I = Investment expenditure. ∆C = Change in consumption
X = Export ∆Y = Change in income
M = Import
Answer 2011/53
In an open mixed economy, the national income identity is Which of the following ways can savings function be
Y=C+I+G+X–M (D) expressed?
∆S ∆S 1
A. S = B. S = C. S =
∆Y ∆Y MPS
D. S = –a + (1 – b)y E. S = a + by
2022/19 NABTEB Answer
Calculate the national income of a given country with a S = S = –a + (1 – b)y (D)
population of 2 million and a per-capita income of ₦82
A. ₦84 million B. ₦80 million
C. ₦164 million D. ₦41 million 2005/35 Nov
Answer Which of the following determines the level of
GNP
Per capital income = Total population consumption?
GNP A. number of banks B. rate of interests
82 = 2,000,000
C. amount of profits D. level of income
GNP = 82 × 2,000,000 Answer
GNP = 164, 000, 000 (C) Level of income (D)

451
2005/3b Nov
2010/30
Use the table below showing the population and the
Which of the following equations is appropriate for
national income of a country to answer question 36
determining the domestic product (NDP)?
Year Size of population National income A. NDP = GNP – depreciation
1989 50 million $200 billion B. NDP = GDP + Net Income from abroad
1992 60 million $230 billion C. NDP = GDP – depreciation
The per capital income of the country has D. NDP = GDP × net income from abroad
A. fluctuated B. remained constant C. fallen Answer
D. doubled NDP = GDP – depreciation (C)
Answer
GNP
Per capital income in 1989 = 2007/41 Nov
Total population
200,000,000,000
Which of these defines correctly the term value added?
= = $4000 A. differences between cost of raw materials and units of
50,000,000
labour used
GNP
Per capital income in 1992= B. total investment minus depreciation
Total population
C. total revenue from sales minus the cost of production
230,000,000,000
= = $3833 D. the market value of all the resources employed
60,000,000
Answer
The per capital income has fallen (C)
Total revenue from sales minus the cost of production (C)

2007/42 Nov
2018/18 NABTEB
Gross Domestic Product (GDP) minus Net Domestic
The monetary value of the goods and services produced by
Product (NDP) is equal to
the nationals of a country regardless of where they reside
A. foreign factor earnings B. allowance for depreciation
is called
C. indirect taxes and subsidies
A. Gross domestic product B. gross national product
D. value of intermediate products
C. net national product D. personal income
Answer: Allowance for depreciation (B)
Answer: Gross domestic product (A)
2007/43 Nov
2016/18 NABTEB
Which of the following is a measure of the standard of
The three methods of measuring national income are all
living of a country?
affected by GDP GDP NNP
A. net income from abroad C. double counting A. B. C.
Annual budget Total population Labour force
D. double taxation D. transfer payments NI
Answer: Double counting (B) D. Dependent population
Answer
2016/39 NABTEB GDP
(B)
The per capital income (PCI) is the most appropriate Total population
measure of
2001/53 Neco
A. GNP B. poverty C. NNP
Given: Investment = N50million
D. Standard of living
Consumption = N100m + 0.25Y
Answer
Y=C+I
Standard of living (D)
Where Y = income, C = consumption, I = investment.
Hint: Per capita income (PCI) is a measure of the amount
What is income level to the nearest million?
of money earned per person in a nation or geographic
A. N50m B. N100m C. N200m D. N400m
region. Per capita income can be used to determine the
E. N500m
average per person income for an area and to evaluate the
Answer
standard of living and quality of life of the population.
Y=C+I
Y = 100m + 0.25Y + 50m
2010/29
Y = 150m + 0.25Y
Which of the following is not a concept in national income
Y – 0.25Y = 150
accounting?
Y(1 – 0.25) = 150
A. Domestic National Products (DNP) B. Gross National
Y(0.75) = 150
Product (GNP) C. Gross Domestic Product (GDP) 150
D. Net Domestic Product (NDP) Y=
0.75
Answer Y = 200m (C)
Domestic National Products (DNP)

452
2001/54 Neco 2011/8 Neco Exercise 17.7
3 (a) What is national income?
If the MPS of Mr. Onah is 4; how much will he spend on
(b) Mention and explain any five importance of measuring
consumption if his income is ₦15,000?
national income.
A. N3750.00 B. N4,650.00 C. N5,570.00
D. N11,250.00 E. N15,000.00
2005/9 Nov
Answer
Change in savings ∆S (a) Explain the concept of standard of living.
MPS = = (b) Outline four cause of low national income in West
Change in income ∆𝑌
3 15,000 45,000 Africa.
∆S = × = Answer
4 1 4
∆S = 11,250 (a) Standard of living refers to the good things of life,
Y=C+S including social amenities available in a country, which
makes life worth living. It is the extent of economic
C=15,000 – 11,250
welfare which are affordable by the citizens of a country.
C = ₦3750.00 (A)
(b) Causes of low national income in West Africa
OR (1) The size of the population.
MPC = 1 – MPS (2) The size of national income/National product.
3 1
MPC=1 – = 44
(3) The distribution of income among the citizens.
(4) Differences in value of currencies.
Changes in consumption ∆C
MPC = =
Changes in national income ∆Y
2001/3 Neco Exercise 17.8
1
∆C = × 15,000= ₦3750.00 (A) Difference between
4
2014/9 Neco (iii) Gross National Product (GNP) and Gross Domestic
If a country’s national income is ₦300million and total Product (GDP)
national consumption is ₦150 million, calculate the (iv) Average Propensity to Consume (APC) and marginal
Average Propensity to Consume (APC). propensity to consume (MPC).
A. 0.20 B. 0.25 C. 0.40 D. 0.50 E. 0.60
2000/41 Nov
Answer Which of the following is included when calculating national
C
APC = Y income through the output method?
150m
A. profits made by trading and manufacturing companies
APC = 300m B. the value added only at the last stage of production
C. the value added at the intermediate and the final stages of
APC = 0.50 (D) production
D. wages paid to all factors of production
Answer
2014/10 Neco The value added at the intermediate and the final stages of
The following problems are encountered in comparing the production (C)
standard of living of different countries, except
A. currency difference B. differences in price level 1993/26 Nov
C. equal distribution of income Which of the following would directly increase the Gross
D. computation of national national Product of a country?
Answer A. an increase in government expenditure on civil servants
Equal distribution of income (D) pays B. an increase in the proportion of the population that
is productively employed
2014/31 Neco C. an increase in the death rate
The proportion of national income that is consumed is D. a decrease in the rate of unemployment
known E. a decrease in output per worker
A. average propensity to consume Answer
B. average propensity to save C. consumption An increase in the proportion of the population that is
productively employed (B)
D. marginal propensity to consume
E. marginal propensity to save
1993/27 Nov
Answer
The total output of all the nationals of a country, wherever
Average propensity to consume (A)
they may reside, is termed the
A. Gross Domestic Product B. Gross National Product
2009/11 Neco Exercise 17.6
C. Net National Product D. Actual Income
Discuss five difficulties encountered in comparing the
E. Disposable Income
standard of living between countries.
Answer
Gross Domestic Product (A)
453
2004/40 Nov 2003/41
Which of the following will lead to a higher national The most common index for measuring development is
income per head? A. the level of illiteracy B. the per capital income
A. reduction in total population C. nutritional levels D. population growth rate
B. falls in household expenditure Answer
C. balance of payment deficit The per capital income (B)
D. rise in the prices of essential commodities
Answer 2003/49
Reduction in total population (A) It is necessary to estimate the national income of a country
because
2003/38
A. indicates the overall performance of the economy
Per capital income is calculated as
Gross National Product Value of national budget
B. ensures equitable distribution of wealth
A. B. C. assists investors in identifying profitable ventures
Population Population
D. enables governments to conserve national resources
Gross Domestic Product Net National Product
C. Price index
D. Answer
Depreciation
Answer Indicates the overall performance of the economy (A)
Gross National Product
(A) 1998/28
Population
Which of the following is a factor affecting the size of
2003/399 Nov national income?
National income can be measured through the A. size of the active population
A. administrative approach B. expenditure approach
B. taste of the consumer
C. cost benefit approach D. distributive approach C. number of registered trade unions
Answer D. credit worthiness of the neighbouring countries
Expenditure approach (B) E. regularity of payment of national debt
2003/40 Nov Answer: Size of the active population (A)
The standard of living of a country will fall if
A. foreign investors buy up some industries 1998/29
B. government expenditure rises The expenditure of a firm on goods and services for the
C. the value of export increase expansion of its productive capacity is known as
D. the gross national product declines A. income B. investment C. savings D. profit
Answer E. interest
The gross national product declines (D) Answer: Investment (B)

1990/15 2017/32 Neco

The national income of a country can be calculated The value – added method used in measuring income is to
through the A. measure output at factor cost
A. government earnings approach B. output approach B. avoid multiple counting of output
C. input approach D. additional approach C. deduct depreciation of capital assets
E. estimating approach D. add net factor income from abroad
Answer: Output approach (B) Answer: Avoid multiple counting of output (B)
1990/20 2017/34 Neco
The total value of all the goods and services produced
The formula Y = C + I + G + (X – M) will be appropriate
within a year in a country is known as the for measuring national income using the
A. Gross national product B. Gross Domestic Product A. income approach B. expenditure approach
C. Net National Income D. National Income C. output approach D. factor approach
Expenditure E. National Accounting Answer: Expenditure approach (B)
Answer
Gross Domestic Product (B)
2007/47 Neco
1990/33 The difference between Gross National Income and Gross
Whether the national income is calculated as the total Domestic Product is
volume or the total of all incomes derived from economic A. capital consumption B. debt repayment
activity, the two must be
C. investments abroad D. net income from abroad
A. equal B. slightly different C. unequal E. net saving
D. identical E. significantly different
Answer
Answer Net income from abroad (D)
Equal (A) Hint: GNP = GDP + NI
454
2007/48 Neco 2007/12 Neco
The following methods are used in calculating National (a) Explain the term savings and investment.
income except (b) Discuss five reasons for low level of investment in
A. depreciation B. expenditure C. income Nigeria.
D. output E. value added Answer
Answer: Depreciation (A) (a) Saving is the proportion of households disposable
income which is not spent on consumable goods and
2007/49 services.
If total income is ₦15m and total consumption is ₦3m, Investment: This is the total expenditure on capital goods not
meant for present consumption.
then the average propensity to consume is
(b) Expected rate of returns: Firms add to capital stock so
A. 0.2 B. 0.6 C. 0.7 D. 5 E. 10
long as the addition increases the level of profit.
Answer (i) Interest rate or cost of capitals: There is inverse
C
APC = Y relationship between the rate of interest and the quality or
3m
amount of investment.
APC = = 0.2 (A) (ii) Interest rate of capitals: There is inverse relationship
15m
2007/50 Neco between the rate of interest and quality or amount of
A change in national income brought about by a given investment.
change in investment is (iii) Political stability or instability encourages or discourages
A. APC B. APS C. MPC D. the multiplier investment in an economy.
Answer: the multiplier (D) (iv) New technological development.
(v) Government policy such as fiscal and monetary policies.
2002/50
Net national product can be defined as 2002/11
A. GP – Net income from abroad (a) Explain the ‘cost of living’ and ‘standard of living’
B. GNP – depreciation (b) Show how the concepts are related.
C. GNP – net income from abroad Answer
D. GNP + GDP E. GDP + Net income from abroad (a) Cost of living refers to the total amount of money spent
Answer: GNP – depreciation (B) to obtain the goods and services which will enable one
exist at a particular time.
2002/51 Neco
I Standard of living refers to the good things of life
The multiplier equation is expressed as K = I−MPC including social amenities available in a country; which
If the MPS = 0.25, what is the value of K? make life worth living.
A. 25 B. 4 C. 2.5 D. 2 E. 1 (b) The cost of living depends on the price of goods and
Answer services consumed. If the prices of goods and services
MPS = 1 – MPC are high, this means an increase in the cost of living.
I I I
K= = = = 4 (B)
I−MPC MPS 0.25 A rise in the cost of living reduces the standard of living
while a reduction in the cost of living increases as the
2002/52 Neco standard of living. It is the cost of living that determines
Given that the consumption function of Mr. Dauda is C = a + the standard of living.
3
by. If y = 100, c = N200 and b = , how much is his
4
autonomous consumption? 2001/40 Nov
A. N25 B. N75 C. N125 D. N150 E. N300 The Net National Product is the Gross National Product
Answer A. minus depreciation B. plus income from abroad
C = a + by C. less income from abroad D. plus indirect taxes
3 Answer: Minus depreciation (A)
200 = a + (100)
4
300
200 = a + 1994/21
4
800−300 The difference between the Gross Domestic Product
=a
4 (GDP) and the Gross National Product (GNP) is the
500
4
=a A. allowance for total depreciation
a = ₦125 (C) B. total interest payment C. net income from abroad
D. total tax and interest payments
E. net internally generated income
Answer: Net income from abroad (C)

455
1994/36 1997/9
Abstention from consumption enables capital to be What are the limitations of using Gross National Product
produced, such abstention is called (GNP) as a measure of society’s welfare?
A. savings B. production C. accumulation Answer
D. factors of production D. opportunity cost (i) Inadequate data: Most West African countries are
Answer: Savings (A) faced with statistical problems relating to lack of some
data, or to inaccurate data.
1994/38 (ii) Double counting: This involves calculating the value
The magnitude of the national income of a country of commodities twice or more.
(iii) Transfer payments: These are part of income which
depends on all the following except the
are given other freely and not as a result of their
A. quality of natural resources available
participation in production. Examples are gifts to
B. level of technical know-how C. mobility of labour beggars and old people, pension payments e.t.c.
D. level of productivity (iv) Predominance of subsistence production: In West
E. quality and quantity of factors of production African countries, a large part of production is for self
Answer: Mobility of labour (C) consumption, since many goods are not marketed it
becomes difficult to know the exact market value of
1995/33 Nov such goods.
The difference between the Gross Domestic Product (v) Changes in the value of money: In many West African
(GDP) and the Gross National Product (GNP) is countries there is galloping inflation which reduces the
A. agricultural income B. net income from abroad value of money. In this case, national income figures
C. disposable income D. depreciation may not be a true picture.
E. industrial product (vi) Services not paid for: Many services are rendered to
Answer oneself or others which are not paid for. This includes
Net income from abroad (B) cutting one’s own hair, giving free rides to friends, the
1995/35 Nov services rendered by children and housewives, e.t.c.
Which of the following is used for international comparison 2000/7
of standard of living? Why should a country measure her national income?
A. Gross Domestic Product B. Gross National Product C. Net Answer
National Income D. per Capital income Why a country should measure her national income.
E. National income estimate (i) It helps us to determine the standard of living in a
Answer: Per capital income (D) country.
(ii) It is a measure of economic development.
20018/50 Neco (iii) It helps in the calculation of per capital income and
If the GNP of a country is ₦500m, and the capital per capital output.
consumption allowance is 25%. Determine the value of the (iv) It can be used as an effective tool in the allocation of
capital consumption allowance. scarce resources.
A. 100m B. 125m C. 375m D. 400m E. 500m (v) It is used to determine the pattern of expenditure in a
Answer
country.
The CCA is a percentage of the gross income
25 500,000,000
= × 2020/5
100 1
= 125,000,000 = 125m (B) The value of a country’s Gross Domestic Product (GDP) is
$300million. If the share of cocoa is represented on a pie chart
2018/51 Neco by a sector 90°, the value contributed by cocoa is
The level of welfare attained by individuals in a nation at a A. $75million B. $225million C. $270million
given time is referred to as D. $1,200million
A. cost of living B. satisfaction C. social services Answer
D. standard of living E. wealth 90 300 300
× = = $75million (A)
Answer: Standard of living (D) 360 1 4

2018/52 Neco 2020/34

The proportion of an unspent income on consumption is The standard of living enjoyed by citizens of a country can
referred to as be measured using the
A. average propensity to consume A. national income estimates
B. average propensity to save B. real disposable income C. per capital income
C. marginal propensity to consume D. price index of consumer goods
D. marginal propensity to save E. multiplier theory Answer
Answer: Average propensity to save (B) Per capital income (C)

456
2020/35 2008/32
In a country where a high population of women are full Use the table below to answer question 32 & 33
time housewives, the Items $million
A. gross national product will be overestimated Final consumption expenditure 500
B. national income figures will remain the same overtime Gross private investment 150
C. women will be more productive Government purchase 300
D. national income figures are reduced Depreciation 25
Answer Net factor income –10
National income figure are reduced (D) The gross domestic product (GDP) is equal to
2019/18 NABTEB A. $825m B. $925m C. $940m D. $950m
The difference between the Gross Domestic Product and Answer
the Gross National Product is GDP = C + I + G
A. allowance for total depreciation = 500 + 150 + 300
B. total interest payments C. total tax and interest GDP = 950m (D)
payments
D. net income from abroad 2008/33
Answer: Net income from abroad (D) The net capital formation is
A. $115m B. $125m C. $915m D. $925m
2008/31 Answer
The national income of a country can be estimated through NDP = C + G + I + NFC – D
the = 500 + 300 + 150 + (–10) – 25
A. output approach B. input approach = 950 – (10+ 25)
C. empirical approach D. census approach = 950 –35
Answer = $915 (C)
Output approach (A)
2003/47 Neco
Which of the following is not a source of national income 1996/1 Nov
statistics? The table below shows the information on the national
A. foreign trade figure income account of a country. Use the table to answer the
B. pay – rolls of various establishment questions that follows
C. income tax returns National income account
D. economic surveys Heading Amount (₦)
E. level of infrastructure development Government final expenditure 600,000
Answer: Level of infrastructural development (E) Private consumption expenses 200,000
2003/48 Increase in stocks 150,000
The per capital income is calculated as Gross fixed capital formation 800,000
A. GNP ÷ working age population (a) What method of natural income measurement is
B. GNP ÷ real national income used for the above table?
C. GNP ÷ total capital expenditure (b) State other methods of measuring national income.
D. GNP ÷ dependency ratio E. GNP ÷ population (c) Calculate the national income from the
Answer: GNP ÷ working age population (A) information using the formula Y = C + I + G + (X – M).
Answer
2012/17 Nov (a) Expenditure approach.
Which of the following does not occur when national (b) Income approach.
income rises? (ii) Product or output approach
A. export increases B. import rise C. savings fall
D. tax receipts rise (c) GDP Expenditure Approach
Answer: Import rise (B) Heading Amount (₦)
Government final expenditure 600,000
2012/30 Nov
The per capital income is the most common index for (G)
measuring Private consumption expenses 200,000
A. standard of living B. population growth rate (C)
C. level of illiteracy D. level of illiteracy Increase in stocks 150,000
D. wage rate Gross fixed capital formation 800,000
Answer: Standard of living (A) GDP at Market Price ₦1, 750,000

457
2019/1 NABTEB Exercise 17.9
(a) If the total national income is ₦60million and total 1997/32 Nov
consumption expenditure is ₦40million. Calculate the An important factor usually considered in making
(i) Average propensity to consume. international comparison of standard of living is the
(ii) Average propensity to save. A. per capital income B. net national income
(b) Suppose the national income of a country is increased C. gross national income D. gross domestic product
from ₦42million to ₦58million, and total consumption D. net national product
expenditure is increased from ₦24million to Answer: Per capital income (A)
₦32million. Calculate the:
(i) marginal propensity to consume. 1992/25
(ii) marginal propensity to save. A sustained increase in the per capital income of a country
(iii) multiplier. over a period of time is called economic
(c) If the marginal propensity to consume is 0.75. A. integration B. growth C. plan D. change
(i) Calculate the multiplier. E. welfare
(ii) By how much must consumption expenditure be Answer: Growth (B)
increased to raise income to ₦800million assuming
that the initial national income was ₦600million. 1995/24 Nov
A situation in which the real per capital income of a
2013/52 country increases over a long period of time is known as
Investment can only increase if there is increase in A. national income accounting B. economic policy
A. consumption B. income C. indirect tax C. economic efficiency D. industrialization
D. population E. savings E. economic growth
Answer Answer: Economic growth (E)
Savings (E) 1995/31 Nov
The marginal propensity to consume (MPC) is that
proportion of additional
1992/30 A. income that is saved B. investment that is
Which of the following would increase the GNP of an consumed C. income that is invested D. income
economy? that is consumed E. investment that is insured
A. increased government expenditure on the salary of civil Answer: Income that is consumed (D)
servants
B. an increase in the proportion of the productively 1995/33
employed population The difference between the Gross Domestic Product
C. a increase in the rate of unemployment (GDP) and the Gross National Product (GNP) is the
D. a decrease in output per worker A. agricultural income B. net income from abroad
E. an increase in the population C. disposable income D. depreciation
Answer E. industrial product
An increase in the proportion of the productively Answer: Net income from abroad (B)
employed population (B)
1995/35 Nov
Which of the following is used for international
1991/15 comparison of standards of living?
Which of the following items is not included in measuring A. Gross Domestic Product B. Gross National Product
national income by the income approach? C. Net National Income D. Per Capital Income
A. wages and salaries of public servants D. Per capital income E. National income estimate
B. students grants and scholarships Answer: Per capital income (D)
C. profit of companies
D. income earned by self employed persons such as 1996/29 Nov
lawyers E. rents on property If the marginal propensity to consume increases
Answer: Students grants and scholarship (B) A. the aggregate amount spent out of a given increase in
income will decline
B. there will be an immediate increase in the net national
2002/41 Nov income
“The total output of all the nationals of a country, C. there will be a decrease in the amount of savings
wherever they may reside, is termed the D. the marginal propensity to save will also increase
A. gross domestic product B. gross national product E. the net national product will remain constant
C. net national product D. disposable income Answer
Answer: Gross domestic product (A) There will be a decrease in the amount of savings (C)
458
2019/31 2006/50
The total value of goods and services produced within the Using expenditure approach to measure National income i.e.
borders of a country is GNP = C + I + G + (X – M)
A. net national product B. net domestic product (X – M) stands for
C. gross domestic product D. gross national product A. disposable income B. government expenditure
Answer: Gross domestic product (C) C. investments expenditure
D. net export earnings E. net import earnings
Answer: Net export earnings (D)
2019/33
2006/51 Neco
Which of the following factors will not underestimate the
The national income of a country is determined by the
national income?
following except
A. rapid decrease in prices A. adequacy of infrastructure B. level of technology C.
B. increased subsistence production political climate of the country
C. practice of specialization of labour D. quantity and quality of factories
D. increase in value of services not paid for E. transformation and transition programmes.
Answer: Practice of specialization of labour (C) Answer: Adequacy of infrastructure (A)

2019/49 Neco
2008/46 Neco If in a closed economy, the value of the marginal
The output method of calculating national income takes into propensity to consume (MPC) is 0.6. What is the
account multiplier?
A. initial cost of production A. 2.4 B. 2.5 C. 2.6 D. 2.9 E. 4.2
B. the value added in the final stage of production of all
Answer
commodities I
C. the value that is added to each stage of production K = I−MPC
D. the wages paid to labour in the course of production I
K = 1−0.6
E. value added in both intermediate and final stage of
production 1
K = 0.4
Answer
Value added in both intermediate and final stage of K = 2.5 (B)
production (E)
2019/50 Neco
2008/47 Neco Determine the average propensity to consume if total
Which of the following is not a problem of measuring national income is N250million and total national
national income? consumption is N25million.
A. currency differences B. depreciation values A. 0.1 B. 0.2 C. 0.4 D. 1 E. 10
C. double counting D. inflation Answer
E. insufficient statistics C
APC =
Answer: Currency differences (A) Y
25𝑚
APC = 250𝑚
= = 0.1 (A)
2008/48 Neco
The proportion of National income that is saved is known as 1999/34 Nov
A. APS B. APC C. MPC D. MPS E. multiplier
Which of the following is a major problem of national
Answer: APS (A)
income estimation?
A. output consumption B. exporting of goods
2008/49 Neco Exercise 17.10
APS is estimated as C. income distribution D. double counting
S ∆Y ∆C Answer
A. – APS B. I – APC C. D.
I ∆C I−APS Double counting (D)
I
E. ∆Y−I
1999/35 Nov
The measure of the total value of goods and services
2006/49 Nov produced within a country over a particular period of time
Per capital income is low in some West African countries
is referred to as
because their
A. national income B. Net Domestic Product
A. population and output are high
B. unemployment level and output are low
C. Gross Domestic Product D. Net National Product
C. output is high and population is low Answer: Gross Domestic Product (C)
D. output is low and population is high
Answer: Output is low and population is high (D)
459
1999/44 Nov 2012/50 Neco
Which of the following provides the best indication of a If the marginal propensity to save (MPS) in a two sector
country’s standard of living? economy is 0.1, what is the change in the national income,
A. consumer price index B. terms of trade if investment is increased by ₦10m?
C. level of savings D. real income per head A. ₦1m B. ₦9m C. ₦10m D. ₦90m E. ₦100m
Answer: Real income per head (D) Answer
∆𝑌
Multiplier (K) = ∆𝐼
2000/54 Neco
1 ∆𝑌
Which of the following best expressed the National =
MPS ∆𝐼
income via the expenditure approach?
1 ∆𝑌
A. Y + C + I + G + X – M B. Y = C + I + G + X + M =
0.1 10𝑚
C. Y = C + I + G + X – M
10𝑚
D. Y = C + I + G – X – M E. Y = C + I – G – X + M ∆Y = 0.1
Answer
∆𝑌 = ₦100𝑚 (E)
Y = C + I + G + X – M (C)

2000/55 Neco 2012/51 Neco

A major problem with the output method of measuring the If the multiplier in a two sector economy is 5, what is the
national income is marginal propensity to consume (MPC)?
A. double counting A. 0.20 B. 0.25 C. 0.40 D. 0.50 E. 0.80
B. inadequate data on salaries/wages Answer
1
C. self employment D. transfer payment K = 1−MPC
E. value added tax 1
Answer 5 = 1−MPC
Double counting (A) 5(1 – MPC) = 1
5 – 5MPC = 1
–5MPC = –4
2000/56 Neco −4
MPC = −5
If the marginal propensity to consume is 0.75, what is the
multiplier? MPC = 0.80 (E)
A. 1 B. 2 C. 3 D. 4 E. 7
Answer 2012/57 Neco Exercise 17.11
I I What is the per capital income of a national whose is 100m
K= = people with a national income of $210m?
I−MPC 1−0.75
1 A. 3.1 B. 2.1 C. 1.1 D. 0.48 E. 0.84
= = 4 (D)
0.25
2006/52 Neco Exercise 17.12
Given the MPC as 0.85 with a change in investment
2000/48 Neco expenditure from N10,000 to N14,000, find the change in
Net National Income plus Depreciation is equal to 1
A. capital consumption allowance equilibrium income using the formula K = 1−MPC.
B. gross domestic product C. gross national product A. ₦2.666 B. ₦26.666 C. ₦266.666
D. national income E. net national income D. ₦26,666.66 E. ₦266,666.66
Answer
Gross national product (C) 2012/2 Neco Exercise 17.13
If the consumption expenditure of a country increases from
N25,000,000 to N40,000,000 as a results of an increase in
2012/49 Neco the National income from N105,000,000 to N125,000,000.
Net National Product plus capital consumption allowance (a) Calculate the value of the multiplier.
equals (b) Determine the change in National income if
A. depreciation of capital goods Government Expenditure increases by N12,000,000.
B. factor income from abroad
C. gross domestic product 2009/33
D. gross national product E. real net national product Disposable income is total income
Answer A. less tax B. divided by tax C. plus tax
Gross national product (D) D. multiplied by tax
Answer
Less tax (A)

460
2009/34 2010/50 Neco Exercise 17.14
Use the information below to answer questions 34 to 36 Which of the following is not a factor that determines
Depreciation = $40,000 investment?
Gross Domestic Product = $100,000 A. economic system B. future expectation C. rate of
Factor payments to foreigners = $20,000 taxation D. savings E. stock of existing capital
Factor receipts from abroad = $25,000
2010/51 Neco
The gross national product is equal to
The following are areas of government investment except
A. $40,000 B. $50,000 C. $105,000 A. Defence B. education C. health D. marriage
D. $125,000 E. road construction
Answer Answer
Using the formula Marriage (D)
GNP = GDP + Net income from abroad
∴ GNP = $100,000 + ($25,000 – $20,000) 1995/9 Nov Exercise 17.15
GNP = $105,000 (D) Outline the reasons why a country measures her National
2009/35 income
The national income is equal to
A. $45,000 B. $60,000 C. $65,000 D. $195,000 2008/11 Neco
Answer (a) Define Gross National Product (GNP)
The national income is computed from the net national (b) Discuss four reasons for measuring the National
income income for a country.
NNP = GNP - Depreciation
GNP = $105,000 – $40000 Answer
= $65,000 (C) (a) Gross National Product (GNP) refers to the total value
of goods and services produced within a country
2009/36 during a year plus net income from abroad.
The Net Domestic Product is
A. $55,000 B. $60,000 C. $140,000 (b) Reasons for measuring the National income of a
D. $165,000 country:
Answer (1) National income figures are used for economic
NDP = GDP – Depreciation planning: National income estimates provides basic
NDP = $100,000 - $40,000 and comprehensive data on the contribution of the
NDP = $60,000 (B) various sectors of the economy to national output. If
the aims of planners are to increase output and
2010/48 Neco employment, it can be determined from national
Which of the following factors determine the size of income estimates whether the desired results are
National income? achieved.
A. Depreciation value B. Environment damage (2) It is used to measure economic progress: National
C. Inflation D. Political instability income figures provide information about the
E. technical efficiency performance and growth rate of the economy. By
Answer comparing the figures for different years it will be
Depreciation value (A) possible to know what is happening to the economy as
a whole it can show whether the rate of economic
2010/49 Neco growth is high or low.
Which of the following is not applicable to per capital (3) National income estimates are used to measure the
income? level of prosperity or the general standard of living of
A. it is calculated as National income over population the people: The per capital income can be found by
B. it is calculated as population over National Income dividing the national income by the total population. If
C. it helps in the assessment of standard of living D. it is the per capital income is high, the standard of living
used as one of the indicators of economic growth E. it is will be high.
used to determine the amount of aids to be received by (4) National income estimates are used for purposes of
developing countries international comparison of the standard of living
Answer and for comparison between different periods in a
It is calculated as population on over National Income (B) particular country: The per capital income of
countries is used for the purpose. By reducing the per
capital income of different countries to the same
currency (the dollar) by making use of foreign
exchange rates, it becomes possible to compare the
standard of living between countries.
461
1979/25 UTME 1984/46 UTME
Net national income is
A. gross national income minus depreciation
B. gross domestic product plus net income from abroad
C. nominal national income deflated by the price level
D. gross national income divided by the total population
E. gross national product plus subsidies minus indirect
taxes
Answer: Gross national income minus depreciation (A)

1979/34 UTME Exercise 17.16

Which of the following is not a component of national
income at factor cost?
A. wages earned by doctors B. rent paid to landlords
C. indirect taxes D. undistributed company profit The diagram illustrates
E. interest on loans A. the circular flow of income
B. gross national product plus depreciation
1979/43 C. incomes of the private sector
Disposable income equals D. the profit of business enterprises
A. personal income less business profits E. the output approach to national income determination
B. personal income less taxes and subsidies Answer
C. national income less borrowing from abroad The circular flow of income (A)
D. national income plus transfer payments
E. personal income less taxes plus subsidies
Answer 1984/47 UTME
Personal income less taxes plus subsidies (E) In the diagram (1) refers to the calculation of national
income through the
A. expenditure approach B. input – output approach
1982/32 UTME Exercise 17.17 C. flow of funds approach D. income approach
A good measure of the standard of living usually used for E. output approach
international comparison is Answer
A. gross national income (GNI) B. net national income Income approach (D)
(NNI) C. gross national product (GNP)
D. gross domestic product (GDP)
E. per capital income (PCI) 1984/48 UTME
In the same diagram (III) refers to the calculation of
national income through the
1983/1UTME A. income approach B. government earnings approach
Which of the following items is NOT included in C. expenditure approach D. output approach
measuring national income by the income approach? E. flow of funds approach
A. wages and salaries of public servants Answer
B. students grants and scholarships Expenditure approach (C)
C. profits of companies
D. income earned by self employed persons such as 1986/47 UTME
lawyers Which of the following methods is most likely to lead to
E. rents on property an increased rate of growth in the national economy?
Answer A. an increase in wages and profits
Student grants and scholarships (B) B. an increase in consumer demand
C. a greater fraction of the national product going into
investment
1984/4 UTME Exercise 17.18 D. a continuous rise in bank loans
The production within the domestic territory of a country Answer
is called the A greater fraction of the national product going into
A. net national product B. gross domestic product investment (C)
C. net income D. disposable income
E. gross national product
462
1985/2 UTME 1988/43 UTME Exercise 17.20
Which of the following items is subtracted when
computing Gross National Product at factor cost by the
expenditure method?
A. consumption expenditure B. indirect taxes
C. exports and property income from abroad
D. Gross Domestic fixed capital formation

1988/44 UTME
Which of the following occurs in the circular flow of
economic activities with no leakages?
A. consumption equals saving B. saving equals
investment
The interdependence between households and business C. imports equal exports D. national income equals
enterprises illustrated in the figure is known as national expenditure
A. market interaction B. cash flow Answer
C. circular flow of income Saving equals investment (B)
D. supply and demands for goods and services
E. household preference schedule 1988/45 UTME
Answer In estimating the national income of a country the three
Circular flow of income (C) approaches usually adopted are the
A. expenditure, value – added and output
1986/48 UTME Exercise 17.19
B. income final product and output
The difference between the Gross Domestic Product and
C. expenditure, income and output
the Gross National Product is the
D. avoidance of double counting expenditure and value
A. allowance for total depreciation
added
B. total interest payments
Answer
C. total tax and interest payments
Expenditure income and output (C)
D. net income from abroad
1989/1 UTME
1986/50 UTME
In its simplified form, the circular flow of income concept
A nation’s distribution of income shows
refers to the
A. the value of all goods produced in the economy
A. real flow in goods and services between the product and
B. how income is divided among different groups
factor markets
C. where the economy system is on its production
B. monetary payments for goods and services produced by
possibility curve
individual firms
D. the consumption behaviour of the people
C. transactions in goods and services and payments for
Answer
such transactions between individual firms and households
How income is divided among different groups (B)
D. money flows associated with transactions between
1987/47 UTME individual firms and households
The difference between personal income and personal Answer
disposable income is Transactions in goods and services and payments for such
A. personal income tax B. investment income transactions between individual firms and households (C)
C. personal savings D. consumption expenditure
Answer: Personal income tax (A) 1989/45 UTME
The difference between gross national product and net
1988/42 UTME national product is equal to
If aggregate income is ₦500.00 and aggregate A. gross investment B. net investment
consumption is ₦400.00, this means that the average C. net foreign income D. capital depreciation
propensity to consume is Answer: capital depreciation (D)
A. 0.20 B. 0.80 C. 1.25 D. 2.00
Answer 1989/48 UTME
C If C stands for consumption expenditure, 1 for investment,
APC =
Y X for exports and M for imports, then national income is
400 A. C + I + X + M B. C + I + X – M
APC =
500 C. C + I – X + M D. C + I + X
APC = 0.8 (B) Answer
C + I + X – M (B)
463
1990/3 UTME 1991/46 UTME
The flow labeled Y refers to The Gross Domestic Product is defined as the total value of
A. real income B. factor payments C. factor input A. all final goods and services produced in a country
D. national income during the year B. all assets of a country in a particular
Answer year
Factor payments (B) C. exports net of total value of imports
D. all receipts
1990/4 UTME Answer
The lower half of the diagram indicates All final goods and services produced in a country during
A. the flow of goods and services the year (A)
B. payments for goods and services
C. the flow of income D. government transactions
Answer
The flow of income (C) 1991/48 UTME
If W stands for wages/salaries, P for profit, R for interest
1990/44 UTME and Z for rent on land and real estate, then national income
If the government invests the sum of N1,000,000.00 and is
the marginal propensity to consume is 0.75, what is the A. W – P – R – Z B. W + P + Z – R
change in income? C. P – R – Z + W D. W + P + R + Z
A. ₦1,000,000.00 B. ₦4,000,000.00 Answer
C. ₦6,000,000.00 D. ₦14,000,000.00 W + P + R + Z (D)
Answer
∆Y 1991/9 UTME
Multiplier (K) =
∆I In the national income and product accounts, double
∆Y = K × ∆I counting is avoided if
1 1,000,000 A. only final goods are counted
∆Y = ×
1 − 0.75 1 B. only intermediate goods are counted
1,000,000
∆Y = C. only intermediate and final goods are counted
0.25 D. the value of all goods and services are added together
∆Y = 1,000,000 Answer
1,000,000 Only final goods are counted (A)
∆Y =
0.25
∆Y = 4,000,000 (B) 1992/43 UTME
In national income accounting, aggregate saving in any
1990/45 UTME year is defined as
The system of measurement of national income as the sum A. all disposable income not spent on consumption
of all final demands is called B. all savings deposits in all banks during the year
A. income approach B. expenditure approach C. all savings and time deposits in all banks during the year
C. value – added D. final demands approach D. the value of inventory change for the year
Answer Answer
Expenditure approach (B) All savings and time deposits in all banks during the year (C)

1991/45 UTME 1993/40 UTME

It is important to measure the National Income of a According to the income approach to national income
country because measurements, the national income of a country is equal to
A. it is a major determinant of the standard of living A. the value of all output produced in the country over the
B. it reveals hazards of development like pollution and relevant period of time at market
congestion B. the value of output of factor cost
C. it reveals the distribution of the citizens’ savings in C. the value added of production D. C + I + G
foreign banks Answer: C + I + G (D)
D. its size determines the extent of political stability
Answer 1993/41 UTME
The best index for international comparison of standards of
It is a major determinant of the standard of living (A)
living is the
A. gross national product B. net national income
C. the value added of production
D. gross national income
Answer: Per capital income (C)
464
1993/39 UTME 2017/2018/32(UNIZIK, AWKA)
No Item Amount (Nm) The output approach to measuring national income is
1. Wages and salaries 38.0 based on the computation
2. Profit and rents 11.0 A. final output B. factor cost C. value added
3. Payments to foreigners on assets, 1.0 D. profits earned
assets held in Nigeria Answer: value added (A)
4. Income from foreign assets held 2.0 2018/2019/62 (UNIZIK, AWKA)
by Nigerian resident abroad Gross Domestic Product (GDP) at market prices plus net
5. Depreciation 4.0 factor income from abroad gives the
Using the table, calculate the net income A. gross capital formation B. net capital product
A. N58m B. N54m C. N50m D. N46m C. disposable income D. gross national product
Answer Answer: Gross National Product (D)
Computation of Net National Income using income approach
2017/4 (UNIBEN, BENIN–CITY)
₦m ₦m
In a closed economy, it is assumed that there is
Wages and salaries 38.0 A. internal trade B. international trade
Profit and rent +11.0 C. government participation D. exchange at all
Total domestic income 49.0 Answer: International trade (B)
Income from foreign asset (export) 2.0
2017/6 (UNIBEN, BENIN–CITY)
Payment to foreigners (import) -1.0
The circular flow of income for a two-sector model shows
Gross national income GNP 1.0
that leakages to savings are always
(income base)
Deduct 50.0
A. less than less investment spending
Depreciation 4.0 B. greater than investment spending
Net national income (NNY) 46.0 C. equal to investment spending
Correct Option is D – ₦46m (D) D. half of investment
Answer
1993/42 UTME Equal to investment spending (C)
The GDP of Nigeria will be greater than her GNP if
2016/6 (UNIBEN, BENIN–CITY)
A. the value of goods and services to Nigeria is greater than
If the marginal propensity to consume is 0.5, what is the
the value of those from Nigeria
multiplier?
B. consumption is greater than investment
C. government expenditures are greater than the foreign and A. 1 B. 2 C. 4 D. 5
received Answer
1
D. the value of goods and services produced by Nigerians K=
1−MPC
businesses abroad is less than that of foreign business in
1 1
Nigeria K= = = 2 (B)
1−0.5 0.5
Answer
The value of goods and services produced by Nigerians
businesses abroad is less than that of foreign businesses in
Nigeria (D) 2017/2018/6-13 (UI, IBADAN)
Use the following equation to answer question 6 – 13
1
1994/3 UTME C = 200 + 5 𝑌
If the marginal propensity to consume is 0.80 and the
investment expenditure changes from ₦100 million to ₦140 2017/2018/6 (UI, IBADAN)
million in a given economy, find the level of equilibrium in What does C represent?
I
the given economy, using the formula: K = A. consumer B. savings C. income
I−MPC
(K = multiplier, MPC = marginal propensity to consume) D. consumption
A. N20 million B. N40 million C. N80 million Answer
D. N200million Consumption (D)
Answer
2017/2018/7 (UI, IBADAN)
∆y = 𝐾 × change in initial investment What does 200 stand for?
I I
Since K = ; ∆y = × ∆I A. autonomous consumption B. intercept
I−MPC I − MPC
1 140−100
C. marginal propensity to consume
∆y = I−0.80 ×
1 D. marginal propensity to save
40 Answer
∆y= = ₦200 million (D)
0.2 Autonomous consumption (A)

465
2017/2018/8 (UI, IBADAN) 2017/2018/13 (UI, IBADAN)
1
in the equation represents Given C = ₦600, what is Y ?
5
A. autonomous consumption B. intercept
A. ₦100 B. ₦1,500 C. ₦1,800 D. ₦2,000
C. marginal propensity to save
Answer
D. marginal propensity to consume 1
Answer C = 200 + Y 5
Marginal propensity to consume (D) 1
600 = 200 + Y
5
1
2017/2018/9 (UI, IBADAN) 600 – 200 = 5Y
Y stands for 1
A. consumer B. savings C. income D. year 400 = 5Y
Answer Y
400 = 5
Income (C)
Cross multiply
2017/2018/10 (UI, IBADAN) Y = 400 × 5
What is marginal propensity to save? Y = ₦2,000 (D)
1 4
A. 5 B. 5 C. 1 D. 5
Answer 2014/2015/8 (UI, IBADAN) Exercise 17.21
MPS = 1 – b The difference between gross national product and net
Where b = MPC national product is equal to
1
MPS = 1 – 5 A. gross investment B. net investment
5−1 4 C. net foreign income D. capital depreciation
= 5
= 5 (B) E. net and gross

2017/2018/11(UI, IBADAN)
Given Y = ₦1000, what is the value of C? 2014/2015/59 (UI, IBADAN)
A. ₦200 B. ₦300 C. ₦250 D. ₦400 The multiplier is defined as
Answer A. the ratio of the change in income to the change in
1
C = 200 + 5 Y investment
1 B. the change in investment divided by the change in
C = 200 + 5(1000) income
C = 200 +
1000 C. 1/(MPC) D. 1/(1 – MPS)
5 E. process of multiplying
C = 200 + 200 Answer
C = ₦400 (D) The ratio of the change in income to the change in
investment (A)

2017/2018/12 (UI, IBADAN) 2012/16 (OAU, IFE)

What is the multiplier? The difference between the output proceedings of
4 1 5
A. 5 B. C. D. 1 Nigerians abroad and foreigners in Nigeria is known as
5 4
Answer A. net export to abroad B. net import from abroad
1 1 C. net income from abroad D. net income to abroad
K= =
1−MPC MPS Answer
1 1
K= or K = MPS Net income from abroad (C)
1−MPC
1 1
K= 1 or K = 4
1− 5
5
1 5 2012/23 (OAU, IFE)
K= 4 or K =1 × 4 Which of the following may not inflate the National
5
5 5
income?
K =1 × 4 or K = 4 (C) A. student’s bursary B. owners occupied houses
5 C. office inducement D. intermediate goods
K= (C)
4 Answer
Office inducement (C)

466
2011/15 (OAU, IFE) 2008/2 (OAU, IFE)
Marginal propensity to consume (MPC) is calculated using If the equation relating consumption (C) to income (Y) is
one of the following formulae C = ₦7500 + 0.2Y, then
Change in saving A. consumption is inversely related to income
A. MPC = Change in income
B. consumption is the independent variable and income is
Change in consumption
B. MPC = the dependent variable
Change in income
1 1 Total savings
C. if income is N15,000, the consumption is N10,500
C. MPC = = MPS D. MPC = Total incomes D. if consumption is N30,000, then income is N10,000
1−MPC
Answer Answer
Change in consumption C = 7500 + 0.2Y
MPC = Change in income (B)
C = 7500 + 0.2(15,000)
C = 7500 + 3000
2010/10 (OAU, IFE) C = 10500
If depreciation exceeds gross investment If income is ₦15,000, the consumption is N10,500 (C)
A. the economy’s stock of capital may be either growing
or shrinking 2008/11(OAU, IFE)
B. the economy’s stock of capital growing Which of the following equations is the correct one about
C. net investment is zero Net National Product (NNP)?
D. the economy’s stock of capital is shrinking A. NNP = Gross National Product (GNP) – depreciation
Answer B. NNP = Gross National Product (GNP) + Net Incomes
The economy’s stock of capital is shrinking (D) from abroad
C. NNP = Gross Domestic Product (GDP) – Depreciation
2010/13(OAU, IFE) D. NNP = Gross Domestic Product (GDP) – Net income
The greater is the marginal propensity to consume, the from abroad
A. small is the marginal propensity to save Answer: NNP = Gross National Product (GNP) – Depreciation
B. higher is the interest rate
C. lower is the average propensity to consume 2013/2(OAU, IFE) Exercise 17.22
D. lower is the price level The sum of MPS and MPC is
Answer A. greater than 1 but less than infinity
Smaller is the marginal propensity to save (A) B. greater than 0 but less than 1
C. equal to 1 D. none of the above
2010/14 (OAU, IFE)
Investment and saving are respectively 2013/14 (OAU, IFE)
A. income and wealth B. stocks and flows A country’s aggregate consumption was N20million when
C. injections and leakages D. leakages and injection its GDP was N100million. Following an increase in GDP
Answer to N120million, consumption increased to N25million.
Injections and leakages (C) The marginal propensity to consume is given as
A. 0.25 B. 0.50 C. 0.75 D. 0.80
2009/5 (OAU, IFE) Answer
Changes in consumption
Which of these is not included in measuring national MPC =
Changes in national income
income by the income approach? ∆C
MPC =
A. wages and salaries of public servants ∆Y
B. student bursaries and scholarships 25−20
C. profit of international MPC =
120−100
D. income of self employed persons 5
MPC =
E. rents on property 20
Answer 0.25 (A)
Student bursaries and scholarships (B)
2013/25 (OAU, IFE)
Disposable income means
2014/21 (OAU, IFE) A. income that is lost after tax has been removed
GDP per capital is B. income that could spent when tax has been removed
A. GDP/labour force B. GDP/population C. income that tax authority mandated to be given to
C. GDP/unemployment D. GDP/working population charity has been removed
Answer: GDP/working population (D) D. income to be disposed secretly for future spending after
tax has been removed
Answer
Income that could spent when tax has been removed (B)
467
2006/5 (OAU, IFE) Exercise 17.23 2014/23 (OAU, IFE)
The multiplier is always the reciprocal of All these are examples of biases in using GDP or GNP to
A. MPC B. MPS C. APC D. APS measure economic well – being except
A. population growth B. price changes
2006/6 (OAU, IFE) C. non – market activities D. market activities
If the marginal propensity to save is 0.4 and consumption Answer
expenditure changes by N10million, the equilibrium level of Non – market activities (C)
income will change by
A. ₦15.0 million B. ₦4.0million C. ₦2.5million
D. ₦25million
2016/7 (UNIBEN, BENIN–CITY)
Answer
1
In national income measurement, which of the following is
∆y = × ∆E called an injection?
MPS A. savings B. taxes C. consumption
1 D. investment
∆y = × 10 Answer
0.4
∆y = 2.5 × 10 Investment (D)
∆y = ₦25million (D)

2015/10 (OAU, IFE) 2015/3 (UNIBEN, BENIN–CITY)

In computation of GDP, the following are not included except The income received by the nationals of a country from all
A. all final goods produced and sold within the country productive activities is referred to as
B. all used goods or goods sold outside of traditional market A. GDP B. GNP C. NI D. NNP
C. all produce from home gardens that is grown and Answer
consumed by household GDP (A)
D. all the farm produce that farmers exchange among
themselves without ever being sold
Answer 2019/2020/7 (UI, IBADAN)
All final goods produced and sold within the country (A) One of the major uses of national income statistics in
Hint: Only newly produced goods – including those that increase Nigeria is to
inventories – are counted in GDP. Sales of used goods and A. equally distribute national income among citizens
sales from inventories that were produced in previous years
B. determine the total population
are excluded. Only goods that are produced and sold legally,
C. compare population growth the among nations
in addition, are included in the GDP.
D. estimate per capital income
2014/22 Exercise 17.24 Answer
The best measure of economic well being in any economy is Estimate per capital income (D)
A. GDP per capital B. GDP C. GNP
D. national income 2019/2020/19-20 (UI, IBADAN)
Use the following equation to answer questions 19 – 20
1
1994/42 UTME C = 250 + Y
4
The national income of a country indicates that the gross
national income was ₦17,700 million and gross domestic 2019/2020/19 (UI, IBADAN) Exercise 17.25
product was ₦16,800 million and gross domestic product was What does C represent?
₦16,800 million. The difference of ₦900 million presents A. consumer B. savings C. income
A. debt repayments B. investments abroad D. consumption
C. net income from abroad D. capital consumption
Answer: C – Net income from abroad. 2019/2020/20 (UI, IBADAN)
What does 250 stand for?
1995/46 UTME A. autonomous consumption B. intercept
Ajanku, a medical student entitled to an annual allowance of C. marginal propensity to consume
₦6,000 decides to leave the university to take up a job where D. marginal propensity to save
he earns ₦7,000 per annum by this singular act, the national Answer
income level will Autonomous consumption (A)
A. increase by ₦1,000 B. decrease by ₦7,000
C. increase by ₦7,000 D. increase by ₦13,000 2018/2019/5 (UI, IBADAN)
Answer The sum of MPC and MPS is
A – Increase by ₦1,000 A. negative B. positive C. zero D. one
Answer: One (D)

468
1999/32 UTME 2000/44 UTME
The value of the multiplier depends on Exclusions that make gross national product a poor
A. MPC and level of income B. level personal income measure of welfare are
C. level of personal savings A. government purchases
D. government policy and MPC B. government military out-lays
Answer: D – Government policy and MPC. C. housewives services D. wages and salaries
Answer: C – Housewives service.
2001/47 UTME
GNP is not a good measure of social welfare because there
are unrecorded
2001/36 UTME
A. indirect taxes B. social costs
In national income accounting, NNP is derived by
C. government subsidies D. transfer payments
subtraction from the GNP
Answer: B – Social costs.
A. transfer payments B. indirect taxes
2002/13 UTME C. allowance for wastage D. capital consumption
National income estimates can be used to Answer: D – Capital consumption.
A. differentiate between the rich and the poor in a country Hint: The capital consumption is the depreciation
B. prepare a country’s annual budget
C. project the level of the country’s economic
development 2002/15 UTME
D. compare a country’s growth rate with that of another If the country’s GNP in the current year is ₦65 billion and
over a period of time. the GNP in the base year ₦50 billion, the GNP deflator is
Answer A. 130.0 B. 30.0 C. 50.0 D. 1.3
D – Compare a country’s growth rate with that of another Answer
𝐺𝑁𝑃 𝑖𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑒𝑎𝑟−𝐺𝑁𝑃 𝑖𝑛 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 100
over a period of time. GNP Deflator= × 1
𝐺𝑁𝑃 𝑖𝑛 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟
15 100
1999/33 UTME GNP Deflator = 50 × = 30 (B)
1
No Items Amount (₦m)
1. Wages 9,000
2. Salaries 7,000 2002/16 UTME Exercise 17.27
In a closed economy, the marginal propensity to consume
3. Government pensions 1,500
is 0.6 and the average propensity to consume 0.8. The
4. Unemployment pay and other 1,000
value of the multiplier is
social benefit.
A. 2.5 B. 2.6 C. 2.7 D. 2.4
5. Rent and interest 1,500
6. Profits 1,500
From the table, calculate the national income 2008/21 UTME
A. ₦18,500m B. ₦19,000m For a firm, value added can be defined as the difference
C. ₦19,500m D. ₦20,500m between the
Answer A. value of its output and the cost of production
Computation of net national income using income B. total revenue and total cost
approach C. input prices and product prices
₦m D. value of its output and inputs purchased from other firms
Wages 9,000 Answer
Salaries 7,000 D – Value of its output and inputs purchased from other firms.
Rent and interest 1,500
Profit 1,500
Total Domestic income 19,000 2004/2 UTME
Hint: Tranfer earnings are not included (pension, Given that Y = C + I and C =by where b = 0.8, what is the
unemployment pay and other social benefits) multiplier?
B - ₦19,000m A. 5 B. 10 C. 4 D. 2
Answer
2000/36 UTME Exercise 17.26 1
Which of the following is used for measuring national K= 1−𝑀𝑃𝐶
income? b = MPC
A. income, output and expenditure 1
K=
B. import, expenditure and output 1−0.8
1
C. output, income and wages K= 0.2
= 5(A)
D. Export, import and output
469
2004/10 UTME 2006/28 UTME
GDP differs from GNP because GDP If the marginal propensity to consume is 0.6and
A. is inclusive of depreciation consumption expenditure changes by ₦10million the
B. emphasizes the final goods and services produced equilibrium level of income will change by
within the country at a particular period A. ₦4.0 million B. ₦2.5 million
C. emphasizes the goods and services produced within the C. ₦15.0 million D. ₦25.0 million
country Answer
D. emphasizes the market value of all final goods and 1
∆y = 1−𝑀𝑃𝐶
× ∆E
services produced by nationals
1 10
Answer ∆y = 1−0.6
× 1
B – Emphasizes the final goods and services produced
1
within the country at a particular period. ∆y = 0.4
× 10

2005/2 UTME ∆y = ₦25.0million (D)

2007/46 UTME
Correction in the GNP figures for price changes require
the use of a
A. retail price index B. producer price index
C. price index D. price deflator
Answer
C – Price deflator

2006/29 UTME
In the circular flow diagram above, the arrow marked K The price index is calculated as
indicates 𝑤𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑝𝑟𝑖𝑐𝑒 100 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 𝑝𝑟𝑖𝑐𝑒 100
A. × 1 B. 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 × 1
A. the flow of capital goods 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 100 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 100
B. payments to factors of production C. 𝑤𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑝𝑟𝑖𝑐𝑒
× 1
D. 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 𝑝𝑟𝑖𝑐𝑒 × 1
C. payments of goods and services
D. the flow of economic rent Answer
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 100
Answer D- 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 𝑝𝑟𝑖𝑐𝑒
× 1
C – Payments for goods and services.
2007/50 UTME
2005/7 UTME One way of solving the problem of double counting is by
Given that Y = C + I, where C = 50 + 0.75y and I = ₦45m. computing national income using the
What is the equilibrium level of income? A. value-added method B. income method
A. ₦380m B. ₦20m C. ₦180m D. ₦200m C. output method D. expenditure method
Answer Answer
At equilibrium Y = AE = C + I C – Output method.
Y=C+I
Y = (50 + 0.75Y) + 45 2008/26 UTME Exercise 17.28
Y(1 – 0.75) = 95 The output approach to measuring national income is
Y (0.25) = 95 based on the computation of
0.25Y = 95 A. final output B. factor cost
95
Y= C. value added D. profits earned
0.25
Y = ₦380m (A)
2008/27 UTME Exercise 17.29
2005/12 UTME An example of injection into the circular flow of income is
In a particular year the sum of the value added in each A. taxes B. pensions C. imports D. exports
sector of the economy was ₦4,550 million. The amount
represent the GNP measured by the
A. factor – price approach B. output approach 2009/26 UTME
C. income approach D. expenditure approach Double counting is a problem in computing national
Answer: B – Output approach. income when using the
A. expenditure method B. income method
C. ouput method D. value added method
Answe: D – Value added method.

470
2009/27UTME 2012/28 & 29UTME
In the circular flow of income, an increase in savings Use the information below to answer question 28 and 29.
causes The investment expenditure of an economy changes by ₦2
A. an increase in imports million and MPC is 0.75.
B. decrease in the income stream
C. an increase in household consumption 2012/28UTME
D. a decrease in export What is the change in income?
Answer: B – A decrease in the income stream. A. ₦0.5m B. ₦1.5m C. ₦2.6m D. ₦8.0m
Answer
2010/27 UTME This is a Multiplier problem
In national income accounting, tax is determined by the 1
A. level of income B. level of investment ∆𝑦 = × ∆𝐼
1 − 𝑀𝑃𝐶
C. level of consumption D. rate of savings
Answer: A – Level of income ∆𝐼 = 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
Hint: The level of income are the important metrics used 1
to determine tax in natonal income accounting. Note that = 𝐾 (𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟)
1−𝑀𝑃𝐶
∆𝑦 = 𝐾 × ∆𝐼
2010/29UTME Where ∆𝑦 = Change in National Income, I = Investment
If MPC is 0.7 while government expenditure increased by 1
∆𝑦 = × ∆𝐼
₦150m, the equilibrium national income is 1 − 𝑀𝑃𝐶
A. ₦214 million B. ₦105 million 𝑏 = 𝑀𝑃𝐶
C. ₦45 million D. ₦500 million 1
∆𝑦 = × ∆𝐼
Answer 1−𝑏
Hint: multipier problem 1 2𝑀
1 ∆𝑦 = ×
1 − 0.75 1
∆𝑦 = × ∆𝐸 1 2𝑀
1 − 𝑀𝑃𝐶
1 ∆𝑦 = ×
∆𝑦 = × 150 0.25 1
1 − 0.7 ∆𝑦 = 4 × 2
∆𝑦 = 500 (D) ∆𝑦 = ₦8.0M (D)
2011/28 UTME
2012/29 UTME
In national income accounts, an item counted as part of
The multiplier is
government spending is
A. 8 B. 4 C. 3 D. 2
A. salaries and wages B. pension
Answer
C. scholarship D. social welfare 1
Answer: A – salaries and wages 𝐾=
1 − 𝑀𝑃𝐶
1
2011/29 UTME 𝐾=
If aggregate demand is lower than total output in an 1 − 0.75
1
economy, national income will 𝐾=
0.25
A. be constant B. be at equilibrium C. increaseD. fall 𝐾 = 4 (𝐵)
Answer: D – Fall
2013/26 UTME
2011/32 UTME
A measure of national income used as comparison of
An indicator of growth in an economy over a period of
standard of living among nations is
time is the
A. net national product B. gross domestic product
A. GDP gap B. GDP at factor cost
C. gross national product D. per capital income
C. GDP at market price D. GDP deflator
Answer
Answer: C – GDP at market price.
D – Per capital income
2012/27 UTME
2014/25 UTME
Net national product is derived by deduction
Which of the following can be used to measure the Gross
A. net exports from GNP B. subsidies from GDP
National product in an open economy
C. taxes from GDP D. depreciation of GNP
A. C + I + G + (X + M) B. C + I + G + X
Answer
C. C + I + G D. C + I + G + (X – M)
D – Deprecation from GNP
Answer
D – C+ I + G + (X – M)

471
2014/26 UTME
2
If MPC = 3 and investment in ₦100 million the level of
national income is
A. ₦100 million B. ₦10million
C. ₦803 million D. ₦300 million
Answer
1
∆𝑦 = × ∆𝐼
1 − 𝑀𝑃𝐶
1
∆𝑦 = 1 × 100
3
∆𝑦 = 3 × 100
∆𝑦 = ₦300 million (D)

2015/4 UTME
The marginal propensity to save measures the
A. ratio of change in saving
B. change in supply as a result of a change in consumption
C. ratio of change in consumption to a change in the level
of income
D. average propensity to consume.
Answer: A – Ratio of change in saving.

2016/24 UTME Exercise 17.30

Which of the following can be used to measure the Gross
National product
A. C + I + G + (X + M) B. C + I + G + (X – M)
C. C + I + G + X D. C+ I + G

2017/16UTME Exercise 17.31

Which of the following problems is associated with
national income measurement?
A. high interest rate B. inflation and deflation
C. over population D. population growth

2019/8 UTME Exercise 17.32

The difference between the Gross Domestic product and
the Gross National product is the
A. allowance for total depreciation
B. total interest payments
C. total tax and interest payments
D. net income from abroad

2019/9 UTME
A nation’s distribution of income shows
A. the value of all goods produced in the economy
B. how income is divided among different groups
C. where the economy systems on the production
possibility curve
D. the consumption behaviour of the people
Answer
B – How income is divided among different groups.

472
 (5) Lack of standard for deterred payments: During the
barter system, lending and borrowing services found it
MONEY AND INFLATION difficult to borrow or lend. Since repayment would be in
Money is any tangible commodity which is universally
the form of goods, there was no guarantee that the item
acceptable in a given community in payment for goods and paid back would be of the same size, colour, shape e.t.c.
services or for the settlement of debts. Such a commodity is as the one borrowed. Trade by barter discouraged
a legal tender that is generally acceptable as a means of deferred payments, and credit transactions.
exchange within a given area. For example in Nigeria, (6) Impossibility of large – scale production: Large scale
Naira is a legal tender. production is only possible where there is a large and
guaranteed demand for products and with the existence
2011/2012/40 of division of labour. During the barter system, the
The most important attributes of money is demand for goods was never certain and so division of
A. homogeneity B. relative scarcity C. divisibility labour and large – scale production were rare.
D. general acceptability E. none of the above (7) Bulkiness of goods: Trade by barter involves movement
Answer from place to place. In search of a person who has a
General acceptability (D) commodity which one requires in exchange for his. If the
goods to be exchanged are bulky or heavy, there is
TRADE BY BARTER problem of carrying them about.
Before the introduction of money, there existed a method of (8) Waste of time and resources: Much time and resources
trade known as trade by barter. Trade by barter is a system are spent in moving round markets, towns(s), or
of trade whereby goods are exchanged for goods. Barter is a communities in the process of exchanging goods.
system of exchange by which goods or services are directly (9) Lack of installmental payment: The system does not
allow people to practice installmental payment that is
exchanged for other goods or services without using a
giving out goods to customers and affording them the
medium of exchange such as money.
opportunity to pay in bits.
(10) Barter trade failed to promote economic development:
The initial stage of exchange is known as barter exchange. This is so because the system of trade is cumbersome. It
Under a barter economy, goods are exchanged for goods. use to take long hours for exchange to take place.
This implies that if one wants a commodity, this can be
exchanged only by giving another commodity in exchange TYPES/FORMS OF MONEY
Old forms of money
2013/15 Neco In the olden days, the forms of money used in West Africa
The exchange of goods for goods is referred to as ___ trade. included beads, cowries shells, salt, cows, slaves, elephant
A. ancient B. barter C. exchange D. goods tusks, manillas and bars of metal. These were commodity
E. retail money. But those forms of money did not satisfy most of the
Answer requirement of a good means of exchange.
Barter (B)
New forms of money
(1) Coins: Coins are money made of metal such as gold,
PROBLEMS OF TRADE BY BARTER
silver, copper, zinc, etc., there are two types of coins.
(1) Double coincidence of wants: Trade by barter
(a) Standard coins: A standard coin contains the full face-
involves double coincidence of wants. A producer has value of the metal used for making it. That is the amount
to find someone who has what he wants and wants embossed on the coin is equal to its market value if it is
what he has or produces. Exchange was therefore melted down.
clumsy, time consuming and difficult. (b) Token coins: These are money in the form of coins
(2) Rate of exchange: There was no unit of exchange or whose face value is greater than the value of the metal
common standard of value and so there was the content. In other words, the intrinsic value of such money
problem of an adequate valuation of the goods to be is less than the real value. Token coins are used today in
exchanged. various countries for day-to-day transactions.
(3) Indivisibility: A problem arose when the owner of the Coins are issued by the central bank in the present day
larger indivisible commodity wanted to exchangehis economy of West African countries.
goods for some small items. It was very difficult for (2) Bank notes: Bank notes are made of paper issued by the
the commodities exchanged to be divided into smaller Central Bank with amounts of money printed on them.
units in order to meet one’s need. It means that easy Some are backed up by gold while others are not. Paper
time exchange take place one trader gains at the money which is not backed up by gold or any other
expense of the other. valuable metal is known as a fiduciary issue. This is
(4) Difficulty of Storage: The commodities used as a inconvertible paper money.If all the paper money in a
medium of exchange could not be stored for over a country is backed up by gold, the country is said to be on
long period of time. This made it almost possible to a gold standard.
accumulated wealth.
473
(3) Bank deposits (bank money or demand deposits): FUNCTIONS OF MONEY
This is the money deposited in the customer’s current (1) It is used as a medium of exchange: Money serves as
account with any commercial bank in the country. It is a means of payment for goods and services and in the
transferrable from one person to another for various settlement of debts.
monetary and business transactions by the use of (2) It serves as a unit of account: Money is the means of
cheques. A cheque by itself is not money. It is the quoting prices, valuing goods and services and in
actual deposit in the bank that serves as money. keeping financial records of all business transactions.
(4) Quasi–money (near money): These include bills of (3) It serves as a measure of value: The value of goods
exchange, promissory notes, money orders, postal and services can be expressed as prices, it becomes
orders and cheques. These are not legal tender. possible to use money as a yardstick for measuring and
Though they perform some of the major function of comparing the worth of goods and services as well as
money, they are not real money. occupations.
(4) Money is used as a store of value: Money as a means
CHARACTERISTICS/QUALITIES OF GOOD MONEY of storing surplus goods or wealth for future use.
(1) Acceptability: Any commodity used as money must be People do not consume all their wealth or output and
generally acceptable to and by the members of the so some have to be put aside for future use.
community in payment or for settlement of debts. Each (5) Money acts as a standard for deferred payment:
member of the community must be confident that The use of money has made it possible for goods and
others will accept the commodity in exchange. services to be bought on credit and payment made at a
(2) Homogenity or standardized units: Each units of the later date. The settlement of debts at a later date is
commodity used as money must be identical with referred to deferred payment.
others. The material for each unit of money must be of (6) Money commands variety: With the use of money, it
the same size, shape, colour and quality. is now possible for one to buy any quantity of goods
(3) Divisibility: For a commodity to serve as money, it and services anywhere and anytime.
must be capable of being divided into smaller units. (7) Money is a dynamic instrument which acts on the
This will make it possible for payments to be made in economy thereby speeding up economic development.
smaller amount of money, as desired. This facilitates
small transactions. In Nigeria, there are notes of REASONS WHY MONEY HAS REPLACED TRADE
N1,000, N500, N200, N100, N50, N20, N10 and N5. BY BARTER
(4) Relative scarcity: The commodity which is to serve as 1. In the barter system, there was a problem of double
money must be relatively scarce, otherwise it will lose coincidence of wants: The use of money makes this to
its value and people will have to carry large quantities be unnecessary because money acts as a medium of
of it to exchange for a small quantity of goods and exchange and it is generally acceptable. It can
services. conveniently be used or easily exchanged for any item
(5) Portability: Money must be easily transmissible. It of a person’s choice without coincidence of wants.
should not be bulky and should be made of light 2. In the barter system, rate of exchange was
materials so that it is easy and convenient to carry a determined at each transaction: Under the monetary
large amount of money in a relatively small bulk. system, all goods are expressed in monetary units or
(6) Stability in value: The value of any commodity which terms. And a person can get his wants by paying the
is to serve as money must be relatively stable over a exact values of the goods.
period of time. 3. Under the barter system, the issue of deferred payment
(7) Durability and cheap maintenance: The commodity as difficult: It is because it wasn’t certain that a debtor
must be capable of being kept for a long time without would pay back in future the exact quality and quantity or
getting spoilt or damaged. It should be capable of value of the item he received. Under the monetary system,
withstanding some rough handling for sometime. The they are expressed in particular units of money. Therefore,
money should also be cheap to maintain. a creditor knows the exact money unit he will receive in
(8) Recognisability: Any commodity used as money future if he should sell goods on credit.
should be easily recognized by the members of the 4. Under the barter system, certain large items like cow,
community/country so as to be able to detect canoe etc cannot be divided into small parts in order to
buy items of small value: Money is divisible; it can
counterfeit money.
easily be divided into different denominations. A currency
note of ₦1000 can be divided into ₦10, ₦50, ₦100, etc
for the purpose of buying any small item of one’s choice.
5. Under the barter system, certain commodities like cow
and canoe are not portable: But money has a good
quality of portability. It can easily be carried from one
place to another without being seen.

474
6. Under the barter system, certain commodities like 2012/9 Nov
perishable goods (foodstuffs) are not durable: Therefore, Which of the following is not commodity money?
they couldn’t be stored for long time for future use. Money A. cowries B. salt C. beads D. coins
is very durable; it can be stored for a very long period, like Answer
ten years and above for future use. Coins (D)

1998/34 UTME 1996/23 Nov Exercise 18.1

An issue of bank-notes not backed by gold but the Bank deposits are generally regarded as
government securities is known as A. wealth B. dividends C. money D. shares
A. fiduciary issue B. guaranteed money E. investments
C. seignior age D. legal tender
Answer
A – Fiduciary issue. 1991/5 Exercise 18.2
The monetary system that requires a double coincidence of
2012/30 UTME wants is known as the
The money that commands a higher market value than its A. gold standard B. barter system
face value is called C. commodity system D. gold exchange standard
A. paper money B. standard money E. cheque system
C. commodity money D. fiat money
Answer: D – Fiat money

2013/27 UTME 2000/34 Exercise 18.3

The speculative demand for money is inversely related to the The most unique quality of money is its
A. interest rate B. level of income A. relative scarcity B. divisibility C. durability
C. exchange rate D. inflation rate D. general acceptability
Answer: A – Interest rate

1990/26
Which of the following is a necessary prerequisite for trade 2016/36 NABTEB Exercise 18.4
by barter? The introduction of money overcame which of the
A. indivisibility of commodities disadvantages of trade by barter?
B. impossibility of large scale production A. double coincidence of wants B. general acceptability
C. multiple exchange rate C. divisibility of items of trade
D. double coincidence of wants D. unit of account
E. impossibility of future trade
Answer 2023/9 Neco Exercise 18.4*
Double coincidence of wants (D) a. Distinguish between money and barter system.
b. List and explain five disadvantages associated with
1997/28 trade by barter.
All the following are different forms of money except
A. bank notes B. demand deposits C. coins
D. currency E. bank tellers MONETIZATION
Answer: Bank tellers (E) Monetization refers to the ratio of the monetary transaction
to total transaction. In modern economy, almost every
2000/30 Nov economic activity is monetized.
Which of the following functions of money makes it
possible for any person to buy goods on credit?
A. store of value B. standard of deferred payment THE DEMAND FOR MONEY
C. medium of exchange D. unit of account The demand for money refers to the desire to hold money;
Answer: Standard for deferred payment (B) that is, keep one’s resources (or wealth) in liquid form (cash
on hand) rather than investing it.
2011/27 Neco Demand for money is a derived demand. This is so because
Money in circulation can be reduced if the central bank money is not wanted for its sake, but for the goods and
A. buys treasury bill in the open market B. closes some services which they can buy. There is a cost or price to be
commercial banks C. increase bank rate paid in holding any quantity of money. If money were
D. increase liquidity ratio E. reduces special deposit invested, then it would earn interest as a return. Therefore,
Answer the opportunity cost of holding any amount of money is the
Buys treasury bill in the open market (A) interest that will be lost, should the money be invested.
475
 DETERMINANTS OF DEMAND FOR MONEY– FACTORS INFLUENCING DEMAND FOR MONEY
KEYNESIAN APPROACH OR REASONS WHY 1. National Income: As national income rises or level of
PEOPLE HOLD MONEY wealth in the society rises, the demand for money also
Lord Keynes postulated that there are basically three rises, and vice versa.
motives or reasons why people demand for money. These 2. Level of economic activities – Value of transaction:
are as follows: The demand for money is greatly influenced by level of
(1) Transactionary motive: This is the demand for economic activities or value of transactions in the
money in order to buy goods and services for present economy (country). The higher the level of economic
use. People keep money for their day-to-day activity or overall value of transactions, the higher the
transactions; that is, for purchasing their daily demand for money, and vice versa.
requirements such as food, clothing, making payments 3. Level of interest rate: Interest rate has positive
for taxi fares etc. The amount of money held depends relationship with demand for money. That is, if it is
on the expected level of transaction to be carried out. rising people tend to hold more money as they invest
(2) Precautionary motive: This is when people keep (put) their (surplus) cash in bank deposits especially
money with them so as to be able to meet up with fixed deposit. These give them the opportunity to earn
unforeseen contingencies. It is the demand for money more income and vice versa.
for rainy day or unforeseen future events. The level of 4. Population size: All things being equal, a large
income influences the amount of cash balance which is population size leads to increase in the demand for
kept. money and vice versa.
(3) Speculative motive: The speculative motive for 5. Government policy: Government adopts several
holding money relates to people’s desire to hold measures to regulate the level of money supply and
money for the purpose of taking full advantage of demand for money. Contractionist policies (lowering
investment opportunities. This is a business motive in level of economic activities) have negative effects on
which people keep cash balances for the purpose of policies (raising level of economic activities) have
investing in securities, share bonds, stocks and positive effects on (raise) demand for money.
debentures of companies. It is usually made for future
consumption and promotes capital formation. The THE SUPPLY OF MONEY
speculative motive for holding money is interest Supply of money can be defined as the total quantity of
elastic. money in circulation plus bank deposits. The supply of
money is the total stock of money available for use in the
2019/35 economy. It is made up of two elements namely:
The motive for holding money to meet unforeseen events is i. Currency in circulation (bank notes and coins).
termed ii. Bank deposits also called bank money.
A. precautionary demand B. transactions demand The supply of money is under the control of the central
C. liquidity demand D. speculative demand bank and this varies from country to country.
Answer
Precautionary demand (A) FACTORS INFLUENCING SUPPLY FOR MONEY
1. Level of economic activities: A high level of economic
1999/41UTME activities make the public to have desire for more money
People holds money for for business transactions. And this put pressure on Central
A. charity B. safe keeping bank of Nigeria (CBN) to increase supply of money.
C. profit making D. speculative purposes 2. Lending - desire to borrow: If there is a high desire for
Answer businessmen to borrow money from banks and banks are
D – Speculative purposes. ready to lend, there will be a great increase in supply of
money and vice versa.
2003/37 Exercise 18.5 3. Population size: All things being equal, the larger the
population size, the higher the amount of money supplied.
Precautionary motive relates to
4. Velocity of circulation of money: If there is a rise in the
A. demand for money B. demand for goods
velocity (rate) of circulation of money in the society, there
C. supply of money D. supply of goods will be a rise in the supply of money.
5. Saving habit: A high level of saving especially not with
banks reduces the quantity of money supply i.e. it reduces
2015/5 (UNIBEN, BENIN–CITY) Exercise 18.6 the quantity of money available for use, and vice versa.
The motive of holding money for contingencies is 6. Level of interest rate: A high interest rate discourages
A. speculative B. transactionary C. personal businessmen from borrowing; and this reduces supply of
D. precautionary money. While a low rate of interest encourages
borrowing; and this raises level of money supply.

476
7. Withdrawal of money from circulation: A deliberate FACTORS INFLUENCING THE VALUE OF MONEY
action of CBN to withdraw money from circulation 1. Price level: Money value is mainly influenced by the
reduces the amount of money supply. general price level. A rise in the price level causes a fall
8. Credit squeezes measures: Total credit squeeze in the value of money as a unit of money can only buy a
measures adopted by monetary authorities (CBN, fewer quantity of goods than before. While a fall in the
federal government) adversely affects the level of price level raises the value of money as a unit of money
money supply. can now buy a larger quantity of goods and services
9. Reduction in deposit money: A halt on the creation of than before.
deposit money by banks i.e. stopping banks from 2. Supply of money: An increase in supply of money, all
lending money reduces money supply. things being equal i.e. total output of goods is constant,
10. Government policy - inflation and deflation: causes a rise in prices. And this leads to a fall in value
Government always regulates the supply of money in of money. If supply of money decreases, they will be a
line with level of economic activities. Government rise in value of money as a unit of money can buy
(CBN) can raise and lower supply of money in order to larger quantity of goods than before.
regulate economic activities. During inflation, 3. Demand for money: An increase in demand for money
government reduces supply of money in order to lower by everybody raises level of demand and that of the
prices. While in a period of slump or severe deflation, price level. This causes a fall in the value of money.
government puts more money into circulation in order While a decrease in demand for money causes a rise in
to stimulate the economy (raise level of economic value of money as it leads to a fall in price level.
activities). 4. Level of output of goods and services: A rise in total
output of goods and services in a country, all things
VALUE OF MONEY being equal i.e. money supply is constant, makes a unit
The value of money refers to the purchasing power of of money to buy a larger quantity of goods than before.
money. The value of money refers to the amount of goods This causes a rise in value of money. On the other hand,
and services which money can buy and the general price a fall in total output of goods while supply of money is
level measures this. During a period of inflation, the value constant, makes a unit of money to buy a fewer quantity
of money falls, while it rises during a period of deflation. of goods than before. And it causes a fall in value of
The value of money is measured using price index. money. Briefly, a rise in output of goods causes a rise
The value of money at anytime is inversely related to price in value of money.
level. 5. Business cycle - inflation and deflation: During
inflationary period, business boom, there is a rise in the
FACTORS DETERMINING THE VALUE OF MONEY general price level. This causes a fall in value of
1. The price level: The value of money varies inversely money. While during deflationary period – business
with the price level. If the price level increases, this slump, there is a great fall in the general price level.
would mean that a given sum of money would This makes value of money to rise.
purchase fewer goods and services. The value of
money therefore falls with an increase in the price INTRINSIC VALUE OF MONEY
level. The value of money does not depend on its denomination or
2. The supply of money and its speed or velocity of even the physical appearance, rather by its exchange and
circulation: If the quantity of money in circulation convertibility.
increases in the available quantity of goods and
Intrinsic value of money is usually measured in terms of its
services, this would mean that a larger quantity of
quality or feature, which exist within it. This will normally
money would purchase a fewer commodities. The
be a function of its gold back up. The gold back – up helps
value of money would therefore be low.
to determine the convertibility of the currency to standard
3. The quantity of goods and services available:The
or hard currency. It also helps to determine the exchange
quantity of goods and services available within the
rate of a country’s currency, especially when converting to
economy, which is largely determined by the level of
gold standard.
production, affects the value of money. If more goods
and services are available while the supply of money
2019/34
remains constant, the value of money will increase.
Which of the following is true of the value of money? It
This is because more commodities can be bought with
A. is positively related to the price level
a given sum of money. On the other hand, a decrease
B. depends on the value people attach to it
in the quantity of available goods and services would
C. is determined by the government
lead to a fall in the value of money.
D. is inversely related to the price level
Answer
Is inversely related to the price level (D)

477
2009/2010/21 (UNIZIK, AWKA) 2014/24 Neco Exercise 18.9
The value of money is best determined by its The value of money and cost of living is measured by
A. size B. purchasing power C. portability A. commodity index B. factor market
D. being recognized C. income earned by labourer D. price index
Answer E. stock exchange
Purchasing power (B)

2009/2010/22 (NDU, BAYELSA) 2014/45 Neco Exercise 18.10

The real value of money is The value of money refers to the
A. its face value B .what it can buy at a particular time A. acceptability of the currency
C. its rate of exchange with other currency B. durability of the currency C. face value of a currency
D. its intrinsic worth E. its rate of circulation D. number of times currency has changed hands
Answer E. purchasing power of a country
What it can buy at a particular time (B)

1993/13 Nov GRESHAM’S LAW

The value of money is best determined by The Gresham’s law states that “bad money drives out
A. its face value B. its purchasing power good”.This means that bad money drives goods out of
C. the value which people attach to it circulation. Sir Thomas Gresham made this observation
D. its metallic content E. its usefulness in settling debts from the continuous debasement of the coinage by Henry
Answer VIII which had an adverse effect on business transactions.
Its purchasing power (B) The ideas here are that people will keep the good and spend
the bad money. Again, sellers can refuse to sell to buyers
1997/10 with mutilated money. More exactly, if coins containing
The value of money is affected by the metal of different value have the same value as legal tender,
A. speculative motive B. price level the coins composed of the cheaper metal will be used for
C. transactionary motive D. precautionary motive payment, while those of more expensive metal will be
E. employment level hoarded or exported and thus tend to disappear from
Answer circulation. This is also very true for bank notes, the bad
Price level (B) will drive out the good of same value as legal tenders, if
strict measures are not in place.

2007/28 Nov
The value of money is determined by the 1994/38 UTME
A. quantity available in the banks Gresham’s law in economics shows that
B. quantity of goods and services it can buy A. good money drives out bad money
C. quality of the paper used in making it B. bad money drives out good money
D. amount of taxes collected C. the value of money varies inversely with the price level
Answer D. gold not be available to maintain the value of paper money
quantity of goods and services it can buy (B) Answer
B – Bad money drives out good money.

1991/9 Exercise 18.7

The value of money is determined by the THE QUANTITY THEORY OF MONEY
A. rate of interest B. general price level The quantity of money is one of the theories that try to
C. quantity of money in circulation explain what happens when there is an imbalance between
D. level of economic development the demand for money that is by households and firms, and
E. weight of the currency notes and coins the supply of money to these economic units. The theory
explains that if they hold more money than they required
(i.e. if there is an excess supply of money over demand,
2006/19 Neco Exercise 18.8 they will spend the surplus on currently – produced goods
The value of money varies and services. This will increase price level. On the other
A. directly with income B. directly with the interest rate hand, if they hold less money than they require (i.e. there is
C. directly with the price level an excess demand over supply), they will try to build up
D. directly with the value of employment their cash balances by reducing their expenditure on goods
E. inversely with the price level and services. This will reduce the level of prices.

478
The quantity theory of money therefore attributes the 3. Changes in price may be caused by population growth
effects of differences in the demand for money and the or increase in wages rather than changes in MV or T.
supply of money mainly to changes in the aggregate 4. The theory relies much on the stability of one or some
demand for goods and services. of the variables.
5. The idea expressed cannot be seen as a theory, but a
Classical economist like Irving Fisher and Marshall convenient way of showing the relationship between
believed that the supply of money should equal demand for four variables – M, V, P and T.
it. They said that prices of things rise with the increase in 6. The four variables are not independent of one another.
money supply. Irving Fisher expressed the quantity theory
of money using the equation of exchange. VELOCITY OF MONEY
MV = PT Money velocity refers to the number of times that money
Where changes hand in an economy. Money velocity (MV)
M = total money supply. represents the amount of money used in a given period of
V= velocity of circulation of money time.
P = general price level MV = PT.
T = total transaction with money.
Fisher assumes that V and T are constant. This he said is the 2015/9 (OAU, IFE)
reason why an increase in money supply still brings an The velocity of money measures
automatic increase in prices. Therefore, Total income = A. the use of each unit of money in purchasing final output
Total expenditure. B. the average use of money in purchasing final output
C. the average use of money by consumers in purchasing
Example consumer goods
Find the total amount of money supply in Nigeria in 2015, D. the average use of money by the business sector
if average price of goods and services was ₦200, total value Answer
of business transactions was ₦50 billion and velocity of The average use of money in purchasing final output (B)
circulation of a unit of money was 200.
Solution INFLATION
M=? P= ₦200 T = ₦50 billion V=200 Inflation can be defined as a situation where there is a
PT 200 ×50×109 persistent rise in the prices of goods and services without a
M= V = 200
= ₦50 billion.
corresponding increase in supply. Inflation can also be
referred to as a situation where too much money chases too
Example few goods and services. During a period of inflation, there
Find the rate at which a naira circulates, if money stock is usually a persistent rise in the general price level and this
(total money supply) is ₦100 billion, the general price level makes the value of money to falls.
is ₦60 and total value of business transactions is ₦150
billion per year. TYPES OF INFLATION
Solution 1. Demand – pull inflation:This occurs where there is
M=₦100 billion P= ₦60 T = ₦150 billion V=? excess demand over supply. It may be due to either
PT 60 ×150
V = M = 100 = 90 (i) Increase in personal income or general increase in
wages.
(ii) Population explosion
THE IMPORTANCE OF QUANTITY THEORY OF (iii) Short fall in supply.
MONEY 2. Cost – push inflation: This arises when cost increase,
1. It helps to explain the causes of changes in the value of that is, rising cost of production pushes prices up. This
the money. may be due to
2. It helps to correct the wrong impression that rise in (i) High wage,
prices are always due to profiteering. (ii) increase in cost of raw materials
3. It helps us to know that it is not only the supply of (iii) increase in other associated cost of production.
money that affects prices, but also velocity of money 3. Imported inflation: This type of inflation is usually
and the quantity of goods and services in the economy. caused by high cost of importation. This may be due
to:
LIMITATIONS OF QUANTITY THEORY OF MONEY (i) High exchange rate e.g. when a country devalues
1. The theory did not mention interest at all which is very her currency.
important in the monetary theory. (ii) When goods are imported from a country where
2. Velocity of money is not constant, at least in the short there is inflation.
run. (iii) High costs of transportation.
(iv) High cost of tariffs etc.

479
4. Open inflation: This occurs where there is excessive tend to decrease in the face of the rural – urban
spending either by the government or private migration, destruction of pest, e.t.c. Hence there is an
individuals, thereby adding too much money into increase in prices.
circulation. An increase in money supply will push 7. Rising cost of production: Increase in the cost of
both demand and price upward. production of goods and services may be as a result of
5. Creeping inflation: This is a type of inflation where increase in Wages of workers, shortage in the supply
price rises at a very slow and steady rate. The impacts of factor inputs and high cost of importation reduces
of such inflation are not usually felt so much, over a output and pushes the price of the goods and services
short period of time. high.
6. Hyper or galloping inflation: This is a type of 8. Rural –urban drift migration: The mass drift to urban
inflation where price of goods and services change at a areas has left the Agricultural sector unattended to.
very fast rate. As prices changes, hyperinflation makes Moreover, the little goods and services in the urban
money loses its primary function as a medium of areas are grossly inadequate hence inflation results.
exchange as people will prefer goods and services to 9. Inadequate Imports: The level of price may not be
money. Hyper inflation is usually seen when a country very high if the few essential goods like foodstuffs are
is having a very serious political problem such as war supplemented by import of similar items. However, if
or when there is famine in the country. there is inability to import arising from lack of foreign
exchange or there is embargo on essential goods, the
CAUSES OF INFLATION few available goods will be sold at very high prices,
1. Excessive deficit – financing and rapidly increasing especially if demand exceeds supply. If this persists, it
government expenditure: There is deficit – financing causes or fuels inflation.
by government if it spends more money than it 10. Prolonged Crisis: A prolonged crisis like civil war or
receives through tax and other sources. In order to external rebellion may cause acute shortage of basic
finance the various development projects, the necessities of life, like foodstuffs, clothes, building
government could borrow more money or the Central materials, textbooks, electronics, etc as less resources
Bank will print more money to meet government will be devoted to their production. This makes their
expenditure. This increase the amount of money in prices to quadruple (increase very high or fourfold).
circulation. And inflation may arise if it persists for a long time.
2. Excessive bank lending: Excessive creation of banks 11. Strong trade Union: The existence of strong trade
credits increases the supply of money. If the increased unions vis-à-vis weak management always causes a
supply of money is not matched by increased supply of constant rise in the wage rate. Extremely strong trade
commodities, prices will rise. If it persists, inflation unions always succeed in bargaining for higher salary
will result. increase especially if their employers – firm and/or
3. Poor storage facilities: Facilities for storage are governments – are quite weak. A constant increase in
usually outdated and unreliable. This has affected wages (caused by trade unions) lead to a constant rise
agricultural production seriously. People enjoy in cost and price level. This may lead to cost push
availability of goods at normal prices during the crop inflation.
season but suffers dearth of good and high prices 12. Poor Government Policy: Inefficiently formulated
during the off season. government policies may cause inflation if they are
4. Hoarding: Uncontrolled ambition of many producers implemented by unqualified and corrupt officers.
and distributors to get more than normal profit has 13. Ineffective distribution of goods and services: If
compelled them to hoard goods. Consequently, there is goods and services are not equitably distributed,
shortage of goods and prices are forced to go up. scarcity normally exists in some places while surplus
5. Increases in wages and salaries of workers: In occurs in other places. The states or areas with acute
Nigeria, the salary of workers has been on a constant shortage charge very high prices. The high prices in
increase due to the influence of the various trade neighbouring states spur sellers in areas with surplus
unions. Sometimes, the higher wages are not matched to create artificial scarcity through hoarding and they
by increased productivity. An increase earnings results continue to sell at the same high prices. This may lead
in excess of demand over supply. Hence, prices rise, to inflation.
sometimes, when businessmen see that workers’ 14. Income inequality: Inequitable distribution of income
salaries have been increased, they push up the prices may cause a rise in prices; and they stabilize at high
of their goods. level. The rich people spend lavishly and they always
6. Rapid population increase: In many West African buy goods at any level of high prices. This spurs
countries, the rate of population growth is very high. traders to stick to the high prices. As the poor people
This means increased demand for goods and services cannot bargain for lower prices, they are forced to pay
since the number of consumers increase. The higher the same high prices. It leads to inflation.
demand brought about by high population growth rate
is not matched by increased supplies. Food supplies
480
EFFECTS OF INFLATION (12) Fixed income earners such as salary and pension
1. Redistribution of income: People on fixed incomes earners suffer.
such as wages and salary earners suffer during an (13) Inflation may lead to economic recession.
inflationary period in an economy. This is because the (14) It increases public debt.
value of their real income falls. There is therefore a re-
distribution of income in favour of investors. CONTROL OF INFLATION
2. Increased earnings by businessmen and a higher This could be curbed using either of the following
level of investment: Businessmen earn higher profits economic measures:
because of the rising prices of their products, thereby (1) Monetary policy: This is a method of controlling
encouraging further investments. Businessmen and inflation whereby the government takes the following
investors thus gain in a period of inflation in a country. steps to address the problem.
3. Increased balanced of payments difficulties: Inflation (a) Decreases in the volume of money in
increases the prices of exports relative to the prices of circulation through open market operation and
imports. This would lead to increased imports and budget surplus.
decreased exports with a consequent worsening effect (b) Decreases interest or bank rate so as to
on the nation’s balance of payments. discourage lending and cost of production.
4. Loss of confidence in the monetary system: A The government achieves the above objectives
prolonged hyper-inflation may lead to loss of through the central bank.
confidence in a nation’s monetary unit of account. (2) Fiscal policy: Under this policy, the government takes
5. Creditors lose while debtors gain: Since the value of the following measures to control inflation.
money falls during inflation, creditors receives less in (a) Increase direct taxes so as to reduce purchasing
terms than what they lent out, while debtors repay less power and this is expected to decrease demand.
in real terms. (b) Decrease indirect taxes so as to force price
6. Low level of savings and capital formation: During a down.
period of inflation, people are generally not encouraged (c) Decrease government expenditure in order to
to save. This is because they spend more money on reduce the volume of money in circulation. This
goods and services and are afraid that the value of their could be done through budget surplus.
savings will fall. Capital formation, which depends on (3) Physical measure: Under this, the government should
savings, is therefore low. take the following measures to control inflation.
7. Reduced burden of the national debts: The value of (i) Encourage increase in agricultural productivity.
loans taken by government falls in real terms in an (ii) There should be population control.
inflationary period in a country. (iii) Adequate storage facilities should be provided.
(iv) The industrial sector should be encouraged by
Positive effects providing adequate inputs for higher
(1) There is usually increase in the earning of businesses productivity.
that manage to survive the storm of inflation. The most (v) The distribution system should be improved.
profitable period for business is the inflationary (vi) Institution of effective price control
period. There will be increase in investment due to (vii) Consumer should resist arbitrary price increase.
high profit expectation. (viii) Where necessary, the government should apply
(2) There will be increase in investment due to high profit force so as to bring prices down.
expectation. (ix) In time of scarcity, the government should
(3) It discourages hardwork. During a period of inflation encourage importation to complement home
everybody is up and doing in order to meet up with supply.
high cost of living.
(4) It induces employment, since investment is enhanced. 2007/2008/78 (UNIZIK, AWKA)
(5) Those that do not earn fixed income such as Which of the following is used to measure inflation?
companies, businessman e.t.c. gain. A. open market operation B. cash deposit ratio
(6) Debtors gain. C. price index D. multiplier E. fiscal policy
Answer
Negative effects Price index (C)
(7) Redistribution in income: The rich get richer, while
the poor get poor. 2003/35
(8) It increases balance of payment problem. Cost – push inflation is likely to arise when
(9) During a period of inflation, creditors lose. A. there is an increase in government spending
(10) The value of money falls as it loses its purchasing B. there is an increase in direct taxes
power. C. demand for higher wages is granted
(11) The real value of assets like savings and life insurance D. there is a decrease in bank lending
policy falls due to fall in the value of money. Answer: Demand for higher wages is granted (C)
481
1993/16 Nov 1997/11 Exercise 18.14
Inflation caused by an increase in demand is known as Which of the following is not a problem in the barter
A. cost – push inflation B. hyper – inflation economy?
C. demand pull inflation D. creeping inflation A. multiple exchange rate
E. run – away inflation B. indivisibility of goods and services
Answer: Demand – pull inflation (C) C. double coincidence of wants
D. bulkiness of commodities E. inflation
1997/22
Inflation caused by increased in demand can be curbed by
A. exporting more goods and services PROBLEMS OF PRICE CONTROL
B. hoarding of goods C. increasing the level of output 1. A black market will develop: Since the price fixed on
D. increasing the level of money supply the commodity is relatively lower than the equilibrium
E. reducing importation price, producers or sellers will resort to selling their
Answer: increasing the level of output (C) commodities on the black market. They are sold behind
closed doors. Only those who are willing to pay a
higher price would buy the commodity at secret places
2011/30 Neco or at odd hours.
Inflation can be defined as 2. It causes gross shortage of goods: Price control
A. a change in price of goods and services compels producers and sellers to reduce output and
B. increase in the value of money supply in order to reduce cost and losses. This worsens
C. a general rise in price and services the situation as the items may become relatively scarce;
D. a rise in price of a commodity and their prices may even rise to a higher level than
E. an increase in the cost of living before.
Answer 3. It causes hoarding of goods: Producers or sellers will
A general rise in price of goods and services (C) not bring out all their commodities for sale. They will
store away a large proportion of their goods, especially
if they are durable. They do this in order to create an
2003/29 Nov artificial scarcity.
Demand inflation refers to 4. Against forces of supply and demand: It distorts the
A. inflation induced by rising costs of production price system. It does not allow the free interplay of
B. a reduction in government expenditure market forces of supply and demand to determine
C. persistent rise in prices due to increase in expenditure prices. Thus, it leads to various vices or malpractices,
D. massive importation of goods from a country with like rationing, favouritism, discrimination, bribery, etc,
hyperinflation before selling goods.
Answer 5. Bribery and corruption will occur: Sellers who sell
Persistent rise in prices due to increase in expenditure (C) above the maximum price may offer bribes to price-
control officials so as to allow them to continue to sell
2007/25 Neco Exercise 18.11 at higher prices. Those who are caught selling above the
Which of the following measures can be used to control controlled price may offer bribes to prevent
inflation? prosecution.
A. decrease in bank rate B. decrease in taxation 6. There may be favouritism: Sellers could sell the
C. deficit budget D. export drive commodity at the legislated price but only to their
E. increase in government expenditure regular customers or relatives and friends. They could
refuse to sell to others or else only at higher prices.
2007/25 Nov Exercise 18.12 7. Smuggling may be encouraged: If the legislated price
Inflation can be caused by is too low, people may have to smuggle their goods to
A. underpopulation B. budget surplus other countries for sale at higher prices.
C. excessive price control 8. Difficulty of enforcing price control legislation:
D. excessive government expenditure Producers and sellers of essential goods e.g. petrol,
kerosene, cement, etc may bribe price control officials
2013/28 Neco Exercise 18.13 to ignore the law. Also, poor means of transportation
Inflation can be controlled by and bad roads makes the officials to be ineffective.
A. increasing wages B. increasing budget deficit
C. increasing budget surplus D. reducing reserve ratio
E. increasing indirect tax

482
RATE OF INFLATION THE CONCEPT OF INFLATIONARY GAP,
Rate of inflation is defined as the percentage increase in STAGFLATION, INFLATIONARY SPIRAL AND
general price level over a time series. It is usually measured INERTIAL INFLATION
using price index. The result may either be a single digit Inflationary gap
(i.e. 5%, 6% 9%) or double digits (i.e. 10% 16% 20% etc.) This measures the extent to which aggregate desired
Current year price index − base year price index ×100 expenditure exceeds national income. It is an economic
Rate of inflation = state of affairs in which the total aggregate demand in the
Base or constant year price index
economy exceeds the total or aggregate supply of goods and
Example: services coming forward to satisfy the demand. It is
Assuming the Nigerian price index in 1996 was ₦158 and measured as the difference between the total amount of
in 2006, it was ₦168. What is the rate of inflation? money available for spending and the total money value of
the actual goods and services available to meet the demand.
Solution The greater the inflationary gap, the greater the rate of
Current year price index − base year price index ×100
Rate of inflation = inflation and, the smaller the inflationary gap, the lower the
Base or constant year price index
168−158 100 rate of inflation in the country. Therefore, Inflationary gap
Rate of inflation = × = 6.32%
158 1
could be curbed through reduction of aggregate desired
Hint: This is a single digit inflation. expenditure (total aggregate demand).

Measurement of inflation Stagflation

(1) The consumer price index (CPI): This measures This can be defined as the co–existence of high rates of
changes in the prices of goods and services directly unemployment with high, and sometimes, rising rates of
consumed by individuals. Since it measures changes in inflation. It can also be referred to an inflation that occurs
the prices of goods and services bought by final when national income is below its full employment level.
consumers, it is a good measure of standard of living Stagflation could be curbed through increase in investment
of individuals. It is the best and the most commonly and production.
used price index.
Current year price 100 Inflationary Spiral
CPI = × 1 This is a concept that relates wages (cost of production) to
Base or Constant year price
inflation. It emphasises that both inflation and wages are
Example: interwoven. Increase in wages forcepricesup. This is known
If the same basket of goods which cost ₦50.00 in 1975 cost as Wage–price spiral, and if it is unchecked, the trend will
₦75.00 in 1985, the price index in 1985 is? continue indefinitely
Solution
Current year price = ₦75.00 Inertial Inflation
Base year price = ₦50.00 This is a tendency for an inflation rate, once established, to
Using CPI formula above, persist on its own inertial even when the original cause has
Current year price 100 been removed. Such inflation persist simply because the
CPI = Base or Constant year price × 1
75 100
decision makers raise prices when they see that closely
∴ Price index = × 1 = 150% related prices has risen.
50

While rate inflation = 150% - 100% = 50% 2012/28 Neco

A measure of the extent to which aggregate expenditure is
(2) GDP deflator: This measures the changes in the over and above full employment is referred to as
prices of all goods produced within a country at factor A. deflation B. galloping inflation C. inflation
cost. It is a measure of the changes in gross domestic D. inflationary gap E. stagflation
product. It is measured as the ratio of GDP in current Answer
prices to GDP in constant price. Inflationary gap (D)
GDP in current price 100
GDP deflator = ×
GDP in constant price 1 DEFLATION
Deflation refers to a persistence fall in the general price
Uses of price index level of most goods and services. It can be a situation where
(1) To determine how much a unit of money is worth there is a continuous fall in the general price level. During a
over a period of time. deflationary period, aggregate supply exceed aggregate
(2) It is concerned with the welfare of workers as it demand. It brings about rise in the value of money.
indicates the standard of living.
(3) Price index helps the government to know what,
where and when to tax the people.

483
CAUSES OF DEFLATION EFFECTS OF DEFLATION
1. Extremely low level of economic activities: The lack 1. Increase in the value of money: The value of money is
of demand for all goods and services maybe due to what money can buy. In a deflationary economy,
declining incomes, or a fall in the level of economic money has very high value. A small amount of money
activities. This may be due to freezing of buys a large quantity of goods. Money will serve as a
salaries/wages, lack of contract award, poor harvest, very good store of value since the value of money
etc. This extremely low level of income does not permit continues to appreciate.
consumers to create effective demands for all goods and 2. Reduction in aggregate demand: Aggregate demand
services. This brings about a total fall in demand – for goods and services is a function of the amount of
deflation. money in the hands of consumers. Since there is a short
2. Increase in rates of interest: An increase in rates of fall in the amount of money in circulation, demand for
interest will discourage the public from borrowing from goods and services consequently falls. This greatly
commercial banks. This means that the commercial contributes to the fall in prices of these commodities.
banks will no longer be able to create the “bank 3. Increased rate of unemployment: It reduces the level
deposit” which forms the larger proportion of money in of investment as businessmen sustain heavy losses;
circulation. Supply of money will below and prices will therefore demand for labour and other factor of
fall. production decreases thereby, causing unemployment.
3. Reduction in physical supply of money: If the Central 4. Improvement in balance of payment: Deflation
Bank decides to reduce supply of money by encourages export. The low prices of goods and
withdrawing coins and bank notes, there will be services in the deflationary economy encourages
deflation. Such withdrawal is achieved by the Central foreigners to buy goods from the country. This will
Bank through the use of Bank rate, special deposit, open increase the exports of the country as well as the value
market operation or liquidity ratio. Reduction in money of her exports relative to her imports. This would
supply reduces demand for goods and services and causes eliminate or reduce her balance of payment deficit.
prices to fall. 5. Fixed Income earners gain: Those on fixed income
4. Reduction in government expenditure: To a large such as pensioners, teachers etc. have an increase in
extent the government is known for pumping money into their real income.
circulation especially when it embarks on development 6. Low level of national income: Low prices of goods
programmes like construction of roads and bridges. For discourages large scale production and supply. The
example, the Nigerian Federal Government budget has level of national income is determined by the level of
increased from millions to billions and currently to output of the country. Supply of goods increases as
trillions of Naira. If the government reduces its price increases. Since increase in output is not
expenditures, less money will be put into circulation,
encouraged because of low prices, the national income
demand will fall and prices will fall.
will remain low.
5. Increase in taxation: Increase in personal income
7. Lenders gain at the expense of borrowers: Since the
taxes generally reduces the level of disposable incomes
value of money increases during a deflationary period,
of consumers, lowers their demand for goods and
the borrower repays more in real terms.
services and causes price to fall. Increase in company
8. Low level of investment: Investors are attracted in a
tax and indirect taxes reduces money available for firms
country where the expected returns are high resulting
to reinvest, reduces their demand for factor inputs and
from high prices of their products. Similarly,
causes the prices of these factors inputs to fall.
investments are determined by the levels of income and
6. High level of unemployment: The low level of
savings. A situation where taxes are increased and
economic activities causes a high level of
incomes are cut down, savings will be difficult. This
unemployment of both human and material resources. It
will give rise to inability of the public to save in order
prevents people from creating effective demands for the
to invest
available goods and services. If this exists for a long
time, it leads to deflation. Positive effects
7. Reduction in wages of workers: Reduction in wages 1. It reduces inequality
of workers either through wage freeze or delay of 2. Those that earn fixed income such as salary and
promotions puts demand for goods and services by pension earners gain: There is an increase in their
workers to a stand still, and causes prices to fall. real incomes, that is in the quantity of goods and
8. Government Budget Surplus: Budget surplus reduces services which their income can buy. They therefore
aggregate money demand in the country. Budget have a higher standard of living.
surplus means that expected revenue is greater than 3. During a period of deflation, creditors gain.
proposed expenditure. This also means a reduction in 4. The value of money rises.
government expenditure as less money is put into 5. It reduces balance of payment problem.
circulation. A reduction in money in circulation causes 6. The real value of assets like savings insurance policy
prices to fall. etc. rises – savings is encouraged.
484
Negative effect 2016/38 NABTEB
(1) Those that do not earn fixed income such as businessmen During deflation, the value of money
loss. A. appreciates B. depreciates C. remains constant
(2) A fall in the earning of business. D. doubles
(3) It leads to low purchasing power of money. Answer
(4) The standard of living of the people may fall. Appreciates (A)
(5) There will be increased unemployment of the factors of
production – because of lower investment, less labour 2003/33
will be employed. Some labour may have to be laid off. A continuous fall in the general price level is called
Labour and other factors of production will not be used
A. recession B. depression C. deflation
to full capacity. Surplus budgeting by the government
D. stagflation
would mean less government investment in development
projects. Unemployment is encouraged. Answer
(6) It brings about downward trend in investment and Deflation (C)
production.
(7) As aggregate supply exceeds aggregate demand, 2008/38 Exercise 18.15
unemployment arises. A continuous fall in the general price level is called
(8) Deflation causes economic recession. A. recession B. depression C. deflation
D. stagflation
CONTROL MEASURES FOR DEFLATION
(1) Monetary policy: In order to control deflation, the
government can through Central Banks engage in 2019/38 NABTEB Exercise 18.16
expansionary monetary policy. This is done in the Deflation encourages the following except
following ways: A. unemployment B. exports C. imports
i. Increase the volume of money in circulation D. budget deficit
through the use of effective monetary policy
instrument such as open market operation
(OMO), budget deficit, etc. DEFLATIONARY GAP
ii. Decrease in interest rate so as to make it This is the amount by which the aggregate demand schedule
attractive for investors to borrow money from must be increased to achieve full employment income.
the financial institutions. Deflationary gap could be curbed through increase in
(2) Fiscal policy: This policy entails that the government aggregate desired expenditure.
should take the following measures to curb deflation.
(i) Decrease both direct and indirect taxes in order to
raise purchasing power of the people and general 2023/37
price level. An indication that there is inflation in a country is that
(ii) The government increases the total expenditure A. there is a decrease in the demand for goods and services
so as to increase the volume of money in B. there are too many goods in circulation
circulation as well as aggregate demand. The C. the same amount of money buys lower quantity of goods
government achieves this objective through the D. people prefer to lend than to borrow
use of budget deficit. Answer
(3) Physical measure: The government takes the An indication that there is inflation in a country is that there
following measures to control deflation. is a decrease in the demand for goods and services (A)
(i) Increase in wages and salaries.
(ii) Subsidies production or making grants to 2023/38
investors. The most liquid asset among the following is
(iii) The government should buy excess stock from A. shares B. bonds C. cash D. cheque
producers so as to maintain better stock. Answer
Option C is correct – Cash
2009/7 (OAU, IFE)
Deflation is persistence fall in price in the general price 2023/35
level and is usually caused by The price level and the value of money are
A. a reduction in total demand A. inversely related B. directly related
B. an increase in government spending C. not related D. positively related
C. an increase in money supply to banks Answer
D. an increase in aggregate demand The price level and the value of money are inversely related
E. an increase in money supply relative to demand (A)
Answer
A reduction in total demand (A)
485
2019/37 NABTEB 2007/27 Nov
An effect of inflation is that it Double coincidence of wants is associated with
A. discourages trade by barter A. opportunity cost B. trade by barter C. monopoly
B. favours debtors at the expense of creditors D. commercial policy
C. increases the real income of salary earners Answer
D. increases the value of a country’s exports Trade by barter (B)
Answer
Favours debtors at the expense of creditors (B) 2005/31 Nov
Which of the following functions of money are not well
2001/21 Neco performed during inflation?
An issue of currency notes backed by government securities (i) medium of exchange (ii) store of value
is known as (iii) standard for deferred payment (iv) measure of value
A. bank notes B. bank deposits C. currency supply A. (i) and (iv) B. (ii) and (iii) C. (iii) and (iv)
D. currency issue E. fiduciary issue D. (i) and (iii)
Answer Answer
Bank notes (A) (ii) and (iii) (B)

2003/31 2001/28 Neco

The demand for money is Who is a gainer during periods of inflation?
A. derived demand B. composite demand A. civil servant B. lender C. pensioner D. student
C. joint demand D. complimentary demand E. shareholder
Answer Answer
Derived demand (A) Shareholders (E)

1990/24 2011/19 Exercise 18.18

Because money serves as a standard of deferred payments The characteristics of money that “each unit held by
A. it becomes valuable B. it serves as a unit of account different individuals must be identical” is referred to as
C. it serves as a medium of exchange A. durability B. general acceptability C. homogeneity
D. future trade becomes possible D. portability E. relative scarcity
E. goods can be bought on credit.
Answer 2011/20 Neco
Goods can be bought on credit (E) Near or Quasi money are
A. bank money that are backed by gold B. instruments
1993/19 Nov Exercise 18.17 that can be used in place of currency C. legal tender
Which of the following is not a function of money? D. money deposited in banks E. token money
A. medium of exchange B. measure of value Answer
C. store of wealth D. standard for deferred payments Instruments that can be used in place of currency (B)
E. discounting bills of exchange
2011/31 Neco
2000/16 Nov Who among the following suffer in time of inflation?
The purchasing power of money over a given period is the A. a change in price of goods
quantity of B. increase in the value of money
A. services a sum of money can buy C. a general rise in price of goods and services
B. money held by banks under various accounts D. a rise in price of a commodity
C. money kept by individuals and banks E. an increase in the cost of living
D. goods and services a given sum of money can buy Answer
Answer A general rise in price of goods and services (C)
Goods and services a given sum of money can buy (D)
2011/31 Neco
2000/31 Nov Who among of the following suffer in time of inflation?
The speculative demand for money is A. businessman B. creditor C. debtor
A. interest inelastic B. interest elastic C. perfectly elastic D. shareholders E. sole proprietorship
D. absolutely inelastic Answer
Answer Creditor (B)
perfectly elastic (B)

486
2003/26 Nov 2010/36
Which of the following is a function of money? Which of the following is a legal tender?
A. medium of communication B. measure of securities A. bank notes B. bank overdrafts C. bills of exchange
C. store of wealth D. discounting bills of exchange D. money order
Answer Answer
Store of wealth (C) Bank notes (A)

2003/27 Nov 1994/5

General rise in price level induced by increased price of Which of the following functions of money makes it
inputs is referred to as possible for any person to provide for old age?
A. run – away inflation B. cost-push inflation A. medium of exchange B. store of value
C. demand-pull inflation D. imported inflation C. measure of value D. unit of account
Answer E. standard for deferred payments
Cost-push inflation (B) Answer
Store of value (B)
2003/28 Nov
An individual will increase his level of consumption during 1994/39
inflation because The quantity theory of money states that an increase in the
A. the real value of any amount saved falls over time quantity of money would bring about
B. interests rate are generally low A. a geometric rise in prices B. an equal rise in prices
C. there are varieties of goods to buy C. a proportion rise in prices
D. wages and salaries stagnate during inflation D. an absolute rise in prices
Answer E. a less than proportionate increase in prices
The real value of any amount saved falls over time (A) Answer
A proportionate rise in price (C)

2015/24
2003/30 Nov Exercise 18.19 Inflation may occur if there is
Which of the following is a financial instrument? A. excess supply over demand B. increase in productivity
A. money at call B. dumping C. terms of trade C. excessive demand with limited supply
D. deposits D. increased government spending in a depressed economy
Answer
Excessive demand with limited supply (C)
2010/32
The total stock of money available for use in an economy is 2015/34
A. a function of money B. a characteristic of money Which of the following best describes token money?
C. the demand for money D. the supply of money A. money in the vaults of commercial banks
Answer: The supply of money (D) B. currency and coins in circulation
C. money with face value higher than its material content
2010/33 D. coins and notes made of poor quality materials
Which of the following is not a reason for holding money? Answer
A. ostentation B. speculation C. transactions Money with face value higher than its material content (C)
D. precautionary
Answer: Ostentation (A) 2015/42
In order to control inflation, the government should
2010/34 A. reduce the cost of borrowing
The best way of combating demand – pull inflation is to B. buy securities in the open market
A. increase income taxes B. reduce income taxes C. adopt restrictive monetary policy D. discourage savings
C. increase import duties D. increase salaries and wages Answer
Answer: Increase income taxes (A) Adopt restrictive monetary policy (C)

2010/35 1995/15 Nov Exercise 18.20

In which of the following ways has inflation adversely Which of the following obtains during the period of inflation?
affected your country’s economy? A. lenders gain B. prices stabilize C. goods cost less
A. increase in water supply B. a fall in real income D. borrowers gain E. currencies are scarce
C. appreciation in the value of money
D. increased employment
Answer: A fall in real income (B)
487
1995/21 Nov 2017/36
Open market operation is an example of government One characteristic of money is that it should be
A. monetary policy B. administrative measure A. a standard for deferred payments
C. marketing strategy D. social policy B. stable in value C. a store of value
E. taxation policy D. acceptable by the Central Bank
Answer Answer
Monetary policy (A) acceptable by the Central Bank (D)

1995/22 Nov 1998/24

Supply of money is the Which of the following is used to measure inflation?
A. amount of money printed daily A. open market operation B. cash deposit ratio
B. money in circulation plus bank deposits C. price index D. multiplier E. fiscal policy
C. amount of money in circulation minus bank deposits Answer
D. total money paid by buyers of commodities Price index (C)
E. amount of money in the central bank’s vault
Answer 1998/25
Money in circulation plus bank deposits (B) If a government which owed a company ₦10,000 in 1976
paid the debt fully in 1985 when the value of money had
1995/27 Nov depreciated by 20 percent, such a government had.
A situation in which supply persistently fails to keep pace A. lost B. been placed at par with the company
with the expansion of demand gives rise to C. gained D. stabilized the value of the money
A. devaluation B. deflation C. stagnation E. increased the value of the money
D. inflation E. deregulation Answer
Answer Gained (C)
Inflation (D)

2001/35 Nov 2007/15 Neco

Fiduciary issue means money The need to hold cash for the purpose of current
A. not backed by diamonds B. backed by silver expenditure is known as
C. not backed by gold D. backed by diamonds A. precautionary motive B. preferential motive
Answer: Not backed by gold (C) C. speculative motive D. transactionary motive
E. unforeseen contingencies
2001/44 Nov Answer
Public expenditure creates inflationary pressure in the Transactionary motive (D)
economy when it is
A. in excess of government revenue 2001/22 Neco
B. chanelled into productive projects The equation MV = PT is known as
C. less than government revenue A. demand and supply equation B. equilibrium equation
D. chanelled into agriculture C. equation of exchange D. money supply equation
Answer E. price index numbers
In excess of government revenue (A) Answer
Equation of exchange (C)
2017/33
Which of the following is most likely to be of benefit to a 2011/14
debtor? The value of money is measured in terms of price index as
A. inflation B. deflation C. revaluation follows.
D. monetization Price in the current year
A. price index = × 100%
Answer Price in the previous year

Inflation (A) Price in the previous year

B. price index = Price in the current year × 100%
2017/35 Price in the current year
C. price index = × 100%
A measure of the value of money in an economy is the velocity of circulation of money
A. size of workers income B. general price Price in the base year
D. price index = price in the current year × 100%
C. total level of savings D. total amount of loans granted
by the banks Answer
Price in the current year
Answer Price index = Price in the previous year × 100%
General price level (B)

488
2007/26 Neco 1995/15 Nov
The following are measures used to check deflation except Which of the following obtains during the period of inflation?
A. deficit financing B. improving distribution system A. lenders gain B. prices stabilize C. goods cost less
C. increasing wages and salaries D. raising the bank rate D. borrowers gains E. currencies are scarce
E. reducing taxation Answer
Answer Borrowers gains (D)
Raising the bank rate (D)
1995/21 Nov
2002/18 Neco Open market operation is an example of government
A. monetary policy B. administrative measure
For an item to serve as good money it must possess only
C. marketing strategy D. social policy E. taxation policy
A. divisibility, flexibility and portability
Answer
B. durability, flexibility and portability Monetary policy (A)
C. durability, flexibility and heterogeneity
D. divisibility, durability and heterogeneity 1995/22
E. Divisibility, durability and portability Supply of money is the
Answer A. amount of money printed daily by the government
Divisibility, durability and portability (E) B. money in circulation plus bank deposits
C. amounts of money in circulation minus bank deposits
2002/26 Neco D. total buyers paid by buyers of commodities
The desire to hold money to meet unforeseen contingencies E. amount of money in the Central Bank
is known as Answer
A. demand for money B. precautionary demand for money Money in circulation plus bank deposits (B)
C. speculative demand for money
D. transactionary demand for money 1995/27 Nov Exercise 18.22
E. unforeseen demand for contingencies A situation in which supply persistently fails to keep pace with
Answer: Precautionary demand for money (B) the expansion of demand gives rise to
A. devaluation B. deflation C. stagnation
2002/27 Neco Exercise 18.21 D. inflation E. deregulation
In the simple equation of exchange, MV = PT, M is the
total money supply, and T is the total transaction. What are 1997/25 Nov
One of the problems of the barter system of exchange is that it
V and P
A. is very cumbersome
A. V = velocity of circumulation; P = price level
B. does not involve double coincidence of wants
B. V = volume of transaction, P = population C. is impossible for two parties to agree to the terms of
C. V = value of money; P = price level exchange
D. V = value of transaction, P = production D. is a silent trade in which parties to a transaction do not talk
E. V = variance, P = price level E. involves the use of cowries shells as money
Answer
2002/29 Is very cumbersome (A)
What type of inflation will be produced if there is a rise in
the cost of imported raw materials and spare parts? 1997/26 Nov
A. cost – push inflation B. demand – pull inflation The most important characteristic of money is
C. galloping inflation D. hyper inflation A. convertibility B. durability C. portability
E. imported inflation D. intrinsic value E. acceptability
Answer Answer
cost – push inflation (A) Acceptability (E)

2012/10 Nov 1997/27 Nov

Which of the following will lose during inflation? Which of the following government measures is most likely to
A. creditors B. debtors C. businessmen D. traders lead to inflation?
Answer A. buying treasury bills from the public when the economy is
Creditors (A) depressed B. embarking on deficit budgeting
C. injecting more money into a depressed economy
2012/12 Nov D. embarking on surplus budgeting
Which of the following is not an example of near money? E. changing the colour of the country’s currency
A. fixed deposit B. notes and coins Answer
C. government securities D. treasury bills Embarking on deficit budgeting (B)
Answer
Notes and coins (B)
489
1997/28 Nov 1996/24 Nov
The best index of changes in the domestic price level is the The desire to hold money in order to meet expenditure
A. inflation index B. population index which may arise due to unforeseen circumstances is known
C. rate of exchange of a country’s currency as
D. prices of goods in the local market A. speculative motive B. transitionary motive
E. consumer price index C. saving motive D. precautionary motive
Answer E. inflationary motive
Consumer price index (E) Answer: Precautionary motive (D)

1997/38 Nov Exercise 18.23 2010/17 Neco

If there is recession in an economy and the government A tin of milk was 12k in 1987, by 1988, the price rose to
embarks on deficit budgeting, it will lead to 15k. What is the price index?
A. a reduction in the level of employment A. 120 B. 125 C. 128 D. 132 E. 134
B. deflation in the economy Answer
C. an increase in the level of capacity utilization of Current year 100
Price index = × 1
industries Constant year

D. a reduction in the demand for goods and services 15 100

= ×
E. a reduction in government expenditure 12 1
= 125 125 (B)

2010/20 Neco
19992/21 Nov
When aggregate demand exceeds aggregate supply, then there is
Inflation can be controlled by all the following except
A. demand – pull inflation B. cost – push inflation
A. reduction in money supply
C. creeping inflation D. fiscal control measure
B. increase in various forms of taxes
E. hyper inflation
C. increase in wages
Answer
D. higher sectoral production E. price control
Demand – pull inflation (A)
Answer
Increase in wages (C)
2010/21 Neco
1992/36 Nov Inflationary situation occurs when
The term legal tender refers to A. demand equals supply B. demand equals zero
A. any important document C. demand is greater than supply
B. a certificate of incorporation issued by the government D. supply equals zero E. supply is greater than demand
C. any means of payment which is legally acceptable in the Answer
settlement of debts D. a bill of exchange Demand is greater than supply (C)
E. export license bill
Answer 2010/27 Neco
Any means of payment which is legally acceptable in the Bad money has a tendency to drive out good money
settlement of debts (C) theory/law was propounded by
A. David Ricardo B. Ibri Khaldun C. J. S. Mill
1984/31 UTME D. Thomas Gresham E. Thomas Malthus
The most important characteristic of money is Answer
A. portability B. intrinsic value C. acceptability Thomas Gresham (D)
D. usefulness E. beauty
Answer 2019/15 Neco
C – Acceptability. If a bottle of Maltina cost ₦80 in 2013 and increased to
₦100 in 2014, calculate the index number
1996/22 Nov A. 80 B. 100 C. 120 D. 125 E. 130
The main significance of money in a modern economic Answer
Current year price 100
system is that it CPI = Constant year price × 1
A. it promotes exchange and specialization
B. determines demand and supply C. is the root of all evils CPI = 100 × 100
80 1
D. causes inflation and deflation CPI = 125(D)
E. promotes trade by barter
Answer: Determines demand and supply (B)

490
2019/16 Neco (ii) Precautionary motive:This is the demand for
Which of the following is a disadvantage of trade by barter? money for rainy day or unforeseen future events.
A. double coincidence of wants (iii) Speculative motive:This is the demand of
B. free from balance of payment crises money for the purpose of taking full advantage
C. free from modern monetary system of investment opportunities such as purchasing
D. non wastage of time and effort shares, stock and debentures. It is usually made
E. personal and natural resources are perfectly utilized for future consumption and promotes capital
Answer: Double coincidence of wants (A) formation.
2019/24 Neco 2003/7 Exercise 18.25
The system of exchanging goods for goods is referred to as (a) Distinguish between cost–push inflation and demand
A. demand for money B. money order pull inflation.
C. money transfer D. supply of money (b) Explain any four ways of controlling inflation.
E. trade by barter
Answer
2004/10 Nov Exercise 18.26
Trade by barter (E)
Describe the effects of inflation on each of the following
2019/25 Neco (a) Pensioners.
The basic similarity between money and trade by barter (b) Debtors.
system is that both are (c) Savings.
A. divisible B. homogenous C. portable (d) Production.
D. used as store of value E. used to facilitate exchange (e) Balance of payments.
Answer: Used to facilitate exchange (E)

2019/28 Neco
Which of the following is used to control inflation in 2013/25 Neco
Nigeria? Which of these is a precautionary motive of holding
A. buying of securities in the open market money?
B. increase in cash reserve requirement A. money for investment
C. reduction in bank rate D. reduction of taxes B. money kept aside for anticipated price changes
E. use of deficit budget C. payment of school fees
Answer D. purchase of bread for breakfast
increase in cash reserve requirement (B) E. repairs to major breakdown of family car
Answer
2019/10 Neco Exercise 18.24 Money kept aside for anticipated price changes (B)
(i) What is trade by barter?
(ii) State and explain four difficulties encountered in 2013/29 Neco
trade by barter system. Which of these factors can cause demand pull inflation?
A. excess taxation on product
2012/4 Nov B. exportation of petroleum product
(a) What is meant by the value of money? C. high cost of imported materials
(b) State any four qualities of money. D. high cost of production
(c) Explain the motives for holding money. E. Increase in money supply
Answer Answer: Increase in money supply (E)
(a) Value of money refers to the purchasing power of 2019/27
money, that is, the quantity of goods and services The use of interest rates to control money supply is a
which a given sum of money can buy. A. control policy B. monetary policy
(b) Qualities of money C. development policy D. fiscal policy
(i) Acceptibility. Answer: Monetary policy (B)
(ii) Homogeneity.
(iii) Divisibility. 2019/36
(iv) Portability. An increase in the prices of factor inputs may result in
A. demand – pull inflation B. stagflation
(c) Motives for holding money C. open inflation D. cost – push inflation
(i) Transacting motive:This is the demand for Answer
money in order to buy goods and services for Cost – push inflation (D)
present use.

491
2012/15 Neco 1991/10
Assuming that the price of a tin of sardine was N12 in 1985What efforts has the government of Nigeria made to combat
but rose to N15 in 1986. Calculate the index number. inflation?
A. ₦120 B. ₦123 C. ₦125 D. ₦126 E. ₦128 Answer
Answer (1) Monetary policy:This is a method of controlling
Current year price 100 inflation where the government.
CPI = ×
Base year 1 (I) Decreases the volume of money in circulation through
15 100
CPI = 12 ×
1
=₦125 (C) OMO and budget surplus.
(II) Decreases interest on bank rates so as to discourage
2012/16 Neco lending and cost of production.
The forms of money include the following except (2) Fiscal policy:The government takes the following
A. commodity money B. flat money C. fiduciary note measures the control inflation.
D. legal tender E. quick money (I) Increase direct taxes so as to reduce purchasing power
Answer and this is expected to decrease demand.
Quick money (E) (II) Decrease indirect taxes so as to force price down.
(III) Decrease government expenditure in order to reduce
the volume of money in circulation.
2012/24 Neco
Which of the following currencies was used as legal tender (3) Physical measures:The government should take the
in Nigeria before 1973? following measures to control inflation.
A. Dollar B. Franc C. Naira D. Pound (I) Encourage increase in agricultural productivity.
E. Rand (II) Institution of effect price system.
Answer: Pound (D) (III) The distribution system should be improved.
(IV) Adequate storage facilities should be provided.
2012/25 Neco 1996/8 Nov
If the consumer price index (CPI) of food inflation rose Suggest possible solutions to the problem of inflation.
from ₦75 to ₦90 in 2007 and 2009 respectively. what is the Answer
inflation rate? (1) The use of fiscal policy through
A. 13% B. 15% C. 20% D. 25% E. 26% (a) Taxation policy.
Answer (b) The government could increase its borrowing from the
Rate of inflation = public and at the same time spend less of its revenue.
Current year price index−Base year price index 100 (c) The government could reduce its expenditure and make
×
Base or constant year price index 1 use of budget surplus.
(2) The use of restrictive monetary policy reduces the supply
90−75 100
Rate of inflation = 75 × 1 of money in circulation by
Open market operation.
15 100 Increasing bank rate.
= 75 × 1 = 20 (C) Increasing the bank deposit ratio.
The use of special deposits.
2012/29 Neco The use of directives.
Increase in the prices of goods and services as a result of Moral suasion and funding.
increase in the cost of factor inputs is referred to as (3) Physical control through
inflation. (a) Inflation can be checked through the policy of wage
A. cost push B. demand pull C. galloping D. imported freeze.
E. persistent (b) Wage control.
Answer: Cost push (A) (c) Rationing.
(d) Price control.
2002/32 Nov Exercise 18.27
Trade by barter requires 2010/10 Exercise 18.28
A. division of labour B. unlimited wants (a) Explain the function of money as a
C. indivisibility of goods D. a double coincidence of wants (i) Measure of value.
(ii) Store of value.
2002/33 Nov (b) Show how inflation affects these two functions of money.
Money is most notable in its use as a
A. unit of account B. measure of value
C. medium of exchange D. store of value
Answer: Medium of exchange (C)

492
2015/7 2018/9 NABTEB
(a) What is deflation? Distinguish between inflation and deflation.
(b) Outline any three positive effects of deflation. Answer
(c) Explain the ways by which inflation affects any three Inflation refers to a persistent or sustained rise in the general
functions of money. price level in an economy. During an inflationary period, there
Answer is too much money in circulation and too much money chases
(a) Deflation can be defined as a situation where there is fewer goods and services while
persistent fall in the general price level. During a period Deflation refers to a persistent fall in the general price level of
of deflation, aggregate supply exceeds aggregate most goods and services. During inflation a given sum of
demand. It brings about a rise in the value of money. money purchases more goods and services.
(b) Positive effects of deflation.
2008/14 Neco
(I) It reduces inequality.
A form of money whose intrinsic worth is less than its normal
(II) Those that earn fixed income such as salary and pension
or face value is known as
earners gain.
A. commodity money B. fudiciary issue
(III) It reduces balance of payment problem.
C. legal tender D. metallic money E. token money
(c) Ways in which inflation affects the functions of money.
Answer
(I) Medium of exchange: During inflation, people are likely to
Token money (E)
lose confidence in money as means of payment for goods and
services because of a fall in its value.
2008/23 Neco Exercise 18.29
(II) Store of value: The function of money as a store of
Which of the following people are likely to lose during
wealth is undermined during periods of inflation
inflation?
because of the money saved loses value.
A. businessmen B. creditors C. debtors D. investors
(III) Standard of deferred payment: During inflation money
E. shareholders
does not serve as an adequate standard of deferred
payment because money loses value.
2021/34 (PC 2)
(IV) Unit of account/measure of value: During inflation,
Which of the following factors can lead to cost-push inflation?
money is not a reliable unit of account because its own
A. increase in subsidies on goods
value is not stable.
B. war time spending
C. increase in income of workers
2017/6 D. increase in personal income tax
(a) Define inflation. Answer: Increase in income of workers (C)
(b) Identify any three causes of
(i) demand – pull inflation. 2008/24 Neco
(ii) cost – push inflation. Cost push inflation occurs when there is
Answer A. excess demand and supply
(a) Inflation can be defined as a situation where there is a B. frequent changes in government policies
persistent rise in the prices of goods and services without C. increase in the prices of imported goods and services
a corresponding increase in supply. D. poor distribution of goods
(b) Causes of demand – pull inflation E. rapid increase in the cost of production
(i) Increase in bank lending on activities which do not Answer: Rapid increase in the cost of production (E)
contribute to increase in output of goods.
(ii) Government adopts deficit financing or budget to provide 1999/15 Nov
social infrastructure. Price index number is equal to
(iii) Expectation of a future rise in prices. Exchange ratio 100 Current price 100
(iv) Increase in population not accompanied by increase in A.
Current price
× B. ×
1 Base period price 1
productivity.
Based period price 100 Current price 100
Causes of cost – push inflation C. × D. ×
Current price 1 Exchange ratio 1
(i) Increase in cost of production as a result of increase in
wages, rise materials, transport e.t.c. Answer
Current price 100
(ii) Increase in interest rate on loans will raise cost of × (B)
Base period price 1
production.
(iii) Increase in the prices of imported inputs. 1999/23 Nov
(iv) Excessive government taxes on inputs. When payment for goods and services is postponed, money
(v) Inadequate infrastructure such as electricity, poor serves as a
transportation and water supply which increase cost of A. standard for deferred payment B. medium of exchange
production. C. unit of account D. store of value
Answer
Standard for deferred payment (A)

493
1999/26 Nov 1992/18
Inflation caused by an increase in price of raw materials is Near money is made up of
known as A. very liquid assets which can be easily converted into
A. creeping inflation B. demand pull inflation money
C. hyper inflation D. cost push inflation B. currency in circulation and demand deposits
Answer C. notes and coins
Cost push inflation (D) D. fixed assets which cannot be converted into money
E. the total money supply in the economy
1986/33UTME Answer
Gresham’s law in Economics shows that
Very liquid assets which can be easily converted into
A. bad money drives good money out of circulation
money (A)
B. good money drives bad money out of circulation
C. gold must be available to maintain the value of paper 1992/21
money Which of the following is not a negative effect of inflation?
D. the price level varies directly with the quantity of money A. lenders earn less
Answer B. pensioners and salary earners on fixed income suffer
A – Bad money drives good money out of circulation. C. exports tend to decline D. savings are discouraged
Answer:Borrowers tend to gain (E)
1991/18
Which of the following is not regarded as money in 1992/33
Economics? Money supply is the
A. coins B. currency notes C. bank deposits A. currency available in the banks
D. Naira and kobo B. currency in circulation and time deposits
Answer: Cheques (B) C. currency in circulation and savings deposits
D. currency in circulation and demand deposits
1991/33 E. time deposits plus savings deposits plus demand deposits
Which of the following is a function of money? It is
Answer
A. portable B. a standard of deferred payment
Currency in circulation and demand deposits (D)
C. relatively stable in value D. generally acceptable
E. an easily divisible item 1992/36
Answer: A standard of deferred payment (B) Inflation caused by an increase in demand is known as
A. cost push inflation B. hyper inflation
1991/38 C. demand pull inflation D. creeping inflation
Which of the following statement is not true in an inflationary E. runaway inflation
period? Answer: Demand pull inflation (C)
A. the purchasing power of money diminishes
B. wages rise simultaneously with prices 2006/15 Neco
C. more money runs after a limited quantity of goods Money as a unit of account means that it can be
D. fixed income earners lose A. counted in units B. used for future payment
E. aggregate real demand exceeds aggregate real supply C. used to facilitate exchange
Answer: Wages rise simultaneously with prices (B) D. used to measure the value of goods and services
E. used to store goods and services
1992/7
Answer:Used to measure the value of goods and services (D)
Which of the following is not a characteristic of money?
A. scarcity B. durability C. divisibility
2006/20 Neco
D. homogeneity E. mobility
Answer: Mobility (E) Which of these is used as a means of exchange during the
primitive ages?
1992/10 A. cowry shell B. Dollar C. Goat skin
Money becomes a very poor store of value in a period of D. Naira E. stone
A. deflation B. stable prices C. recession Answer
D. inflation E. harves Cowry shell (A)
Answer: Inflation (D)
2006/33 Nov
1992/15 Exercise 18.30
The type of money not backed by either gold or any foreign
Money as a unit of account implies that it can be currency is
A. counted in units B. used to facilitate exchange A. bank money B. fiduciary issue C. token money
C. used to measure value of goods and services D. near money
D. used to store goods and services Answer
E. used for future payment Fiduciary issue (B)

494
2006/35 Nov 2020/36
The amount of goods and services which a unit of money Real wages are likely to fall during periods of
commands over time measures the A. inflation B. revaluation C. deflation
A. rate of exchange of currency B. value of money D. unemployment
C. quantity of goods bought D. supply of money Answer
Answer Inflation (A)
Value of money (B)
2006/36 Nov 2020/37
The function of money which allows goods to be purchased In most economies, if more people will like to borrow while
on credit is few will lend, then
A. measure of value B. store of value A. there is rapid inflation B. the rate of taxation is high
C. medium of exchange D. standard for deferred payment C. there is shortage of goods D. interest rate are high
Answer Answer
Standard for deferred payment (D) There is rapid inflation (A)
2006/37 Nov
Inflation characterized by sky- rocketing prices is called 2008/11
A. moderate inflation B. suppressed inflation (a) Distinguish between a cheque and a bank note.
C. hyper inflation D. creeping inflation (b) What are the main problems of trade by barter?
Answer: hyper inflation (C) Answer
(a) A cheque is an instruction in writing made upon a
2008/34 bank to pay a given sum of money to a named person
A medium of exchange which is generally acceptable is or bearer at a specific date while bank notes are legal
A. barter B. a cheque C. government bond tenders that is, notes issued by the Central Bank to be
D. money legally used as means of payment for goods and
Answer: Money (D) services.

2008/35 (b) Main problems of trade by barter are:

Since money is demanded for what it can buy, the demand (1) The problem of lack of double coincidence of wants.
is said to be (2) No common standard of value.
A. derived B. joint C. composite D. complementary (3) The problem of storing goods discourages large scale
Answer production.
Derived (A) (4) Indivisibility of bulky goods.
(5) No standard for deferred payment.
2008/36 (6) Trade by barter does not encourage specialization.
The supply of money in the economy includes
A. bank notes only B. bank notes and coins
C. bank notes and bank deposits 2006/8 Nov
D. bank notes, coins and bank deposits (a) Outline any four problems of exchange by barter.
Answer (b) What functions of money solve these problems?
Bank notes, coins and bank deposits (D) Answer
Problems of exchange by barter
2008/37 (1) Double coincidence of wants.
The indicator of the value of money is (2) Lack of specialization.
A. the general price level B. the equilibrium price (3) Indivisibility of the commodities.
C. consumers income D. the interest rate (4) Lack of storability.
Answer (b) Functions of money to solve these problems
The general price level (A) (1) Money serves as a measure of value.
(2) Money serves as a unit of accounts.
2000/38 Exercise 18.31 (3) Money is used as a store of value.
Inflation can be checked by (4) Money acts as a standard for deferred payments.
A. allowing supply to remain constant
B. decreasing supply and increasing wages
C. increasing supply and holding wages constant
D. decreasing supply and wages

495
2006/9 Nov 1990/15 Nov
(a) What is demand – pull inflation? Inflation exists when
(b) In what two ways can demand pull inflation be A. there is too little money in circulation
controlled? B. there is too much money in the economy
(c) Outline any three economic effects of inflation in your C. there is a constant rise in the price of consumer goods
country. D. the cost of production is constantly falling
Answer E. there is persistent rise in the general price level
(a) Demand – pull inflation: This type of inflation Answer
emanates from excess of demand over supply. If the There is a persistent rise in the general price level (E)
demand for goods and services increases considerably
without a corresponding increase in their supply, prices 1990/20 Nov
will increase if the price increases persist, inflation will Demand for money is the
result. A. amount of money a person has in his bank account
(b) Demand – pull inflation can be controlled by: B. total amount of money that is needed in a country at a
(I) Decreases in the volume of money in circulation through particular time
OMO and budget surplus. C. desire to hold money instead of investing
(II) Decreases interest or bank rate so as to discourage D. amount of money in circulation
lending and cost of production. E. amount of money a consumer demands to purchase his
(c) Economic effects of inflation needs
(1) It encourages hard work. Answer
(2) It induces employment, since investment is enhanced. Desire to hold money instead of investing it (C)
(3) There is increase in investment.
2003/14 Neco
2018/16 Neco In the equation MV = PT; V stands for
The quantity theory of money states the relationship between A. velocity of circulation of money
A. demand and supply of goods and services B. velocity of price change
B. inflation and deflation C. price level and demand C. volume of goods produced
D. quantity of money in circulation and price level D. volume of money E. volume of transaction
E. the value of different currencies Answer
Answer Velocity of circulation of money (A)
Quantity of money in circulation and price level (D)
2003/21 Neco
2018/17 Neco Exercise 18.32 Which of the following is a motive for holding money?
Which of the following is not a factor that determines the A. celebration B. daily purchase C. election campaign
value of money? D. offering and alms giving E. repayment of taxes
A. bank rate B. deflation C. inflation D. price level Answer
E. volume of goods and services Daily purchases (B)

2018/25 Neco 2003/23 Neco

The quality of money that emphasizes its uniformity is Which of the following is not a cause of inflation?
referred to as A. excessive bank lending B. excessive deficit financing
A. acceptability B. divisibility C. durability C. increase in domestic productivity
D. homogeneity E. portability D. increase in wages and salaries of workers
Answer: Homogeneity (D) E. increase in government expenditure
Answer
2018/26 Neco Increase in domestic productivity (C)
The quantity of goods and services money can buy is referred
to as 2000/18 Neco
A. consumer’s demand B. demand for money Mr. Bankole has kolanuts while Alhaji Adamu has a cow.
C. real cost D. supply of money E. value of money What is the necessary condition for trade by barter to take
Answer: Value of money (E) place between the two men?
A. Adamu must cut the cow into pieces to make the exchange
2018/30 Neco easier
The type of inflation that is consistent with economic growth B. Bankole must be prepared to give 20 kolanuts for the cow
is known as _____ inflation C. Bankole must be in need of a cow just as Adamu is in need
A. cost push B. creeping C. galloping D. hyper E. of Kolanuts
imported D. they must call witnesses before exchanging the items E.
Answer the weight of the kolanuts and the cow must be the same
Cost push (A) Answer
Bankole must be in need of a cow just as Adamu is in need of
kolanuts (C)
496
2000/28 Neco 2018/36 NABTEB
The desire to hold cash balances for reasons of current The system of exchange by which goods are directly
expenditure is known as exchanged for other goods is known as
A. current motive B. investment motive A. price mechanism B. haggling C. trade by barter
C. precautionary motive D. speculative motive D. free exchange rate
E. transactional motive Answer
Answer Trade by barter (C)
Transactional motive (E)
2018/37 NABTEB
2000/29 Neco A period of very high inflation on the economy is referred to as
The supply of money in Nigeria is determined by the A. cost push inflation B. creeping inflation
A. central bank B. central bank and commercial banks C. hyper inflation D. demand pull inflation
C. commercial banks D. money market Answer: Hyper inflation (C)
E. non – banking public
Answer 2018/38 NABTEB
Central bank (A) Deflation can be curbed through
A. decrease in the output of goods B. budget deficit
2000/31 Neco C. budget surplus D. increase in bank rate
Inflation which is generally by persistent increase in Answer: budget deficit (C)
demand is known as 2014/28 Neco
A. creeping inflation B. cost push inflation Who would be adversely affected during periods of
C. demand pull inflation D. hyper inflation inflation?
E. structural inflation A. borrowers B. businessmen C. fixed income earners
Answer D. government E. manufacturers
Demand pull inflation (C) Answer
Borrowers (A)
2000/32 Neco
Which of the following is not among the causes of inflation 2014/29 Neco
in Nigeria? A situation where aggregate demand in an economy
A. excess demand for goods and services exceeds aggregate supply is known as
B. fall in the supply of essential goods A. deflation B. deflationary gap C. disinflation
C. hoarding of goods D. inflationary gap E. reflation
D. unemployment E. unusual taste for imported goods Answer
Answer Inflationary gap (D)
unusual taste for imported goods (C)
2014/45 Neco Exercise 18.33
2000/6 Neco Money performs the following functions, except
(a) What is inflation? A. measure of values B. speculative functions
(b) Discuss the negative effects of inflation on the C. standard of deferred payment D. store of value
Nigerian economy. E. unit of account
Answer
(a) Inflation can be defined as a situation where there is a
persistent increase in price of goods and services 2009/17 Neco
without t a corresponding increase in supply. The following are qualities of money except
(b) Negative effect of inflation A. acceptability B. divisibility C. homogeneity
(1) Inflation increases the balance of payment problems. D. portability E. rationality
(2) During a period of inflation, creditors lose. Answer
(3) The value of money falls as it losses its purchasing Rationality (E)
power.
(4) The real value of assets like savings and life insurance 2009/22 Neco
policy falls due to fall in the value of money. Inflation is a
(5) Inflation may lead to economic recession. A. general increase in the price of a single product
(6) It increases public debt. B. period of economic recession C. period of hunger
(7) During inflation, a fixed income earner such as salary D. period of excessive money
and pension earners suffers. E. persistent rise in the general price level
Answer
Persistent rise in the general price (E)

497
2009/23 Neco (2) Money is used as a store of value:Money is the easiest
The effect of inflation in an economy is that it and most convenient means of storing surplus goods or
A. discourages employment B. discourages investment wealth for future use.
C. encourages saving (3) It serves as a unit of account:Records of payments
D. increases balance of payment difficulties and receipts can be conveniently kept in monetary
E. increases the volume of purchasing power units. This is because the value of goods and services
Answer which are bought and sold is measured in terms of
Encourages saving (C) money or prices at which they can be bought or sold.
(4) It is as a medium of exchange:Money serves as a
2009/14 Neco means of payment for goods and services and in the
The value of money is affected by settlement of debt.
A. consumer’s income B. effective demand
C. effective supply D. equilibrium price 2007/2008/73 (UNIZIK, AWKA)
E. general price level Money becomes a very poor store of value in a period of
Answer A. deflation B. stable prices C. recession
General price level (E) D. inflation E. harvest
Answer
Inflation (D)

2009/26 Neco 2007/2008/74 (UNIZIK, AWKA)

The function of money as a store of value is poorly The real value of money is
performed during the period of A. its face value B. what it can buy at a particular time
A. boom B. recession C. deflation D. stable prices C. its rate of exchange with other currencies
Answer D. its intrinsic wroth E. its rate of circulation
Inflation (D) Answer
What it can buy at a particular time (B)

2009/44 Neco 2009/2010/23 (UNIZIK, AWKA)

The unit for measuring changes in prices and output is Who among the following will benefit from inflation?
called ___ index A. pensioners B. savers C. debtors D. creditors
A. capital B. expenditure C. money D. price Answer
Answer Debtors (C)
Price (E)
2011/2012/34 (UNIZIK, AWKA)
2016/37 Inflation is likely to benefit
A continuous fall in the general price level is called A. persons with bank savings
A. deflation B. devaluation C. inflation B. persons employed in financial houses
D. stagflation C. debtors D. persons who live on fixed pension funds
Answer E. creditors
Deflation (A) Answer
Debtors (C)
2018/8 NABTEB
(a) Define money 2014/2015/42 (UNIZIK, AWKA) Exercise 18.34
(b) Explain four ways by which money has solved the The most important characteristics of money is
problem of the barter system of exchange A. profitability B. intrinsic values
Answer C. acceptability D. usefulness E. beauty
(a) Money can be defined as any commodity that is
commonly accepted by members of a community as a 2014/2015/39 (UNIZIK, AWKA)
means of payment for goods and services and in the If inflation is anticipated to continue
settlement of debts. A. people will lose confidence in goods
(b) Ways by which money has solved the problem of B. lenders will demand higher interest rates
barter system of exchange C. the growth of full employment output will be accelerated
(1) Money serves as a measure of value: The value of D. people will want to hold more money
goods and services can be expressed as prices, it E. none of the above
becomes possible to use money as a yardstick for Answer
measuring and comparing the worth of goods and Lenders will demand higher interest rates (B)
services as well as occupations.

498
2018/2019/50 (UNIZIK, AWKA) 2018/2019/51(NDU, BAYELSA)
The best way to reduce the supply of money in the economy The term double coincidence of wants is usually associated with
is to A. bilateral exchange mechanism
A. increase the liquidity ratio B. monetary exchange mechanism
B. increase the number of bank notes and cheques produced C. stock exchange system
C. decreased treasury bills D. barter exchange mechanism
D. liberalize access to credit E. opportunity cost of capital mechanism
Answer Answer
Increase the liquidity ratio (A) Barter exchange mechanism (D)

2016/2 (UNIBEN, BENIN–CITY) 2014/2015/91 (UI, IBADAN)

Inflation which is initiated and sustained by rising costs in By “trade by barter” we mean
factor prices is called A. trade done by people in the village
A. demand pull inflation B. galloping inflation B. exchange of goods for money
C. cost – pull inflation D. run away inflation C. international trade
Answer D. exchange of goods for goods
Cost – pull inflation (C) E. the trade of the middle ages
Answer
Exchange of goods for goods (D)

2019/2020/22 (UI, IBADAN)

Inflation can be defined as 2019/2020/36 (DELSU, ABRAKA)
A. sustained increase in general price level An issue of bank notes not backed by gold but by
B. increase in process of goods C. A and B government securities is known as
D. none of the above A. fiduciary issue B guaranteed money C. seigniorage
Answer Answer
Sustained increase in general price level (A) Fiduciary issue (A)

2014/2015/62 (UI, IBADAN)

Money serves well as a store of value n an environment 2012/15 (OAU, IFE)
devoid of Inflation as a result of increase in the payment for factors of
A. unemployment B. bank robbery production is called
C. development – oriented central/reserve bank A. cost – pull inflation B. demand – push inflation
D. inflationary pressures C. cost – push inflation D. demand inflation
E. substitutes like ATMs, cheques and bank draft Answer
Answer Cost – push inflation (C)
Inflationary pressure (D)

2018/2019/9 (UI, IBADAN) Exercise 18.35 2010/16 (OAU, IFE)

The motives for demanding money are all of the following except The value of money varies
A. speculative B. transaction C. precautionary A. inversely with price level
D. ordinary B. directly with the volume of employment
C. directly with the price level
2009/2010/64 (NDU, BAYELSA) D. directly with the interest rate
The most important characteristics of money is Answer
A. profitability B. intrinsic value C. acceptability Inversely with price level (A)
D. usefulness E. beauty
Answer 2009/13(OAU, IFE)
Acceptability (C) The monetary system that requires double coincidence of
wants is known as
2009/2010/21 (NDU, BAYELSA) A. the gold standard B. the barter practice
Money becomes a very poor store of value in a period of C. the commodity system D. the gold exchange standard
A. deflation B. stable prices C. recessions E. the cheque system
D. inflation E. control and regulate Answer
Answer The barter principle (B)
Inflation (D)

499
2009/13 (OAU, IFE) 2015/1 (OAU, IFE)
The monetary system that requires double coincidence of The consumer index (CPI) measures the prices paid
wants is known as A. for farm tractors B. for goods and services purchased
A. the gold standard B. the barter practice by a typical household C .for goods and services bought
C. the commodity system D. the gold exchange standard by companies D. none of the above
E. the cheque system Answer
Answer For goods and services purchased by a typical household (B)
The barter practice (B)
1979/20 UTME
2009/21 (OAU, IFE) Exercise 18.36
The value of money is generally measured by reference
A major factor affecting the value of money is the
A. the interest rate charged on bank loans
A. price level B. banking habit
C. transaction motive D. divisible nature of money
B. the general price level
E. transferability C. the size of a country’s gold stock
D. the level of economic development in a country
2007/12 (OAU, IFE) E. the price of stocks and shares on the stock exchange
Inflation can be curbed by Answer
A. increasing aggregate demand B. paying higher wages B – The general price level.
C. reducing aggregate demand D. a deficit budget
Answer 1979/48 UTME
Reducing aggregate demand (C) Inflation can be curbed by
A. increasing aggregate demand B. paying higher wages
2013/6 (OAU, IFE) C. increasing government expenditure
Which of the following correctly defines inflation? D. reducing aggregate demand E. a deficit budget
A. one time increase in commodity prices Answer
B. a period when prices increases rapidly D – Reducing aggregate demand.
C. a sustained increase in the overall price level
D. an increase in the overall level of business activity
Answer 1980/35 UTME
A sustained increase in the overall price level (C) The value of money depends primarily on
A. the gold backing of the currency
2013/15 (OAU, IFE)
B. the gold backing of both-currency and deposits
Which of the following is not a measure for controlling
C. the general price level
inflation by the central bank?
A. open market operation B. reserve requirements
D. government degree that it is legal tender
C. sale of treasury bills D. change of central bank E. none of the above
government Answer
Answer C – The general price level.
Change of central bank Governor (D)
1980/47UTME
2013/21 (OAU, IFE) Exercise 18.37 Which of the following is not a measure of controlling
Money that a government has required to be accepted in inflation?
settlement of debts is A. reduction in money supply
A. commodity money B. currency value C. barter B. wage restraint and wage freeze
D. legal tender C. reduction in taxes and increase in government spending
D. price control E. credit restriction
2006/1 (OAU, IFE) Answer
The only essential attribute of a good currency is C – Reduction in taxes and increase in government spending.
A. scarcity B. homogeneity C. acceptability
D. cognoscibility 1981/28 UTME
Answer Which of the following does not belong in respect of the
Acceptability (C) quantity of money?
A. durability
2006/20 (OAU, IFE)
B. divisibility into the smallest units of value
Inflation is likely to benefit
C. portable D. identifiable by all E. measure of value
A. persons with banks savings
B. persons who live on fixed pension funds Answer
C. creditors D. debtors E – Measure of value.
Answer
Debtors (D)

500
1981/47UTME 1986/36 UTME
Inflation is likely to benefit Deflation is a persistent fall in the general price level and is
A. persons with bank savings usually caused by
B. persons employed in financial houses A. a reduction in total demand
C. debtors B. an increase in government spending
D. persons who lived on fixed pension funds E. creditors C. an increase in the money supply
Answer D. an increase in aggregate demand
C – Debtors. Answer: A – A reduction in total demand.

1983/39 UTME 1986/37 UTME

The monetary system that requires double coincidence of Which of the following causes of inflation is related to
wants is known as demand-pull inflation?
A. the gold standard B. barter A. low productivity on farms and in firms
C. the commodity system D. the gold exchange standard B. poor storage facilities
E. the cheque system C. poor distribution system
Answer D. increase in government expenditure on construction
B – barter. Answer: A – Low productivity on farms and in firms.

1987/35 UTME
1983/41 UTME
In the Keynesian model
Money performs a number of functions, one of these
A. the demand for money is inversely related to the rate of
functions makes it possible for any person to provide our
interest
old age. Because of that particular function money is
B. investment is directly related to the rate of interest
regarded as a
C. investment is not related to the rate of interest
A. medium of exchange B. measure of value
D. the demand for money is directly related to the rate of
C. unit of account D. store of value
interest.
E. standard of deferred payments
Answer
Answer
D – The demand for money is directly related to the rate of
D – Store of value.
interest.
1985/29 UTME
Because money serves as a standard of deferred payments
1987/36 UTME
A. it serves as a store of value
If inflation is anticipated to continue
B. goods can be bought and credit with pre-determined value
A. people will lose confidence in goods
C. future trade becomes possible
B. lenders will demand higher interest rates
D. it serves as a unit of account E. it becomes valuable
C. the growth of full-employment output will be accelerated
Answer
D. people will want to hold more money
B – Goods can be bought on credit with pre-determined
Answer
value.
B – Lender will demand higher interest rates.
1985/30 UTME Exercise 18.38
1988/33 UTME
Which of the following is a necessary pre requisite for trade
In any economy, what is used as money is determined by
by barter?
A. government acceptance of a commodity standard
A. need for double coincidence of wants
B. government acceptance of an inconvertible paper standard
B. multiple exchange rate
C. laws and customs D. its use as a store of value
C. impossibility of future trade
Answer
D. impossibility of large scale production
A – Government acceptance of commodity standard.
E. indivisibility of commodities
1988/84 UTME
The rate at which money changes hands is known as the
1986/31 UTME A. rate inflation B. velocity of transactions
To control inflation the monetary authorities of a country C. velocity of money D. velocity of circulation
can Answer
A. reduce taxes C – Velocity of money.
B. advise government to increase its expenditure
C. engage in expensive monetary policy
D. engage in restrictive monetary policy
Answer: D – Engage in restrictive monetary policy.

501
1989/28 UTME 1991/33 UTME
The term “double coincidence: of wants is usually An effect of inflation is that it
associated with a A. discourages trade by barter
A. bilateral exchange mechanism B. favours debtors at the expense of creditors
B. monetary exchange mechanism C. increase the real income of salary earners
C. stock exchange system D. increases the value of a country’s exports
D. barter exchange mechanism Answer
Answer B – Favours debtors at the expense of creditors.
D – Barter exchange mechanism.
1989/29 UTME 1992/35 UTME
A major factor affecting the value of money is the The best way to reduce the supply of money in the economy is to
A. price level B. banking habit A. increase the liquidity ratio
C. transition motive D. divisible nature of money B. increase the number of bank notes and cheque produced
Answer C. decrease treasury bills D. liberalize access to credit
A – Price level. Answer
A – Increase the liquidity ratio.
1989/80 Exercise 18.39
Cost-push inflation is caused by 1992/36 UTME
A. growth of government expenditure The total amount of money in circulation includes cash
B. increase in factor prices A. and current account balances owned by the non-bank public
C. increase in money supply D. hoarding B. owned by banks and the non-bank public
C. and current account balances owned by banks and the non-
1990/30 UTME bank public
Which of the following is likely to be inflationary? D. owned by banks, the government and the non-bank public
A. tax increase B. increase in unemployment Answer
C. budget surplus D. wages increase D – Owned by banks, the government and the non-bank
Answer public.
D – Wages increase.
1992/37 UTME
1991/29 UTME To reduce the high rate of inflation in the economy, the
One disadvantage of trade by barter is that government should
A. people are happier when they exchange the same A. increase and have a budget surplus
quantities of goods through the medium of money rather B. increase taxes and have a budget deficit
than by barter C. decrease taxes and have budget deficit
B. the person wishing to buy good X and may not have D. decrease taxes and have a balanced budget
good Y which is what the other person wants Answer
C. one person must always be cheated when trade takes A – Increase and have a budget surplus.
place by barter
D. it increases the initial cost of producing goods 1994/37 UTME
Answer Inflation in the Nigerian economy may be fueled by
C – One person must always be cheated when trade takes increase in
place by barter. A. the dollar price of crude oil
B. the sale of company shares
1991/31 UTME Exercise 18.40 C. government expenditure
To perform its function as a store of wealth and standard for D. sale of government bonds
deferred payment money must be Answer
A. portable B. in attractive form C. stable in value C – Government expenditure.
D. spent more on capital goods than on consumer goods
1995/39 UTME
1991/32 UTME The best method to curb inflation in Nigeria is to
Fiduciary issue is that part of A. reduce importation of commodities
A. the issue of notes backed entirely by gold B. increase the general level of production
B. a country’s currency which is not negotiable C. reduce the volume of money supply
C. the issues of notes not backed by gold D. set up price control boards
D. a country’s currency officially issued Answer
Answer B – Increase the general level of production.
C – The issue of notes not backed by gold.

502
1997/32 UTME 1999/42 UTME
The most important attribute of money is Inflation which is caused mainly by increases in the prices
A. homogeneity B. relative scarcity of factors of production is described as
C. divisibility D. general acceptability A. cost-push inflation B. demand pull-inflation
Answer C. crawling inflation D. spiral inflation
D – General acceptability. Answer: A – Cost push inflation.

1997/33 UTME 2000/37 UTME

Which of the following is inflationary? A persistent rise in the general level of prices implies
A. an increase in taxation B. an increase in savings A. an increase in some prices
C. a decrease in money supply B. a one-time rise in prices
D. an increase in government expenditure C. that the higher the price level, the more the value of money
Answer D. a steady fall in the purchasing power of money
D – An increase in government expenditure. Answer
D – A steady fall in the purchasing power of money.

2000/46 UTME
1998/32 UTME All increase in money supply other things being equal will
Which of the following is true about the value of money? A. increase money demand B. reduce income
A. it varies inversely with the price level C. ensure trade balance D. bower interest rates
B. it varies directly with the price level Answer: A – Increase money demand.
C. it depreciate in the period of deflation
2001/44 UTME
D. it is not affected by the price level
Money may not be accepted as a store of value if
Answer
A. its value is unstable B. it is easily transferable
A – It varies inversely with the price level.
C. its value is stable D. it is easily divisible
Answer: C – Its value is stable.
1998/38
If a government wants to reduce the level of inflation, it 2003/24 UTME
will Inflation that is usually associated with periods of trade
A. run a budget surplus B. run a budget deficit boom is
C. run a balance budget D. borrow more money A. cost-push inflation B. demand-pull inflation
Answer: A – Run a budget surplus. C. creeping inflation D. stagflation
Hint: If the economy is in an expansion and experiencing Answer
inflation, a budget surplus works to stabilize the B – Demand-pull inflation.
economy. In this instance taxes increase in response
to the oncrease in employment and income, thus the 2005/48 UTME
surplus works to stabilize the economy during The factor responsible for the current inflationary pressures
inflationary perods. in Nigeria is the
A. exchange rate depreciation B. increase in exports
1999/36 UTME C. low per capita income D. budget surplus
The relationship between the value of money and the price Answer
level is C – Lower capital income.
A. direct B. unpredictable C. diverse D. inverse
Answer: D – Inverse 2006/29 UTME
The price index is calculated as
1999/39 UTME 𝑤𝑒𝑖𝑔ℎ𝑡 𝑝𝑟𝑖𝑐𝑒 100 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 𝑝𝑟𝑖𝑐𝑒 100
A. × B. ×
One of the function of money is that it helps 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 1 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 1
A. detect frauds in matters of exchange 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 100 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 100
C. × D. ×
B. postpone payments without loss of count 𝑤𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑝𝑟𝑖𝑐𝑒 1 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 𝑝𝑟𝑖𝑐𝑒 1
C. store information about the intrinsic benefits of an item Answer
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 100
D. record information about the valuation of an item D - 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 𝑝𝑟𝑖𝑐𝑒 ×
1
Answer
D – Record information about the valuation of an item.
2006/33 UTME
One way of controlling deflation is by
A. decreasing wages B. rigid fiscal policy
C. contractionary monetary policy D. deficit financing
Answer
C – Contractionary monetary policy.
503
2007/42 UTME 2012/31 UTME
A persistent rise in the prices of inputs will lead to If a basket of commodities cost ₦120 in the base year and
A. demand-pull inflation B. cost-push inflation ₦240 in the current year, calculate the price index
C. stagfiation D. hyperinflation A. 100 B. 200 C. 240 D. 300
Answer Answer
B – Cost-push inflation. 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑒𝑎𝑟 𝑝𝑟𝑖𝑐𝑒 100
𝐶𝑃𝐼 = ×
𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 𝑝𝑟𝑖𝑐𝑒 1
2008/29 UTME 240 100 24,000
The high rate of inflation in Nigeria can be attributed to 𝐶𝑃𝐼 = × = = 200 (B)
120 1 120
A. increasing cost of production
B. the appreciation of the naira 2013/28 UTME
C. decreasing cost of producing If Mr. K obtains a ₦50,000 loan from a bank for the
D. high capacity utilization purpose of providing household needs, the demand for
Answer money is said to be
D – High capacity utilization. A. transactionary and speculative B. transactionary
C. speculative D. precautionary and speculative
Answer
2008/31 UTME D – Precautionary and speculative.
Contractionary monetary policy is used to
A. control inflation B. bridge the deflationary gap
C. expand the output level D. deregulate the economy 2014/27 UTME
Answer The precautionary demand for money is determined by
A – Control inflation. A. the rate of interest B. the level of savings
C. the level of income D. general price level
2009/31 UTME Exercise 18.41 Answer
Cost-push inflation occurs when A – The rate of interest.
A. production cost is high B. factor prices decrease
C. there is too much money in circulation
D. government embarks on deficit financing 2014/28 Exercise 18.42
An inflation that co-exists with high rate of unemployment is
2010/30 UTME A. hyperinflation B. stagflation
The function of money which makes division of labour C. demand-pull inflation D. cost-push inflation
possible is its
A. unit of account B. medium of exchange
C. store of value D. standard of deferred payment 2014/31 UTME
Answer Given a base year and the price index of 175% the
B – Medium of exchange. following year, which of the following will arise?
A. the cost of living decreases in that year
2010/32UTME B. the cost of living remains unchanged
The velocity of money is represented as C. the value of money rises by 75%
𝑚𝑜𝑛𝑒𝑦 𝑠𝑢𝑝𝑝𝑙𝑦 𝑟𝑒𝑎𝑙 𝐺𝐷𝑃 D. the value of money falls by 75%
A. 𝑟𝑒𝑎𝑙 𝐺𝐷𝑃 B. 𝑚𝑜𝑛𝑒𝑦 𝑠𝑢𝑝𝑝𝑙𝑦 Answer: A – The cost of living decreases in that year.
𝑛𝑜𝑟𝑚𝑎𝑙 𝐺𝐷𝑃 𝑟𝑒𝑎𝑙 𝐺𝐷𝑃
C. 𝑚𝑜𝑛𝑒𝑦 𝑠𝑢𝑝𝑝𝑙𝑦D. 𝑛𝑜𝑟𝑚𝑎𝑙 𝐺𝐷𝑃 2016/21UTME Exercise 18.43
Answer An inflation that co-exists with high rate of unemployment is
𝑛𝑜𝑟𝑚𝑎𝑙 𝐺𝐷𝑃 A. hyperinflation B. cost-push inflation
C-. 𝑚𝑜𝑛𝑒𝑦 𝑠𝑢𝑝𝑝𝑙𝑦 C. stagflation D. demand-pull inflation
2011/30 UTME
During the era of barter, money was generally in form of 2017/27 UTME
A. notes B. precious metals One of the important qualities that money must possess is
C. coins D. commodities A. heterogeneity B. easy availability
Answer C. homogeneity D. flexibility in value
D – Commodities Answer: C – Homogeneity.

504
2019/2UTME 1984/33 UTME
The price index computed between two tem periods is given Cost push inflation takes place due to
as 128%. This implies that the A. the rapid increase in the demand for good
A. disposable incomes have increased by 28% B. an increase in productivity of the factors of production
B. living standards have fallen by 128% C. a rise in the cost of production
C. living standards have risen by 128% D. a rise in the standard of living
D. living standards have risen by 28% E. the low wage rate pf the workers
Answer: D – Living standards have risen by 28% Answer
C – a rise in the cost of production
2019/16 UTME
In the keynasian model 1984/35 UTME
A. the demand for money is inversely related to the rate of If a person demands money for buying and selling
interest securities, it is referred to as demanding money for
B. investment is directed related to the rate of interest A. transaction purposes B. speculative purpose
C. investment is not related to the rate of interest C. precautionary purposes
D. the demand for money is directly related to the rate of D. meeting the educational expenses of children
interest E. carrying out gambling activities
Answer Answer
D – The demand for money is inversely related to the rate B – Speculative purpose.
of interest. 2003/19 UTME
Creeping inflation implies that there is a
2019/17 UTME A. gentle and persistent increase in the general price level
If inflation is anticipated to continue B. rapid and persistent increase in the general price level
A. people will lose confidence in gods C. gentle but not permanent increase in the general price level
B. lenders will demand higher interest rates D. rapid but not permanent increase in the general price level
C. the growth of full employment output will be accelerated Answer
D. people will want to hold more money A – Gentle and persistent increase in the general price level.
Answer
B – Lenders will demand higher interest rates. 2003/27 UTME Exercise 18.44
If Nigeria’s composite price index in 1999 was 140.03%
2019/31 UTME and 144.05% in 2000, the rate of inflation in 2000 was
If the same basket of goods which cost ₦12.00 in 1985 cost A. 4.02% B. 2.10% C. 2.06% D. 1.03%
₦15.00 in 1987, the price index for 1987 is
A. 25 B. 80 C. 10 D. 125 2004/32 UTME
Answer One of the causes of the present high rate of inflation in
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑒𝑎𝑟 𝑝𝑟𝑖𝑐𝑒 100 Nigeria is
𝐶𝑃𝐼 = ×
𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 𝑝𝑟𝑖𝑐𝑒 1 A. increasing budget surplus B. increasing factor costs
15 100 1500 C. exchange rate appreciation
𝐶𝑃𝐼 = × = = 125 (D) D. high capacity utilization
12 1 12
Answer
2019/32 UTME C – Exchange rate appreciation.
Which of the following is likely to be inflationary
A. tax increased B. increase in unemployment 2005/39 UTME Exercise 18.45
C. budget surplus D. wages increase The price index computed between two term periods is
Answer given as 128%. This implies that the
D – Wages increase A. disposable incomes have increased by 28%
B. living standards have fallen by 128%
1984/34 UTME C. living standards have risen by 128%
Lord Keynes identified three motives for holding money D. living standard have fallen by 28%
that is, keeping one’s resources in liquid form instead of in
some form of investment the motive which relates to
making provision for the “rainy day” is known as
A. speculative motive B. precautionary motive
C. transactions motive D. investment motive
E. rainy-day motive
Answer
B – Precautionary motive

505
 TRADITIONAL FINANCIAL INSTITUTION
Before the advent of modern financial institutions, existing
FINANCIAL INSTITUTION side-by-side with them in modern times are traditional
Financial institutions are business organisations that deal in institutions which perform the basic banking functions.
money and other financial instrument, such as shares, The traditional financial institution is a kind of cooperative
bonds, treasury bills, letters of credit, bills of exchange and which consists of people who agree to contribute a certain
debentures. With the exception of the Central Bank, they sum of money each and hand it over to a member of the
make profits by trading in money; that is, through the group. This action is repeated regularly until every member
process of accepting deposits in several ways e.g. offering has had a turn of receiving the sum of money. Lots are
technical advice etc. usually drawn to determine a member turn of receiving his
share.
Financial institutions also help to pool savings and excess
This is common among the rural folk as it is usually called
liquidity from millions of individuals and firms within the
different names such as Esusu, or Isusu, or Asusu (‘local
country and make them available to those who require them
bank’). It is also spreading fast among the low income
for various purposes.
earner especially among those who work in the same
organisation, the contribution can done on a daily, weekly,
Banks and other financial institutions are providers of
or monthly basis.
liquidity and payment services and therefore represent an
Membership of the institution is by agreement and it may or
important nerve centre of the economy that facilitates the
may not be in a written form. There is no sealing as to the
intermediation of financial resources through the promotion
amount to be contributed. It all depends on the members.
of the saving and investment process.
Unlike modern financial institutions, the Esusu or Isusu
The financial institution are referred to as financial traditional financial institution does not specify what a
intermediaries because of their involvement in bridging the recipient should do with the money he collect from his
gap between the surplus and the deficit unit of the economy. colleagues. It is entirely left to his discretion how he uses
The financial intermediaries can be categorised into two the money collected.
distinct aspects. These are:
A. Bank or Banking Financial Institution BENEFITS OF TRADITIONAL FINANCIAL
B. Non–Bank or Non – Banking Financial Institution INSTITUTION
The difference between the banking and non–banking 1. They encourage the savings and investments culture in
financial institution is that the liabilities of the banking their members.
institutions are counted as part of the total supply of money 2. They make loans available for their members for
while those of the non–banking institutions are excluded worthwhile ventures.
from the money supply. 3. They save their members from the hassles of securing
collaterals before they can receive loans.
ROLE OF FINANCIAL INSTITUTION IN THE 4. Some help their members to acquire properties by direct
ECONOMIC DEVELOPMENT OF A NATION purchase and distribution.
(1) Organization of financial market: They organize both
money and capital market. A. BANK OR BANKING FINANCIAL INSTITUTION
(2) Pooling of funds: The financial institutions pool fund A bank is a financial institution which accepts deposit from
from the savers to the borrower. They do this by customers for safe keeping and gives advances to them
providing deposit and credit facilities to customers. when the need arises. The bank has a strong room called
Banks play the role of financial intermediation. vault where customer’s money and other valuables are kept
(3) Agent to the government: The financial institution and given back to them on demand. Banks are financial
assist the government to carry out its fiscal and intermediaries.
monetary policies.
(4) Financing trade: They finance both home and The following are the major types of bank
international trade. They do this through the provision i. Central Bank
of advances to investors, foreign exchange transaction ii. Commercial Bank
and issue of letter of credit and letters of reference. iii. Merchant Bank
(5) Manpower development: They assist in the training iv. Mortgage Bank
and development of workers. v. Development Bank
(6) Employment opportunity: They assist to reduce
unemployment though the provision of job
opportunities.
(7) They advise the government on financial matters.
(8) They promote economic growth and development.

506
THE CENTRAL BANK 2. There was the need to establish Central Banks to help
A central bank is an exclusively federal government owned formulate and implement the monetary and financial
bank which helps to control and supervise entire monetary policies of the government: The former West African
and financial system of a country. Being a financial organ Currency Board could not control the money supply or carry
out other government monetary policies. But with the
of the government, it carries out the major financial
establishment of Central Banks, it became possible to
operations of the government. It regulates, directs, assists formulate and implement government monetary regulations,
and coordinates the operations of other financial institutions such as those to increase or contract the money supply.
so as to make them comply with the monetary and economic 3. There was the need to establish Central Banks to control
policies of the government. Such policies include the and direct the activities of commercial banks and other
regulations of money supply, control of credits, etc. The financial institutions: This would make them conform to
central bank monitors the performance of the economy with a government economic policies and help in maintaining
view to keeping the financial structure in balance. monetary stability and speeding up the much needed
economic development. The former W.A.C.B had no control
Central bank is usually established by act of parliament as an over the commercial banks and other financial institutions.
independent body from the government. A central bank is not 4. Central Banks were required to foster the development and
a profit oriented financial institution and it does not accept operations of the financial systems of the various countries
deposits from individual and organizations. It is therefore the to speed up economic development: During the existence of
apex bank. the West African Currency Board, the financial market was
poorly developed and this resulted in slow economic
The management of central bank is vested into the hands of a progress. By then, it was not possible to mobilise enough
central bank Governor, Deputy Governors and the Board of capital for development. The Central banks were also
Directors appointed by the government. The Central Bank of established to help train indigenous personnel in the art of
Nigeria (CBN) was established on 1st of July, 1959, its monetary management. This would enable them to manage
ordinance was promulgated on 17th March, 1958. their economies after independence.
Before the establishment of the Central Bank in West Africa
sub-region, four countries, Nigeria, Ghana, The Gambia, and FUNCTIONS OF CENTRAL BANK
Sierra Leone which were under the authority of Britain, used (1) It acts as a banker and financial adviser to the
to have one body serving all four as a sort of Central Bank. government: The government keep an account with the
This body was called the West African Currency Board. Central Bank. The central Bank receives the proceeds from
taxation and some other source of government revenue,
makes payment on behalf of the government and also help
WEST AFRICAN CURRENCY BOARD (WACB)
the governments to raise loans for economic development.
WACB was used by the British government to run the
(2) It acts as banker’s bank: The central bank serves as a
economy of the four West African countries it colonized. It
banker to commercial banks and other banks. It also
was based in London. It was responsible for issuing notes and supervises their operation.
coins in the countries. (3) Issuing of currency: The Central Bank is the only
institution that has the legal backing to mint/print and
PROBLEMS AND DISADVANTGES OF WACB circulates currency in the country.
1. It has no control over money supply in the countries. It is (4) It acts as a lender of last resort: The Central Bank lends
generally agreed that control of money supply is an money to both the government and other financial
important weapon in the controlling of an economy. institutions in the country as their last hope.
2. The board had no power over commercial banks and this (5) Maintenance of monetary stability: The Central Bank
meant that it had no control over the economy. controls, supervises, assists and co-ordinates the activities of
3. The Board did not take any step to develop the financial commercial bank and other financial institutions so that they
system of the member countries. fulfill the requirement of government monetary policy.
4. The Board was seen as a sign of political domination by (6) The central bank promotes economic growth: It achieves
Britain. this in many ways. These include the development of the
5. It failed to organize fund for the economy of the countries. money and capital markets to finance the various
development projects. It promotes economic growth by
direct financing of development projects. It helps to promote
REASONS FOR THE ABOLITION OF WACB WHICH price stability and make money available to entrepreneurs
LED TO ESTABLISHMENT OF CENTRAL BANK IN for production process.
WEST AFRICA (7) It acts as banker to discount houses and other financial
1. There was the need to estsablish Central Banks as a institutions which operate in the money and capital
complement to the independent status of the various market: They approach the central bank for loans when they
countries: With the dawn of independence, many West require money.
African countries established their own Central banks to (8) The central bank carries out external business for a
get rid of the last symbol of colonialism and to country: It deals with the central bank of other countries
demonstrate their political autonomy. This was because and with world financial institutions such as the IMF and
the World Bank. Loans are raised from these financial
the existence of the West African Currency Board in West
institutions by the central bank and used in development
Africa was a symbol of colonial domination.
projects. The central bank manages the country’s external
assets and liabilities.
507
 CONTROL OF COMMERCIAL BANK AND OTHER 6. It makes money available to the government through sales
FINANCIAL INSTITUTIONS BY THE CENTRAL of securitie e.g. bills, stocks, etc. It enables it to effect
BANK/INSTRUMENT OF MONETARY POLICY economic development.
1. The use of Open Market Operations (OMO): This is the 7. It renders financial advice to governments especially with
process whereby the central bank buys and sells short and regard to preparation of budgets, borrowing of loans both
long term government securities in the money and capital within and outside the country, etc. These ensures
market in order to increase or decrease the lending ability successful undertaking and completion of devlepment
of the banks. For example, if the central bank wishes to projects.
decrease the quantity of money in the banking system, it
may decide to sell Treasury bill or certificate in the open 2018/44 Neco
market. The function of Central Bank as lender of last resort refers to
2. Cash ratio or reserve ratio: This is the ratio of total its ability to
demand deposit liabilities, which all banks are required to A. accept deposits from the public
keep with the central bank. B. assess commercial banks financial activities
3. Liquidity ratio: This is the percentage of banks total C. buy and sell securities to the public
demand deposit liabilities which must be maintained or D. issue currency notes
keep in liquid or easily realizable form in order to meet D. lend to commercial banks in times of difficulties
customer’s demand for their deposits. The central bank Ans: Lend to commercial banks in times of difficulties (E)
determines the ratio. The higher the ratio, the lower will
be the lending ability of banks. 2010/37
4. Bank or interest rate: It is the rate of interest at which The central bank controls money supply through all the
commercial banks and other financial institutions lend or following except
borrow money in the economy. The range of interest rate A. lending to the public B. bank rate
is determined by the central bank. The higher the interest C. legal reserves requirement D. open market operation
rate, the lower the borrowing. Borrowing is inversely Answer: Lending to the public (A)
related to interest rate. The rate of interest is the price of
capital. 1990/11 Nov
5. Moral suasion: This is an appeal to commercial bank by Which of the following is not a function of the Central Bank?
the central bank as to the economic policy they should It
pursue, without the backing of the law. A. operates the Exchange Equalization Account
6. Selective credit: The central bank may decide to issue a B. holds Government Funds
special directive to the banks as to which economic goal C. arranges Government loans
to pursue, and the banks are expected to comply with D. is the tender of last resort
such directives. E. assists in executing Government Financial policy
7. Special deposits: If central bank discovers that there is Ans: Operates the Exchange Equalisation Account (A)
much money within the banking system, it may compel
them to make a special deposit with it and the banks must 1994/11 Exercise 19.1
comply. The Central Bank controls commercial banks through all the
following measures except
THE ROLE OF CENTRAL BANK IN ECONOMIC A. the use of directives B. the use of bank rate
DEVELOPMENT C. open markets operations D. accepting deposits
1. It formulates and implements government policies in order to E. demand special deposits
ensure efficient performances of the banking sector.
2. It maintains monetary stability (stable prices) by 2003/28 UTME
regulating level of money supply. This eliminates severe The monetary control instrument most effectively used by the
inflation and deflation. This encourages local and foreign Central Bank of Nigeria is the
investments. A. discount rate B reserve ratio
3. It directly participates in financing projects. For instance, C. margin requirement D. open market operations
CBN provides loans to peasant farmers to modernize and Answer: D – Open market operations.
expand their farms. It is also involved in financing rural Hint: Open market operations (OMO) is the major instrument
development programme. These have led to increase in of monetary policy at the CBN. Other supporting instruments
agricultural output and development of rural areas. are discount window operations, moral suasion, forex sales
4. It encourages lending. It encourages all financial and the standing facility introduced in December 2006.
institutions to involve in lending for investment and
development purposes. 2008/2009/20 (NDU, BAYELSA) Exercise 19.2
5. It ensures growth of financial markets. It supervises One major function of the central bank is to
activities of money and capital markets; and it ensures A. mint money B. hold money deposit and honour cheques
their effective operation. This makes short and long term C. acts as a medium of exchange D. create money
loans available for the investment and development E. control and regulate money supply
purposes.
508
COMMERCIAL BANK (JOINT STOCK BANK) WHY COMMERCIAL BANKS SHOULD OPERATE IN
A commercial bank is a financial institution that undertakes all RURAL AREAS
kinds of ordinary retail banking services with the aim of (1) Promotion of saving and banking habit among rural
making profit. Commercial banks operate in the money dwellers.
market. The first indigenous commercial bank to survive in the (2) Mobilization of rural saving for investment in the
country was – National Bank of Nigeria was established in economy.
1933. Commercial banks are usually referred to as one – stop (3) Extension of credit facilities to rural farmers, craftmen
bank because of the variety of banking services they render to and small-scale investors.
customers. With the present minimum share capital of ₦25 (4) Offers an opportunity for monitoring the use of loans
billion. granted to rural farmers and businessmen, farmers and
businessmen.
FUNCTIONS OF COMMERCIAL BANKS
(5) Provides a base for attraction of other investors and
1. Commercial banks accept deposits: They accept
money deposits from people and organizations for safe businesses to rural areas.
keeping. The amount deposited is credited to the (6) Increased development of rural areas and even
customer’s account. Commercial banks keep three types development of the country as a whole.
of accounts.
(a) Saving deposit: This is operated by individuals who ASSETS AND LIABILITIES OF COMMERCIAL
wish to save as little money as possible on a regular BANKS
basis. On the opening of saving account, the ASSETS
customer is given a pass book which is used to Assets are the productive property of a business or any
record his account balance, interest, deposits and advantage to which money value is attached. The asset of
withdrawals. commercial bank shows the uses to which they put their
(b) Current account (demand or cheque account): funds. They include:
This is mostly operated by organizations and 1. Cash in the tills of the bank and deposits with the
wealthy individuals who wish to save the money central bank.
used for everyday transaction. The money deposited 2. Cheques drawn on other banks, which are paid in by
into this account can only be withdrawn by means customers and which are in the course of collection.
of cheque. This account earns no interest to the 3. Money lent for a short term i.e. more at call and short
depositor. notice.
(c) Time or fixed deposit account: Money deposited in 4. Treasury bills and discounted bills of exchange.
this account cannot be withdrawn on demand. There 5. Loans and advances.
is usually a fixed period which sometimes may be
6. Investments.
up to some months or one year before money can be
7. Fixed assets such as buildings.
withdrawn after the agreed date, notice usually
about seven days must be given to the bank. A time
LIABILITIES
deposit yields a high rate of interest.
Liabilities are claims of outsiders or creditors on the
2. Commercial bank gives short term credit to customers:
business. They are what the bank owes to others.
Commercial banks give advances to customers in the
form of loans and overdraft. The liabilities of commercial banks show their sources of
Loans: This is why the customer negotiates with the funds. They include:
banker to lend him money on the condition that he will 1. Cash provided by shareholders.
provide a collateral security, which guarantees the 2. Deposits kept in the bank by customers.
repayment of the loan. 3. Reserves – undistributed profits.

Overdraft: This is when the customer negotiates with the BALANCE SHEET OF A COMMERCIAL BANK
banker to withdraw more than what he has in his account The assets and liabilities of a commercial bank are shown
in order to meet pressing business transaction. The on their balance sheets. A balance sheet is a statement of a
customer is expected to pay interest on the money so firm’s financial position at any given date showing on one
withdrawn. side, the value of the assets and on the other side, the value
3. Commercial banks gives medium and long term loans of the liabilities of that business.
to customers: They also act as referees to the financial
Assets Liabilities
integrity and standing of their customers.
N N
4. They give financial advice to their customers.
Cash 180,000 Capital 500,000
5. They provide foreign exchange facilities. Money at call 550,000 Reserves 100,000
6. The banks provide facilities for the safe keeping of Treasury and other bills 150,000 Deposits 4,400,000
valuables like will, jewelry, vital documents, etc. Investments 900,000 Total 5,000,000
7. They transfer funds on the instructions of customers. Advances & overdrafts 2,500,000
8. They give financial and technical advice to their Buildings 720,000
customers in the matter relating to investment. Total 5,000,000
509
The above table is a simplified version of a commercial CREATION OF MONEY BY BANK
banks balance sheet.The following points are to be of note Bank lending increases the quantity of money in circulation.
about the balance sheet of a bank. In other words, it increases the total purchasing power. This
a. The balance sheet must balance, that is, the bank’s assets is because the bank credits the amount borrowed thereby
must balance with its liabilities. It acquires assets by creating new bank deposits. The total purchasing power
increasing its liabilities. increases by the amount loaned out. This is why it is said
b. The assets on the balance sheet are arrange in order of that bank lending creates money. They do this by accepting
liquidity; that is to say, they are arranged according to deposits out as loans and overdrafts to borrower, after
their ease of convertibility to money. deducting cash or reserve ratio.Cash ratio is the percentage
This facility enables the bank to meet the need of its of all deposit liabilities which the bank must keep in order
customers for cash and to make profits in order to pay to strengthen their financial position in times of financial
dividends to its shareholders. crises.The law requires all banks to maintain cash or reserve
ratio.
PROBLEMS OF COMMERCIAL BANKS IN WEST It is calculated as
AFRICA Total deposit
Total money created = Cash reserve ratio
(1) High incidence of bad debts (i.e. non repayment of
loans): Sometimes loans are given without collateral
security due to social pressures from friends, relatives,
and influential persons. Recently, many banks in Nigeria Assumptions in the creation of money by banks
have become insolvent because the management gives Name of Amount Amount Amount lent
out huge loans which cannot be recovered. bank deposited kept out (₦)
(2) Excessive control by the central bank or by the (₦) (₦)
government: Excessive liquidity squeeze through the use A 100 50 50
of instruments of monetary policy makes it difficult for B 50 25 25
banks to meet the demand of their customers for loans C 25 12.5 12.5
and advances. D 12.5 6.25 6.25
(3) Inadequate collateral securities: Some borrowers do not E 6.6 3.125 3.125
have the collateral security required by banks for lending
F 3.125 1.563 1.563
money to them. This limits lending by commercial banks
to many prospective customers. G 1.563 0.782 0.782
(4) Inadequate deposits and capital shortage that limit H 0.782 0.391 0.391
expansion: The level of income in West Africa is Others 0.78 0.39 0.39
generally low. This makes it difficult for banks to attract Total 200.00 100.00 100.00
adequate deposits. Also, the amount of share – capital
which can be raised is limited because of the poorly There is a definite relationship between the intial deposit,
developed capital market and low income. the cash-deposit ratio, and the amount of money created.
(5) Inadequate skilled personnel: Highly qualified
management and other staff are often inadequate This relationship is given by the formula:
especially in indigenous banks and microfinance banks 1
Amount created = Initial deposit x cash−deposit ratio
due to shortage of funds to pay for their services.
(6) Limited use of cheques and other instruments of money
transfer: Many people still prefer to carry cash instead of For example, initial deposit was ₦5,000.00 and the cash-
cheques and other monetary instruments thereby limiting deposit ratio was 20 percent, the amount created could be
the importance of banks in commerce and industry. obtained by applying the formula and substituting figures.
(7) Corruption and high incidence of bank frauds: There Thus
are many reported cases of bank frauds by customers and 1

corrupt bank officials who steal customer’s money and Amount created = ₦5000 × 100
20

siphon funds from the banks by forgery and collusion. 1

(8) Concentration of banks in urban centres to the neglect = ₦5000 × 1
5
of many rural areas: It is not easy to mobilize savings 5
from the rural population. Banking operations are often = ₦5000 × 1
not close to the needs of the ordinary man.
= ₦25000.00
(9) Interference of politics with business decisions: Some
government power has influenced appointment to the
Board of Directors. Government interest may therefore
be projected in business decisions.

510
Example CB 1 4. Excessive reserve: Where the banks decide to make a
Given that the cash reserve ratio is 10% as fixed by the reserve in excess of the legal requirements, they will
Central Bank of Nigeria (CBN), what is the maximum have less money to give out as loans and overdrafts.
amount of money that the banking system can create from This will affect money creation adversely.
an initial cash deposit of ₦1,000? 5. Availability of cash: Sometimes the bank will be cash
Solution trapped to the extent that they cannot give loans and
The total credit/money that can be created in the banking overdrafts. Money cannot be created under such
system from initial deposit of ₦1,000 can be set out as conditions.
follows: 6. Banker interest rate: Acceptancy of loans and
Position of banks Initial Amount kept Amount overdraft is a function of interest rate as interest is the
deposit as legal lent out price of capital. Therefore, the higher the interest rate,
reserve (90%) the more unwilling will be borrowers be to borrow
(10%) money from the banking system. This will also affect
1st Generation banks 1,000.00 100.00 900.00 money creation by banks.
2ndGeneration banks 900.00 90.00 810.00
7. Government’s/central bank’s policy: This could be
3rd Generation banks 810.00 81.00 729.00
4th Generation banks 729.00 72.90 656.10 achieved through either expansion or contractionary
5th Generation banks 656.00 65.61 590.49 monetary and fiscal policies. In whichever, the ability
6th Generation banks 590.00 59.05 531.44 of banks to create money will be affected either
7th Generation banks 531.00 53.14 478.30 positively or negatively.
8th Generation banks 478.00 47.83 430.47 8. Unwillingness of the banks and customers to give and
9th Generation banks 430.00 43.05 387.42 accept advances.
All other banks 3,874.00 387.42 3,486.78
Total 10,000.00 1,000.00 9,000.00 DIFFERENCES BETWEEN A CENTRAL BANK AND
A COMMERCIAL BANK
From the computation above, it could be seen that (1) The central bank is usually a government owned bank
₦10,000.00 was created within the banking system out of while the commercial banks are public companies joint
the initial deposit of ₦1,000.00. This means that the initial stock banks) owned by individuals and institutions or
deposit increased by a coefficient of 10% i.e., it multiplie joint – partnership with the government.
itself 10 times and this equals the cash reserve ratio of 10%. (2) The central bank being a government – owned
enterprise is responsible to the government while the
The process of calculating total credit created by banks commercial banks are responsible to the shareholders
using the above procedure is rather very lengthy who own them.
andcumbersome. However, this can be scaled-down using (3) Central bank operations are not primarily based on the
the formula below: profit motive, while the commercial banks operates in
Total Deposit
Total money created = Cash reserve ratio order to maximize profits.
1,000 1,000
(4) The central bank deals mainly with the government
= 10/100 = 0.1
and other financial institutions while commercial
= ₦10,000 banks deals predominantly with private customers.
Therefore, total credit = ₦10,000. (5) The central bank helps to formulate government
monetary policy which will help to create monetary
stability in the country while the commercial banks do
not formulate government policy.
LIMITATIONS/FACTORS AFFECTING THE ABILITY OF (6) The central bank issues currency while commercial
BANKS TO CREATE MONEY/CREDIT banks do not.
1. Cash reserve ratio:The higher the cash reserve, the (7) The central bank regulates foreign exchange
lower the ability of banks to create money. transactions, maintains external reserves and does
2. Cash drain: This occurs where there is a mass external business directly but commercial banks do not
withdrawal of cash from the banking system by so directly.
depositors. The higher the cash drain, the lesser will be
the cash available for the bank to give out as loan and 1978/8 UTME
overdraft. This will have an adverse effect on the A commercial bank is unique in that it is the only institution that
ability of banks to create money. A. makes loans available to private people and business men
3. Liquidity preference (LP): This arises where B. accept deposits
depositors prefer to have their money in cash form C. can store people valuables
(liquid assets), rather than depositing such money with D. can transfer money from one place to another for its customers
banks. This will also reduce the money in the banking E. saves money through the granting of credits
system, thereby having adverse effect on the ability of Answer
banks to create money. B – accept deposits
511
1980/44 UTME FUNCTIONS OF MERCHANT BANKS
Which of the following is NOT a function of Nigeria (1) Accepting deposit: They accept the types of deposit
commercial banks highlighted under commercial bank except savings and
A. acceptance of deposits current account. They provide other cheque accounts
B. lending of money to customers and the minimum initial deposits are
C. investment in securities and businesses usually higher than those of commercial bank. They
D. issues of currency also do not accept deposit from individuals.
E. selling and buying of travelerscheque (2) Corporate financing: They give medium and long
Answer: D – Issue of currency. term credits to corporate bodies as well as to the
government in the form of loans and overdrafts.
2011/2012/28 (UNIZIK, AWKA) (3) Useful advice: They render management and
A commercial bank is able to create money consultant services whenever the need arises.
A. by printing it B. by maintaining reserves (4) Issuing houses: They serve as issuing house to
C. by creating a demand deposit as it gives a new loan customers. They help organizations to advertise, sell
D. by using cheques to deposits and receive money from the sale of their shares,
E. by borrowing from the central bank stocks, bonds, debentures and other securities.
Answer (5) Accepting and discounting bills of exchange: Bills of
By creating a demand deposit as it gives a new loan (C) exchange are means by which payments are made in
the course of international trade. Merchant banks
2005/31 Nov Exercise 19.3 accept and also discount these, thus making
The following are all functions of commercial banks except international easier.
A. accepting deposits B. printing of currency (6) Equipment leasing and hiring services: Merchant
C. lending D. agents of payment banks provide expensive equipment such as industrial
machine, plant, etc. for hiring by organizations that
2018/2019/41 (UNIZIK, AWKA) cannot afford the cost of such assets.
Which of the following assets of a commercial bank does (7) Underwriting of securities: In case where the shares,
not yield revenue? stocks and debentures of companies are under –
A. money in the tills of the bank B. money at call subscribed, it is the function of the merchant bank to
C. treasury certificate D. treasury bills underwrite or arrange for the underwriting , we mean
Answer money in the tills of the bank (A) guaranteeing the payment of the securities of
companies not bought by the public, pending when
2008/2009/14 (NDU, BAYELSA) such securities will be subscribed for. They also
Which of the following is the most liquid asset to a underwrite forms.
commercial bank? (8) Carrying out feasibility studies: A feasibility study is
A. money at call and short notice B. treasury bills an examination of a proposed project in its technical
C. commercial bills D. stocks and shares E. cash and economic details, to determine the prospects of its
Answer Cash (E) commercial viability. Feasibility studies are often
required by lenders and prospective partners before
2008/23 UTME Exercise 19.4 any commitment is made. Merchant banks are experts
The commercial banks differ from non-bank financial in the preparation of such feasibility studies for their
institutions because they customers.
A. accept deposits withdrawable by cheque
B. mobilize savings
C. invest surplus funds 1988/35 UTME
D. contribute to economic development Merchant banks perform all the following function except
A. raising of capital for industry
MERCHANT BANK B. provision of current account facilities
A merchant/investment bank is a financial institution that C. management of investment portfolios
carries out ordinary wholesale banking services with the D. provision of credit for oversea trade
view to making profit. They operate in capital market. Answer B – Provision of current account facilities.
Merchant bankers undertake specialized banking services
such as acceptance and discounting of bills of exchange 2003/34 Nov Exercise 19.5
(under this function they are known as acceptance and Which of the following is a function of merchant banks?
issuing houses), portfolio/investment management, A. acting as banker’s bank
corporate finance, equipment leasing etc. B. lending to the commercial banks as a last resort
The main function of merchant banks is to provide medium C. controlling inflation in the economy
and long term funds to customers. D. underwriting and issuing of shares

512
2009/2010/22 (UNIZIK, AWKA) 2000/41
Which of the following is a function of merchant banks? Which of the following banks grant credit facilities to
A. minting of coins B. preparation of government budget individual wishing to build houses?
C. keeping watch on external reserves of the country A. Central Bank of Nigeria B. Nigerian Industrial
D. acting as acceptance houses Development Bank C. Agricultural Credit Bank
Answer D. Federal Mortgage Bank
Acting as acceptance houses (D) Answer
Federal Mortgage bank (D)
MORTGAGE BANK
A mortgage bank is a financial institution whose primary
objective is to provide medium and long–term loan to the
public for the purchase or building of houses. Hence it is, at THE DEVELOPMENT BANK
times, referred to as building society or Housing A development bank is a financial institution whose
Corporation.During the period of repayment of the loan, the primary objective is to provide medium and long – term
bank usually keeps the certificate of ownership or title of credit facilities necessary for rapid economic development.
deed to the house to serve as a security They are established by the government or as an
In the past, the establishment and control of mortgage bank international organization. Examples are international Bank
was the exclusive right of the government. This led to the for Reconstruction and Development (IBRD) which is also
establishment of the federal Mortgage Bank of Nigeria known as World Bank, African Development Bank (ADB),
(FMBN) in 1977. Factually, it acquired the assets and Bank for Industry and Agricultural Development Bank
liabilities of the Nigerian Building Society (NBS) set up in (ADB), Nigeria Bank for Commerce and Industry (NBCI)
1956. Mortgage banks perform primarily the functions of (1973), Nigerian Industrial Development Bank (NIDB)
building societies and they operate in the capital market. (1964), the Nigerian Agricultural and Cooperative Bank
(1973). The aim is to promote economic development.
FUNCTIONS OF MORTGAGE BANKS
1. Provision of long-term housing loans: They make FUNCTIONS OF DEVELOPMENT BANKS
loans to people and organisations who wish to buld (1) They foster the development of the capital market.
their own houses. (2) They supervise the implementation of projects
2. Acceptance of money deposits: They accept deposits financed by them.
from people and organisations, especially those who (3) Provision of technical support necessary for the
wish to save part of the money required for setting up execution of development projects.
their own houses. (4) Assisting the government and organizations to prepare
3. Encouragement of the growth of industries which a detailed feasibility report on a given project.
produce building materials: By encouraging the seting (5) Provision of medium and long – term funds for the
up of houses by individuals and organisations, there is a development of the economy.
higher demand for bulding materials, this inturn (6) Advising the government on issues concerning
encourages the industries’ output. development.
4. Provision of advice: They advise investors (those
wishing to set up their own houses) on how to invest DIFFERENCES BETWEEN DEVELOPMENT BANK
meaningfully – how to raise capital, how to cut down AND COMMERCIAL BANK
costs, etc. 1. Development banks are usually government-owned
5. Execution of government housing policies: They assist while commercial banks are usually owned by
the government in its policies relating to the provision shareholders. The government may be a shareholder.
of houses e.g. The Federal Housing Scheme for Civil 2. Development banks provide long-term loans while
Servants and Federal Low Cost Housing Projects etc. commercial banks provide mainly short-term loans.
3. Developmentbanks usually provide finance for
2009/37 investors in specific sectors while commercial banks
Which of the following is specialized in lending money for service many sectors.
the purpose of developing real estate? 4. Development banks do not deal in foreign exchange
A. merchant banks B. mortgage banks while commercial banks do.
C. discount houses D. commercial banks 5. Development banks do not perform the role of trustees
Answer: Mortgage banks (B) and executors while commercial banks perform these
functions.
2018/4 UTME 6. Development banks do not keep customers’ valuables
Mortgage banks give loans to investors on a long term basis to such as expensigve jewellery, etc while commercial
A. finance agriculture B. establish banks banks perform these functions.
C. acquire machinery D. build houses
Answer: D – Build houses.
513
2019/3 UTME 2. Failure on the part of Monetary Authorities:
The Nigerian Bank for commerce and industry is Monetary authorities such as CBN and NDIC play a
A. a commercial bank B. a development bank supervisory role to banks. Their failure to detect
C. an industrial bank D. a merchant financial crisis at the teething stage has not in any way
Answer helped matters. Therefore, they cannot completely
B – A development bank. absorb themselves of not contributing to bank failure.
They need to increase their supervision and tighten
1991/30 UTME controls over Commercial and Merchant banks.
One functions of development banks is to 3. Excessive overhead expenses: From all indications, the
A. mint money for the development of the economy banks were in too much hurry to increase their levels of
B. provide short-term loans to commercial banks activities without sufficient cash backing. For example, the
C. provide medium and long term finance for development number of branches, workers coupled with huge salary
increased overnight. The banks were left with no option than
of the banking system
to fall back on customers’ deposit.
D. provide medium and long term finance for the 4. Poor Employment Policy: The problem of unemployment in
development of the economy the country has led to the deregulation of employment in the
Answer country has led to the deregulation of employment in the
D – Provide medium and long-term finance for the banking sector so as to give equal opportunity to people in
development of the economy. non-banking related disciplines. Banking workers are highly
made up of Engineers, Doctors, Geographers etc. who can
pass aptitutde test in banks and those who cannot pass the test
so as to go through the back – door. The huge salaries paid
by banks has made the industry very attractive. Employment
is given to people who have no integrity and professional
BANKS LIQUIDATION
license in banking fraud and robbery with the internal control
The growing corporate failure among banks is a serious being most affected.
concern and an unhealthy development to the financial 5. Reckless Credit Facilities: It is common these days for banks
sector in particular and the economy in general. In the to give loans and overdrafts on sympathy and loyalty ground
recent past, many banks have been found to be illiquid. A in defiance of sound financial practice. The resultant effect of
bank is said to be illiquid where it can no longer meet its this is increased in bad debt.
cash obligations when due. This has given rise to the 6. Maladministration: The management structure of most
collapse of many banks with customers’ money trapped in banks resolves around few dominant persons who can only
the affected banks. work with other passive key management staff. In such
situation, banking practice is highly personalized and
misappropriation of fund becomes very prominent.
The CBN has through the Nigeria Deposit Insurance
7. Poor corporate Governance: The management of banks is
Corporation (NDIC), liquidated such banks like Allied vested into the hands of directors who may only be interested
Bank and other Merchant banks. This development made in their own personal gain. In some cases, one man acts as
the customers to become skeptical of keeping their money both chairman and managing director. The idea of corporate
in the bank. The CBN failed to take early step to avert such governance is to ensure that the directors are well catered for
ugly situation. The NDIC itself could not help matters with so that they can fully apply their skill and knowledge
the so-called ₦50,000, ₦100,000 maximum refund to diligently and honestly as it is expected of one acting in their
customers, even where a customer has deposited millions of own capacity and solely for the benefit of the organisation.
naira in the bank. It is instructive to note that it is the
customers who actually suffer anytime there is eminent
crisis in the banking sector. So, both the CBN and NDIC B. NON–BANK OR NON – BANKING FINANCIAL
need to quickly detect whenever any bank is having INSTITUTION
financial problem. This could be done by redefining the This includes:
corporate governance of banks especially for the Twenty – i. Insurance Companies
five banks (25) banks that survived the December 2004 ii. Finance Houses
merger and acquisition, which resulted from the ₦25 billion iii. Issuing Houses
minimum capital base for banks. iv. Discount Houses
v. Acceptance Houses
CAUSES OF CORPORATE FAILURE OF BANKS
1. Economic and Political Inability: Adverse economic
and political climate lead to cash trap and mass
withdrawal of cash from the banking system by
customers. These create serious financial crisis in
banks, especially where there is no compensatory cash
inflow.

514
INSURANCE COMPANY 3. Mobilizing savings: Life assurance policy encourages the
Insurance companies are financial institutions that public to save a huge sum of money through meagre and
guarantee the insured against risk of loss or harm. A gradual contribution. And such savings are used to set up
premium is the amount of money paid or agreed to be paid firms and they are at times, given out as loans to eligible
borrowers.
for a control of insurance. Insurance companies are
4. Financing important projects: Insurance companies use the
financial institutions which deal in insurance. money (premium) collected from the public to finance
important projects, or to set up subsidiaries or linked
Insurance can be defined as a control between an insurer companies. This fosters economic growth and development,
and an insured, under which an insurer promises to i.e. it raises level of economic activities.
indemnify (compensate) the insured against loss which he 5. Fosters trade: It encourages traders especially importers to
may suffer in future upon the payment of a premium. It is a fully participate in international trade as it insures against risk
provision made by an individual or an enterprise against the involved in transporting cargoes across the ocean or over a
occurrence of some future loss. There are certain risks long distance. This undoubtedly raises the volume of world
which can be insured against. These include the risks of trade.
6. Protects the family: Life assurance policy gives protection to
fire, burglary or theft, accident, loss of goods in transit,
the other members of the family on event of incidental
untimely death and bodily injury to factor workers. (untimely) death of the insured who is probably the head of
the family. It reduces the incidence of the orphans begging on
FUNCTIONS OF INSURANCE COMPANY the streets as they have access to a huge sum of money, the
1. Bearing of risks: They accept or bear risks that abound sum assured. And they are therefore properly trained in the
in life, such as motor car accident, theft, marine, etc. absence of the head of the family.
And they pay compensation to clients who suffer any
loss. ROLE OF INSURANCE COMPANIES IN ECONOMIC
2. Canvassing for business: ICs recruit and train DEVELOPMENT
insurance agents to canvass for insurance business. The 1. Safeguards property and business: It protects property and
businesses against losses arising from fire, burglary and
agents move from one office or house to another
natural disasters. This facilitates economic growth.
persuading the public (people) to buy insurance 2. Reduction of risks: They reduce risks and eliminate losses by
policies, i.e., to insure their lives and properties. adequately compensating their clients who suffered losses. It
3. Lending: They grant both short and medium-term loans ensures business’s continuity.
to invetors – members of the public. They buy shares 3. Encourages investment: They raise level of investment by
and stocks in limited liability companies. They also buy granting short and medium term loans to all eligible
treasury bills and government stocks. borrowers for setting up firms. This enhances economic
4. Investment: Many insurance companies divert to other growth.
areas of business. Some set up subsidiary companies 4. Insurance policy serves as collateral security: Insurance
that invest on building and real estate. While others policy certificates are accepted as collateral security against
loans. They enable people to obtain loans from banks for
establish farms, clinics, publishing companies, training
investment purpose. This raises level of economic activity.
schools, social outlets like restaurants, multipurpose 5. Motivates workers: Group life assurance policy adequately
centres, etc. compensates workers in the event of sustenance of losses in a
5. Advisory services: They render financial advice to their place of work. This motivates them towards greater
clients and other members of the public. They act as achievement. It raises productivity.
financial consultants who proffer solutions to present 6. Safeguards export industry: It protects importers and
and future financial problems of members of the public exporters against losses arising from marine hazard. They are
free of charge and at the door steps of their neighbours. adequately compensated for any loss they sustain. This leads
6. Organizing seminars: They often hold conventions and to a rise in output of goods.
seminars in which they unfold and discount problems 7. Provision of employment opportunities: It provides
employment to a large number of people. They create
confronting insurance company and proffer (find)
demand for goods and services and this raises output of
solutions. goods and services.

2019/37
IMPORTANCE OF INSURANCE COMPANY
Insurance companies are similar to commercial banks in
1. Encourages venture: Insurance reduces the amount of risks
that insured (people who insure their property) normally bear. that they
It encourages people to undertake risky business ventures, A. compensate their customers for losses
which otherwise should have been rarely undertaken. And B. acts as lender of last resort
this therefore raises the level of economic activities. C. help in maintaining monetary stability in a nation
2. Lower prices: As you are aware, the higher the output and D. help in mobilizing savings for investment
supply, the lower the price. As insurance encourages people Answer help in mobilizing savings for investment (D)
to undertake more and risky ventures, there is always a rise in
the level of economic activities. And this brings about
moderate or low prices.
515
2003/20 UTME ACCEPTANCE HOUSES
Insurance companies, pension and provident funds and unit It derived its name from the role it plays in the monetary
trusts are all examples of system. Acceptance houses specialize in the acceptance of
A. government financial agencies bills of exchange (trade bills) especially those drawn on
B. non-governmental organizations foreign merchants. In other words, acceptance houses are
C. non-bank financial institutions financial houses that are mainly concerned with the
D. rural based revenue mobilizers acceptance of trade bills. They guarantee the payment of the
Answer sum of money specified on a bill accepted by them. For this
C – Non-bank financial institutions. services, they are paid a commission.
Nowadays, the functions or activities of Acceptance Houses
FINANCE HOUSES have been fully taken over by banks, especially Merchant
Finance companies are privately owned investment houses banks. Hence, merchant banks are often referred to as
that specialize in providing financial assistance to ‘Acceptance Houses’.
businesses that have the intention of sourcing funds. They
are strictly profit oriented financial institutions.
THE STOCK EXCHANGE
At the early stage, the few finance houses in the country The stock exchange is an organized capital market which
were making abnormal profit. This led to the profileration provides facilities for the buying and selling of securities,
of finance companies in the country. Many of them could such as shares, stocks, debentures and governments bonds.
no longer recover their average cost of operation. The It can be seen that stock exchange market provides a facility
industry being a free entry and exit one, caused a free-fall for companies, government and institutions wishing to raise
for almost all the finance houses in the country. This is new or additional fund to finance their business activities.
largely to the huge up-front interest payment to customers
and the use of short-term funds to finance long-term The Nigerian Stock Exchange (formerly, the Lagos Stock
projects, coupled with bad management. Exchange)was incorporated in 1960, as a company limited
by guarantee, with its head office in Lagos and branches in
ISSUING HOUSES Abuja, Kaduna, Port–Harcourt, Kano, Onitsha, Ibadan,
These are financial institutions that underwrite/bear the risk Benin, Yola, each providing a trading floor. The owners
of the issue of shares and stocks in a new company (limited (shareholders) of the Nigerian Stock Exchange are financial
liability Company). After all formalities must have been firms and institution. In exceptional cases, individuals with
completed by floaters or sponsors of a new company, they integrity and experience in finance and business are also
appeal to the public to subscribe for shares in the new accepted as shareholders of the NSE.
company. The responsibilities of selling the new share and
stocks to the public is undertaken by a firm-a financial The regulatory body for the securities market in Nigeria is
institution called issuing house. They acquire the entire or a the Securities and Exchange Commission (SEC) established
large portion of the shares from the new company and offer by the Securities and Exchange Commission Act 1979.
them for sales to the public on agreed commission.
Nowadays, however, many financial institutions, especially
merchants and commercial banks acts as issuing houses. Dealers in the Stock Exchange
On the Stock Exchange there exist two main dealers
DISCOUNT HOUSES 1. Stock brokers: The brokers deal directly with the
A discount house is a financial institution whose business is public. They act as their agents who buy and sell
to buy accepted bills of exchange and other promissory securities on their behalf and offer them advice. They
notes from their owners at less than their face values, these charge them commission, which is termed “brokerage”
being held until they are due for payment, or sold off again. for their functions.
Discount houses can borrow from the central bank as a 2. Jobber: The jobber is the main dealer at the stock
lender of last resort. In Nigeria, their functions are also exchange. He does not deal directly with the public but
performed by the banking institutions. with brokers. The broker requests the jobber for his
1992/33 UTME price for a particular security. He quotes two prices, a
Which of the following is not directly concerned with lower price for buying and a higher price for selling.
dealings in treasury bills? His profit is known as ”the margin” or “Jobbers turn”
A. the stock exchange B. the central bank i.e. the difference between his selling and buying price.
C. commercial banks D. discount houses
Answer A – discount houses

516
 FUNCTIONS OF THE STOCK EXCHANGE The stock exchange is divided into two categories namely:
1. The Stock Exchange provides a market for the buying (1) Primary market: The primary market is also called
and selling of long-term financial securities: A company issues market or fist tier securities market. This is a
may want to sell shares. This could be arranged by the market where companies, institutions and governments
Stock Exchange. People may also want to buy or sell raise funds by offering their securities into cash to the
stocks and shares. The Stock Exchange makes this public. It is also a market for new securities such as
possible. initial public offer (IPO).
2. The Stock Exchange offers investment opportunities to (2) Secondary market: The secondary market is the
those with a small capital base: They advertise the prices market for the sale of outstanding or old securities. It
of securities thereby enabling the members of the public to is a conversion market where investors can convert
invest their idle funds. Those with a small amount of
their securities into cash or buy more securities for
capital could purchase shares from firms according to the
investment purposes. The market is also called second
amount of money they have. Left alone, the small investor
may not be able to establish a firm since the establishment – tier securities market.
of most firms requires huge amounts of capital. He could
be a co-owner of a business by purchasing some amount 2022/24 NABTEB
of the shares issued. A market for obtaining existing securities such as stocks
3. The Stock Exchange helps in raising capital for and shares is called
development: This is done by bringing together the funds A. stock exchange B. foreign market
of a large number of investors (in securities) and making C. domestic market D. capital market
them available to firms and the government that desire to Answer
use them. It therefore helps to find firms in which new Stock exchange (A)
investors can invest their money and at the same time
provides capital to firms and governments for investment 1997/30 Nov
purpose. The market where securities such as shares and debentures are
4. They help to stabilize prices of securities: The jobber sold is known as
holds stocks of securities. This makes the flow of capital A. commodity market B. money market C. merchant bank
more even and reduces wide flunctuations in the prices of D. stock exchange E. open market
shares. Answer: Stock exchange (D)
5. It provides employment opportunities to workers in the
Stock Exchange especially brokers and jobbers: They 2019/43 NABTEB
earn their living through the profits they make in their The stock exchange is a market for the buying and selling of
dealing in the Stock Exchange market. Jobbers are the A. monetary instruments B. shares
main dealers, while brokers act as the middlemen between C. treasuring certificates D. treasury bills
the jobbers and those wishing to buy or sell securities. Answer: Shares (B)
6. The Stock Exchange helps in raising the administrative 2001/45 Neco
efficiency of companies: This is achieved by allowing the An organized market for the buying and selling of secondary
quotation only of companies with a comparatively high stocks and shares
degree for efficiency in business and management. Firms, A. commodity market B. foreign exchange market
therefore, try to perform as efficiency as possible so as to C. money market D. organized market
have their securities quoted. E. stock exchange market
7. The Stock Exchange helps existing investors to sell or Answer: Stock exchange market (E)
transfer their shares to other people who wish to buy
them: This encourages people to make investment since 2001/46 Neco
they know that it would not be difficult to dispose of their One group of authorized dealers in the stock exchange market
shares through the Stock Exchange whenever they wish to is known as
do so. A. brokers B. dealers C. investors D. salesman
8. It protects investors who have acquired shares of E. speculators
‘quoted’ companies against possible fraudulent practices Answer: Brokers (A)
of unscrupulous firms: This is done by constantly
monitoring the economic performance of the various firms 2011/44 Neco Exercise 19.6
whose shares are quoted on the Stock Exchange with a An organized market for the buying and selling of secondary
view to preventing them from defrauding the shareholders. stocks and shares is called ____ market
The investor is also repaid out of the Stock Exchange A. capital B. commodity C. labour D. money
Compensation Fund, if any member defaults. E. stock exchange
9. Facilitating transferability of shares: People find it easy 1997/36 UTME Exercise 19.7
to dispose of their securities when they wish thereby Stocks and shares as well as bonds are examples of
encouraging investment. instruments used in the
A. commodity markets B. money markets
C. capital markets D. security market
517
2008/22 UTME mature after five years both medium and long term securities are
Securities are described as listed when they are traded on the capital market.
A. bought and sold purely for development purposes
B. mobilized as short term debt instruments FUNCTIONS OF SECURITIES AND EXCHANGE
C. mobilized as long term debts instruments COMMISSION (SEC)
D. traded on a recognized stock market Securities and Exchange Commission is the apex regulatory body for
Answer: D – Traded on a recognized stock market. Nigeria’s capital market under the supervision of the Federal Ministry
of Finance. The general function of SEC is to oversee, regulate,
2008/2009/25 (NDU, BAYELSA) monitor and control the activities of the capital market which includes
A stock exchange is a market that the Stock Exchange Market, Insurance Companies, the Development
A. deals with exchange of commodities Banks and Merchant banks. It regulates the capital market by ensuring
B. deals with the purchase and sales of security that processes are transparent, transaction rules are complied with and
that investors are protected. SEC performs the following specific
C. exchange treasury bills for bills of exchange
functions.
D. sells foreign exchange
1. Regulation of price and quantity of securities issued: SEC
E. exchange goods and services determines the price at which securities are traded and regulates
Answer: Deals with purchase and sales of security (B) the quantity of securities traded to ensure that there are not
shortage or congestion in the market.
SOME TERMS EXPLAINED 2. Determination of Allotment of Securities: SEC determines the
Stockbrokers: Are the intermediaries between buyers and sellers. basis on which securities are allotted to the members of the public
They are the only people who are officially authorized to buy or to ensure widespread and prevent concentration of the securities in
sell shares on the market. This market is the floor of the Stock few hands.
Exchange. It is the place where the trading proper is carried out. 3. Determination of Opertors in the Capital Market: SEC
The stockbrokers buy and sell shares for a commission, which is scrutinizes parties that apply to operate in the capital market and
known as the ‘brokerage fee’. issues licenses to those found suitable. Such operators include
Private placement: is taking the investment position in a private stockbrokers, registrars, trustees solicitors and investment
company as opposed to investing in a public company. Since it is a advisers.
private company, there is less regulatory control on it. In most 4. Approval of Business Combinations: Various forms of business
cases, those who invest in private placement are invited to do so by combinations such as mergers, takeovers and acquisition of firms
the company concerned. It is a profitable venture as some of the are examined by SEC and given approval if satisfied with the
world’s known investors made their money through investing in conditions for the combination.
private placement. 5. Adjudication on Transaction Disputes: SEC receives and treats
A Bull Market: refers to a market that is on the rise, that is, when complaints from capital market operators and investors. When
parties are aggrieved over market transactions and are not able to
the market is showing confidence. As such times, prices of stocks
get fair treatment elsewhere, they take their case to SEC for
keep going up. Market indicators like the All Share Index (ASI),
settlement.
number of shares traded and even the number of companies as
6. Registration of securities: SEC scrutinizes and registers securities
quoted on the Stock Market, are all on the upsurging. If an investor that are to be issued to the investing public. A party intending an
is optimistic, believing that stock prices will go up, he is called a issue of such securities like shares, debentures, government bonds
‘bull’ and said to have a bullish outlook. must apply to SEC for approval.
A Bear Market till the end: operates when the economy is bad,
recession is looming and stock prices are continuously THE NIGERIAN DEPOSIT INSURANCE CORPORATION
declining/falling. Bear markets make it tough for investors to pick (NDIC)
profitable stocks. If an investor is pessimistic, believing that stock The Nigerian Deposit Insurance Corporation was established to ensure
market prices are going to fall, he is called ‘a bear’ and said to have bank deposits. It has the powers to examine the records of insured
a bearish outlook. banks and control the activities of these banks thereby protecting
depositors’ interests. It performs the following functions:
CLASSIFICATION OF SECURITIES 1. Insurance Cover: NDIC provides insurance cover for all
Securities are financial instrument used for raising funds such as commercial banks, merchant banks and other deposit-taking
shares, debentures, treasury bills etc. securities are classified financial institutions against bank depression.
according to their times of maturity. These are: 2. Regulation and control of banks: NDIC regulates and controls
(1) Short term securities: This is a money market financial the activities of the banks that are covered by the insurance
instrument that matures within few days or within one year. corporation by conducting periodic examinations of the records
Examples are treasury certificate, Treasury bill, commercial papers, and affairs of these banks.
3. Provision of Advisory Services: NDIC provides advisory
negotiable certificate of deposit (CDS), Banker’s acceptance and
services to the banks in order to ensure that the banks remain
other short term deposits that mature within one year. Short–term
solvent thereby preventing bank failure and eventual loss of
securities are money market financial instrument.
depositors.
(2) Medium and long term securities: These include loans, 4. Compensation of Depositors: In the event of their solvency of
stocks, treasury certificate, debentures, shares, etc. which mature the banks, NDIC takes up the responsibility of compensation to
after one year. Medium term securities are securities that mature depositors by paying them any maximum fixe amount irrespective
between one and five years. Long term securities are securities that of the amount that the depositors had in the liquidated bank.

518
FINANCIAL MARKET IMPORTANCE/USES/FUNCTION OF THE MONEY
A financial market is a market that deals in money and MARKET
other financial instrument. That is, it is a market where (1) Provision of short term capital to investors in both the
money can be borrowed or lent. The main function of the private and public sectors.
market is to pool fund from savers to borrowers. The (2) Provision of investments, technical and managerial
operators of financial markets makes profits by borrowing advice.
money at a low rate of interest and lending the money to (3) Provision of short – term investment opportunities
borrowers at a higher rate of interest. The institutions that from which income may be earned.
operate in the market are known as financial institutions (4) Mobilization of savings for investment.
(5) Provision of opportunity for the public to participate in
TYPES OF FINANCIAL MARKETS the management of the economy.
Financial markets can be classified into two broad
categories. 2016/2UTME
(I) MONEY MARKET (II) CAPITAL MARKET The money market provide business firms with the avenue to
A. purchase goods and services
B. purchase capital equipment
THE MONEY MARKETS
C. obtain short term funds D. obtain long-term funds
The money market is a financial market made up of
institutions which provide short term finance for Answer
C – Obtain short-term funds.
investment. They bring short term borrowers and lenders
together. They provide loans to borrowers for periods from
a few months to one year. CAPITAL MARKET
The capital market is made up of financial institutions
Financial institutions that operate in the money market
which deal in long – term financing. The capital market
include:
provides medium and long term loans for investment. They
(1) Commercial banks or Joint stock bank.
also bring long term lenders and borrowers together. The
(2) Merchant bank or acceptance houses.
securities traded in the capital market mature after one year.
(3) Discount houses.
(4) Hire – purchase companies.
Financial institutions that operate in the capital market
(5) The Foreign Exchange Market
include:
(6) Finance companies.
(1) Insurance companies.
(7) The Central bank.
(2) Issuing houses.
NB: The money market is within the direct control and
(3) Development banks.
supervision of the Central Bank.
(4) Investment banks.
(5) Investment trusts.
(6) Building societies or mortgage banks.
FINANCIAL INSTRUMENTS USED IN THE MONEY
(7) Finance corporation.
MARKET
(8) Savings banks.
(1) Treasury bills: These are short term government
(9) The stock exchange
securities used for borrowing money in the open
(10) The Central Bank
market. They mature after 91 days.
(2) Bill of exchange: This is a bill drawn up by the seller NB: The capital market is under the control and
asking the buyer to pay a sum of money at a specified supervision of the Securities and Exchange Commission
time. It matures after 90 days. (SEC).Financial instrument used in the capital market to
(3) Commercial papers: These are bills of exchange finance long term investments are stocks and shares,
issued by companies and financial institutions which company bonds and government bonds. The capital market
do not require acceptance. can be divided into the primary and the secondary market.
(4) Banker acceptance: These are bills of exchange which
do not involve a supplier – customer relationship, but FINANCIAL INSTRUMENTS USED IN THE CAPITAL
can be used by anyone wishing to borrow money from MARKET
the money market. (1) Shares: These are financial instruments utilized in the
(5) Negotiable Certificates of Deposits (Cds). capital market for long term investment, it is a portion
They all mature within one year and are redeemable within of limited liability company owned by an investor.
the period of maturity. (2) Bonds: This is long term financial security used to
source for funds. It may be issued by firms, financial
institutions or governments. Bonds issued by the
government are generally regarded as very safe.

519
(3) Debentures: These are secured loans raised by a REGULATORY INSTITUTION WITHIN THE
company usually with fixed interests and sometimes FINANCIAL SYSTEM
fixed redemption date. 1. Central Bank of Nigeria (CBN) – Money and Capital
(4) Treasury certificate: These are government financial Market.
securities which mature after a year. They are issued 2. Nigerian Stock Exchange (NSE) – Capital Market.
by the government through the central bank to either 3. Securities and Exchange Commission (SEC) – Capital
borrow or lend money in the capital market. Market.
(5) Gilt Edged: This is a fixed interest guaranteed 4. Nigerian Deposit Insurance Corporation (NDIC) –
government security. Money Market.

IMPORTANCE/FUNCTIONS OF THE CAPITAL 2023/39

MARKET Commercial banks help in economic development mainly
(1) Provision of long term investment opportunities from by
which income may be earned. A. acting as intermediaries between lenders and borrowers
(2) Provision of long term capital to investors both in the B. giving financial advice to the government
public and private sectors. C. acting as trustees and executors of wills
(3) Encourages the growth of merchant banking. D. serving as custodians of valuables
(4) Mobilization of savings for investment. Answer
(5) Provision of investment advice. Commercial banks help in economic development mainly
(6) Provision of opportunity for the public to participate in by acting as intermediaries between lenders and borrowers
running of the economy. (A)

2001/35 UTME 2020/39

The capital market is a market for trading of financial assets
Which of the following tools of monetary policy is not
such as backed by law?
A. bankers acceptance B. treasury bills A. special directives B. variable reserve requirements
C. long-term securities D. commercial papers C. moral suasion D. bank rate
Answer: B – long-term securities Answer Moral suasion (C)
Hint: Moral suasion does not aim at monetary benefits
2014/3 Neco only, but it is also used to bring economic stability to
The following are financial institutions that operate in a country. The only critism of moral suasion is that it
capital market except is not backed up by legal consequences or force of
A. insurance companies B. development banks law. Neither it is an official regulation where non –
C. the stock exchange market D. microfinance banks compliance results into punishments or penalties.
E. investment trust
Answer : Micro finance banks (D) 2020/40
In order to reduce money supply in an economy, the central
2009/30 UTME bank will
A manufacturer who wants to build a new plant will source A. buy securities B. sell securities
funds from the C. reduce the discount rate D. reduce the cash ratio
A. commercial banks B. money market Answer sell securities (B)
C. capital market D. government Hint: Central banks affect the quantity of money in
Answer C – Capital market. circulation by buying or selling government security
through the process known as open market operations
2012/43 UTME (OMO). When a central bank is looking to increase the
Long-term funds for investment projects are sourced from the quantity of money in circulation, it purchases government
A. money market B. commodity market securities from commercial banks and institutions.
C. foreign exchange market D. capital market Conversely, if they want to decrease the money supply, it
Answer D – Capital market. sells securities/bonds from its accounts, thustaking in cash
and removing money from the economic system.
2000/40 UTME Exercise 19.8
A capital market differs from the money market in that in
2008/39
the former
The central bank can restrict credit through
A. loan sought is long term
A. depreciation of assets B. granting overdraft
B. loan repayment is guaranteed
C. direct investment D. open market operation
C. loan sought is short term
Answer
D. the percentage of interest charged is more
Open market operation (D)

520
2008/40 1990/12 Nov
Creation of money by commercial banks is done by A capital market exists for the
A. increasing the cash ratio B. printing money A. provision of physical capital for firms to run their
C. lending to borrowers D. issuing cheques business B. sale of capital goods C. provision of
Answer long term loans and advances D. provision of short term
Lending to borrowers (C) loans and advances E. sale of treasury bills
Answer: Provision of long term loans and advances (C)
2006/34 Nov
Money market differs from capital market in that it 1990/18 Nov
A. deals with short term loans while capital market deals Which of the following is a function of a commercial bank?
with long term loans A. issuing of currencies B. accepting deposits
B. deals with money only while capital market deals with C. giving directives to other financial institutions
investments only D. selling shares to the public
C. is patronized by individuals while capital market is only E. selling import licenses to the public
for government agencies Answer
D. resells old securities while capital market sells only new Accepting deposits (B)
securities 1990/39 Nov
Answer The market where securities such as shares, debentures and
Deals with short term loans while capital market deals with government bonds are sold is known as the
long term loans (A) A. commodity market B. money market C. central bank
D. discount house E. stock exchange
2006/38 Exercise 19.9
Answer
Which of these is solely the function of the central bank?
Stock exchange (E)
A. accepting the customer’s deposits
B. issuing of currency C. discounting bills of exchange 2008/40 Neco
D. providing capital for development The Central Bank is regarded as banker’s bank because it
A. controls the foreign exchange of the nation
2003/ Neco B. issues currency C. keeps deposits for other banks
Central bank of Nigeria started in D. lends money to customers
A. 1958 B. 1959 C. 1960 D. 1963 E. 1973 E. services the national debt
Answer Answer
1959 (B) Keeps deposits for other banks (C)
Hint: CBN commenced operations on July 1, 1959. 2002/34 Nov
The financial institution that specializes in accepting
2018/43 Neco
responsibilities for risks on persons and properties is called
Which of the following measures can Central Bank use to
A. stock exchange B. an investment bank
increase money in circulation?
C. a development bank D. an insurance company
A. buying of securities from the public
Answer An insurance company (D)
B. increase in special deposits
C. increase in interest rates 2010/38
D. raising the bank rate One of the functions of the central bank is
E. selling treasury bills to the public A. production of goods B. issuing of currency
Answer C. presenting budgets D. printing of cheque books
buying of securities from the public (D) Answer
Issuing of currency (B)
1990/10 Nov
Open market operation specifically means the 2010/39
A. activity of commercial banks in lending to their customers The function of the central bank as a lender of last resort
B. activity of the Central Bank in lending to commercial banks means that when all other sources fail,
C. effect on interest rates of a change in the total of A. the consumer can always borrow money from the central bank
commercial bank loans B. the government can ask the central bank to print more money
D. activity of the Central Bank in buying and selling C. commercial banks can raise loans from the central bank
government securities D commercial banks can deposit money with the central bank
E. total operations of the Central Banks Answer
Answer Commercial banks can raise loans from the central bank (C)
Activity of the central Bank in buying and selling
government securities (D)

521
2008/2009/12 (NDU, BAYELSA) 2008/20 (OAU, IFE)
The International Bank for Reconciliation and Development Which of the following is the most liquid asset to a
(IBRD) is important to the developing nations because it commercial bank?
A. gives loan to members for legal proceedings A. cash B. money at call C. stocks and shares
B. offers grants and aids for defense D. treasury bills
C. enhance financial relationship among countries Answer
D. educational and health services Cash (A)
E. offers grants and aids finance private projects
Answer 2007/6 (OAU, IFE)
Enhance financial relationship among countries (C) Which of the following statements is correct? The central
bank
2019/2020/14 (NDU, BAYELSA) A. prints the country’s currency
The largest liability appearing on the books of a commercial B. handles the collection of debts owed to the government
bank is C. lends money to businessmen
A. cash B. deposits C. loans and advances D. issues the country currency
D. capital and reserves E. treasury bills Answer
Answer Deposits (B) Issues the country currency (D)

2011/2012/1 (NDU, BAYELSA) 2015/37

A major liability of a commercial bank arises from The main item traded on a stock exchange market is
A. customer’s deposits B. loans and advances A. treasury bills B. traveller’s cheque
C. overdrafts D. staff allowance C. foreign currencies D. new shares
Answer Customer’s deposits (A) Answer
New shares (D)
2011/2012/22 (NDU, BAYELSA)
The central bank instrument of control does not include 2015/38
The proportion of commercial banks total assets kept in the
A. open market operations B. moral suation
form of highly liquid assets is known as
C. selective credit control D. printing bank notes
A. demand deposits B. fixed deposit C. cash ratio
Answer
D. moral suasion
Printing bank notes (D)
Answer
2017/2018/81 (DELSU, ABRAKA) demand deposits (A)
Which of the following is the most liquid asset to a
1991/10
commercial bank?
Open market operations are the process by which
A. cash B. treasury bills
A. the central bank purchases and sells securities
C. money at call with the central bank D. stocks and shares
B. commercial banks purchase and sells securities
Answer
C. business firms buy raw materials freely
Cash (A)
D. households buy consumer, goods openly
2012/15 (OAU, IFE) E. the money market takes over the function of the central
Roles of central bank include the following except bank
A. lender of last resort to commercial bank Answer
B. banker to commercial bank The central Bank purchases and sells securities (A)
C. regulator of both the money and capital markets 2009/37
D. receipt of government deposits Which of the following is specialized in lending money for
Answer the purpose of developing real estate?
Regulator of both the money and capital markets (C) A. merchant banks B. mortgage banks C. discount houses
D. commercial banks
2008/12 (OAU, IFE) Answer
Money market differs from capital market is that it Mortgage banks (B)
A. deals with short term loans while capital markets deals
with long term funds 2009/38
B. deals with money only while capital market deals with The marketing of government securities by the central bank
capital as well is termed
C. is limited in scope while capital market is not A. retail banking B. open market operation
D. uses internet rate while capital market does not C. selective credit control D. credit creation
Answer Answer
Deals with short – term loans while capital market deals Open market operations (B)
with long term funds (A)
522
2009/39 (iv) Moral suasion:Sometimes by merely announcing to
Which one of the following serves as a banker’s bank? the commercial banks its policy on lending, the central
A. commercial bank B. the mortgage bank bank succeeds in getting the commercial banks to
C. the Central Bank D. Development Bank behave as expected.
Answer
The Central Bank (C) 2003/9 Neco
Discuss the limitation to the power of commercial banks to
2009/8 create credit.
(a) What is a capital market? Answer
(b) Describe any three instruments used in the capital (1) Cash reserve ratio: The higher the cash reserve, the lower
market. the ability of banks to create money.
Answer (2) Cash drain: This happens where there is a mass withdrawal
of cash from the banking system by depositors. The higher
(a) Capital market is a financial institutions which deal in
the cash drain, the lesser will be the cash available for the
medium and long–term loans for investment and bring bank to give out as loan and overdraft.
long–term lenders and borrowers together. (3) Liquidity preference (LP): This arises where depositors
(b) Instruments used in the capital market. prefer to have their money in cash form (liquid assets) rather
(i) Shares: These are financial instruments utilized in the than depositing such money with banks.
capital market for long term investment, it is a portion (4) Excessive reserve: A situation where the banks decide to make a
of limited liability company owned by an investor. reserve in excess of the legal requirement, they will have less
(ii) Bonds: This is long term financial security used to money to give out as loans and overdrafts.
source for funds. It may be issued by firms, financial (5) Availability of cash: Sometimes, the bank will be cash trapped to
institutions or governments. Bonds issued by the the extent that they cannot give loans and overdrafts. Money
cannot be created under such condition.
government are generally as very safe.
(6) Unwillingness of the banks and customers to give and
(iii) Debentures: These are secured loans raised by a accept advances.
company usually with fixed interests and sometimes (7) Bank or interest rate: Acceptance of loans and overdraft is
fixed redemption date. a function of interest rate as interest is the price of capital.
(iv) Treasury certificates: These are government financial
securities which mature after a year they are issued by 2002/12
the government through the central bank to either How can the international Banks for Reconstruction and
borrow or lend money in the capital market. Development (World Bank) contribute to the economic
development of your country?
2010/11 Answer
(a) What is a commercial bank? (1) Provision of medium and long term funds for the
(b) Describe any four ways by which the Central Bank development of the economy.
controls the amount of credit given by the commercial (2) They foster the development of the capital market.
banks. (3) Assisting the government and organizations to prepare
Answer a detailed feasibility report on a given project.
(a) A commercial bank is a financial institution that (4) Advising the government on issues concerning
undertakes all kinds of ordinary retails banking development.
services with the aim of making profit. (5) Contribution to manpower development.
(b) Ways by which the central bank controls the amount
of credit given by the commercial bank 2000/37
(i) Through bank rate:If the central bank wants to Shares and stocks can be brought in the
encourage the commercial banks to lend more, it A. commodity market B. stock exchange
would reduce the bank rate. If it wants to discourage C. money market D. open market
the commercial banks from lending, it would raise the Answer
bank rate. Stock exchange (B)
(ii) Open market operation (OMO):The Central bank 2000/40
sells securities on the open market to reduce the Commercial banks settle their inter-bank indebtedness
reserves of the commercial banks and so limit their through
ability to lend. On the other hand, if it wants to A. merchant banks B. central bank C. development bank
encourage the commercial banks to lend, it buys D. stock exchange
securities on the open market to increase the cash Answer
reserves of the commercial banks. Central bank (B)
(iii) Special deposits:By calling on the commercial banks
to make special deposits with it, the central bank
reduces the reserves, the commercial banks are free to
use to give credit.
523
2013/24 Neco 2006/38 Neco
Moral suasion is different from special directives because it Which of the following banks is referred to as banker’s
A. converts short term securities to long term securities bank?
B. is an appear to the financial institution A. Central Bank of Nigeria B. Equity Bank Plc
C. is an order to the financial institutions C. Federal Mortgage Bank of Nigeria
D. is traded in the money market E. reduces cash flow D. National Bank of Nigeria E. Standard Trust Bank Plc
Answer Answer
Is an appeal to the financial institution (B) Central Bank of Nigeria (B)

2013/45 Neco 2006/3

Time deposit has the same meaning as The least capital base expected of any commercial bank in
A. bank note B. cheque C. current account Nigeria by December, 2005 is
D. fixed deposit account E. withdrawal slip A. ₦23,000,000 B. ₦5,000,000,000 C. ₦10,000,000,000
Answer D. ₦15,000,000,000 E. ₦25,000,000,000
Fixed deposit account (D) Answer: ₦25,000,000,000 (E)

2017/37 2006/40 Neco

A financial institution that specializes in giving loans using Which of the following is a function of the Central Bank?
real assets as collateral security is a A. acceptance of deposits
A. development bank B. insurance company B. acting as agents for payment
C. central bank D. mortgage bank C. acting as trustees and advisers
Answer D. lenders of last resort E. safe keeping of values
mortgage bank (A) Answer: Lenders of last resort (D)
2019/38 2014/2 Neco
What happens when the central bank increases the bank The emphasis of the Central Bank of Nigeria on strong
rate? capital base is to
A. amount of borrowing increases A. bring about a sound and safe financial system
B. amount of borrowing decreases B. liquidate the financial sector C. reduce deflation
C. supply of money increases D. reduce the cushioning effect of global economy
D. commercial banks are not affected E. reduce the money in circulation
Answer Answer
Amount of borrowing decreases (B) Bring about a sound and safe financial system (A)
1992/23
Which of the following is not a function of the Central 2014/25 Neco
A firm which engages in discount business in money
Bank?
market is known as
A. Banker tot eh government B. Bankers bank
A. bill broker B. central bank C. insurance company
C. Acceptance of deposits from the bank
D. merchant E. stock exchange
D. responsibility for monetary policy
E. lender of last resort Answer
Merchant bank (D)
Answer
Acceptance of deposits from the bank (C)
2000/47 Neco
1992/34 Which of the following measures can the Central bank use
Which of the following is not the function of a commercial if it wishes to engage in expansionary monetary policy?
bank? A. buying shares in the stock exchange
A. accepting deposits from the public B. buying treasury bills from the public
B. serving as banker to the government C. raising the bank rate
C. lending to the public D. raising the cash ratio
D. safe keeping of valuables E. selling treasury bills to the public
E. undertaking foreign exchange transactions for customers Answer
Answer buying treasury bills from the public (B)
Serving as banker to the government (B) Hint: Central banks have three main methods of monetary
policy: open market operations (purchasing
government securities), the discount rate (decreasing
the discount rate) and the reserve requirement
(reducing the reserve ratio).

524
2016/42 NABTEB 1997/31 Nov
Open market operation (OMO) involves The security that banks hold against loans made to their
A. purchases of equity shares B. open display of goods customers is referred to as
in popular markets C. raising of interest rate A. a bond B. a surety C. a collateral D. a contract
D. sale or purchase of government securities E. an insurance
Answer Answer
Sale or purchase of government securities (D) A collateral (C)

2009/41 Neco 2002/40 Neco

Time deposit is the same thing as In the stock exchange market, speculators who usually buy
A. bank rate B. current account C. demand deposit shares with the hope that the share prices will rise at a
D. fixed deposit E. savings account future data are known as
Answer: Fixed deposits (D) A. bears B. brokers C. bulls D. investors
E. jobbers
2009/42 Neco Answer
Which of the following is a function of the central Bank? Brokers (B)
A. accepting deposits from the public
B. agent of payment for individuals 2002/41 Neco
C. discounting bills of exchange D. issuing of currency Interest charged by central Bank on loan issued to
E. provision of short term housing loans commercial banks is generally known as
Answer: Issuing of currency (D) A. bank rate B. commission C. discount rate
D. interest rate E. lending rate
2018/41 NABTEB Exercise 19.10 Answer
Which of the following is not true of commercial banks? Interest rate (D)
A. liabilities of the owners are limited 1991/27 UTME Exercise 19.11
B. they issue the currency for the country A characteristic of a debenture is that
C. profits is their motive D. they are registered companies A. its yield is based on profits
2018/42 NABTEB B. it yield is fixed rate on interest
The bank that does not have direct financial transactions C. it has no redemption date
with the public is D. there is a voting right when interest is paid
A. merchant bank B. central bank C. mortgage bank
D. industrial bank 1998/26
Answer Central bank (B) Banks create money by
A. giving drafts to customers B. printing more money
2018/43 NABTEB C. lending out deposits to borrowers D. issuing cheques
The market where existing securities can be bought and E. depositing excess cash in the tills
sold is Answer
A. community banks B. discount houses Lending out deposits to borrowers (C)
C. micro finance banks D. stock exchange
Answer Stock exchange (D)
1998/27
2018/49 NABTEB The West African clearing House was established to
The debt invested on huge capital project that will yield enough A. finance development projects in Africa
income that can repay the loan and its interest is called B. enhance financial transactions among member countries
A. dead weight debt B. long term debt C. provide technical assistance to member countries
C. reproductive debt D. external debt D. stabilize price in developing countries
Answer E. service of the African countries
Long term debt (B) Answer
Enhance financial transactions among member countries (B)
1997/29 NABTEB Nov 1998/37
Commercial banks creates money by One of the major objectives of the African Development
A. offering loan and advances to the public Bank (ADB) is the mobilization of
B. buying foreign exchange A. blacks in developed countries to assist Africa
C. under writing quoted shares of companies B. qualified manpower for member states
D. investing on securities or stocks C. foreigners to assist Africa
E. issuing new bank notes E. Africans towards economic progress
Answer Answer
Offering loan and advances to the public (A) Africans towards economic progress (E)
525
1994/10 Exercise 19.12 2000/39
All the following are assets of a commercial bank except Foreign exchange control in most West African countries is
A. cash B. bills discounted C. bank deposits enforced by the
D. investment E. advances to consumers A. development banks B. merchant banks
C. ministry of economic planning D. central banks
Answer
2017/38
Central banks (D)
The function that distinguishes commercial banks from the
central bank is that the former
A. is a lender of last resort 2010/41 Neco
The following are examples of financial instruments except
B. accepts deposits from the public
A. bonds B. cheques C. shares D. treasury bills
C. services the public debt D. regulates foreign exchange
Answer
Answer
Cheques (B)
Accepts deposits from the public (B)

1992/22 Nov 1996/27 Nov

The federal mortgage bank specializes in the granting of The central Bank often acts as the lender of last resort when
credits to A. individuals find it difficult to borrow from commercial
A. textile dealers B. prospective industrialists banks
C. prospective house owners D. agriculture B. the government is broke
E. miners C. commercial banks cannot meet deposit withdrawals
Answer D. central banks print more money
Prospective house owners (C) E. commercial banks have enough money to lend to their
customers
1992/40 Nov Answer
Which of the following can be regarded as a liability of a Commercial banks cannot meet deposit withdrawals (C)
commercial bank?
A. advances B. deposits C. treasury bills 2019/43 Neco
D. overdrafts E. cash The Nigerian Bank of Industry (BOI) is an example of ____ bank
Answer A. central B. commercial C. development
Deposits (B) D. merchant E. microfinance
Answer
2000/36 Nov Development (C)
Foreign exchange market refers to a place where
A. foreigners come to buy and sell commodities 2004/33 Nov Exercise 19.13.
B. dollars are exchanged for other commodities Which of the following institutions cannot provide direct
C. foreign currencies are exchanged for commodities loans to individuals?
D. foreign currencies are bought and sold A. The Agricultural Bank B. The Industrial Bank
Answer C. The Central Bank D. the Cooperative Bank
Foreign currencies are bought and sold (D)
1992/39 Nov 2004/49 Nov
A foreign exchange market is one which deals in The International Bank for Reconstruction and
A. treasury bills B. currencies C. graded commodities Development (IBRD) is also known as
D. treasury certificates E. government bonds A. World Bank B. Bank of International Settlements
Answer C. African Development bank D. European Economic
Currencies (B) Commission
Answer
2010/40 Neco World Bank (A)
The central bank controls the credit policy of commercial
bank in the following ways except 2003/43
A. bank rate B. cash deposit ratio Which of the following is a function of the Central Bank?
C. credit creation D. moral suasion A. accepting deposits from the public
E open market operation B. lending to the commercial banks C. discounting bills
Answer of exchange D. agent of payment for individuals
Cash deposit ratio (B) Answer
Lending to the commercial banks (B)

526
2003/36 (3) A merchant bank gives useful advice to investors on how
The most important function of merchant banks is the to manage their business successfully.
A. issuing of currency B. provision of short term loans (4) They serve as issuing house to customers.
C. provision of medium and long term loans
D. provision of short and long term loans
Answer 1995/7 Nov
Provision of medium and long term loans (C) Explain five ways by which the central bank helps to carry out
the monetary policy of government in Nigeria?
2012/11 Nov Answer
Functions of commercial banks do not include (1) Open Market Operation (OMO): This is the process
A. lending money with interest charges to customers whereby the central bank buys and sells short and long
B. carrying out transactions on behalf of the customers term government securities in the money and capital
C. expansion of money supply market in order to increase or decrease the lending ability
D. printing of security documents for customers of the banks.
Answer (2) Cash ratio or reserve ratio: This is ratio of total demand
Printing of security documents for customers (D) deposit liabilities which all banks are required to keep
which all banks are required to keep with the central
2012/16 Nov bank.
An increase in the bank rate by the central bank will (3) Liquidity ratio: This is the percentage of banks total
A. make borrowing more attractive demand deposit liabilities which must be maintained or
B. reduce the amount of borrowing keep in liquid or easily realizable form in order to meet
C. increase the amount of borrowing customers’ demand for their deposits.
D. increase the money supply (4) Bank or interest rate: The rate of interest is the price of
Answer capital. It is the rate at which commercial banks and other
Reduce the amount of borrowing (B) financial institutions lend or borrow money in the
economy.
2016/41 NABTEB (5) Moral suasion: This is a gentle appear to commercial
If the rate of interest is 10% and a customer deposit N1,000 in bank by the central bank, as to the economic policy they
a commercial bank, the maximum credit the bank will create should pursue, without the backing of the law.
will be
A. ₦10,000 B. ₦100,000 C. ₦1,000,000 D. ₦1,200,000 1994/9 Exercise 19.14.
Answer Explain the term capital.
Total deposit (a) How is the capital market different from the stock
Total money created = Cash reserve ratio
exchange?
(b) What are the advantages of the capital market?
1000
= 10%
2014/7 Neco Exercise 19.15
1000 10 (i) Define commercial banks.
= 10 = 1000 ÷ 100
100
(ii) Discuss any five functions of central bank.

100 2013/7 Neco

= 1000 × = 10,000
10 State and explain five (5) functions of commercial banks.
Total money created = ₦10,000 (A)
Answer
Functions of commercial bank
2012/2 Nov
(1) Commercial banks accept deposits: Commercial banks
(a) Distinguish between a merchant bank and a commercial
accept money deposit from people and organizations for
bank.
safe keeping. The amount deposited is credited to the
(b) Outline any four functions of a merchant bank.
customer’s account.
Solution
(2) Commercial banks acts as a lending agents:
(a) A merchant bank is a financial institution that carries out
Commercial banks give medium and long – term loan to
ordinary wholesale banking services with the view to
customers give medium and long term loans to
making profit. They operate in capital market, while a
customers.
commercial bank is a financial institution that undertakes
(3) Commercial banks help in the safe keeping of their
all kinds of ordinary retail banking services with the aim
customers variables: The bank provide facilities for the
of making profit. Commercial bank operates in the
safe keeping of valuables like will, jewellery, vital
money market.
documents e.t.c.
(b) Functions of merchant bank
(4) They give financial and technical advice to their
(1) They accept deposit.
customer.
(2) Merchant banks gives medium and long term credits to
(5) They transfer funds on the instruction of their customers.
corporate bodies as well as to the government in the form
of loans and overdrafts.
527
2012/42 Neco 2019/35 NABTEB
An institution arrangement that facilitates the transfer of The major purpose of African Development Bank is to
medium and long funds from the surplus unit to the deficit A. provide loans for trade development
unit of the economy is referred to as B. provide loans for infrastructural development
A. capital market B. money market C. mortgage bank C. provides loans for development banks
D. open market operation E. secondary market D. educate peasant farmers in new techniques
Answer Answer: Provide loans for trade development (A)
Open market operation (D)
2019/36 NABTEB
2012/43 Neco Exercise 19.16 In Nigeria, cheques are not money because
The following are instruments of Nigerian money market except A. their use is confirmed to business houses
A. commercial bills B. debentures B. there are no banks in rural areas
C. the call money market D. treasury bills C. they are not legal tender
E. treasury certificate D. they are not generally acceptable as a medium of
exchange
2012/56 Neco
The international bank for Reconstruction and Development Answer
They are not generally acceptable as a medium of exchange (D)
(IBRD) is important to a developing economy because it
A. enhances financial relationship among countries 2019/41 NABTEB
B. financing of short term balance of payments A commercial banks is able to create money by
disequilibrium A. printing it B. maintaining reserves
C. gives loans to members for legal proceeding C. creating a demand deposit as it gives a new loan
D. offers grants and aids to finance private projects D. borrowing from the central bank
E. undertakes feasibility studies relating to economic Answer: Creating a demand deposit as it gives a new loan (C)
development
Answer 2019/42 NABTEB
Undertakes feasibility studies relating to economic Which of the following is used by the central bank to
development (E) control the rate of interest?
A. bill of exchange B. banker’s order
2000/20 Nov C. fixed deposit account D. open market operation
Which of the following is a function of the merchant banks? Answer: Open market operation (D)
A. provision of medium and long term loans
B. granting of short term loans to businessmen 2003/30 Nov
C. printing of notes and coins D. creation of money Which of the following is a financial instrument?
Answer A. money at call B. dumping C. terms of trade
Provision of medium and long term loans (A) D. deposits
Answer: Deposits (D)
2000/32 Nov
Which of the following is an asset of commercial banks? 2003/31 Nov
A. customer’s deposits B. paid up capital Which of the following is an asset of a commercial bank?
C. loans and advances given to member of the public A. reserve funds B. capital C. deposits
D. loans and advances taken by the commercial banks D. treasury bills
Answer Answer: Treasury bills (D)
Customer’s deposits (A)
2003/32 Nov Exercise 19.17
2000/33 Nov In order to develop the banking habit of rural dwellers, the
Commercial banks create money through traditional money lenders should be
A. issuing out currencies B. the sale of treasure bills A. proscribed B. legalized C. subsidized
C. the selling of shares to the public D. heavily taxed
D. giving out loans and advances 2003/33 Nov
Answer A limitation on the ability of banks to create money is the
Giving out loans and advances (D) A. small number of reliable borrowers
2000/35 Nov B. size of the national budget
One of the functions of central banks in West African C. large number of new banks
countries is D. growing influence of traditional money lenders
A. money creation B. minting and coins Answer
C. printing of cheques D. issuing of currencies Growing influence of traditional money lenders (D)
Answer Issuing of currencies (D)
528
2003/36 Nov 2005/35 Nov
The bank charged with the responsibility of managing A long term loan can be obtained from
national debts is the A. community banks B. central banks
A. National mortgage banks B. World Bank C. development banks D. traditional saving institutions
C. central bank D. bank for international settlements Answer Development banks (C)
Answer: central bank (C)
2005/36 Nov
2001/37 Nov One of the liabilities of a commercial bank is
Which of the following assets of a commercial bank does A. advance B. deposit C. cash D. overdraft
not yield revenue? Answer Deposit (B)
A. money in the tills of the bank B. money at call
C. loans and advances D. treasury bills 1997/17
Answer: money in the tills of the bank (B) A stock exchange is a market that
A. deals with the exchange of commodities
2005/32 Nov B. deals with the purchase and sale of securities
A major function of insurance companies is to engage in C. exchanges stockfish for ladyfish
A. risk management B. production C. accepting D. exchanges treasury bills for bills of exchange
deposits D. credit creation E. sells foreign exchange
Answer: Risk management (A) Answer: Deals with the purchase and sale of securities (B)

2005/33 Nov 197/23

Commercial banks can create money by Which of the following is a function of commercial banks?
A. leasing equipment B. printing bank notes A. issue currencies B. accept deposits
C. investing in government securities C. are the banker’s bank D. determine the rate of interest
D. lending money against deposits received E. the lenders of last resort
Answer: Lending money against deposits received (D) Answer: Accept deposits (B)

2005/34 Nov 1997/29

Liquidity described the ease with which assets can be The development banks are essentially different from
converted into commercial banks because they
A. capital B. investment C. cash D. deposits A. give medium and long term loans
Answer B. open current accounts for their customers
Cash (C) C. discount bills of exchange D. are lenders of last resort
E. carry out open market operations
2005/29 Nov Exercise 19.18 Answer: Give medium and long term loans (A)
The strongest factor which influences the taking of loans is
A. availability of loanable funds 1990/13
B. the number of creditors Which of the following is not a description of the central
C. the rate of interest D. government loan policy bank?
A. the banker to the government
B. a banker of demand and time deposit to customers
2005/33 Nov C. the lender of last resort
Mortgage banks specialize in assisting customers to own D. responsibility for issuing of currency notes
A. business ventures B. domestic appliances E. the banker to other banks
C. shares D. houses Answer
Answer A banker of demand and time deposit to customers (B)
Houses (D)
1993/4 Nov
2005/34 Nov Which of the following is not a function of merchant
Open market operation is used under monetary policy to banks?
A. expand or contract the amount of money in circulation A. sale of shares to the public
B. reduce the inflow of foreign currency B. dealing in stock exchange securities
C. control the activities of the capital market C. acting as acceptance houses
D. make investments more attractive to foreigners D. acting as financial advisers to their industrial customers
Answer E. keeping watch on the external reserves of the country
Expand or contract the amount of money in circulation (A) Answer: Dealing in stock exchange securities (B)

529
1993/15 Nov 2005/7 Nov
Commercial banks credit creation is limited by the (a) Highlight any two ways by which the functions of the
A. amount of deposit central bank can be of benefit to commercial banks.
B. number of commercial are merchant banks (b) How can the central bank control the activities of
C. number of central banks commercial bank?
D. total amount of cash in the economy Answer
E. number of banks customers (ai) The central bank acts as a lender of last resort.
Answer Amount of deposit (A) (ii) The central bank acts as a banker’s bank.
(b) The central bank can control the activities of the
commercial bank by
1993/31 Nov (1) The use of open market operations (OMO).
Few commercial banks are located in rural areas because (2) The use of cash ratio or reserve ratio.
A. there are not enough people in the rural areas to work in (3) Liquidity ratio.
(4) Bank or interest rate.
the bank
(5) Selective credit.
B. bankers generally, like city life
(6) Use of special deposits.
C. there are not many business establishments and (7) Moral suasion.
depositors in the rural areas
D. there is electricity supply in the rural areas is too poor to 2001/7 Neco
allow easy transfer of money to the banks In what ways can the central bank of Nigeria assist in carrying
Answer out government monetary policy?
There are not many business establishments and depositors Answer
in the rural areas (C) (1) Use of open market operation (OMO): This refers to the
buying and selling of government securities from and to
the public and business organization.
1993/36 Nov (2) Cash ratio or reserve ratio: This is a ratio of total
Which of the following is a function of the central bank? demand deposit liabilities which all banks are required to
A. accepting deposits from the public keep with the central bank.
B. lending to the commercial banks as a last resort (3) Liquidity ratio: This is the percentage of bank’s total
C. lending to the public demand deposit liabilities which must be maintained or
D. discounting bills of exchange keep in liquid or easily realizable form in order to meet
E. acting as an agent of payment on behalf of individuals customers demand for their deposits.
Answer (4) Moral suasion: This is an appeal to commercial bank by
Lending to the commercial banks as a last resort (B) the central bank as to the economic policy, they should
pursue without the backing of the law.
(5) Special deposits: If the CBN discovers that there is much
2011/45 Neco money within the banking system to the extent that there
Which of these is not a function of commercial bank? It the bank starts giving out credits without following
A. accepts deposits B. acts as a lender of last resort normal financial guidelines.
C. engages in foreign exchange transaction
D. gives out loan E. gives financial and technical advice 2019/6 NABTEB
Answer Acts as a lender of last resort (B) (a) Highlight four functions of commercial banks.
(b) Explain four advantages of rural banking in Nigeria.
Answer
2001/8 Functions of commercial banks
Distinguish between a central bank and a commercial bank. (1) Commercial bank accept deposits.
Answer (2) Commercial bank give short term credits to customers.
Central bank is a bank established by governments to keep (3) Commercial bank provide foreign exchange facilities.
a country’s financial system under control and close (4) Commercial bank provides services to importers and
supervision and also to assist the government to carry out exporters such as letters of credit (LC) and other
its monetary policy while a commercial bank is a financial documentary credits.
institution that undertakes all kinds of ordinary retail (b) Advantages of rural banking in Nigeria
banking services with the aim of making profit. (1) It promotes saving and banking habit among rural
dwellers.
(2) It mobilizes rural saving for investment in the economy.
(3) Increased development of rural areas and even
1992/7 Nov Exercise 19.19
development of the country as a whole.
Outline the problems facing commercial banking in
(4) It provides a base for attraction of other investors and
Nigeria. businesses to rural areas.

530
2012/9 Neco 1978/15 UTME
(a) What is traditional financial institution? Which of the following financial assets carries the lowest
(b) List and explain three advantages and two disadvantages rate of interest in Nigeria?
of traditional institution. A. commercial bills B. call money
Answer C. treasury bills D. development lean stocks
(a) Traditional financial institution is a kind of cooperative E. deposits with the federal savings bank
which consist of people who agree to contribute a certain Answer D – Development leanstocks.
sum of money each and hand it over to a member of the
group. This action is repeated regularly until every 1978/17 UTME
member has had a turnoff receiving the sum of money. Which of the following can be regarded as a liability of a
(b) Advantages of traditional financial institution
commercial bank?
(1) It encourages savings.
A. advances B. deposits C. treasury bills
(2) Borrowing does not require collateral.
(3) Membership of the institution is by agreement. D. over drafts E. cash
Disadvantages Answer B – Deposits.
(1) The recovery of money lent in exposed to danger as there
is no collateral. 1978/20 UTME
(2) There is no sealing as to the amount to be contributed. The largest liability appearing on the books of a commercial
bank is
1990/7 Nov A. cash B. deposits C. loans and advances
Outline the differences between a central bank and a D. capital and reserves E. treasury bills
commercial bank. Answer B – Deposits
Answer
Differences between a central bank and a commercial bank 1978/21 UTME
(1) The central bank is usually a government owned bank The Lagos clearing house is
while the commercial banks are public companies owned A. a commodity market B. an import licensing centre
by individuals, institutions or in joint partnership with C. another name for the Lagos stock exchange
government. D. an insurance and underwriting centre
(2) The central bank being a government owned enterprise is E. a cheque sorting centre
responsible to the government while the commercial Answer E – A cheque sorting centre.
banks are responsible to the shareholders who own them.
(3) Central bank operations are not primarily based on the
1978/23 UTME
profit motive while the commercial bank operate in order
An increase in liquid reserve requirements by the Central
to maximize profits.
Bank of Nigeria will result in
(4) The central bank deals mainly with the government and
other financial government and other financial A. a reduction in commercial banks’ excess reserves
institutions while the commercial banks deals B. more commercial bank loan to members of the public
predominantly with private customers. C. an increase in commercial banks excess reserves
(5) The central bank issues currency while commercial banks D. no change in commercial bank excess reserves
do not. E. a reduction in central bank’s gold reserves
Answer
2013/43 Neco C – An increase in commercial banks excess reserves.
If the total deposit in a bank is ₦1,000,000 and the legal
reserve ratio is 10%. What is the excess reserve? 1978/8 UTME
A. ₦10,000,000 B. ₦11,000,000 C. N40,000,000 The Central bank controls the activities of other banks by
D. ₦60,000,000 E. ₦90,000,000 all but one of the following. Which one?
Answer A. the use of bank rate
Total deposit B. the purchase or sale of government bonds on the open market
Total money created =
Cash reserve ratio
C. special deposits D. the use of directives
1,000,000 E. taxation
= Answer: E – Taxation.
10%

1,000,000
= 10 1979/27 UTME
10
Which of the following is not an asset of a commercial
1,000,000 10 bank?
= 1
÷ 100 A. cash B. money at call C. treasury bills
D. reserve funds E. loans and overdrafts
100
= 1,000,000 × Answer: B – Money at call.
10
= ₦10,000,000 (A)

531
1979/33 UTME 1981/13 UTME
Which of the following assets at a commercial bank does By open market operations, we mean the process by which
not yield revenue? A. the central bank intervenes in the open market to buy or sell
A. money in the tills of the bank B. money at call securities
C. treasury certificate B. the commercial banks intervene in the open market to buy or sell
D. treasury bills E. bills of exchange treasury bills
C. market women buy and sell commodities in the open market
Answe: A – Money in tills of the bank.
D. the money market takes over the functions of the central bank
E. the bank rate is determined in the open market
1979/35 UTME Answer
Which of these financial institutions cannot provide direct A – The central bank intervenes in the open market to buy
loans to individuals? or sell securities.
A. the agricultural bank B. the industrial banks
C. the central bank D. the co-operative bank 1981/14UTME Exercise 19.20
E. the standard bank Which of the following is not a major function of a central
Answer: C – The central bank. bank?
A. serving as government’s bank
1979/39 UTME B. serving as banker’s bank
Which is the most liquid of the following financial assets C. acceptance of deposits from the public
held by an individual? D. responsibility for monetary policy
A. outstanding balance on the current account of a E. serving as lender of last resort
commercial bank
B. a credit balance on a saving account 1982/12 UTME
C. a crossed poster order Which one of the following functions of banks in Nigeria is
D. an insurance policy E. all of the above reserved to the central bank?
Answer A. accepting deposits
A – Outstanding balance on the current account of a B. serving as agents for payment
commercial bank. C. issuing bank notes
D. lending to customers
1980/11 UTME E. purchasing or selling of stock exchange securities
Commercial banks can create money in the following ways Answer C – Issuing bank-notes.
A. by issuing coins and paper money
B. by borrowing money from banks abroad 1982/24 UTME
C. by receiving deposits from individuals Functions of commercial banks do not include
D. by printing money on the instructions of the central bank A. Lending with interest charges
E. none of the above B. carrying out transactions on behalf of customers
Answer E – none of the above C. expansion of money supply
D. keeping of security documents for customers
1980/36 UTME E. printing of currency
A commercial bank is able to create money Answer: E – Printing of currency.
A. by printing it B. by maintaining reserves
C. by creating demand deposit as it gives a new loan 1982/29 UTME
D. by issuing cheque to depositors Which is considered the most effective tool by which the
E. by borrowing from the central bank Central Bank of Nigeria can control the activities of
Answer commercial banks?
C – By creatinig a demand deposit as it gives a new loan. A. open market operation B. reserve requirements
C. bank rate D. directives E. special deposits
1980/45 UTME Answer: A – open market operation.
In Nigeria, Cheque are not money because
A. their use is confined to business houses 1982/45 UTME
B. there are no banks in rural areas If the Central Bank intends to increase the money supply
C. they are not legal tender through open market operations then it will
D. they are not generally accepted as a medium of exchange A. sell securities in the open market
E. most Nigerians cannot identify them B. buy securities in the open market
Answer: C – They are not legal tender. C. issue more currency notes
D. withdraw money supply from the market
E. print more demand deposits
Answer: B – Buy securities in the open market.

532
1984/32 UTME 2009/2010/24 (UNIZIK, AWKA)
The Central Bank instrument of control does not include Which of the following is a function of the Central Bank of
A. open market operations B. moral sanctions Nigeria?
C. reserve requirements D. selective credit control A. serving as custodian of important valuables
E. printing bank notes B. giving advice to customers
Answer C. serving as banker’s bank D. creating credit
B – Moral sanctions. Answer : Serving as banker’s bank (C)
1985/28 UTME 1988/32 UTME
One of the functions of a commercial bank is that it is Which of the following factors enhances the ability of
A. responsible for monetary policy commercial banks to create money?
B. responsible for issuing of currency notes A. reduction in the reserve ratio
C. the lender of last resort B. leakage of cash out of the banking system
D. the banker of the government C. excess reserves
E. a banker of demand and time deposits of customers D. insistence on collateral security
Answer Answer A – Reduction in the reserve ratio.
E – A banker of demand and time deposits of customers.
1989/32 UTME
1986/35 UTME Commercial bank reserves at the central bank have the
The most important economic characteristic differentiating effect of
commercial banks from other financial institutions is their A. controlling credit and money supply
A. function as a safe and profitable store place for savings B. discouraging banking operations
B. role in financing balance of payments deficits C. advancing trade prospect
C. status as an intermediary between savers and borrowers D. reducing bank frauds
D. ability to create and destroy money Answer: A – Controlling credit and money supply.
Answer
C – Status as an intermediary between savers and borrowers. 1990/3 UTME
The basic purpose of imposing legal reserve requirements
1988/31 UTME on commercial banks is to
Restriction on credit creation by commercial banks can be A. assure the profitability of commercial banks
effected through B. provide a device through which credit creation by banks
A. an overdraft B. loans and advances can be controlled
C. demand deposits D. liquidity ratio C. provide a proper ratio between earning and non-earning
Answer bank assets
D – Liquidity ratio. D. provide the central Bank with working capital
Answer
2006/2007/36 (UNIZIK, AWKA) B – Provide a device through which credit creation by
Which of the following is the most liquid asset to banks can be controlled.
commercial bank?
A. money at call and short notice 1990/32 UTME
B. treasury bills C. commercial bills And the total credit that the banking system can create if
D. stock and shares E. cash primary deposits is just ₦100.00 while the cash ratio is 20%
Answer: Cash (E) A. ₦700.00 B. ₦600.00 C. ₦500.00 D. ₦400.00
Answer
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑝𝑜𝑠𝑖𝑡
2006/2007/47 (UNIZIK, AWKA) Total money created = 𝐶𝑎𝑠ℎ 𝑟𝑒𝑠𝑒𝑟𝑣𝑒 𝑟𝑎𝑡𝑖𝑜
A stock exchange is a market that
100 100 100
A. deals with the exchange of commodities = = 20 = 100 × = 500
B. deals with the purchase and sale of securities 20% 20
100
C. exchange of treasury bills and bills of exchange C - ₦500.00
D. sells foreign exchange E. exchange goods and services
Answer 1990/33 UTME
Deals with the purchase and sale of securities (B) Which of the following is a liability of a commercial bank?
A. deposits in the bank
2009/2010/20 (UNIZIK, AWKA)
B. loans made by the bank to individual
Which of the following is a liability of a commercial bank?
C. loans made by the bank to other banks
A. deposits B. money at call C. loans to customers
D. bonds purchased by the bank
D. overdraft
Answer: A – Deposits in the bank.
Answer: Deposits (A)

533
1991/34 UTME 1994/36 UTME
Banks aid economic expansion and development by An increase in both the legal reserve ratio and discount rate
A. being very strict in lending policies has the effect of
B. mobilizing savings for investment lending A. increasing the quantity of money in circulation
C. paying interest on deposit accounts B. decreasing the quantity of money in circulation
D. charging high interest on loans C. increasing the value of money
Answer D. decreasing the value of money
B – mobilizing savings for investment lending Answer: B – Decreasing the quantity of money in circulation.

1991/35 UTME Exercise 19.21 1995/37 UTME

The term “stock of capital” means The Central Bank’s expansionary monetary policy is justified
A. amount of money necessary to start a business at a period
B. total amount receivable by all factors of production A. when the inflation rate is high and the economy is experiencing
a boom
C. amount of equipment plant and inventory existing at a time
B. of economic depression accompanied by low capacity utilization
D. total amount available for economic development
C. when trade unions are clamoring for higher wages
D. when the price of crude petroleum is rising
1992/34 UTME Exercise 19.21 Answer
Monetization refers to the ratio of B – Of economic depression accompanied by low capacity
A. total transactions to monetary transactions utilization.
B. monetary assets to total assets
C. monetary transactions to total transactions 1995/40 UTME
D. money in circulation to total income A bank is said to be distressed when it
A. is unable to deal with the Central Bank
1992/36 UTME B. has a low capital base
The total amount of money in circulation includes cash C. has low level of deposits
A. and current account balances owned by the non-bank public D. experiences serious liquidity crisis
B. owned by banks and the non-bank public Answer: D – Experiences serious liquidity crisis.
C. and current account balances owed by banks and the
1995/41 UTME
non-bank public
One method through which the Central Bank can restrict the
D. owned by banks, the government and the non-bank public
commercial banks power of credit expansion is to
Answer A. demand for increased special deposits
D – Owned by banks, the government and the non-bank public. B. decrease the cash ratio
C. buy securities in the open market
1993/24 UTME D. reduce the rate of interests at which banks borrow from it
A debenture share entitles its holder to Answer: A – Demand for increased special deposits.
A. participate in the annual general meeting of the company
B. share in the dividends declared 1997/35 UTME
C. receive a fixed interest on sums invested Banks can create more money by
D. have a representative on the board of directors A. increasing its cash ratio with the Central Bank
Answer B. issuing more bank cheque
C – Receive a fixed interest on sums invested. C. accepting more deposits from customers
D. lending out money from customers’ deposits
1993/34 UTME Answer: D – Lending out money from customers’ deposits.
The sum of ₦80,000 is deposited in a bank and the cash
1998/33 UTME
ratio of the banking system is 10%. Calculate the total sum
If the reserve requirement for commercial banking in Nigeria
of money the bank can create from the deposit
were 30%, a commercial bank which receives an initial cash
A. ₦100,000 B. ₦800,000 deposit of ₦3,000 is in a position to lend out
C. ₦1,000,000 D. ₦8,000,000 A. ₦9,000 B. ₦3,330 C. ₦2,770 D. ₦2,100
Answer Answer
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑝𝑜𝑠𝑖𝑡
Total money created = Position of Initial Amount kept as Amount lent
𝑐𝑎𝑠ℎ 𝑟𝑒𝑠𝑒𝑟𝑣𝑒 𝑟𝑎𝑡𝑖𝑜
80,000 Banks Deposit legal reserve out (70%)
= 10 (30%)
× 3,000 – 900
100
1st 3,000 30
10 30% =
= 80,000 ÷ 100 Generation 100
= 2,100
100 3000
= 80,000 × 10 Bank
= 900
= ₦800,000 ( B )
D - ₦2,100

534
1998/34 UTME 2002/17 UTME
An issue of bank notes not backed by gold but by Insurance companies invest mainly in instrument traded on the
government securities is known as A. capital market B. commodity market
A. fiduciary issue B. guaranteed money C. money market D. open market
C. seignior age D. legal tender Answer A – Capital market.
Answer
A – Fiduciary issue 2002/18 UTME
Liquidity preference refers to the
1999/40 UTME A. need to borrow money for short periods to meet some
Non-bank financial intermediaries do not temporary cries
A. provide credit facilities B. accept deposits B. wish to hold more funds for precautionary purposes
C. accept demand deposits D. sell shares C. need to increase the money supply in order to lower the
Answer interest rate
C – Accept demand deposits. D. demand to hold money as assets rather than as stocks.
Answer
2000/35 UTME D – Demand to hold money as assets rather than as stocks.
Two principal ways by which banks can lend money to
their customers are through 2002/20UTME
A. loans and discounting bills The primary objective of the NDIC is to
B. loans and overdrafts A. give protection to the CBN against fraud
C. over drafts and cheques B. provide regulations guiding the finance houses
D. over drafts and treasury bills C. give protection to banks against fraud
Answer D. give protection to bank depositors
B – Loans and overdrafts. Answer
D – Give protection to bank depositors.
2001/38 UTME
An increase in the discount rate is an indication of a central
2002/48 UTME
banks intension to pursue
The major purpose of the African Development Bank is to
A. an expansionary monetary policy
A. provide loans for trade development
B. a disciplined monetary policy
B. provide loans for infrastructural development
C. a dynamic monetary policy
C. provide loans for development banks in distress
D. a concretionary monetary policy
D. educate peasant farmers in new techniques
Answer
Answer
B – A disciplined monetary policy.
B – Provide loans for infrastructural development.
2001/48 UTME
The loans from the World Bank to developing countries are 2003/25 UTME
mainly to support The term “near money” is best described as
A. the establishment of more universities A. a financial asset that is convertible to cash
B. capital intensive technology B. a financial instrument that is readily convertible to cash
C. infrastructural investments C. government financial instrument that is convertible to cash
D. their low level of consumption D. time deposits with low interest rate
Answer Answer
A – The establishment of more universities. A – A financial assets that is convertible to cash.

2002/12 UTME 2008/26UTME

The stock exchange is a market for the buying and selling of The distinguishing characteristic between the money market
A. monetary instruments B. new shares and the capital market lies in whether the
C. existing shares D. treasury bills A. funds mobilized are private or public
Answer C – Exiting shares. B. securities are primary or secondary
C. debt instrument provided are long-term or short-term or
2002/14 UTME Exercise 19.21 short-term
In Nigeria, the bank that can correctly be described as a unit D. securities are in debentures or ordinary shares
bank is Answer
A. the central bank B. people’s bank C – Debt instruments provided are long term or short term.
C. mortgage bank D. community bank

535
2003/3 UTME 2005/10UTME
IBRD as an international monetary institution is concerned A discount house is a market where
with the A. various bills are exchange
A. balance of payment problems of member nations B. short-term and medium term loans are obtained
B. financing of private businesses in member nations C. shares are bought and sold
C. development of infrastructure in member nations D. short-term loans are obtained
D. improvement of trade among member nations Answer
Answer A – Various bills are exchanged.
C – Development of infrastructure in member nations.
2005/11 UTME
2004/3 UTME We cash balances are held for
The role of the Central Bank in the economic development A. planned purchases B. the purchase of bonds
of Nigeria is to C. the purchase of shares D. unplanned purchase
A. give short and medium term loans to the public Answer
B. give financial and technical advice to customers D – Unplanned purchases.
C. use cheques and bankdrafts to facilitate business transactions
D. maintain a stable price system 2006/31 UTME
Answer: D – Maintain a stable price system. If the central bank of Nigeria reduces the bank rate, this will
cause
2004/4 UTME A. Commercial banks to merge
The primary function of non-bank financial institutions is to B. Commercial bank to reduce lending
A. manage investment portfolios for government C. money supply to reduce D. money supply to increase
B. mobilize savings for investment Answer
C. grant loans to banks D. receive deposits from banks B – Commercial banks to reduce lending.
Answer: B – Mobilize savings for investment.
2007/44 UTME Exercise 19.22
2004/8 UTME The non-bank financial institutions that are entrusted with
The capital market provides business firms with the avenue workers’ contributions towards retirements are
to A. mortgage institutions B. investment companies
A. lease capital equipment B. obtain long-term funds C. pension funds custodians
C. obtain short-term funds D. pension funds administrators
D. purchase capital equipment
Answer: B – Obtain long-term funds.
2007/45 UTME
A reduction in the bank rate encourages commercial banks
2004/9 UTME
to create money by
Which financial institution is charged with the formulation of
A. decreasing the interest rate
monetary policies in Nigeria?
B. maintaining the interest rate
A. the Central Bank of Nigeria
C. doubling the interest rate D. raising the interest rate
B. the Nigeria Deposit insurance corporation
Answer
C. the Abuja commodity exchange
B – Maintain the interest rate.
Answe: A – The central Bank of Nigeria.
2007/49 UTME Exercise 19.23
2005/3UTME Life insurance companies contributed to economic
The savings deposit in a commercial bank is called development by holding a part of their assets in
A. capital B. fundC. near money D. call money A. long-term financial instruments B. equipment
Answer: D – Call money. C. cash and near money D. money-market instruments

2005/5 UTME 2008/30 UTME

The regulatory authority of the capital market in Nigeria is If the required reserves of a bank is 20% and ₦10,000 is
the paid into its demand deposit account, what is the excess
A. Central Bank reserves?
B. Securities and Exchange Commission A. ₦2,000 B. ₦8,000 C. ₦12,000 D. ₦18,000
C. Nigerian Deposit Insurance Corporation Answer
20
D. Stock Exchange Market Reserve= 100 × 10,000 = 2,000
Answer Exess reserve = ₦10,000– ₦2,000 = ₦8,000 (B)
B – Securities and Exchange commission.

536
2009/28 UTME Exercise 19.24 2012/32
The ability of commercial banks to create money depends The minimum amount which banks are required to deposit
on the with the Central bank is determined by the
A. reserve ratio B. liquidity ratio A. liquidity ratio B. cash reserve ratio
C. interest rate D. capital base C. minimum lending rate D. aggregate credit ceiling
Answer
2009/29 UTME
B – cash reserve ratio
The reform in the banking sector in Nigeria is principally
Hint: Cash reserve ratio (CRR) is a certain minimm amount
motivated by the need to
of deposit that the commercial banks have to hold as
A. increase the capital base of banks
reserve with the central bank.
B. provide more money to run the economy
C. minimize the rate of bank failures
D. enhance efficiency in bank operation 2012/33 UTME Exercise 19.25
The major function of the money market is to
Answer
A. provide funds for long term financing
D – Enhance efficiency in bank operations.
B. provide fund for short-term financing
C. stabilize the value of the local currency
2010/31 UTME
D. stabilize domestic prices
By buying treasury bills, the Central Bank of Nigeria
intends to
2013/29 UTME
A. increase money supply in the economy
Which of the following is used by the Central Bank of
B. reduce money supply in the economy
Nigeria to control inflation?
C. reduce the case reserve ratio for banks
A. tariffs on imports B. tax rate
D. increase the capital base of commercial banks
C. exchange rate D. discount rate
Answer
B – Reduce money supply in the economy. Answer
D – Discount rate.
2010/33 UTME
One of the functions of commercials banks is 2013/30 UTME
If CBN reduces money supply, the interest rate will
A. maintain stable price in the economy
A. flituate B. rise C. fall D. remain unchanged
B. granting loans to customers
C. regulating monetary policies Answer
B – Rise
D. issuing bank notes and coins
Answer
2018/34 UTME
B – Granting loans to customers.
Life insurance companies contribute to economic
development by holding a part of their assets in
2010/48 UTME
A. long term financial instruments
One of the objectives of ADB is to
A. provide subsides on imported goods to member countries B. money market instruments
B. promote economic and social development of member countries C. cash and near money
C. mobilize short-term loans for member countries D. short term financial instruments
D. provide technical assistance to only poor member countries Answer
Answer C – Cash and near money.
B – Promote economic and social development of member Hint: For a life insurance (insurance company), the
countries. premium paid by the insured are considered cash and near
money assets. Near money assets are higly liquid assets that
2011/26 UTME can be easily converted to cash.
Bank consolidation policy in Nigeria is a measure to
increase 2014/29 UTME
A. the capital base of banks One of the challenges facing the banking industry in
B. employment opportunities in banks Nigeria is
C. the number of shareholders A. ensuring technological security
D. the number of branches B. providing employment
Answer C. providing loans for investment
A – The capital base of banks. D. creating more money
Answer
C – Providing loans for investment.

537
2014/30 UTME 2019/23 UTME
Short-term loans for investment are usually obtained Restriction on credit creation by commercial banks can be
through the effective through.
A. stock market B. development banks A. an over draft B. loans and advances
C. money market D. capital market C. demand deposits D. liquidity ratio
Answer Answer: D – Liquidity ratio.
C – Money Market.
2007/2008/64 (UNIZIK, AWKA)
2015/16 UTME The International Bank for Reconciliation and Development
If the cash reserve ratio is 30%, a new deposit of ₦20 (IBRD) is important to the developing nations because it
million will increase supply by A. gives loan to members B. offer grants aids for defence
A. ₦57.8m B. ₦47.9m C. ₦69.78m D. ₦66.7m C. enhance financial relationship among countries
Answer D. offers soft loans for educational and health services
Total deposit
Total money created = Cash reserve ratio E. offer grants aids to finance private projects
Answer: gives loan to members (A)
20,000,000
=
30% 2007/2008/67 (UNIZIK, AWKA) Exercise 19.26
100 The drawer of a cheque is
= 20,000,000 × = ₦66.67 (𝐷) A. the person who to be paid the sum of money as written
30
on the cheque
2016/4 UTME B. the person who takes the cheque to the bank
Life insurance companies contribute to economic C. the bank on which the cheque is drawn
development by holding a part of their assets in D. the person who write out the cheque
A. long term financial instruments E. the bank official who certifies the payment
B. equipment C. cash and near money
D. money – market instruments 2007/2008/72 (UNIZIK, AWKA)
Answer One major function of the central bank is to
C – cash and near money A. mint money B. hold demand deposits and honour
2017/40 UTME cheques C. act as a medium of exchange
The role of IBRD as an international institution is to D. create money E. control and regulate money supply
A. improve trading among member nations Answer: control and regulate money supply (E)
B. finance private businesses in member nations
2007/2008/77(UNIZIK, AWKA)
C. facilitate the development of infrastructure in member nations
D. solve the problem of balance of payments of member nationsA stock exchange is a market that
Answer A. deals with exchange of commodities
C – Facilitates the development of infrastructure in member B. sells with the purchase and sale of securities
nations. C. exchanges treasury bills for bills of exchange
D. sells foreign exchange
2019/5 UTME E. exchanges goods and services
Which of the following is used by the Central Bank to Answer: Sells with the purchase and sale of securities (B)
control the rate of interest?
A. bill of exchange B. banker’s order 2011/2012/30 (UNIZIK, AWKA)
C. fixed deposit account D. open market operation Which of the following is not an asset of a commercial
Answer bank?
D – open market operation A. cash B. money at call C. treasury bill
D. reserve funds E. loans and over drafts
2019/6 UTME Answer: Reserve funds (D)
Given that the cash reserve ratio is 10 percent, what is the
maximum amount of money that the banking system 2013/2014/43 (UNIZIK, AWKA)
concrete from an initial cash deposit of ₦100.00. A capital market differs from the money market in that the former
A. ₦100.00 B. ₦1,000 A. loan sought is short term
C. ₦9,000.00 D. ₦10,000.00 B. loan repayment is guaranteed
Answer C. loan sought is long term
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑝𝑜𝑠𝑖𝑡 100 D. the percentage of interest charged is more
Total money created = = 10 E. none of the above
𝐶𝑎𝑠ℎ 𝑟𝑒𝑠𝑒𝑟𝑣𝑒 𝑟𝑎𝑡𝑖𝑜
100
100 Answer
= 10 × = 1000
10 Loan sought is long – term (C)
B = ₦1,000.
538
2014/2015/41 (UNIZIK, AWKA) Exercise 19.27 2017/2018/25 (UI, IBADAN)
Supply of loanable funds is significantly influenced by Given an initial deposit of N1,000.00 and 10 percent cash
A. commercial bank B. mortgage banks reserve ratio, how much can be created in the banking
C. financial intermediaries D. the central bank system?
E. insurance companies A. N9,000 B. N1,000.00 C. N10,000.00 D. N100.00
Answer
Total deposit
Total money created =
Cash reserve ratio
1000
Total money created = 10%
2014/2015/50 (UNIZIK, AWKA)
Commercial bank reserves at the central bank have the Total money created = 1000 10
effect of 100
10 100
A. controlling credit and money supply = 1000 ÷ 100 = 1000 × 10
B. discouraging banking operations
C. advancing trade prospects Total money created = N10,000 (C)
D. reducing bank frauds E. C and D
Answer 2014/2015/63 (UI, IBADAN)
Controlling credit and money supply (A) The ability of deposit money banks to create money is
mainly affected by
A. reserve ratio B. liquidity ratio rate C. capital base
2014/2015/30 (UNIZIK, AWKA) D. monetary policy E. all of the above
The stock exchange market is where Answer Reserve ratio (A)
A. business borrows some capital
B. the federal government trades on treasury bills 2009/2010/54 (NDU, BAYELSA)
C. existing bonds and stocks are traded The term “Near money’s best described as
D. new stock and shares are traded A. a finance instrument that is readily convertible
E. none of the above B. government financial instrument that is convertible to
Answer cash
Existing bonds and stocks are traded (C) C. time deposits with low interest rates
D. a financial asset that is convertible to cash
Answer
2018/2019/50 (UNIZIK, AWKA) A financial instrument that is readily convertible (A)
The best way to reduce the supply of money in the economy
is to 2009/2010/55 (NDU, BAYELSA)
A. increase the liquidity ratio The commercial banks differs from non – bank financial
B. increase the number of bank notes and cheques produced institutions because they
C. decrease treasury bills D. liberalize access to credit A. contribute to economic development
Answer B. accept deposits withdrawal by cheque
Increase the liquidity ratio (A) C. mobilize savings D. invest surplus funds
Answer Accept deposits withdrawal by cheque (B)

2019/2020/9 (UI, IBADAN) 2009/2010/58 (NDU, BAYELSA) Exercise 19.29

Which of the following is NOT among the financial The largest liability appearing on the book of a commercial
institutions in Nigeria? bank is
A. federal mortgage bank B. microfinance banks A. cash B. deposits C. loans and advances
C. insurance companies D. Federal Ministry of Finance D. capital and reserves E. treasury bills
Answer
Federal Ministry of Finance (D)
2009/2010/61 (NDU, BAYELSA)
Which of the following is NOT a major function of a central
Bank?
2018/2019/22 (UI, IBADAN) Exercise 19.28 A. serving as government’s bank
Central bank serve as B. serving as banker’s bank
A. lender of last resort B. banker’s bank C. acceptance of deposits from the public
C. regulatory body D. all of the above D. responsibility for monetary policy
E. serving as lender of last resort
Answer Acceptance of deposits from the public (C)

539
2009/2010/63 (NDU, BAYELSA) Exercise 19.30
The supply of loanable fund is significantly influenced by
A. commercial banks B. mortgage bank
C. financial intermediaries D. the central bank
E. insurance companies

2013/22 (OAU, IFE)

Which of the following is one of the responsibilities of the central
bank of Nigeria?
A. issuing new bond to finance public sector borrowing
requirements
B. auditing the various agencies and departments of government
C. loaning money to other countries that transact business with
Nigeria
D. assisting banks that are in financial positions
Answer
Issuing new bonds to finance public sector borrowing
requirements (A)

540
 meet financial commitments, a lot of money is spent
by the government on servicing debts.
PUBLIC FINANCE (9) Economic development: Public finance ensures that
Public finance is an aspect of economics which deals with the government promotes rapid economic growth and
the management of public funds, government revenue and development. This is done through the provision of
expenditure. The study of public finance involves a detailed infrastructural facilities.
analysis of the various sources from which the government (10) Improvement in the standard of living of the people:
derives its income, the items on which the government The government concern is to promote high living
spends its money and the impact of such government standard for the citizens.
revenue sources and government expenditure on the (11) Formulation of fiscal policy: It enables government to
different aspects of the economy. formulate appropriate fiscal policies to regulate
government expenditure, tax rates and government
NB: The cardinal source of government revenue is tax
borrowing and to raise rate of economic growth and
development.
FISCAL POLICY
(12) Maintenance of balance of payment equilibrium: It
Fiscal policy involves the use of government income and
eliminates balance of payment deficits; and it raises
expenditure instruments to regulate the economy. Fiscal
balance of payment surplus.
instruments are used as weapons of economic control.
Fiscal policy is used to remedy reverse conditions in the
2002/45 UTME
economy such as inflation, deflation, balance of payment
The types, sources and uses of government income are
deficits, a low level of productivity, economic recession,
mainly concerned with
unemployment, etc.
A. public expenditure B. public revenue
NB: Fiscal policy is different from physical policy. Physical C. public budget D. public finance
policy involves the use of the law to regulate the economy. Answer
It involves such things as wage–freeze, foreign exchange A – Public finance.
control, quotas and rationing. On the other hand, fiscal
policy involves the use of government income and 1992/39 UTME
expenditure policies or instruments. The objective of public finance is to promote
A. full employment, national income and rice stability
OBJECTIVES OF PUBLIC FINANCE/FISCAL POLICY B. government revenue drive and expenditure to as high a
(1) Stable price level: It is the duty of government to level of possible
maintain stable price level by striking a good balance C. the expansion of government social services
between inflation and deflation. D. government revenue drive and minimize government
(2) General administration of the country: The expenditure
government spends money in maintaining civil service Answer
and various government departments. D – Government revenue drive and minimize government
(3) Identification of revenue source: It helps to identify expenditure.
all sources of government revenue and how to ensure
their effective collection in order boost the national 1993/36 UTME
revenue. Which of the following can be considered as being outside
(4) Reduction in unemployment level: The government the objectives of public finance?
tries through its monetary and fiscal policies to bring A. the allocation of resources to various sectors of the economy
down the level of unemployment to the barest B. the objective of even distribution of income and wealth
minimum or alternative put to increase the level of C. the achievement of economic stability
unemployment. D. the deregulation of the economy
(5) Efficient Spending of Public funds: To ensure that all Answer
government revenue are judiciouslyutilized. D – The deregulation of the economy.
(6) Maintenance of defence: The government defends its
citizens and their properties against forces from both 2002/38 Neco
within and outside the country. Which policy is used to adjust Government revenue and
(7) Ensuring equitable distribution of income: It brings expenditure so as to produce a desirable effect on the
even distribution of income in different economic economy?
sectors and parts of a country. A. business B. fiscal C. monetary D. physical
(8) Servicing of the national debt: This involves the E. tax
repayment of loans taken by the government and Answer
paying the accruing interest on such loans. Because of Fiscal (B)
the increasing debt burden arising from borrowing to

541
2017/40 Exercise 20.1 Tax rebate: Tax rebate is that part of the tax paid by an
The control of aggregate demand through changes in individual which is refunded to him under certain
government spending and tax rates is referred to as circumstances. For example, if such an individual had paid
A. monetary policy B. government policy a tax of ₦12 but it was later discovered that he should have
C. income policy D. fiscal policy paid only ₦10, the excess of ₦2 will be refunded to him as
a tax rebate.
2018/47 NABTEB Exercise 20.2
The objective of public finance is to Tax year: This is the period over which the tax payable is
A. increase income gap in the country calculated. In Nigeria, it is the period from 1 January to 31
B. ensure efficiency in resources allocation December of the same year.
C. reduce the economic being of the people
D. worsen balance of payment position Tax avoidance: Tax avoidance means the use of legally
permitted methods to minimise, or even eliminate, the tax
1999/45UTME Exercise 20.3 payable of one’s property or income. This can be achieved
Fiscal policy involves changes in by the careful arrangement of one’s financial affairs and the
A. open market operations skillful completion of the tax form. Tax avoidance is not
B. revenue and expenditure of government punishable by law.
C. money supply to the economy D. imports and exports
Tax evasion: Tax evasion is the use of illegal methods to
TAXATION avoid the payment of tax. By this means, the individual
Taxation can be defined as a compulsory levy imposed by deliberately fails to meet his tax liabilities, thereby robbing
the government on the income of individuals, corporate the government of revenue. Tax evasion methods include
bodies, properties and on goods and services to enable the the falsification of records or non-declaration of incomes or
government generate revenue for its economic and political profits. It is a serious offence punishable by law.
activities.
Taxable capacity: It is the extent to which the people of a
The essence of taxation is to raise revenue for meeting part country or an individual can bear the entire tax burden; and
of government expenditure or for providing economic and whenever it goes beyond the limit, additional taxation
social benefits to the public and for the purpose of produces economically harmful effects. Briefly it is the
controlling the economy. ability to bear tax burden or pay tax.

INTRODUCTORY TAX CONCEPT

Tax base:This refers to the item (anything) or the object Tax limit: It is the maximum rate or amount of tax which
which is taxed. It includes personal income, imports and government can levy.
exports, company profits, property, goods for sale, etc.

Tax rate: This refers to the percentage or proportion of tax Tax amount: This is also written as ‘amount of tax’. It is
base or tax object which is to be paid as tax. The rate of tax the amount of money paid as tax.
could be expressed as a percentage of 5% of income, etc. or
it could be a flat rate of tax e.g. ₦500 per adult male.
Disposable income: It is a person’s total income minus tax
Tax burden:The tax burden is the absolute amount of liability (amount of money paid as tax). That is, it is one’s
money which must be paid in tax. It includes all the costs monthly salary minus monthly tax’. Briefly it is income
incurred by the tax payers in compulsory transfer of money after tax; while full income without deduction of tax is
to the government. To illustrate, suppose the tax base of an called before tax.
individual is ₦100 and the tax rate is 10 percent. If he paid “Disposable income = full income (amount of salary) minus
somebody ₦5 to help him fill in the tax form, then the tax tax liability (amount to be paid or paid as tax).
burden is the ₦10 paid to the government, plus the ₦5 paid
to the person who filled in the tax form.
2012/1 Nov
Tax allowance:This is an allowance made to an individual A tax is defined as
on which he does not have to pay tax. The total tax A. a monthly contribution by individuals to the government
allowance is subtracted from the gross income of the person B. a sincere attempt by citizens to develop the nation
before arriving at his tax base, upon which the tax rate may C. one of the economic duties of the citizens
then be applied. In Nigeria, tax-free allowances are granted D. a compulsory levy imposed by the government on
for a man’s wife, a maximum of four children, dependent citizens.
relatives, and so on. All these are deducted from the Answer
income. The remainder becomes the tax base. A compulsory levy imposed by the government on citizens (D)
542
1991/35 (5) Property tax: This type of tax levied on certain
A tax is said to be good when properties that belong to either individuals or corporate
A. it yield more revenue to be state at the expense of the bodies. Examples tenement rates levied on landed
people’s ability to pay properties by the local authorities and payable by
B. the cost of collecting it is equal to the revenue it generates landlord/land/ladies/owner’s occupied buildings as
C. it is imposed so suddenly that no one can dodge itspaymentD. well as business premises. It could also be levied on
its payment causes minimum inconvenience to the tax payer the property or assets of the deceased. This type of
E. it induces workers to prefer more leisure to extra work capital tax levied on the assets of the deceased is
Answer called a Death Duty or Estate Duty. It is collected from
Its payment causes minimum inconvenience to the tax payer (D) the person who inherits such assets.
(6) Capital transfer tax (CTT): This refers to tax usually
1994/37 Exercise 20.4 imposed on any person to whom property such as
Tax evasion in Economics means houses, cars, e.t.c. are transferred. For example, if a
A. false declaration of assets man transfer his estate to his son, the tax payable on
B. paying tax only as and when due the estate transfers to the son either before or after the
C. declaration of assets man’s death such tax is also payable on transfer of
D. tax payment according to income received ownership of vehicle, houses, etc
E. quarelling with tax collectors. (7) Capital Gain Tax (CGT): Capital gain is an increase n
the value of capital assets. A capital gains tax is tax
TYPES OF TAXES levied on the gains or profits derived from the sale of
Taxes can be divided into two groups capital assets. For example, if a man buys a plot of
Direct taxes and indirect taxes. land for ₦25,000 and later resale it for ₦50,000, the
1. DIRECT TAXES: They are taxes levied on the difference of ₦25,000 is subject to capital gain tax at
income of individuals and firms, and on their property. the appropriate tax rate.
That is, they are payable with the awareness or (8) Expenditure tax: This is tax levied on the part of a
knowledge of the tax payer. Such income would person’s income which is actually spent. Before the
include wages, salaries, profits, rent and interest. The tax is levied, allowance is made for saving. This type
burden or incidence of direct tax payers, and such of tax is used to encourage saving.
taxes can easily be shifted to another person. (9) Excess profit tax: This type of tax is normally levied
on the excess or abnormal profit made by businesses.
TYPES OF DIRECT TAXES
(1) Personal income tax: This is a tax levied on the income of ADVANTAGES/MERITS OF DIRECT TAXES
an individual, usually during a period of one year. In (1) It is equitable: In this case, people are levied
assessing personal income tax, the tax payer can claim according to their income. The burden of taxation falls
certain allowances against tax. These include personal more heavily on those with higher incomes. It is done
allowances, wives and children allowances, life assurance by taking a higher percentage of income from those
premium, provident fund schemes, e.t.c. The remaining with higher incomes, income is redistributed. This
part of income which is then taxed is called taxable leads to greater social harmony.
income, while the remaining part of income after (2) They are usually cheap to collect: The cost of
deduction of tax is called disposable income. Personal collecting direct taxes is relatively small compared to
income tax is usually progressive. The rate of tax increases the total amount collected as tax. This is especially
as income increases. true of personal income tax, where the P.A.Y.E (Pay
(2) Company or corporate tax: This is tax levied on the As You Earn) system is used, tax is collected at
net profits of companies. Allowances are usually given source, thus making collection economical.
for capital expenditure by companies. Company tax is (3) They are convenient to payers: Most direct taxes are
presently 30% of operating profit. To encourage due when the tax payer can afford to pay. Salaried
industrialization, the new firms are granted “tax workers usually pay at the end of each week or month
holidays” which exempts them from payment of tax up and the tax is deducted before payment is made. They
to a period of four to five years. know how much they will pay and therefore plan how
(3) Petroleum profit tax (PPT): This is usually imposed to spend their disposable iincomes.
on companies that are engaged in the production of (4) They yield from direct taxes is more certain than
petroleum products in Nigeria. T was introduced in that from indirect taxes: It is possible to estimate
1959 and the tax rate is presently 85% of total profit. with greater degree of accuracy the amount of revenue
(4) Poll tax:This type of tax is usually levied per head of which can be derived from direct taxes. This is
people living within a geographical location. It is a flat rate because the income and rate of tax are usually known.
tax imposed on those with low income. For example, each (5) Direct taxes give the payer freedom to spend his
adult could be asked to pay N500 per years as tax. disposable income (i.e. income after tax) as he
wishes: This creates greater consumer satisfaction.
543
(6) They are anti-inflationary: It can be used to combat 2012/2013/37 (UNIZIK, AWKA) Exercise 20.5
inflation n the economy. For example, if there is an Which of the following are direct taxes?
inflationary trend in the economy, personal income tax A. sales taxes B. excise duties
can be increased. This reduces people’s disposable C. income and company tax D. tariff duties
incomes. Tax can be increased to reduce excess E. commodity taxes
liquidity within the economy.
(7) It is elastic since it is not permanently fixed. 2. INDIRECT TAXES: Indirect taxes refer to all forms
(8) It is used to reduce income inequality in the country. of taxes, that are payable without the knowledge or
(9) It is cost effective since the cost of collecting such awareness of the tax payers. Such taxes are usually
taxes is very minimal. levied on finished goods and services and passed onto
the final consumers in the form of increase in prices.
The incidence of indirect taxes fall indirectly on the
DISADVANTAGES/DEMERITS OF DIRECT TAXES final consumer and such taxes can easily be shifted
(1) High rate of evasion: Many people earn income, but from the manufacturer or producer to the final
do not pay direct tax, some who do, pay a very consumer, especially where demand is inelastic.
minimal amount that is people and firm could make
false declarations of income in order to pay less tax. TYPES OF INDIRECT TAXES
This makes the government to lose a lot of revenue. (1) Custom duties: They are of two types
(2) Direct tax discourages savings and investment: (i) Import duties: Import duties are taxes imposed or
Direct tax has an adverse effect on savings, investment levied on goods brought into the country. They
as well as on production. If a high percentage of are also called tariffs. They are usually paid
income is removed from people in the form of higher initially by importers. Import duties are important
taxes, they would have less money to save after due to the following reasons:
meeting their basic requirements. (I) It forms a substantial part of government
(3) It could act as a disincentive to hardwork if the rate revenue in West African countries.
of taxation is high: A worker may not be willing to (II) It is used to reduce importation of non
work for longer hours (as over time). If he knows that essential items.
a large percentage of his earnings from over time will (III) It is used to protect infant industries.
be withdrawn from him in the form of tax. (IV) It is used to prevent dumping.
(4) Pinch: The tax payers pay tax out of their income. (V) It is used to correct an adverse balance of
This pinches them as it has an adverse effect on their payment.
purchasing power. (ii) Export duties: This is tax levied on goods sent
(5) Certain people such as head of state and commander in out or exported to other countries. Such tax is
chief of armed forces, state governors and their paid by producers or exporters of the exporting
deputies, ambassadors and high commissioners, do not country. Export duties are important due to the
pay direct taxes. As a result, the government loses following country. Export duties are important
huge revenue. due to the following reasons:
(6) There are usually the problems that are associated with I. It is an easy way of collecting taxes from
filing the personal income tax form. farmers who produce for exports who may
(7) It encourages high rate of tax avoidance. have evaded direct taxation in the form of
(8) Direct tax encourage high level of dishonesty among pool tax or income tax.
the tax payers and the tax collectors. II. It is a source of revenue for the countries of
West Africa which depend to a large extent
2014/1 Neco on foreign exchange derived from exports
A tax whose burden falls on the individual tax payer is crops and mineral products.
called ____ tax (2) Excise duties: These are taxes levied on goods
A. direct B. indirect C. progressive produced within the country. That is, on locally
D. proportional E. regressive manufactured goods e.g. cigarette, beer, etc.
Answer “Duty is the same as tax”.
Direct (A) (3) Sales tax: This is levied on sale of a commodity or
all goods and services bought by final consumers.
1995/23 Nov In Nigeria, this tax has been replaced by value
Company tax is an example of added tax (VAT).
A. direct tax B. indirect tax C. tax incidence (4) Value added tax: This is a tax on the net
D. regressive tax E. value added tax contribution of firm to production and is usually
Answer passed to consumers. Value added tax is imposed
Direct tax (A) on the value added in production at the various
levels of output. The rate is presently levied at 5%
544
 of value added. It is a multiple state tax which is (4) Taxes on commodities lead to a less uproar and
divided into input and output VAT respectively. It friction: They buyer of the commodity is not aware of
has a wider tax base it brings large numbers product the amount he is paying as tax when he purchases the
into government’s tax net. commodity so he does not complain of high taxation.
(5) Purchase tax: This is the tax imposed on certain (5) They could be used to protect infant industries: This
consumer items considered to be bought by the is true of tariffs. Import taxes raise the prices of
high income earners e.g. cars, television sets e.t.c. foreign goods. This helps to discourage unfavourable
Purchase tax is usually collected at the wholesale competition with locally produced goods.
stage. Purchase tax is based on the value of the (6) Indirect taxes form an important source of revenue
commodity. Luxury goods attract a higher rate of for the government: Taxes derived indirect taxes
purchase tax than essential items. contribute to social and economic development.
(6) Airport tax: This type of tax is payable by those (7) They are easy and cheap to collect: Once a consumer
who make use of the services of the airport. purchases a taxed commodity, he pays the tax. The tax
(7) Stamp duty: This is payable by the users of is not evaded by the buyer of the commodity.
government stamps, example of tax payable on the (8) Indirect taxes do not discourage hardwork: They tend
incorporation of company. to act as an incentive to hardwork. The worker may
(8) Entertainment tax: This is normally paid by work overtime in order to get a higher income with
organizers of entertainment. which to purchase the taxed commodities, whose
prices have increased.
METHODS OF IMPOSING INDIRECT TAXES (9) It can be used to correct an adverse balance of
(1) Specific tax: This is a fixed tax sum imposed per unit payment: By raising the prices of imported goods,
of a commodity irrespective of its value. This is import duties help to reduce the demand for imports.
usually levied according to the units or items of a This may have a remedial effect of balance of
commodity. For example, if an importer imports 300 payment.
separate unit of an article, he will pay more tax (10) Taxes on luxury goods fall more heavily on the rich:
compared to another importer who import 200 units of More money is therefore gotten from the rich in the
the same article. If a unit tax says is N15 then 300 will form of taxes from luxuries. The burden of taxation on
attract more tax than that of 200 units. Specific tax on luxury goods therefore usually falls on the high
imported goods are flat rate tax. income earners who demand them and who can afford
(2) Advalorem tax: This is a tax imposed on to pay.
commodities in accordance with their respective
values and at specific percentage. The higher the value DISADVANTAGES/DEMERITS OF INDIRECT TAXES
of the item, the higher the tax, and the lower the value, (1) They are regressive: Both the rich and the poor pay
the lower the tax. The world Advalorem simply means the same amount of indirect tax if they purchase a
“According to the value”. If a tax rate of 10% is commodity, it has more negative effect on the low
imposed on a commodity worth ₦1,000, the tax income earners than the high income earners. However
payable is the burden of the tax falls heavily on those with
10
× 1000 = ₦100 smaller income.
100 (2) They may involve a high cost of collection: This is
The tax rate is usually the tax that is proportionate to true of custom duties which involve anti-smuggling
the invoice value of the articles. campaigns. A lot of resources are spent in trying to
combat smuggling.
ADVANTAGES/MERITS OF INDIRECT TAX (3) Indirect taxes may general inflationary trends within
(1) Indirect taxes on most commodities are usually paid the economy: Since the producer’s cost of production
in small amounts: When commodities are bought, the are increased by taxation, they would charge higher
burden of tax is relatively small when spread over prices. If such prices are high, this may lead to
many purchases. inflation.
(2) They could be used to regulate the production and (4) The incidence of indirect tax is not easy to determine:
consumption of harmful and non essential items: The extent to which the buyer or producer will bear
Items which are either regarded as harmful or the burden of tax is not easy to say in precise terms. It
luxurious are heavily taxed to discourage the demand depends on the elasticity of demand for the
for them. commodity. However, it is not easy to say precisely
(3) They could be used to check the importation of how elastic this is.
harmful and non essential items: High tariffs raise (5) This could to industrial unrest within the economy:
the prices of imported goods, thereby discouraging the Because of the rising prices of goods, workers would
demand for them. demand higher wages. In order to back up their
demands for such higher wages, they may embark on
industrialization.
545
(6) Indirect taxes such as VAT have a wider coverage and payer bears the full burden of taxation. He bears both the
as a result they yield more revenue to the government formal and effective incidence. For example, a person who
when compared to direct taxes. pays income tax bears the full burden of tax. His income is
(7) Export duty which is an indirect tax discriminate not shifted to someone else, and it is reduced by the full
amount of tax.
against certain sectors of the community: For
In the case of indirect taxes, the burden of taxation may be
example, farmers who produce export crops may pay borne by the producer/seller or the consumer, or it may be
both income tax and export tax, while some other shared between the producer/seller and the consumer. The
farmers who produce for local consumption may not extent to which the producer/seller or the consumer will
pay any tax at all or pay only local rates. bear the burden of indirect tax will depend on the elasticity
of demand for the commodity which is taxed.
2012/28 Nov
Which of the following is not a direct tax? (a) Incidence of indirect tax when demand is perfectly
A. company tax B. pay as you earn C. value added tax inelastic: If a commodity has a perfectly inelastic demand,
D. capital gains tax the whole tax burden can easily be shifted to the consumer
Answer by the seller. The price of the commodity increases by the
Value added tax (C) full amount of tax. The tax incidence is therefore on the
buyer of the taxed commodity. The seller could pass the
2010/41 whole tax to the consumer in the form of higher prices
Excise duty is levied on because the increase in price does not bring about any
A. the total population B. local products C. luxury goods change in quantity demanded.
D. the working population
Answer
Local products (B)
1992/37
Indirect taxes are taxes which
A. are levied on the incomes and profits of individual and firms
B. always affect the producer only
C. are based on progressive principles
D. are based on regressive principles
E. are levied on goods and services purchased by
individuals and firms
Answer
Are levied on goods and services purchased by individuals Incidence of tax when demand is perfectly inelastic
The tax is represented by AB. This tax increases the
2013/2014/36 (UNIZIK, AWKA) Exercise 20.6 producer cost of production. Since the same quantity is
The tax levied on goods and services at each stage of bought irrespective of the price, the producer increases the
production is price of the commodity from OP1 to OP2. The consumer
A. VAT B. PAYE C. surtax D. advolorem tax bears the full tax burden represented by rectangle P1BAP2.
E. income tax (b) Incidence of indirect tax when demand is perfectly
elastic: If demand for a commodity is perfectly elastic, the
2018/6 (UNIBEN, BENIN–CITY) Exercise 20.7 seller/producer will bear the whole burden of taxation. This
A tax levied on goods manufactured and consumed within a is because any attempt to increase price will make the
country is demand for the commodity fall to zero. The tax burden is
A. sales tax B. income tax C. excise duty therefore passed to the consumers.
D. value added tax

THE INCIDENCE OF TAXATION

The incidence of taxation refers to the burden of tax with
reference to where this burden rests. The incidence or burden of
taxation lies on the person who financially pays the tax.

There are two types of tax incidence.

(1) Formal incidence: This refers to the initial effects of tax on
the tax object. It tells where the initial burden of taxation
lies. The payer of a direct tax bears the initial burden of tax.
For indirect taxes, the producers or the middlemen bear the
initial burden of taxation.
(2) Effective incidence: This refers to who bears the ultimate or
final burden of taxation. In the case of a direct taxes, the Incidence of tax when demand is perfectly elastic

546
 The tax is represented by AB, as the tax increases the (d) Incidence of tax when demand is unitary: If demand is
producer’s/seller cost of production, the quantity supplied unitary, the tax burden is shared equally between the
decrease fromOQ1 to OQ2, the price remains at OP since producer/seller and the consumer.
any attempt to increase price will make demand to drop to
zero. The producer/seller bears the whole tax burden
represented by CPAB.

(c) Incidence of indirect tax when demand is moderately

elastic or moderately inelastic: If the demand is moderately
elastic or inelastic, the burden of taxation will be shared
between the producer/seller and the consumer. The more
inelastic the demand for the commodity, the more the
burden of tax is shifted to the consumer. On the other hand,
the more elastic the demand for the commodity, the greater
the burden of taxation the producer/seller bears.

Tax incidence when demand is unitary.

The producer passed half of the tax burden to the consumer in the
form of higher prices. The tax is represented by GI, and the price
increases from OP1 to OP2. The tax burden borne by the consumer
is represented by P1HGP2 while the tax burden borne by the seller
is represented by KIHP1. The two rectangles are equal.

2018/2019/13 (UI, IBADAN)

The incidence of tax depends on
Tax incidence when demand is fairly elastic A. price of the commodity B. quality of the commodity
C. price elasticity of the commodity
The producer/seller bears the tax burden represented by D. cross elasticity of the commodity
P1HIJ while the buyer bears P2GHP1. The producer Answer
therefore bears the greater burden when demand is Price elasticity of the commodity (C)
moderately elastic.
1986/40UTME
Tax incidence is the analysis of
A. how progressive a tax is B. how a tax is collected
C. how distorting a tax is D. who ultimately pays the tax
Answer
D –Who ultimately pays the tax.

PRINCIPLES OF TAXATION
A good tax system has a number of characteristics.The
principles of a good tax system were laid down by Adam
Smith in his book, the Wealth of Nations, published in
1776. He referred to them as the canons of good tax system.
The four canons of taxation by Adam Smith are as follows:
1. Equity: This principle (equity or equality) states that
the tax payers should be levied according to their
ability to pay tax. Progressive taxation which taxes a
higher percentage of tax from those with income
satisfy this principle. Ability to pay tax is measured in
Tax incidence whendemand is fairly inelastic
two ways.
The producer/seller bears the tax burden represented by (i) According to income:The higher income earners
P1HIK while the buyer bears P2GHP1. But as represented should be meant to pay more tax than the low income
above, the area which represents the burden borne by the earners.
consumer is larger than that of the producer/seller.
547
(ii) According to expenditure: Those who spend more 2019/4 (UNIBEN, BENIN–CITY)
money or consume more goods and services should be Fair distributonal principle of taxation is that of
meant to pay more tax. A. equality B. convenience C. certainty D. cost
2. Economy: This lay emphasis on cost effectiveness, it Answer
says that the imposition and collection of taxes should Equality (A)
be more than the cost of doing so. A huge amount of
resources must not be spent on collecting small SYSTEM OF DIRECT TAX/METHODS OF IMPOSING TAX
amount of tax revenue. (1) Progressive tax system: This is a form of tax in which
3. Certainty: A good tax system should provide adequate the rate of tax increases as the tax payer income
information as to enable the tax payers to know how increases. That is, higher tax rate falls on the higher
much is payable as tax, when, how and to whom tax is income earners than the lower income earners (pay as
payable. you earn).
4. Convenience: This simply means that the tax payers
should be levied at such a time and place which are
most appropriate for them to pay their taxes.
The P.A.Y.E (Pay As You Earn) tax system properly
satisfies this principle since tax is collected directly
from the employer, even before the pay reaches the
employee.

OTHER PRINCIPLES NOT LAID DOWN BY ADAM SMITH

1. Benefit of tax: It simply says that those who benefit
from public or government services should pay the
cost of such services through taxation. That is
individuals paying for the benefit derived from public
or government services through taxes levied on them.
This allows each tax payer to contribute to the
government purse according to the benefit he or she
derives from public services.
2. Neutrality: The tax system adopted should not affect Graph of progressive tax
people’s willingness to purchase commodities and not
affect their willingness to work, save or make (2) Proportional tax system: This is a tax system where
investment. The government should always strike a every tax payer pays the same proportion of his or her
good balance while imposing taxes. income as tax, that is, the tax rate is the same
3. Security: A good tax system should be used as a irrespective of the level of income or wealth.
means of protecting the lives and properties of the
citizens.
4. Efficiency: A good tax system should be easy to
assess and simple to collect.
5. Elasticity: A good tax system should not be
permanently fixed. Rather, it should be adjustable
inline with economic activities.
6. Flexibility: The tax system should be rigid. It should
be easy to change it, so that it can be adapted to
changing circumstances in the economy.

2006/35 Neco
The following are canons of taxation except
A. certainty B. convenience C. economy
D. equity E. security
Answer
Security (E)
Hint: The four canons of taxation include equity (equality),
economy, certainty and convenience.Security as a principle
of taxation was not laid down by Adam Smith.
Graph of proportional tax

548
(3) Regressive tax system: This is a form of tax in which 1986/39 UTME Exercise 20.8
taxation takes a smaller percentage of income or stock The best technical description of a progressive tax is a
of wealth as tax, as income or wealth increases. A tax A. tax which takes more money from the rich than from the
system in which every tax payer pays the same amount poor
of money as tax irrespective of the differences in their B. more equitable tax than a regressive one
income. The lower income earners suffer such tax C. tax which takes a higher proportion of extra naira
system more than any other category of income received as income rises
earners. The poor are meant to contribute more to the D. tax which falls directly on those in the high income
purse of government. It is only indirect taxes that are brackets
regressive in nature under the regressive tax system,
higher tax rate falls on the low income earners than the TAX RATE
high income earners. Tax rate is the percentage or fraction of the tax payer’s
income that is paid or payable as tax. That is, it is the
percentage of tax base.
Tax rate is usually classified into three.
(i) Average Tax Rate (ATR): This is the percentage of
tax paid per unit of income. It is measured as:
Total amount of tax 100
ATR = Tax base or total income × 1
(ii) Marginal Tax Rate (MTR): This measures the ratio of
changes in tax payable to changes in tax base. It is
measured as:
Changes in amount of tax 100
MTR = × 1
Changes in tax base
Where tax rate is constant, then
ATR = MTR
NB: Tax base is the same thing as taxable income or
payer’s income.
(iii) Optimal Tax Rate (OTR): This is the most efficient
tax rate. It is the rate that generates maximum revenue
with lower efficiency loss to the government. If the
Graph of regressive tax
efficiency loss is more than revenue, the tax is said to
be sub – optimal.
2014/60 Neco
A tax system in which the low income earners pay more
Example TR 1
while the higher income earners pay less is called _____ tax
When income changed from ₦10,000 to ₦20,000, the tax
A. capital gain B. progressive C. personal income
paid changed from ₦1,000 to ₦2,500 respectively.
D. proportional E. regressive
Calculate ATR and MTR
Answer: Regressive (E)
Solution
When income is contant at ₦10,000
2012/27 Nov
Total amount of tax
If the tax rate is 15% for three individuals on different ATR = MTR; ATR and MTR =
Tax base
salary scales, the tax system is said to be 1,000 100
A. progressive B. proportional C. specific = × = 10%
10,000 1
D. regressive Changes in amount of tax 100
Answer: Proportional (B) MTR = Changes in tax base ×
1
₦2,500−₦1,000 100
= ₦20,000−₦10,000 × 1
1998/31
Progressive system of taxation implies that the 1,500 100
= ₦10,000 × = 15%
A. poor play relatively more 1
B. tax rate falls as the tax base increases
C. tax rate increases as the tax base increases EFFECTS OF TAXES
D. average and marginal rate of tax will be the same (1) Effect on demand and production: A reduction in tax
Answer will leave consumers with additional cash i.e., their
Tax rate increases as the tax rate bases increases (C) disposable income will be higher, their demand for
goods and services will increase and producers will be
encouraged to expand their level of production. An
increase in tax will leave consumers with less cash i.e.
their disposable income will fall, their demand for
549
 goods and services will be low, this will in turn 5. To prvent dumping: It enables government to prevent
discourage producers from producing in large dumping of goods on one’s country. She can place a
quantities. The level of productivity will tend to be total ban or prohibitive (extremely high) duties on such
low. goods and services.
(2) Effect on employment: A reduction in tax may lead to 6. To discourage production and consumption of
increased productivity, it may also increase the rate of harmful goods: Indirect taxes are imposed on certain
employment in the country. commodities with the main aim of discouraging their
On the other hand, an increase in taxation will increase use. Import duties on luxurious items ae meant to
the rate of unemployment. High taxation increases the reduce the use of these foreign goods. While excise
prices of goods. duties on certain locally manufactured goods, like
(3) Effect on the price level: A decrease in taxation will cigarettes, tobacco etc are also aimed at discouraging
lead to an increase in disposable income. This will their production and consumption.
lead to higher demand which may in turn generate 7. To correct unfavourable balance of payments: It is
inflation. An increase in personal income tax will help used to reduce import through high import duties and
to lower prices. This is because the effective demand raise export by reducing export duties. This eliminates
for goods and services will be lowered because of a balanace of payments deficit.
decreased in the disposable income of people. Low 8. For the defence of the country: Tax revenue is used to
demand will lead to falling prices. If the fall in prices defend the territorial integrity of a nation. The revenue
is persistent, it may lead to deflation. is used to train members of armed forces and pay their
(4) Effect on government revenue: A decrease in taxation salaries as well as to buy ammunition for the defence of
will lead to less revenue accruing to the government the country, especially in the period of war.
from this source. On the other hand, increased taxation 9. To protect infant industries: Government uses taxes as
leads to increased government revenue from tax a means of protecting and promoting infant industries
sources. and protect their concession to infant industries and
(5) Effect on growth: Government taxation policy can be protect their products against keen competition of
used to influence the growth rate of the economy. foreign superior goods through ban or very high import
They can stimulate recovery from an economic duties. These enables them to survive.
recession by reducing tax. A reduction in tax coupled 10. To redistribute income: High taxes are imposed on the
with increased government expenditure (financed by a rich; while little or no tax is imposed on the poor. And
budget deficit) will increase aggregate demand in the tax proceeds are used as poverty alleviation of the poor
economy. as well as to provide more facilities for the poor than
the rich. These reduce income inequality in the society.
OBJECTIVES OF TAXATION 11. To stabilize (regulate) economy: Taxes enables the
The following are some of the reason why government government to control inflation and deflation. A very
imposes taxes high rate of taxes reduces level of economic activities;
1. To generate revenue: Government derives a lot of and it thereby reduces inflationary rate. While a very
revenue from income tax, poll tax, profit tax and low rate of taxes or tax consession stimulates economic
property tax as well as from all forms of indirect taxes, activities and it thereby eliminates deflation.
e.g. sales tax, purchase tax, excise tax, import and
export duties. PROBLEMS OF TAX COLLECTION IN WEST
2. As a retaliatory measure: It is used as a tool of AFRICAN COUNTRIES
retaliatory measure in international trade. It enables a 1. High rate of illiteracy: The illiteracy rate in most West
country to retaliate countries that imposed very high tax African countries is still high. In some countries, the
duties or ban on a country’s imports. illiteracy rate is estimated to be up to 70%. This makes
3. To defray government expenses: It enables government it difficult to keep records of income or business
to offset her recurring expenses, e.g. payment of transactions. Where they are kept, they are not accurate.
salaries and wages of civil servants, purcahses of Therefore, correct assessment of income tax becomes
stationery, petroleum products, etc. difficult.
4. To ensure economic growth and development: Tax 2. High cost of tax collection: For example, poll tax
revenue enables government to ensure rapid economic which is common has a high cost of collection. Because
development as a large part is invested on of the low income of many people, they are required to
infrastructural facilities eg. Construction and pay poll tax. This may sometimes require tax collectors
maintenance of good roads, electricity supply system, going into the remote villages to collect taxes. Problems
pipe- borne water, telecommunication etc as well as of transportation cost may increase the difficulty. Also,
building industries eg. agro – allied industry for the custom duties involve high cost of collection. Many
production of essential goods like foodstuffs. people tend to smuggle goods; consequently anti-
smuggling campaigns have to be instituted.

550
3. Poor transporation system: The networks of roads in Objective of government expenditure
West Africa is quite poor. The roads are not motorable, 1. General administration of the country: The
especially during rainy season. Also many streams in government spends money in maintaining civil service
the riverine areas are not navigable. Thus it is not and various government departments. Money is also
possible for tax collectors to go to these areas for tax spent in maintaining the President, Vice President,
collection. members of the National Assembly, Ministers,
4. High rate of tax evasion and tax avoidance: A large Advisers, the various Ministries, etc. Money is spent on
number of people make false declarations of income. these to enable them to carry out one of the most
This is very common with self-employed people. Many fundamental functions of government; that is,
of them declare less income so as to pay less tax. This administration.
is also true of some firms, especially the small ones. 2. Social welfare: This aims at maintaining a minimum
Also, people try to avoid tax by looking for loopholes standard of living and providing greater equality of
in the tax law. When any loophole is found, they use it opportunity for all citizens. To achieve this, the
to exempt themselves from taxation. government provides social welfare services and social
5. Inadequate record: It is difficult to estimate correctly infrastructure. Social welfare services include
the income of many people who do not produce on a unemployment benefits, old-age allowances and
commercial basis. Such people engaged in the pensions. Social infrastructural facilities include health
subsistence sectors are therefore exempted from facilities, educational facilities, public housing, water
personal income tax. supply, recreational centres, etc.
6. Awareness Problem: Most of the citizens of West 3. National Security: Money is spent by the government
African countries are not aware that it is a civic duty to in the training and maintainance of the armed forces –
pay tax. They may therefore run away when tax the Infantry, Navy and Air force. Money is spent on
collectors are around. purchasing arms, ammunition, and other equipment
7. Corruption: The level of honesty in our society required. The maintenance of the armed forces is
adversely affects payment of taxes. important since they defend the country from external
8. Government poor attitude towards tax collection: aggression. They also help to quell internal revolts and
The government of West African countries are not quite uprisings.
enthusiastic in the collection of taxes. This lowers tax 4. Maintenance of internal law, order and security: The
revenue. government spends money in maintaining the police
force which helps to keep internal law and order as well
as to protect the citizens. To maintain and dispense
GOVERNMENT/PUBLIC EXPENDITURE justice, courts are set up and magistrates, judges, etc are
Public expenditure is a collective name for all the monies employed. Fire-fighting services are also set up to
spent by the government to maintain its machinery for the maintain security.
benefit of the society and for the economy to meet its 5. Economic development through development of
obligations to external bodies as well as a gratuitous economic and social infrastructure: Most governments
assistance to other countries. Government expenditure are of developing countries aim at speeding up economic
classified into two main groups (structure). development by making certain types of expenditure.
(1) Recurrent expenditure. To achieve this, economic infrastructural facilities are
(2) Capital expenditure. provided. These include all forms of transportation and
communication network, electricity, water supply etc.
STRUCTURE OF PUBLIC EXPENDITURE These are basic industrial take-off.
(1) Recurrent expenditure or current operating cost: 6. Direct investment in productive economic activities:
This comprises of all expenditure on items whose Direct investments are made in various sectors of the
benefits are meant for current consumption e.g. economy such as agriculture, industry, mining,
general administration, social service, defence, salaries commerce and in government-owned enterprises.
and wages etc. They are made for the day to day 7. Servicing of the national debt: This involves the
running of the government. The items on which such repayment of loans taken by the government and paying
expenditure are made are meant to be consumed the accruing interest on such loans. Because of the
within a year. increasing debt burden arising from borrowing to meet
(2) Capital expenditure or development cost: This financial commitments, a lot of money is spent by the
consists of all expenditure which are not meant for government on servicing debts.
current consumption e.g. construction of roads and 8. Economic security and progress: The government
bridges, buildings of houses, schools, stadium, airport, could achieve this objective in a number of ways. To
investment in stocks, shares, bonds, debentures and protect individuals in their economic activities, the
other capital goods. They are made for the purpose of government exercises control by setting up an agency
generating income to the government, and for which inspects factories to ensure good quality
promoting economic growth and development. products. In Nigeria there is the Standards Organisation
551
 which ensures that firms conforms to certain standards. 10. Rapid increase in population: A great increase in both
In order to stimulate progress and counter the effects of birth and immigration rates may compel government to
an economic recession, the government may increase its raise her expenditure on social amenities like primary
expenditure on investments. This increases the level of schools, hospitals, etc.
employment. Government expenditure is used here as a 11. Increase in grants, subsidies, aid, etc: Due to
fiscal weapon. Also, in order to meet the objective of unavoidable circumstances, government may be
full employment the government, may pay for the compelled to give grants and subsidies to state and local
movement of labour from the surplus areas to the governments as well as public corporations.
deficit areas. 12. Increase in other government expenses: They include
9. Miscellaneous objectives:These include granting aid security expenses, poverty alleviation programme,
and loans to local governments and states; grants and establishment of skills acquisition centres and other
aid to other countries; meeting all financial obligations agencies.
to international organisation such as the United Nations,
the Organisation of African Unity, the Economic Effects of government expenditures
Community of West African States, etc. 1. Higher standard of living: Public expenditure is the
second largest component (part) of aggregate
expenditure; thus its increase stimulates the economy.
Reasons for increased government expenditure It creates employment and increases people’s income
1. A rise in general price level: A sudden rise in prices of which raise their general standard of living.
essential commodities in various government 2. Creates demand for goods and services: Public
departments may push up government expenditure. expenditure creates effective demands for goods and
2. Debt servicing: Constant payment of large amount of services. This encourages firms and people to expand
interest on national debt may cause a rise in their business activities; and it leads to production of
government expenditure. more goods and services.
3. Increase in employment and wage rate: It may be due 3. More employment: Expenditure on execution of new
to high rate of employment of many public servants at a projects creates abundant employment opportunities.
time. This may be coupled with sudden rise in the wage People and materials that were idle or not fully
rate resulting from award of fat salary increase or fixing employed become fully employed. And they can
the legal minimum wage rate at a very high level. therefore contribute their quota to the economic
4. Establishment of large industries: It may be due to the development.
establishment of many large capital intensive industries 4. Effects on economic development: A huge government
within a short period like or two years. expenditure on different areas, especially on
5. Urgent need for infrastructural development: establishment of key industries and execution of
Government may be compelled to embark upon important large projects, etc quickens the rate of
construction and maintenance of essential basic economic growth and development.
amenities like roads, bridges, government housing 5. More import substitution industry: Its revenue is used
estates, dams, electricity, pipe borne water, etc, These to set up such domestically inclined industries make
cause a sudden rise in government expenditure. high quality and large quantities of goods available for
6. Political activities: Government may spend a huge both local use and export. This reduces import and
amount of money to conduct population census, raises the level of export.
political elections, etc to replace the previous one which 6. More export oriented industry: Its revenue enables her
might have been cancelled due to various reasons. to set up export industries. They produce very high
7. Emergency commitment: Govenrment may be quality goods for foreign countries. This raise volume
compelled to increase her expenditure to offset of export and it corrects adverse balance of payments.
unexpected events like civil disturbances, war, 7. Ensures self sufficiency: It ensures self sufficiency in
epidemic, natural disasters, social chaos. foodstuffs if it productively invested on large-scale
8. Increase in administrative expenses: Constant rise in agriculture and other industries that produce basic
cost of administration probably due to fat salary award needs.
on regular basis, increase in prices of stationary, 8. Effects on General Price Level: A huge government
petroleum products, and other petty expenses cause expenditure on various sectors of the economy leads to
increase in government expenditure. a high demand for goods and services. And this raises
9. Rising wave of corruption: Increase rate of prices of almost all goods and services.
embezzlement, increasing values of invoices and 9. Increase net migration (a rise in population): A high
contracts, etc may cause a rise in government rate of government expenditure or investment increases
expenditure. level of immigration and reduces level of emigration.
This leads to increase in population it has positive
effects in under populated countries and negative
effects of over populated countries.
552
10. High rate of literacy: It encourages acquisition of knowledge transfers from current revenue (i.e. the excess of current
(reduces illiteracy) if properly invested on the three tiers of revenue over current expenditure). Loans may be
education: primary, secondary and tertiary institutions. It received from world financial institutions like the
brings about availability of skilled labour. World Bank, the International Monetary Fund, foreign
11. Exploitation of Resources: Increase in government
governments, and from internal sources.
investment especially on key projects or large industries
leads to expoitation of unused resources and other effective 2. Recurrent revenue: Recurrent revenue is a regular
allocation to appropriate economic sectors. source of revenue. Recurrent revenue is income which
12. Raises level of health: Government expenditure invested on is receieved on a regular or yearly basis. It consists of
health sector like building of general hospitals, maternity income from taxation, fees, and licenses charged for
hospitals, training of medicine and other related materials for vehicles and hospital treatment, school fees, fines, and
the sector raise level of health of the general public as it the interest from loans given by the government.
ensures efficient health care delivery services.
13. Raises Economic Welfare: A great rise in government SOURCES OF GOVERNMENT REVENUE
expenditure raises level of employment and great 1. Taxation: A tax is a compulsory payment made by
demand for goods especiall capital goods. They raise citizens and corporate bodies to the government to
incomes of both workers and self employed people. It enabe it carry out its responsibilities. Examples include
leads to a rise in the standard of living of the people. income and property tax.
14. Effects on Balance of Payments: Increased 2. Borrowing: Government can borrow from individuals
government investments on import substitution and and organisations both within and outside the country.
export industries reduces volume of import and raises 3. Fees and other charges: These include license fees,
volume of export. These lead to balance of payment certificate of occupancy fees, school fees, court fines, etc.
surplus. 4. Earnings from public enterprises: Thes are dividends,
15. Full Capacity Utilization: Increase in government received yearly by the government from companies in
investment in the existing or old industries raises their which it owns shares as well as proceeds fro the sale of
level of utilization (uses) of resources to the optimum certain products or services by government agencies or
level. It makes industries to operate at full capacity. corporations.
16. Reduces Income Gap: Government increased 5. Royalties and rents: The Government also collects
expenditure may be invested on labour–intensive rents for the use of public land and royalties from
industries or agricultural projects that give more companies that are granted the right to exploit mineral
employment to the poor people than the rich. It may deposits.
also be used to give subventions to state enterprises that 6. Aid and grants: This is money in kind or in cash
provide social amenities, like portable water, electricity, received from rich and friendly countries.
public transport, health, education, etc. They favour the
poor than the rich. The bridge the gap between the rich Objectives of government revenue
and the poor. 1. Enforcement of law and order: The money enables
government to effectively maintain all laws of the state;
2004/38 Nov and she ensures that everybody complies with them as
Which of the following items cannot be classified as obedience to the laws is the major source of peace.
essential government expenditure? 2. Payment of salary and wages to civil servants: It enabes
A. construction of roadsB. servicing of external debts government to pay civil servants’ salaries, allowances and
C. maintenance of public hospitals wages to her casual workers. Theyinclude teachers,
D. importation of luxury consumer goods doctors, nurses, ministers, ambassadors, clerks, engineers,
Answer accountants, drivers, etc.
Importation of luxury consumer goods (D) 3. Building and maintaining infrastructural facilities: The
money enabels government to construct infrastructural
GOVERNMENT/PUBLIC REVENUE facilities like tow hall (house of parliament), network of
This simply refers to the money generated by a government good roads, pipe borne water, hospitals, electricity,
from various sources such as taxes, royalties, investments markets, schools and agricultural units as well as to ensure
as well as loans and aid from other countries and their constant effective maintenance.
organisations like, International Monetary fund (IMF), 4. Establishment of new industries: Nowadays, many
World Bank, African Development Bank (ADB), etc. govenrments raise revenue, even acquire loans for the
establishment of large industries e.g. refineries, cement
CLASSIFICATION OF PUBLIC REVENUE factories, iron and seteel complexes, petrochemical plants,
1. Capital revenue (or receipt): Capital receipts are also etc.
referred to as irregular or extraordinary sources of 5. Executing other key projects: In addition to the above
revenue. They are sources of revenue used for meeting enterprises, many governments set up other ventures to
expenditure on heavy capital projects. Capital receipts ensure constant availability of all important goods and
come from grants and loans made to government and services. They include universities, air and sea ports,
553
 large agricultural units, dual carriageways, major REVENUE ALLOCATION IN NIGERIA
bridges, and other key industries for the manufacture of Revenue allocation refers to the process of sharing out the
a variety of goods. federally collected revenue among the three tiers of
6. Ensuring rapid economic growth and development: government and to special areas/projects.
Govenrment ues a large proportion of their revenue to In Nigeria, there is a federation account where all federally
raise level of output of goods and services through collected revenue are lodged. The revenue is shared among
establishment of both medium and large scale the three levels of government with the federal government
industries. getting the most share because of its dominant roles in
7. Prosecution of war, if any: Many countries use a nations in various respects.
certain part of their revenue or foreign exchange to Revenue allocation is usually influenced by the foremost
prosecute war in which they are unavoidably engulfed political attitude at that time and the interest of the alliances
(involved). Even they borrow money to supplement in government.
available resources in order to ensure victory in a war In Nigeria, the revenue allocation formula has been a
or forestall (restrain) the action of any foreign invader. subject of controversy between the federal and state
Thus they are able to always uphold the territorial governments in some areas. The federal government wants
integrity. a better share while the states also want a better share. A
8. National security: Government spends a lot of money better share for one tier of government will certainly be at
for the defence of our nation. It includes payment of the expense of the other tiers.
salaries to armed forces e.g. soldiers, navy and air force Revenue allocation can be classified in two:
as well as purchase of ammunition. (1) Vertical revenue allocation: This deals with the
9. National debt servicing: She spends a part of the allocation of funds among the three tiers of
revenue for payment of interest on money borrowed by government – the local government, state government
the federal government both within and outside the and the federal government. The special funds which
country as well as repayment of the principal. is administered by the Head of State includes funds to
10. Transfer payment: She devotes much money for the the federal Capital Territory (FCT), mineral producing
payment of salaries of pensioners, award of scholarship, areas, and funds for ecological and statutory
payment of grants to state and local governments, stabilization.
payment of subventions and subsidies to state Year Percentage allocated Derivation
enterprises, and payment of aids to other countries. Federal State Local Special formula
projects
Reasons for increased government revenue 1958 40 60 0 0 50
1. Increase in Tax Rates: A rise in the various tax rates 1968 80 20 0 0 10
leads to increase in government revenue, and vice 1977 75 22 3 0 10
versa. 1982 55 32.5 10 2.5 10
1989 50 24 15 11 10
2. Intensifie efforts for tax collection: This leads to a rise 1995 48.5 24 20 7.5 13
in government revenue, and vice versa. 2001 48.5 24 20 7.5 13
Source: Adapted from World Bank (2001)
3. A rise in other forms of government’s income: A rise
in the level of public water rate, public school fees, (2) Horizontal revenue allocation: This deals with
royalty, etc. causes a rise in government revenue allocation of revenue among states from the states,
especially if government officials intensify their efforts share of funds from the federation account.
over their collection. The opposite leads to a fall in
government revenue. THE PRINCIPLES OF REVENUE ALLOCATION
(1) Derivation: Derivation is the amount of benefits
4. Increase in grants and aid: A rise in the level of grants derived from production efforts. States with huge
and aid received by the government causes a rise in her amount of natural resources which are being tapped
revenue, and vice versa. and from which huge revenue is derived/gotten are
usually allocated more funds. This principle tries to
5. Increase in government;s profit, dividend and interest: satisfy the justice objective.
A rise in the level of public enterprises’ profits, (2) Equality: States are considered equal irrespective of
dividends and interest accruing to the government its population.
causes a rise in government revenue. (3) Population: States with larger population are given a
greater percentage share of the revenue than those with
6. Increase in National Debt: A rise in the amount of smaller population size.
national debt causes a rise in the amount of money (4) Need: States with greater economic and social needs
available for government’s use, and vice versa. may be given more revenue to enable them take care

554
 of such needs and to develop. This principles tries to 7. It creates responsibilities for government official.
satisfies the fraternity objective. 8. It is used in the allocation and reallocation of resources
(5) Liberty: This is the principle of independent, to satisfy from one sector of the economy to the other.
liberty objectives. It allows the states and local 9. It is used in monitoring managers at all levels.
governments to impose, control, collect and make use
of the revenue generated by them in some areas. Budget can be:
(6) National interest: It is required that national interest (1) Balance budget: This arises where the government’s
should be of primary concern while collecting and planned revenue equals the planed expenditure. This
sharing federal revenue. This principle satisfy the leads to complete circulation of income in the
objective of efficiency. economy.
(2) Surplus budget: This arises where government
2004/37 Nov expected revenue exceeds its expenditure. In other
An important source of revenue for governments of West African words, proposed government expenditure is less than
countries is the estimated government revenue during a financial
A. sale of lottery tickets B. donations from friendly governments
year. During a period of surplus budget, there will be
C. donations from wealthy citizens D. royalties from minerals
Answer
incomplete circulation of income and this will have a
Royalties from minerals (D) contractionary effect on the economy as it is a
withdrawal. Surplus budget is the excess of revenue
2010/38 Neco over expenditure.
Money collected by the government in form of taxes, fines
e.t.c. from year to year is called Causes of budget Surplus
A. capital receipts and expenditure B. grants and subsidies 1. Windfall like sudden increase in volume and price of
C. loans and advances D. recurrent expenditure export e.g. crude oil. That is, increase in volume of
E. recurrent revenue export of government goods, e.g. mineral, produce
Answer: Recurrent revenue (E) export, etc.
2. Much intensified efforts of public servants over revenue
THE NATIONAL BUDGET drive (collection of much greater revenue than the
A national budget is a financial statement made by the previous (amount).
federal government which spells out estimated government 3. Receiving much grants or aid from foreign countries or
revenue and proposed expenditure for the coming financial organisations.
year. In Nigeria, the financial year starts on January 1 and 4. A fall or cut in government expenditure.
ends on 31st December.
USES OF SURPLUS BUDGET
A budget includes an appraisal of the performance of the (I) A surplus budget is used to reduce aggregate spending
economy during the previous financial year. In Nigeria, the demand thereby reducing inflationary pressures in the
Head Of State/President or the Governor of the state economy.
prepares the budget with the help of the Ministry of Finance (II) It is used in order to meet one of the conditions of
or Ministry of Budget and Planning. For a budget to be world financial institutions e.g. the IMF for lending
effective, it has to be approved by the highest legislative money, to enable the borrowing country to revitalize
body in the country or state. The budget also aims at its economy.
controlling the economy and to prevent economic (III) It is used to redeem and service national debt
fluctuations. It reinforces the monetary policy. If there are (IV) It reduces the effects of inflationary pressure i.e. lower
depression and unemployment, the finance minister will general price level
budget for a deficit and increase his borrowing. The “Pay (V) It increases foreign exchange reserves.
As You Earn” (PAYE) system of tax is a good example of
the use of budget to raise revenues and redistribute income
among citizens. EFFECTS OF SURPLUS BUDGET
Positive effects
USES AND OBJECTIVES OF BUDGET
(1) It is used to control inflation.
1. It helps in making and coordinating plans of the
(2) It minimizes corruption among government officials.
government.
(3) It is used in restoring the value of a country’s
2. It is used to evaluate the policies and performances of
currency.
government in power.
(4) It is used to reduce public or national debt.
3. It is used as a standard for comparing and measuring
(5) It is used in correcting balance of payment problem.
performance by government officials’ overtime.
(6) It can be used to mop up the excess money or cash in
4. It helps in economic and social policy.
circulation.
5. It is an effective communication tool.
6. It is a planning and control tool.

555
Negative effect 6. Corruption: Where there is embezzlement and
(1) It could discourage production. misappropriation or inflation of cost of projects,
(2) It has a contractionary effect on the economy. then deficit is bound to occur.
(3) Excess budget surplus could case deflation. 7. Miscellaneous items: Under this category, we have
(4) Unemployment may arise from decline in economic such items of expenditures as financing a
activities. transitionprogramme, conducting population
(5) It has adverse effect on investment and census, this gulp billions of Naira and in most cases
consumption. leads to deficit budget.
(6) It could lead to ineffective and inefficient allocation 8. Excessive importation: This leads to a deficit in
of resources. budget.

(3) Deficit Budget Effects of deficit budget

Deficit budget occurs in a fiscal year where the Positive effect
estimated government expenditure is more than the (1) It brings about improvement in production.
expected revenue. That is, the government (2) It fosters economic growth and development.
estimated revenue is less than its proposed (3) It helps to reduce unemployment.
expenditure. This has an expansionary effect on the (4) Through its multiplier effect, it has an expansion
economy. effect on the economy which is caused by increase
in investment.
Uses of deficit budget (5) It increases national income figure.
(1) It is used to increase aggregate expenditure/demand (6) It stimulates consumption.
and reduce unemployment. Negative effect
(2) It is used to finance project which involve huge (1) It fuels inflation.
capital outlay. (2) It increases public or national debt.
(3) It is used to finance a national emergency such as (3) It has adverse effect on the exchange rate.
war. (4) It promotes corruption among government officials.
(4) It is used to remedy a deflationary trend/depression (5) It has adverse effect on balance of payment.
by increasing aggregate expenditure and demand.
Sources of funds for financing budget deficit
Causes of deficit budget 1. By borrowing within and outside the country.
1. Shortfall in revenue target: Where government’s 2. By buying goods and services on credit.
revenue fall short of the expected target and the 3. Through aids and grants.
government fails to cut down its expenditure, 4. Through the use of foreign reserve.
especially capital expenditure, then budget deficit 5. Through the sales of government property.
will arise. 6. By printing more money if considering it necessary.
2. Deliberate attempt by the government: This may
occur as a deliberate and calculated attempt by the NATIONAL/PUBLIC DEBT
government to over spend her income so as to National or public debt is the debt a country owes to it
increase the volume of money in circulation, citizens or to other countries or organization such as the
investment and production. International Monetary Fund (IMF) and the World Bank. It
3. Capital project financing: There are some capital is the total/accumulated deficits less accumulated surpluses.
projects which are considered extremely important
for economic growth and development e.g. Types of public debt
electricity, refinery, etc., the government prefers to (1) Internal or domestic debts: They are debts which a
execute such project and incurring a deficit budget, country owes to its citizens. Such domestic debt is
irrespective of the cost. owed to financial and individual investors as well as
4. Emergency financing: There are times of local contractors.
unexpected events like war, earthquake, flood, (2) External or foreign debts: They are debts owed to
erosion and other natural disasters. No matter how foreign governments or organization. Such debt is owed
financially devastated the government maybe, it to other countries, regional bodies and financial
must try to rise up to the occasion, and this may institutions such as Paris Club, World Bank, USA,
mean over stretching its financial resources and Britain, International Monetary Fund (IMF) etc.
eventually incurring a deficit at the end.
5. General rise in price due to inflation: Rising cost DEBTS SERVICING
of living cause budget deficit, because purchase This refers to the process of repaying public debt. That is, it
price of items would have gone up. involves the repayment of the actual debt e.g. loan and the
interest on it.

556
Funding Operation or Debt Refinancing end of three months (90 days) or for a tenor ranging from 90
Funding operation is the process of converting short run to 364 days; with specified interest. They are issued in
loan to long term loan. It is a process whereby the multiple of ₦1000.00; and the proceeds are used to offset
government borrows money from a source in order to repay petty expenses.
a debt owing to another source. NB: The 90–day treasury bills, monetary policy instruments were
first issued in April 1, 1960.
2.
Treasury certificates (medium term loan): These are
Debt management securities for medium term borrowing. They are for a period
This refers to the steps and procedure taken by the of one to two years and they carry higher rate of interest
government in order to handle the repayment of the public than treasury bills.
debt stock, without incurring adverse economic effects. NB: Nigeria Treasury Certificates (NTC) which was introduced
in 1968 are no longer being issued.
NEED FOR PUBLIC DEBT 3. Negotiation (long term loan): There will be an
(1) To meet the cost of huge capital projects: Examples agreement between the government and the lenders on
of huge capital projects are dams, iron and steel the size of loans and the terms of repayment.
complex petrochemical industries, etc. If the 4. Development stocks (long term loan): This is a long
government is short of money to meet the cost of such term borrowing instrument used for financing long
projects, it can source for fund by borrowing. term projects and development plans. It matures in five
(2) To meet the cost of national emergencies such as years or more.
wars: Waging a war or meeting other national 5. National savings scheme (long term loan):
emergencies entails huge financial involvement. It Governent at times, borrows money from this fund as
may not be possible to raise enough money from the long term basis to finance projects. The scheme is also
regular sources to finance a war. To meet the cost of a referred to National Savings Bond.
national emergency, additional money can be raised by
the government by borrowing. Reasons why a country may continue to borrow
(3) High rate of dead weight debt: Loans are sometimes 1. Increasing population: Continuous rise in population
taken to service debts incurred on financing non- size also obliges the government to continue borrowing
productive or “white elephant” projects embarked money with which to provide and maintain social
upon by the government in the past. amenities, especially roads, electricity, pipe borne
(4) To finance full employment: Borrowing can be used to water, hospital, schools, markets, etc.
invest in job creating projects in order to maintain a high 2. Persistent inflation wage price spiral: Constant rise in
rate of employment of labour and material resources. the general price level due to wage price spiral may
(5) Decrease in foreign exchange earnings: When there is compel the government to always borrow money with
low foreign exchange earnings, there is need to borrow to which to pay salaries/wages and buy stationery and
finance government budget and economic plans. other essential items like petrol, diese etc for office use.
(6) Temporary financing or to finance a budget deficit: 3. Strong urge for rapid economic growth and
At times, there may be need to borrow money to development: Some governments are very determined
finance a budget – deficit pending readjustment of to bring about rapid economic growth and development.
taxes and other regular sources of government revenue This compels them to continuously borrow money with
to restore balance between revenue and expenditure. which to execute important projects so as to realize this
(7) To finance public works or to meet increasing demand noble objective.
for social infrastructure: An increase in population will 4. Persistent disturbances: Prolonged civil war, constant
increase the demand for social services. Borrowing may civil disturbances, military unrest, etc always compel
become necessary to augment regular sources of poor nations to always borrow money with which to
government revenue to provide more social services like quell or put the chaotic situations under control.
health, education, etc. 5. To Resolve Balance of Payment Problem: A fall in
(8) There is need for public debt for the sake of both volume and value of export and inability to reduce
equity/fairness on the present generation of tax import may bring about balance of payments problems.
payers: The benefits of most capital projects extends This may recur yearly especially in developing
for many years and may accrue to future generations. countries. This also compels government to always
Hence, for equity sake, the burden needs to be borne borrow money to resolve the problem.
by all i.e. present and future generations, as they both 6. To finance budget deficit: Budget deficit is a common
are benefactors of such capital projects. thing in developing countries. This compels the government
to always borrow money to offset the deficit.
INSTRUMENTS/ITEMS OF PUBLIC DEBT 7. To offset national debt: Many developing countries
(GOVERNMENT INSTRUMENT OF BORROWING) have incurred very huge public debts; and inability to
1. Treasury bills (short term loan): Treasury bills are first liquidate and/or service them (adequately pay interest)
class securities issued by the government for short term regularly may complel a government to borrow money
borrowing. It carries a low rate of interest and matures at the from time to time to resolve the problem.
557
Burden of national debt 2. Use of foreign reserve/gold: Government can use
1. Lowers private investment: Debt servicing can be done foreign reserve to offset a part of foreign debt; or she
through increase in tax rate. This reduces the power of can export god to creditor countries.
the private sector (people to invest). 3. Grant and aid: The grant which state and local
2. Outflow of foreign exchange: Servicing of a huge govenrments receive from federal government or the
external debt leads to outflow of foreign currencies aid the federal organisations, like UNO, IMF, etc can be
which would otherwise have been invested on used to pay for public debts.
establishment of industries. 4. Unrequited export: Exporting goods to creditor
3. Income redistribution: Servicing of (payment of large countries without receiving import in exchange. That is,
interest on huge domestic debts causes redistribution of selling goods to creditors without receiving money
income, it widens the inequality gap between the rich from them.
and the poor as the money mostly goes to the rich who 5. Debts rescheduled/further loan: The government may
are money lenders. seek for debts cancellation either the whole or a part of
4. Reduces rate of Economic Development: Servicing of them. Also some countries at times, borrow money to
a huge foreign debt reduces government ability to pay overdue debts
invest on capital goods urgentlyrequired for economic 6. Printing of more currency notes: Many countries pay
growth and development. their internal debts through printing of more national
5. Brings about Foreign Control: A huge foreign debt currency notes, especially during deflationary period.
which makes a country to be subjected to the dictates This measure shouldn’t be adopted during inflationary
(command) of foreign creditors. period as it may lead to hyper-inflation (very severe
6. Reduces amount of Social Amenities: Servicing of inflation – very high prices.
both huge internal and external debts reduces a 7. Sales of assets: As a last resort, a government may sell
country;s ability to properly invest on social amenities some of her minor assets or forgo their portfolio
like roads, electricity, pipe borne water, hospitals, etc. investment like shares and stocks in other firms, foreign
government bonds, etc. However, the sale of
Adverse effects of national debt government’s assets should be confined to domestic
1. Outflow of income: A part of the national debt may be capital market, i.e. they should be sold to our people.
owed to foreigners. The continuous debt servicing
(payment of interest on the debt) causes a continual 2012/11 Nov
outflow of money from the country. This prevents her When government expenditure for a year exceeds the
from rapid economic growth. expected revenue, there is
2. Reduces foreign exchange: The continuous servicing A. balance of payments deficit B. balance of trade surplus
of (payment of interest on) huge foreign debts reduces C. budget deficit D. budget surplus
the amount of foreign exchange reserve. This lowers Answer Budget deficit (C)
the rate of government investment. 2006/36 Neco
3. Lowers rate of development: If the borrowed fund were A budget can be described as
not productively invested (properly used), government A. expenditures and revenues expected within a financial year
cannot pay the principal and accumulated interest from B. expenditures of ministries and parastatals within a given period
the gain realized from the investment. Thus she pays C. recurrent and capital expenditure within a year
with tax revenue and money realized from other D. sources of revenue derived for a financial year
sources. This reduces the amount of money available E. the use of different kinds of taxation in a given year
for development. Answer
4. Foreign control: A huge foreign debts weakens the Expenditures and revenues expected within a financial year (A)
power of the debtor country as she may be compelled to
dance to the dictates of creditor countries (to readily 2008/37 Neco
obey their commands or instructions at all times). When government revenue in a fiscal year is less than its
5. Redistribution of income: A huge domestic debts expenditure, there is
invested on development of infrastructure (social A. balanced budget B. budget deficit C. budget surplus
amenities) compels the government to pay principal and D. recurrent expenditure E. recurrent revenue
accrued interest with tax revenue. Thus money is Answer Budget deficit (B)
withdrawn from the poor tax payers to the rich creditors
who at times evade payment of taxes. 2018/49 NABTEB
The debt invested on huge capital project that will yield
enough income that can repay the loan and its interest is called
Payment of national debt
A. dead – weight debt B. long term debt
1. Generated Revenue: The revenue which the
C. reproductive debt D. external debt
government generates from various sources like
Answer External debt (D)
taxation, production, etc can be used to offset public
debts.
558
2000/33 2012/40 Neco
Deficit budget means that government’s Which of these is not a feature of a good tax system?
A. expenditure is equal to its revenue A. adjustability B. consistent with government policy
B. planned expenditure is more than the estimated income C. inflexibility D. maximum social advantage
C. planned income and expenditure targets cannot be achieved
D. expenditure is less than estimated government revenue E. unharmful
Answer Answer
Planned expenditure is more than the estimated income (B) Inflexibility (C)

1999/32 Nov
The major items of government budget are 2000/32 Nov
A. revenue and expenditure B. deficits and surpluses Pay as you earn (PAYE) is a form of
C. domestic and foreign debts D. imports and exports A. direct tax B. purchase tax C. investment tax
Answer D. an indirect tax
Revenue and expenditure (A) Answer
Direct tax (A)
2012/14 (OAU, IFE)
When the government expenditure and income are the same
in a fiscal year, this is referred as 2000/38 Nov
A. net balance B. zero balance C. balanced budget If the demand for a product is perfectly inelastic, the tax on
D. net income such a product will be borne by the
Answer A. consumer B. manufacturer C. market woman
Balanced budget (C) D. tax collector
Answer
2010/5 (OAU, IFE) Consumer (A)
The amount by which government expenditure exceeds
revenues during a particular year is the 2000/39 Nov
A. public debt B. budget deficit C. full employment Which of the following taxes is indirect?
D. GDP gap A. capital gains tax B. sales tax C. company tax
Answer D. poll tax
Budget deficit (B) Answer
Sales tax (B)
2000/38UTME
Public debts is composed of
A. internal debts and World Bank loans 2005/37 Nov
B. internal and external debts Sources of government revenue include
C. money owned to local and foreign contractors A. taxes and wages B. rents and deposits
D. loans granted by IMF and ADB C. taxes, rents and allowances
Answer D. taxes, rents and trade surpluses
B – Internal and external debts. Answer
Taxes, rents and trade surpluses (D)
2001/42UTME
National debt is an expected outcome of a
A. deficit budget B. consolidated budget 2001/43 Neco
C. lanced budget D. surplus budget The incidence of income tax falls on the
Answer A. consumer B. government C. producer
A – Deficit budget. D. population E. tax payer
Answer
2012/39 Neco Tax payer (E)
If Mr. Ibu earned ₦5,000 as monthly income and was taxed
5% of his income. Calculate the amount of tax paid 2001/44 Neco
A. ₦250 B. ₦500 C. ₦700 D. ₦1,000 An excise duty can generate much revenue for the
E. ₦1,200 government if the elasticity of demand for the goods
Answer concerned is
5 5000
5% of 5,000 = × = ₦250 (A) A. elastic B. inelastic C. infinitely elastic
100 1 D. perfectly elastic E. unitary elastic
Answer
Inelastic (B)

559
2003/35 Nov 2019/40 NABTEB
A budget is balanced when expected total revenue is The argument for tariff protection in less developed
A. greater than expected expenditure economies is that such a measure would
B. less than total expenditure A. rise the price of goods affected abroad
C. equal to expected expenditure B. make consumers pay a higher price for local products
D. greater than total expenditure C. protect infant industries
Answer D. help reduce excess capacity in domestic industries
Equal to expected expenditure (C) Answer
Protect infant industries (C)

2003/41 Nov
A tax which is levied on a person’s expenditure is known as 2019/46 NABTEB
A. purchase tax B. sales tax C. profit tax Import substitution strategy has failed in Nigeria because of
D. poll tax A. over reliance on government
Answer B. over dependence on foreign technology
Purchase tax (A) C. inadequate market for local goods
D. inadequate supply of raw materials
2003/42 Nov Answer
Advalorem tax is a tax Over – dependence on foreign technology (B)
A. based on the size of an exported item
B. on goods dumped into a country 2019/47
C. of a certain percentage on the value of a commodity The burden of tax on a commodity whose demand is
D. on the appreciation of share prices infinitely inelastic
Answer A. is zero B. will be borne by the seller alone
Of a certain percentage on the value of a commodity (C) C. will be borne by buyer alone
D. will be borne by both seller and buyer
2001/42 Nov Answer
A tax imposed on goods manufactured within a country is Will be borne by buyer alone (C)
called
2019/48 NABTEB
A. property tax B. capital gains tax C. income tax
Budget deficit is the amount by which
D. excise tax
A. total expenditure exceeds revenue
Answer
B. recurrent expenditure exceeds revenue
Excise tax (D)
C. capital expenditure exceeds revenue
2001/43 Nov D. recurrent expenditure exceeds capital expenditure
An advalorem tax means Answer
A. the total amount of an income tax Total expenditure exceeds revenue (A)
B. a percentage tax on the value of a commodity
C. a percentage tax on the profit of a company 2019/49 NABTEB
D. a tax on properly in a foreign country National debt is an expected outcome of a
Answer A. deficit budget B. consolidated budget
A percentage tax on the value of a commodity (B) C. balanced budget D. surplus budget
Answer
2007/37 Nov Deficit budget (A)
Income tax generally tends to be
A. regressive B. progressive C. equitable 2011/41 Neco
D. proportional Tax base refers to
Answer A. proportion of income paid as tax
Progressive (B) B. the amount paid as tax
C. the object on which tax is applied
2007/38 Nov D. the point at which the tax burden finally falls
A criticism of a high rate of a tax on overtime pay would be E. the point at which the tax burden initially falls
that it Answer
A. can be passed on to the consumer the object on which tax is applied (C)
B. leads to inflation C. makes more goods available
D. can be a disincentive to work
Answer
Can be disincentive to work (D)
560
2011/43 Neco 1997/21
A tax is One of the instruments of protection of infant industries is the
A. any payment made to the government A. price control board B. open market operation
B. compulsory levy imposed by the government C. tariff D. GDP – deflator E. multiplier
C. fee paid to the government Answer
D. grant from a foreign country Tariff (C)
E. levy collected by trade union
Answer - Compulsory levy imposed by the government (B) 1997/34
When the government imposes a unit tax on a commodity
2013/50 Neco with perfectly inelastic demand, the
In the production of garri, the value of input was N100 and A. the tax is borne entirely by the seller
the sales value was N170. What is the value added? B. tax is shared equally between the seller and the buyer
A. ₦100 B. ₦120 C. ₦170 D. ₦70 C. seller bears 70% and the consumer bears 30% of the tax
Answer D. tax is borne entirely by the consumer
Value added is the difference between the sales value and E. tax is borne by nobody
input Answer
₦170 – ₦100 = ₦70 (E) Tax is borne entirely by the consumer (D)

2013/9 Exercise 20.9 1997/38

Explain any four (4) of the following terms Tariff can be defined as a compulsory levy
(a) Tax base A. goods that are produced and consumed locally
(b) Tax burden B. foreign exchange earnings
(c) Tax rate C. imported but inferior goods
(d) Tax yield D. foreigners working in a country
(e) Tax impact E. imports and exports
(f) Tax incidence Answer
Goods that are produced and consumed locally (A)
2011/9
Explain five principles of a good tax system
Answer 1990/39
Principles of a good tax system One arguments for tariffs in developing economies is that
1. Equity: This means that the tax payers should be such a measure would
levied according to their income and expenditure. A. stifle private investment initiatives
2. Convenience: This means that the tax payers should B. help reduce excess capacity in domestic industries
be levied as such a time and place which are most C. raise the price of goods affected abroad
appropriate for them to pay their taxes. D. makes consumer pay a higher price for the domestically
3. Economy: This means that the cost of collecting tax produced output
should be relatively small compared to the total E. protect young industries from ruinous competition from
revenue derived from the tax. abroad
4. Flexibility: The tax system should not be rigid. It Answer
should be easy to change, so that it can be adapted to Protect young industries from ruinous competition from
changing circumstances in the economy. abroad (E)
5. Certainty: The tax payer should be fully aware of the
rate of tax he is to pay and should know when he is to
pay the tax. This helps to prevent tax avoidance and 1993/14 Nov
tax evasion. Government of West African countries levy taxes because
2019 NABTEB Exercise 20.10 A. of over-population B. people tend to hold more money
(a) Define indirect taxation. C. of some non – conforming citizens
(b) Mention three types of indirect taxes. D. of the need to finance government projects
(c) Explain four disadvantages of indirect tax. E. the prices of goods are rising
Answer
1997/18 Of the need to finance government projects (D)
The situation whereby government revenue is less than
government expenditure is referred to as 1993/39 Nov Exercise 20.11
A. budget deficit B. balanced budget C. budget surplus Which of the following is a direct tax?
D. budget statement E. unfavourable budget A. import duties B. purchase tax C. export duties
Answer: Budget deficit (A) D. personal income tax E. excise tax

561
2014/32 Neco 2016/13 NABTEB
Tax imposed on goods that came from other countries into a An increase in an indirect tax on a commodity whose
particular country is referred to as demand in inelastic will
A. advalorem tax B. company tax C. excise tax A. increase revenue B. reduce revenue C. scare consumers
D. export duties E. tariffs D. encourage consumers
Answer: Tariffs (E) Answer
increase revenue(A)
2012/13 Nov Exercise 20.12 Hint:If demand is inelastic, a higher tax will cause only a
A worker’s pay after the deduction of income tax is known as small fall in demand. Most of the tax will be passed onto
A. consumer’s income B. disposable income consumers. When demand is inelastic, governments will see
C. net income D. total emolument a significant increase in their tax revenue.

2016/47 NABTEB
2012/25 Nov Debt servicing by a country refers to
Tax imposed on goods imported into the country is called A. inability to pay back the loan borrowed
A. income tax B. tariff C. poll tax D. excise duty B. repayment of the loan C. payment of interest loan
Answer: Tariff (B) D. loan repayment plus the interest
Answer
2012/29 Nov
Loan repayment plus the interest (D)
When the government desires a large revenue, it should tax
Hint: Debt service is the money that is required to cover the
commodities for which demand is
repayment of interest and principal on a debt for a particular
A. price elastic B. price inelastic C. unitary price elastic
period.
D. perfectly price elastic
Answer
2016/48 NABTEB Exercise 20.13
price inelastic (B)
The imposition of a high income tax by the government to
1995/25 Nov cut down demand is known as
When tax rises, disposable income A. fiscal policy B. development policy
A. rises B. falls C. remain constant D. is zero C. budgetary policy D. monetary policy
E. is negative
Answer 1998/36 Exercise 20.14
Falls (B) The instruments used in many countries to restrict imports
include
1995/29 Nov A. high tariffs B. price index C. excise duties
Expenditure made by government in acquiring permanent D. bank rate E. subsidies
goods and structure is known as
A. recurrent expenditure B current expenditure 2003/42
C. overhead expenditure D. fixed expenditure Government of West African countries levy taxes to
E. capital expenditure A. prevent prices from fall B. make people richer
Answer C. limit the number of banks D. finance government
Capital expenditure (E) projects
Answer
1995/32 Nov Finance government projects (D)
Which of the following is most likely to occur if the
government increases the import duty on shoes? 2003/43
A. there will be an increase in demand for imported shoes Which of the following is a direct tax?
B. there will be an increase in supply of imported shoes A. import duties B. purchase tax C. export duties
C. the price of imported shoes will rise by the amount of D. personal income tax
increase in the import duty Answer
D. there will be an increase in the demand for locally Personal income tax (D)
manufactured shoes E. local manufacturers of shoes will
close down their factories 2003/44
Answer The tax whose rate increases as the level of income
There will be an increase in the demand for locally increases is known as
manufactured shoes (D) A. regressive tax B. proportional tax
C. progressive tax D. company tax
Answer
Progressive tax (C)

562
2003/45 2009/33
Public expenditure on education and health is known as Disposable income is total income
expenditure on A. less tax B. divided by tax C. plus tax
A. general services B. social services D. multiplier by tax
C. commercial services D. economic services Answer
Answer Less tax (A)
Social services (B) 2010/40
One disadvantage of direct taxes is that they
2016/46 A. allocate scarce resources B. are not rigid
If the tax rate is 15% and a worker earns N490 monthly he C. can be progressive D. can be evaded
would pay Answer
A. ₦69.5 B. ₦72.5 C. ₦73.5 D. ₦74.5 Can be evaded (D)
Answer
15 490 1990/6
15% of 490 = × 1 = ₦73.5 (C)
100 The tax imposed on goods manufactured within a country is
A. a sales tax B. a direct tax C. an excise tax
2004/39 Nov D. an income tax E. a capital gain tax
A tax system in which all the payees are taxed the same Answer
percentage of their incomes is referred to as An excise tax (C)
A. regressive B. progressive C. proportional
D. flexible 2008/42
Answer A major use of taxation is
Proportional (C) A. control population growth rate
B. influence people’s spending habits
2023/40 C. control money supply
Taxes levied on goods and services by governments D. create bank credits
Anwer
are called
Influence people’s spending habits (B)
A. direct taxes B. corporate taxes
C. indirect taxes D. poll taxes 2010/43
Answer When the demand for a good is fairly inelastic, the burden
Taxes levied on goods and services by governments of an indirect tax falls
are called indirect taxes (C) A. more on the of the good
B. more on the sellers of the good
2004/41 Nov C. on sellers and consumers equally
Countries impose custom duties to protect D. completely on the capital
A. multinational companies B. public corporations Answer
C. indigenous enterprises D. military installation More on the consumers of the goods (A)
Answer
Indigenous enterprises (C) 2019/39
Citizens are protected from government’s arbitrariness in
taxation by the canon of
2009/42 A. elasticity B. flexibility C. economy D. certainty
Fiscal policy is associated with Answer: Economy (C)
A. taxation and government expenditure
B. re-structuring of the banks C. injection of money 2019/40
into the economy D. reduction in economic activities In a period of unemployment and falling prices, government
Answer should adopt a
taxation and government expenditure (A) A. zero based budget B. budget deficit C. balanced budget
D. surplus budget
2009/41 Answer: Surplus budget (D)
Government expenditure on the construction of roads and
bridges is 2006/37 Neco
A. recurrent expenditure B. capital expenditure Which of the following is an indirect tax?
C. supplementary expenditure D. variable expenditure A. capital gains tax B. corporate tax C. death duties
Answer D. excise duties E. personal income tax
Capital expenditure (B) Answer: Excise duties (D)

563
1991/32 2003/54 Neco
Which of the following are direct taxes? To finance a deficit balance of payment, a country may
A. sales taxes B. excise duties decide to
C. income and company taxes D. tariffs duties A. borrow from abroad B. increase its foreign investment
E. commodity taxes C. privatise its economy D. reduce domestic consumption
Answer: Income and company taxes (C) E. secure more factors of production
2001/44 Neco Answer
Mr. Olsi earns ₦1000 and pays ₦100 in tax. Mr. Olu earns privatise its economy (A)
₦4000 and pays₦200 in tax. This tax system can be said to be a
A. competitive tax B. progressive tax 1991/17
C. proportional tax D. poll tax E. regressive tax A government treasury bill is a form of debt instrument
Answer which falls due to repayment after
100 100 A. 3 months B. 9 months C. 2 years D. 5 years
Mr. Olsi tax rate: × = 10%
1000 1 E. 10 or more years
200 100 Answer
Mr. Olu tax rate: 4000
× 1 = 5%
3 months (A)
Thus, a regressive tax system in place (E)
2000/45 Neco 2001/38 Nov
One of the goals of Nigerian budgets in recent years is to Fiscal policy entails
A. check population growth rate A. increasing import duties
B. control inflation C. increase recurrent expenditure B. buying or selling of treasury bills by the central bank
D. reduce debt repayments and servicing C. printing of more currency notes
E. shift all resources from the private to the public sectors D. increasing or decreasing cash reserve
Answer Answer
Control inflation (B) Increasing import duties (A)

2003/35 1991/19
Which of the following is not a function of taxation? Public expenditure creates expansionary effects in the
A. make few people rich in the country economy when it is
B. raise revenue for the government A. in excess of government revenue
C. redistribution of income B. channeled into the provision of consumer goods
D. reduce production and consumption of harmful goods C. diverted to the importation of luxury goods
E. use as anti inflationary device D. financial through oil revenue E. financed completely
Answer through part of the year’s total tax collected
Make few people rich in the country (A) Answer
Channeled into the provision of consumer goods (B)
2003/36 Neco
A tax system which takes lesser percentage of a tax system 1995/23 Nov Exercise 20.15
payers income as his income increases is known as Company tax is an example of
A. direct tax B. indirect tax C. progressive tax A. direct tax B. indirect tax C. tax incidence
D. proportional tax E. regressive tax D. regressive tax E. value added tax
Answer
Regressive tax (E) 1995/25 Nov
When tax rises, disposable income
2003/37 Neco
A. rises B. falls C. remains constant
One of the following is not a reason for increase in public
D. is zero E. is negative
expenditures
Answer
A. decrease arising from public debt and its servicing
Falls (B)
B. increase in capital expenditure to provide social services
C. increase financial commitment for defence and security
1995/28 Nov
D. increase in recurrent expenditure with regard to wages
Revenue allocation in Nigeria is not affected by the
and salary paid to public servant
A. needs of an area B. size of the population of an area
E. returns on viable public corporation
C. number of industries in an area
Answer
D. revenue derivable from area E. developmental needs of
Returns on viable public corporation (E)
the country
Answer
Number of industries in an area (C)

564
1995/29 Nov 2002/40 Nov
Expenditure made by government in acquiring permanent The government of a country gets her income through all
goods and structures is known as the following ways except
A. recurrent expenditure B. current expenditure A. direct and indirect taxes B. proceeds from exports
C. overhead expenditure D. fixed expenditure C. borrowing D. annual budget
E. capital expenditure Answer
Answer Annual budget (D)
Capital expenditure (E)

1995/32 Nov
Which of the following is most likely to occur if the 2009/39 Neco
government increases the import duty on shoes? The Nigerian government derives her income through the
A. there will be an increase in the demand for imported shoes following ways except
B. there will be an increase in the supply of imported shoes A. annual budget B. borrowing C. direct and indirect taxes
C. the price of imported shoes will rise by the amount of D. proceeds from exports E. rents and royalties
increase in the import duty Answer
D. there will be an increase in demand for locally borrowing (B)
manufactured shoes E. local manufacturers of shoes will
close down their factories
Answer 2009/40 Neco
There will be an increase in the demand for locally Taxes levied on locally manufactured goods are called
manufactured shoes (D) A. custom duties B. excise duties C. purchase tax
D. sales tax E. VAT
2015/11 Answer
Government revenue will increase if taxes are levied on Excise duties (B)
goods with
A. perfectly elastic demand B. fairly elastic demand
C. perfectly inelastic demand D. unitary elastic demand 2007/38 Neco Exercise 20.16
Answer A tax system in which the income earner pays a fixed
Perfectly inelastic demand (C) percentage of his income annually is known _____ tax.
A. direct B. indirect C. progressive D. proportional
2002/37 Nov E. regressive
Incidence of taxation refers to the
A. amount collected as taxes B. burden of taxation
C. category of tax, which may be direct or indirect 2007/39 Neco
D. proportion of a person’s income that is paid as tax A tax system in which the rich pays a higher percentage of
Answer his income as tax than the poor is known as
Burden of taxation (B) A. capital gains tax B. progressive taxation
C. proportional taxation D. regressive taxation
2002/38 Nov E. sales tax
Which of the following is a reason for government Answer
borrowing? Progressive taxation (B)
A. to finance multinational companies
B. to finance development plans C. to reduce population
D. to protect infant industries 2009/40
Answer The tax imposed on goods manufactured within a country is
To finance development plans (B) A. an excise tax B. a capital gains tax C. profit tax
D. a sales tax
2002/39 Nov Answer
The system of taxation whereby people pay the same An excise tax (A)
percentage of their income as tax is called
A. proportional tax B. direct tax C. regressive tax 2002/39 Neco
D. progressive tax What type of tax is value added tax (VAT)?
Answer A. direct B. progressive C. property D. regressive
Proportional tax (A) E. indirect
Answer
Indirect (E)

565
2020/41 2019/41 Neco
The budget drawn up by a country expects more revenue An estimate of income and expenditure of a country for a
than it wants to spend. This describes a period of one year is known as
A. balanced budget B. surplus budget C. deficit budget A. balance of payment B. balance of trade C. budget
D. trade deficit D. revenue E. visible trade
Answer Answer
Surplus budget (B) Budget (C)
2019/52 Neco
2020/42
The reasons countries imposed tariffs include the following
Mrs. Y and Mr. Z pays $700.00 each as tax from their
except
incomes of $5,000.00 and $7,000.00 respectively. The
A. encourage importation of goods B. generation of revenue
system of taxation employed is
C. improve balance of payments deficit
A. progressive B. regress C. specific D. advalorem
D. prevent dumping E. protection of infant industries
Answer
Regression (B) Answer
Encourage importation of goods (A)
2008/38 Neco
Mr. Clement earns an annual income of ₦40,000.00 and 2010/39 Neco
pays 10% as tax while Mr. Ajayi earns ₦60,000.00 and Which of the following is an example of direct tax?
pays 5% tax rate. What is the amount of tax paid by clement A. customs duties B. excise duties C. purchase tax
and Ajayi? D. royalties and mining rents E. sales tax
A. ₦3,000.00 and ₦4,000.00 B. ₦4,000.00 and ₦2,000.00 Answer
C. ₦4,000 and ₦6,000.00 D. ₦4,000.00 and ₦3,000.00 Royalties and mining rents (D)
E. ₦5,000 and ₦6,000
Answer 2018/41 Neco
10 40,000 If a sales tax is imposed on a commodity with elastic
Mr. Clement = × 1 = ₦4,000
100 demand, the revenue derivable by the government from the
5
Mr. Ajayi = 100
× 60,000 = ₦3,000 commodity would be
A. constant B. decreasing C. negative D. rising
₦4,000.00 and ₦3,000.00 (D)
E. zero
Answer
2008/39 Neco Decreasing (B)
The system of tax described in question 38 above is
Hint:If demand is inelastic, raising a tax increases tax
A. constant B. economical C. proportional
revenue paid by consumers; the same is true with supply. If
D. progressive E. regressive
demand is elastic, however, raising a tax decreases tax
Answer revenue paid by consumers. Thus, what happens to total tax
Regressive (E)
revenue depends on the elasticity.
2017/39 2018/42 Neco Exercise 20.7 20.17
Direct taxes includes Tax levied on goods manufactured within a country is
A. excise duty B. advalorem tax C. specific tax known as
D. capital gains tax A. company tax B. excise duties C. import duties
Answer D. income tax E. purchase tax
Capital gains tax (D)
2019/29 Neco 1992/27 Nov
A situation when government expenditure is more than Which of the following is not a purpose of taxation? To
expected income is known as A. make people pay for the goods they enjoy
A. balance budget B. budget deficit C. budget supply B. protect infant industries C. check inequality of income
D. capital expenditure E. recurrent expenditure D. control inflation
Answer E. limit the production and consumption of certain goods
Budget deficit (B) Answer: Protect infant industries (B)
2019/40 Neco 2018/48 NABTEB
Tax collected from individuals and profits of companies is The annual budget in which the estimated income is equal
referred to as to the estimated expenditure is
A. direct tax B. excise tax C. export duties D. import A. budget surplus B. balanced budget C. budget deficit
duties E. indirect tax D. supplementary budget
Answer Answer: Balanced budget (B)
Direct tax (A)
566
2006/39 Nov 2008/43
Which of the following is not an item of capital A tax which is expressed as a given absolute sum of money
expenditures? Expenditure on per unit of a commodity is known as
A. a road project B. a public market construction A. a specific tax B. a direct tax C. an indirect tax
C. a building project D. worker’s monthly emoluments D. a value added tax
Answer: Worker’s monthly emoluments (D) Answer: a value added tax (D)
2008/44
All indirect taxes tend to be
2006/41 Nov
Audu earns $5,000.00 and $500.00 as tax, Funmi earns $2,500.00 A. progressive B. regressive C. certain D. equitable
and pays $300.00 as tax. The tax system is said to be Answer: Regressive (B)
A. progressive B. regressive C. proportional 2008/45 Exercise 20.19
D. equitable Which of the following will have a more disestablishing
Answer: Progressive (A) effect on the economy?
2000/30 A. a tax on the prices of vehicles B. a tax on petrol
A tax on a commodity whose demand is perfectly inelastic C. a decrease in the supply of vehicles
will fall heavily on the D. moderate increase in wages
A. consumers B. manufacturers C. wholesalers
D. retailers 1996/33 Nov
Answer: Consumers (A) An advalorem tax is a tax
A. on the total value of the income of an individual
2000/31 B. of a certain percentage on the value of a commodity
The main feature of regressive taxation is that its rate C. on imported goods and services
A. is higher when income is higher D. on the appreciation in the value of land
B. is equal tax for all categories of people E. based on the weight of an imported item
C. remains constant when income increases Answer
D. reduces when income increases Of a certain percentage on the value of a commodity (B)
Answer
reduces when income increases (D) 1996/34
1997/35 Nov Exercise 20.18 If in a fiscal year, a government’s revenue is less than the
A system of taxation in which the rate of is the same, expenditure, such situation is referred to as
irrespective of the level of income is, A. budget statement B. budget deficit C. budget
A. regressive B. progressive C. proportional surplus D. balanced budget E. favourable budget
D. liberal E. optional Answer:Budget deficit (B)

1997/36 Nov 1999/24 Nov Exercise 20.20

Tax holidays are given to firms to enable them to Which of the following is an attribute of a good tax system?
A. give their employees leave and leave allowances A. regressive B. economical C. progressive
B. operate in an unstable economy D. entity
C. use the holidays to collect taxes
D. establish themselves in the early stages of formation 1999/28 Nov
E. plan the use of national holidays for extra production A tax which is based on the value of a commodity is called
Answer A. purchase tax B. progressive tax C. regressive tax
Establish themselves in the early stages of formation (D) D. Advalorem
Answer: Advalorem (D)
1994/33
Under normal circumstances, a producer will bear the entire 1999/46 Nov
burden of taxation on his output if the Which of the following defines a regressive tax?
A. supply of his goods is more elastic than the demand A. the average rate of tax declines as incomes rise
B. demand for his product is completely elastic B. the marginal rate of taxation is constant
C. production of his commodities is subject to diminishing returns C. a tax where the rich pays more than the poor
D. demand for his product is more elastic than the supply D. tax payment increases as incomes rises
E. demand for his product is completely inelastic Answer
Answer The average rate of tax declines as incomes rise (A)
Demand for his product is completely inelastic (E)

567
1990/4 Nov 3. Certainty: The tax payer should be fully aware of the rate
When a tax payer earning ₦10,000 p.a. pays ₦1,200 in tax and of tax he is to pay and should know when he is to pay the
another tax payer earning ₦4,000 p.a pays ₦480 in tax, the tax tax.
system is said to be 4. Flexibility:The tax system should not be rigid. It should
A. proportional B. regressive C. pay as you earn D. be easy to change it so that it can be adapted to changing
progressive E. retrogressive circumstances.
Answer 5. Convenience:This means that the time the tax is due and
Let us call them Tax payer A and Tax payer B the method of paying tax should be convenient to the tax
1200 100 payers.
Tax rate of A= × =12%
10000 1
480 100 2000/10 Exercise 20.22
Tax rate of B= × =12%
4000 1 Why do government impose taxes?
This implies a proportional tax system (A) 2018/8 Neco Exercise 20.23
Write short notes on the following terms:
1990/21 Nov Exercise 20.21 (a) National budget.
Which of the following is not a source of government (b) Balance budget.
revenue? (c) Budget surplus.
A. mining rents and royalties B. grants and aids C. loans (d) Budget deficit.
D. receipts from government property
E. subsidy to farmers 2008/12
(a) What is public recurrent expenditure?
1990/22 Nov (b) Give five reasons for the rapid increase in government
The financial statement of the expected income and proposed expenditure in your country.
expenditure of government for the coming fiscal year is Answer
referred to as the (a) Public recurrent expenditure comprises of all expenditure
A. balance of payment B. balance of trade C. balance sheet on items whose benefits are meant for current
D. budget E. statement of account consumption e.g. general administration, social services,
Answer defence, salaries and wages, economic services e.t.c.
Budget (D) They are made for the day to day running of the
government.
1990/26 Nov (b) Reasons for the rapid increase in government
A good tax system should be expenditure
A. certain, progressive, economical and convenient (1) To finance huge capital project such as provision of
B. certain, proportional and economical electricity, building, refinery e.t.c which individuals
C. convenient, economical and uncertain may not be able to fund.
D. economical, convenient and regressive (2) To create employment opportunities.
E. certain, economical, convenient and regressive (3) To provide essential goods and services to the
Answer masses at a reduced cost.
Certain, progressive, economical and convenient (A) (4) To promote economic and political stability.
(5) To raise the general living standard of the people.
1990/29 Nov
By deficit financing we mean 2010/10 Neco
A. borrowing money B. having a budget spending What are the principles of a good tax system?
C. excessive government spending Answer
D. printing money or borrowing to finance a budget (1) Equity.
E. excessive supply of money (2) Economy
Answer (3) Certainty: A good tax should be aware/provide adequate
printing money or borrowing to finance a budget (D) information.
(4) Flexibility: It should not be rigid and easy to change.
1999/9 Nov (5) Convenience.
Explain the principles on which a good tax system is based. (6) Efficiency: A good tax should be easy to access and
Answer simple to collect.
1. Equity:This principle means that tax should be levied on (7) Security: A good tax system should be used as a means
each person according to his ability to pay progressive of protecting the lives and properties of the citizens.
taxation which taxes a higher percentage of tax from
those with higher income satisfied this principle. 2008/10 Neco Exercise 20.24
2. Economy: A good tax system should make tax collection (a) Distinguish between tax base and tax rate.
economical. The cost of collecting tax should be small (b) List and explain four economic effects of taxation in
compared to the total revenue derived.
an economy.

568
2018/6 NABTEB 2010/12
What are direct and indirect taxes? (a) What is incidence of taxes?
Answer (b) Explain any four principles of taxation.
Direct taxes are taxes that are payable with the awareness or Answer
knowledge of the tax payer. Such taxes are levied directly (a) Incidence of taxes refers to the burden of tax with
on the income or property of the tax payer. reference to where this burden rests. The incidence or
burden of taxation lies on the person who finally pays
Indirect taxes refers to the form of taxes that are payable
the tax.
without the knowledge or awareness of the tax payers. Such
(b) Principles of taxation
taxes are levied on finished goods and services passed on
(1) Equity: This principle means that tax should be levied
the final consumers in the form of increase in prices.
on each person according to his ability to pay.
(2) Economy: This principle means that a huge amount of
2000/8 Neco
resources must not be spent on collecting a relatively
(a) Explain the term fiscal policy.
small amount of tax revenue.
(b) Discuss five sources of revenue to the Nigerian
(3) Certainty: The tax payer should be fully aware of the
government.
rate of tax he is to pay and should known when he is to
Answer
pay the tax.
(a) Fiscal policy involves the use of government income
(4) Convenience: This means that the time the tax is due
and expenditure instruments to regulate the economy.
and the method of paying tax should be convenient to
(b) Sources of revenue to the Nigerian government.
the tax payer. The tax system should not pose
(1) Income from the sale of petroleum products.
difficulties to the payers.
(2) Income from investment such as profit, rent and
interest.
(3) Grants or financial aid from friendly countries and
1993/8 Nov
international organization like World Bank.
(a) Distinguish between capital expenditure and recurrent
(4) Income from payment of taxes.
expenditure.
(5) By borrowing either within or outside the country.
(b) How does a government raise funds for its
1992/39 expenditure?
The situation where government revenue in a fiscal year is less Answer
than its expenditure is referred to as (a) Capital expenditure consists of all expenditure which
A. budget deficit B. balanced budget C. budget surplus isnot meant for current consumption but for the
D. budget statement E. unfavourable budget purpose of generating income to the government and
Answer: Budget deficit (A)
for promoting economic growth and development
1992/28 while recurrent expenditure comprises of all
The greater burden of the taxes on essential goods is borne by the expenditure on items whose benefits are meant for
A. middle income group B. high income group current consumption.
C. low income group D. people between the middle and high (b) Government raises funds through the following
income groups E. few top rich people (1) Income from the payment of taxes.
Answer: Low income group (C) (2) Income from the sale of petroleum products.
(3) By borrowing either from within or outside the
1992/24 country.
Proportional tax is a tax whose (4) Mining rights, royalties and oil prospecting licenses
A. percentage rate remains constant as the tax base fees.
increases (5) Income from investment such as profit, rent and
B. percentage rate increases as the tax base increases interest.
C. percentage rate decreases as the tax base increases (6) Income from issuance of certificate licenses, e.t.c.
D. percentage rate fluctuates as the tax base increases (7) Grants and financial aid from friendly countries and
E. burden falls heavily on consumers international organizations like World Bank.
Answer
Percentage rate remains constant as the tax base increases (A)

1992/25
The largest part of the revenue of a country is derived from
A. direct taxation B. indirect taxation C. excise duties
D. company taxes E. non tax revenue
Answer: Indirect taxation (B)

569
2003/2 (bi) The system of taxation in column A is proportional
The table below shows the tax payments of four income taxation.
earners in a year. Use the information in the table to answer (ii) The system of taxation in column B is regressive
the questions that follow. taxation.
Income Income Tax Payment (bii) The income earner that have the least burden in column
earmers base ₦ ₦ B is Audu because his tax rate is 5%.
A B (ci) If the government increases its rate of taxation to 15%
flat rate.
Jawara 15,000.00 1,500.00 1,200.00 15 15,000
Ade 25,000.00 2,500.00 2,000.00 Jawara = 100 ×
1
= ₦2,250
15 25,000
Eke 32,000.00 3,200.00 2,240.00 Ade = × = ₦3,750
100 1
Audu 60,000.00 6,000.00 3,000.00 15 32,000
Eke = 100 × 1 = ₦4,800
(a) Determine the percentage rate of taxation paid by 15 60,000
(i) Jawara in column A and B. Audu = 100 ×
1
= ₦9,000
(ii) Audu in column A and B. (iii) Ade in column B. Revenue generated from the payers ₦2250 + ₦3750 +
(iv) Eke in column B. ₦4800 + ₦9,000 ₦19,800.00 or 15% of total income
(bi) Identify the systems of taxation employed in column A This method of calculation could also be adopted
and B. Total income = ₦15,000 + ₦25,000 + ₦32,000 +
(ii) Which of the income earners have the least burden ₦60,000
under column B? = ₦132,000.
15
c(i) If government increases its rate of taxation to 15% flat 15% = 100 × 132,000 = ₦19,800
rate, how much revenue will be generated from the (di) Disposable income = income – taxation or tax base – tax
payees? paid.
(ii) At 15% flat rate, how much revenue will be generated Jawara = Disposable income = 15,000 – 2,250.
from the payees? Disposable income = ₦12,750.00
(ii) At 15% flat rate taxation, calculate the disposable Ade disposable income = income – taxation
incomes of Mess’rs Jawara, Ade, Eke and Audu. = 25,000 – 3750
Answer Disposable income = ₦21,250.00
a(i) Jawara in column A Eke disposable income = income – taxation
Total payment 100
= 32,000 – 4800
Tax rate = × 1 Disposable income = ₦12,250.00
Tax base
1500 100 150 Disposable income = income – taxation
Jawara =
15000
× = 15 = 10% = 60,000 – 9,000
1
Disposable income = ₦51,000.00
Jawara in column B.
Total payment 100 2000/9 Nov
Tax rate = × (a) What is national debt?
Tax base 1
1200 100 125 (b) Why do government incur national debts?
= × = = 8% Answer
15,000 1 15
(a) National debt is the debt a country owes to its citizens or to
(ii) Audu in column A
other countries or organization. It is the total accumulated
Total payment 100
Tax rate =
Tax base
× deficits less accumulated surpluses.
1 (b) Need for national debts
600 100 600
= × = = 10% (1) To meet the cost of huge capital goods.
60000 1 60 (2) To meet the cost of national emergencies such as wars.
Audu for column B. (3) High rate of dead weight debt.
Total payment 100 (4) To finance full employment.
Tax rate = Tax base
× 1 (5) Decrease in foreign exchange earnings.
3000 100 30
= × = = 5% 2007/12 Nov
60,000 1 6 (a) Describe a protective tariff.
(iii) Ade column B (b) Outline four reasons in favour of protective tariff.
Total payment 100 Answer
Tax rate = Tax base
× (a) Protective tariff are taxes imposed or levied on goods brought into
1
2,000 100 200 the country. They are also called import duties.
= × = = 8% (b) Reasons in favour of protective tariff
25,000 1 25
1. Protective tariff is used to reduce importation of non
(iv) Eke for column B essential items.
Total payment 100
Tax rate =
Tax base
× 2. It is used to protect infant industries.
1 3. Protective tariff is used to prevent dumping.
2,240 100 224
= × = = 7% 4. Protective tariff is used to correct an adverse balance of
32,000 1 32 payment.
570
2003/7 2007/11 Nov
(a) Describe the term government expenditure. (a) What is fiscal policy?
(b) Explain any two items of government expenditure. (b) In what three ways do government fiscal policies
(c) State four factors contributing to the increase in affect national income and employment?
government expenditure in your country. Answer
Answer (a) Fiscal policy involves the use of government income
(a) Government expenditure is a collective name for all and expenditure instruments to regulate the economy.
the monies spent by the government to maintain its (b) Ways in which government fiscal policies affect
machinery for the benefit of the society and for the national income and employment.
economy to meet its obligations to external bodies as 1. General administration of the country:The
well as gratuitous assistance to other countries. government spends money in maintaining civil service
(b) Items of government expenditure and various departments.
(1) Recurrent expenditure: This comprises of all expenditure 2. Reduction in employment level: The government tries
on items whose benefits are meant for current consumption. through its monetary and fiscal policies to bring down
They are also made for the day to day running of the the level of unemployment to the barest minimum.
government. The items on which such expenditure is made 3. Stable price level: The government maintains a stable
are meant to be consumed within a year. price level by striking a balance between inflation and
(2) Capital expenditure: This consists of all expenditure deflation.
which are not meant for current consumption. They are
made for the purpose of generating income to the
government, and for promoting economic growth and
development.
(c) Factors contributing to the increase in government 2002/10 Nov Exercise 20.25
expenditure. (a) What is government budget?
(1) To create employment opportunities. (b) Explain each of the following.
(i)Surplus budget. (ii) Deficit budget. (iii) Balanced budget.
(2) To eliminate or control private monopoly.
c. Under which economic conditions will you
(3) To promote economic and political stability.
recommend a
(4) Finance huge capital projects such as provision of
(i) Surplus budget.
electricity, e.t.c.
(ii) Deficit budget.
(5) To provide essential goods and services to the masses
at a reduced cost.
1990/8 Nov
What other purposes does taxation serve apart from raising 2007/2008/80 (UNIZIK, AWKA)
revenue? Budget deficit can be financed by
Answer A. reducing the level of taxation
Purposes of taxation B. printing more money
1. Taxation is used as a means of providing essential C. lending to financial institutions
goods and services for the masses at a reduced cost. D. employing more workers
2. Taxation is used in controlling inflation. Answer
3. Taxation is used to bridge the gap between the high Printing more money (B)
and low income earners.
4. Taxation is used to encourage export and discourage
imports. 2012/2013/33
5. Taxation is used to create employment opportunities The burden of tax of a commodity whose demand is
for tax officials. infinitely inelastic
1994/5 A. is zero B. will be borne by seller alone
(a) Explain the term national debt. C. will be borne by buyer alone
(b) State any four instruments of government borrowing in D. will be borne by both seller and buyer
Nigeria. E. is impossible to tell who bears it
Answer Answer
(a) National debt is the debt a country owes to its citizens Will be borne by buyers alone (C)
or to other counties or organization. It is the total
accumulated deficits less accumulated surpluses.
(b) Instruments of government borrowing in Nigeria:
1.Negotiation. 2.Treasury bills.
3.National savings scheme. 4.Development stocks.
5.Treasury certificates.
571
2015/2 2014/2015/36 (UNIZIK, AWKA)
The table below shows the incomes and rates of income tax levied All these are direct taxes except
on four professional in an economy. A. company income tax B. capital tax C. purchase tax
Profession Income per Tax rate Disposable D. personal income tax E. capital gains tax
month ($) (%) income ($) Answer: Purchase tax (C)
Doctor 8,000 10
Engineer 7,000 12
Civil Servant 5,000 18
2014/2015/37 (UNIZIK, AWKA)
Nurse 6,000 15 One of these is not an indirect tax
Use the above data to answer the questions that follows. A. excise duty B. company tax C. import duty
(a) Calculate the disposable incomes of the four individuals. D. export duty E. sales tax
(b) What system of taxation was employed? Answer: Company tax (B)
(c) Give reasons for your answer in 2b.
(d) With the aid of a diagram, explain the system of taxation 2014/2015/31 (UNIZIK, AWKA)
employed in 2(b). Which of these taxes appear generally progressive in
Answer nature?
(a) Disposable income = income – tax A. sales tax B. the personal income tax C. property tax
Doctor = $8,000 – (10% of 8,000) D. corporation tax E. none of the above
Disposable income = income – tax
10 Answer: The personal income tax (B)
= $8,000 – × 8,000
100
= $8,000 – $800 = $7,200 2017/2018/23 (UNIZIK, AWKA)
A greater burden of taxes on essential goods is borne by the
(ii) Engineer = $7,000 – (12% of 7,000)
12 A. higher income group B. newly recruited workers
= $7,000 – × 7,000 C. lower income group D. contract workers
100
= $7,000 – $840 = $6,160 Answer: Lower income group (C)
(iii) Civil servant = $5,000 – (18% of 5,000)
18 2019/5 (UNIBEN, BENIN–CITY)
= $5,000 – × 5,000
100
Budget deficit will definitely be created to expand the
= $5,000 – 900 = $4,100
economy by
(iv) Nurse = $6,000 – (15% of 6,000)
15 6,000 A. cutting taxes and increasing public expenditure
= $6,000 – × B. raising tax rates and cutting public expenditure
100 1
= $6,000 – $900= $5,100. C. increasing tax rates and increasing public expenditure
D. reducing both tax and public expenditure
Profession Income per Tax Disposable Answer
month rate Income cutting taxes and increasing public expenditure (A)
($) (%) ($)
Hint: The two main causes of a budget deficit are excessive
Doctor 8,000 10 7,200
government spending and low levels of taxation that do not
Engineer 7,000 12 6,160
Civil Servant 5,000 18 4,100
cover expenditure.
Nurse 6,000 15 5,1000
2019/6 (UNIBEN, BENIN–CITY)
Which of the following is an indirect tax?
(b) The system of taxation employed is regressive system of
taxation. A. capital gains tax B. income tax C. profit tax
(c) The tax is regressive because the higher income earners pay D. sales tax
lower rate of tax while low income earners pay higher rate Answer: Sales tax (D)
of tax.
(d) 2018/7 (UNIBEN, BENIN–CITY)
A tax that is graduated so that its rate rises as the level of
income of the tax payer increases is classified as a
A. regressive tax B. proportional tax C. an indirect tax
D. a progressive tax
Answer: A progressive tax (D)

2010/3 (UNIBEN, BENIN–CITY)

One source of income for the government which is not
based on compulsion is
A. taxes of various types B. fines for offences committed
C. tributes and indemnities arising out of war or other reasons
D. grants and aid
Answer: Grants and aids (D)
572
2016/4 (UNIBEN, BENIN–CITY) 2011/2012/24 (NDU, BAYELSA) Exercise 20.26
One of the economic effects of taxation is that it General property taxes
A. increases consumption of goods and services A. are borne entirely by landlords
B. discourages savings and investment B. cannot be shifted in the long run
C. encourages distribution of goods and services C. are borne only by renters
D. encourage injection of capital into the economy D. are borne by all (renter, owners – occupiers and
Answer landlords)
Discourages savings and investment (B)
2009/10 (OAU, IFE)
2016/5 (UNIBEN, BENIN–CITY) A greater burden of taxes on essential goods is borne by the
Government budget refers to A. middle income group B. higher income group
A. satisfactory balance between income and expenditure C. lower earning people D. people foiling between the
government for one year middle and higher income group
B. plan of government’s financial request and expenditure E. top few richest people in an economy
for one year Answer
C. plan for importation of goods and services for a given period Lower earning people (C)
D. estimates of government financial operations for a given 2008/15(OAU, IFE)
period The situation in which the total amount of government
Answer spending exceeds total revenue is called a
Satisfactory balance between income and expenditure of A. balanced budget B. budget surplus
government for one year (A) C. budget deficit D. fiscal surplus
Answer
2015/2 (UNIBEN, BENIN–CITY) Budget deficit (C)
Which of these is a fiscal policy?
A. wage freeze B. foreign exchange control 2008/24 (OAU, IFE)
C. the use of quotas D. changes in taxation Tax incidence is the analysis of
Answer A. how progressive a tax is B. how distorting a tax is
Changes in taxation (D) C. who ultimately pays the tax D. how a tax is collected
Answer
2014/2015/65 (UNIBEN, BENIN–CITY) Who ultimately pays the tax (C)
The basic fiscal relation that exists among the three tiers of
government in Nigeria is 2007/11 (OAU, IFE) Exercise 20.27
A. national budget appropriation The burden of tax on a commodity whose demand is
B. state local government joint account infinitely inelastic
C. revenue allocation from the federation account A. zero B. will be borne by sellers alone
D. federal road projects C. will be borne by buyers alone D. is impossible to tell
E. federal character principle
Answer 2007/15 (OAU, IFE)
Revenue allocation from the federal account (C) Which of the following are directly taxes?
A. income and company taxes B. sales tax
2014/2015/66 (UNIBEN, BENIN–CITY) C. commodity tax D. excise duties
The biggest source of government revenue in Nigeria is Answer
A. mining rents and royalties B. company income tax Income and company taxes (A)
C. import duties D. export duties 2007/20 (OAU, IFE)
E. petroleum profits tax The situation in which the total amount of government
Answer spending exceeds total revenues is called a
petroleum profits tax (C) A. balanced budget B. budget surplus C. budget deficit
D. fiscal surplus
2009/2010/59 (NDU, BAYELSA) Answer
Which of the following is not an indirect tax? Budget deficit (C)
A. excise duty B. company tax C. import duty
D. export duty E. sales tax 2006/11 (OAU, IFE)
Answer A deficit budget is usually drawn up during
Company tax (B) A. economic buoyant B. inflationary period
C. war time D. economic recession
Answer
economic recession (D)

573
2006/23 (OAU, IFE) 1979/26 UTME
Which tends to be progressive tax in Nigeria? If Mr. A earns ₦2,000 a year while Mr. B earns ₦8,000 a
A. income tax B. property tax C. sales tax year but Mr. A pays ₦200 per annum in tax while Mr. B
D. import duties pays ₦400 such a tax is
Answer A. progressive B. indirect
Income tax (A) C. regressive D. proportional E. none of the above
Answer
2015/25 (OAU, IFE) A – Progressive.
Which of these will not be a typical consequence of an
import tariff? 1979/31 UTME
A. producer surplus increases in the domestic market If a government is running a deficit, this means
B. consumer surplus increases in the domestic market A. terms of trade are unfavourable
C. dead weight loss is created B. more projects cannot be undertaken
D. government revenue is created C. tax inflow is greater than expenditure
Answer D. aggregate demand is greater than aggregate supply
Consumer surplus increases in the domestic market (B) E. tax inflow is less than expenditure
Answer
1978/2 UTME E – Tax inflow is less than expenditure.
A budget deficit means
A. that a country is buying more than it is selling 1979/36 UTME
B. that a country is selling more than it is buying An advalorem tax means
C. a government is spending more than it takes in taxation A. total amount of an income tax
D. a government is spending less than it takes in taxation B. a certain percentage tax on the value of a commodity
E. a government is spending as much as it takes it taxation C. a certain percentage tax on the volume of a commodity
Answer D. a tax on capital gains E. a profit tax
C – A government is spending more than it takes in taxation. Answer
B – A certain percentage tax on the value of the commodity.
1978/18 UTME
A tax which takes a higher percentage from higher incomes 1979/46 UTME
is called The burden of tax on a commodity whose demand is
A. a regressive tax B. a progressive tax infinitely inelastic
C. a proportional tax D. an indirect tax A. is zero B. will be borne by seller alone
E. a direct tax C. will be borne by buyer alone
Answer D. a tax on capital gains E. a profit tax
B – A progressive tax. Answer
C – Will be borne by buyer alone.
1978/22
The biggest source of government revenue in Nigeria is 1980/1 UTME
A. miningrents and royalties B. company income tax If the government is interested in raising the highest
C. import duties D. export duties revenue from a tax system, then for any two commodities
E. petroleum profits tax A. it is better to tax one whose demand is more elastic
Answer B. it is better to tax one whose demand is more inelastic
E – Petroleum profits tax. C. revenue will be the same from both commodities
D. It is not possible to say which yield higher revenue
1979/11 E. government will cannot make much revenue from taxing
Which of the following is not a direct tax? commodities
A. company income tax B. capital tax Answer
C. purchase tax D. personal income tax B – It is better to tax one whose demand is more inelastic.
E. capital gain tax
Answer: Purchase tax (C) 1980/7 UTME
Which is the dominant form a tax in Nigeria?
1979/14 UTME A. direct tax B. indirect tax C. inheritance tax
Which of the following is not an indirect tax D. personal income tax E. all of the above
A. excuse duty B. company tax Answer
C. import duty D. export duty E. sales tax A – direct tax
Answer
B – Company tax.

574
1980/24 UTME 1981/50 UTME
Mr. A earns ₦300 and pays ₦15 in tax Mr. B earns ₦100 Progressive income tax can be expressed as
and pays ₦6 in tax. The tax system can be described as A. tax that falls as income rises
A. proportion tax B. progressive tax B. tax that rises as income falls
C. competitive tax D. exercise tax E. regressive tax C. tax that is independent of income
Answer D. tax that rises as income rises
E – Regressive tax. E. tax that is neutral to income
Answer
D – Tax that rises as income rises.
1980/38 UTME
Which of the following taxes appear generally progressive 1982/15 UTME
in nature? Taxes which are levied on a person’s expenditure are
A. sales taxes B. the personal income tax known as
C. property taxes D. corporate taxes A. purchase tax B. sales tax C. direct tax
E. none of the above D. poll tax E. income tax
Answer Answer
B – The personal income tax. A – Purchase tax.
1982/23 UTME
The chief sources of Federal Government revenue in
1981/18 UTME Nigeria are
Indirect taxes are taxes A. import duties, petroleum import tax, profit tax royalties
A. which are levied on the incomes and profits of and government dividends
individuals and firms B. personal income tax, excise tax and vehicle licenses
B. whose incidence always falls on the consumer C. export duties, personal income tax and royalties
C. which are based on the progressive principle D. property income, sales tax and excise tax
D. on casinos, airports and capital gains E. import duties, sales tax and poll tax
E. which are levied on people and economic units through Answer
the goods and services they purchase A – import duties, petroleum import tax, profit tax royalties
Answer and government dividends
E – Which are levied on people and economic units through
the goods and services they purchase. 1983/20 UTME
Public expenditure creates expansionary effects in the
economy when it is
1981/19 UTME A. in excess of government revenue
The situation where by in a fiscal year a government revenue B. channeled into capital projects
receipts are less than its expenditures is referred to as C. diverted into imports
A. budget deficit B. balanced budget C. budget surplus D. financed through oil revenue
D. budget statement E. unfavourable budget E. completely financed through part of the year’s total
Answer collection of taxes
A – Budget deficit. Answer
B – Channeled into capital projects.

1983/23 UTME
1981/29 UTME
Which of the following are direct taxes?
Government budget can be described as the sum of
A. sales taxes B. excise duties
A. indirect tax, direct tax and loans expected within
C. income and company taxes D. tariff duties
B. financial year
E. commodity taxes
C. planned recurrent expenditure and planned investment
Answer: C – Income and company taxes.
expenditure
D. planned capital expenditure for a development plan
within a plan period 1983/27 UTME
A greater burden of the taxes on essential goods is borne by
E. planned expenditure and expected revenue within a
the
financial year
A. middle income group B. higher income group
Answer
C. lower income group
Planned expenditure and expected revenue within a
D. people falling between the middle and higher income group
financial year. (E)
E. top few richest people of the country
Answer: C – Lower income group.

575
1984/22 UTME 1986/38 UTME
In taxation the benefit principle requires that Which of the following is not a goal of modern budgets?
A. everybody must draw benefits from taxation A. the control of inflation
B. all those who earn more income must pay more taxes B. the reduction in income inequality
C. only those who derive benefit from services provided C. the shift of all resources from the private to the public sector
from public revenue should be taxed. D. economic development
D. taxes paid by businesses should be shifted to those Answer
consumers benefiting from such consumer commodities C – The shift of all resources from the private to the public
E. everybody pays an equal amount sector.
Answer
B –only those who derive benefit from services provided 1987/37 UTME
from public revenue should be taxed. Advalorem tax means
A. a certain percentage tax based on the value of the commodity
Hint:In taxation, the benefit principle is a principle based
B. a certain percentage tax based on the volume of the commodity
on the notion that those who benefit more from government
C. a tax on the income of the consumer
expenditure or spending should pay more taxes than those
D. payment of a tax on the profit made
that do not.
Answer
A – A certain percentage tax based on the value of the
1984/37
commodity.
One of the major effects of an increase in government
expenditure on a nation’s economy is that it
1987/38UTME Exercise 20.29
A. creates investment opportunities for foreign investors
In order to raise more revenue for a certain period, government
B. leads to indigenization of the private sector
should impose higher taxes on goods whose demand is
C. raises the level of total tax revenue
A. elastic B. inelastic C. perfectly elastic
D. raises the level of aggregate demand
D. unitary elastic
E. controls the spread of monopoly
Answer
1987/39 UTME
D – Raises the level of aggregate demand.
A budget with a projected revenue in excess of its
expenditure is said to be
1984/38 UTME
A. balanced B. surplus C. deficit D. inflationary
Public expenditure on services such as education and
Answer
health, is known as expenditure on
B – Surplus.
A. general service B. community services
C. social services D. economic services
1987/40 UTME
E. administrative services
The money which government spends yearly for the
Answer
maintenance of its schools is
C – Social services
A. used only for wages and salaries
1985/32 UTME Exercise 20.28 B. part of the government’s capital expenditure
Which of the following is not among the canons of taxation C. part of the government’s recurrent expenditure
as set out by Adam Smith? D. the government’s budget for its schools
A. equality B. security C. certainty Answer
D. convenience E. economy C – Part of the government’s recurrent expenditure.

1983/33 UTME 1988/36 UTME

An example of a regressive tax is Which of the following is a direct tax?
A. the personal income tax A. Sales tax B. purchase tax
B. the graduated corporation income tax C. export duties D. property tax
C. a general sales tax Answer
D. the inheritance tax E. the excise tax D – Property tax
Answer: C – A general sales tax.
1988/37
1985/34 UTME Which of the following would most likely be considered an
Tax which is levied on goods manufacture, sold orused example of benefit taxation?
within a country is A. excuse tax B. corporate income tax
A. sales tax B. excise tax C. direct tax C. property tax D. high way user tax
D. income tax E. poll tax Answer
Answer D – High way user tax.
B – Excise tax
576
1989/33 UTME 1991/36 UTME
A tax is defined as regressive if A tax that takes an increasing fraction of income as income
A. the portion of income paid as tax increases as the income goes down is called
level increases A. conditional B. regressive
B. all income groups pay the same percentage of their C. progressive D. proportional
income as taxes Answer
C. the proportion of income taken by the tax falls as income B – Regressive
increases
D. the proportion of income taken by the tax is a fixed 1991/37 UTME Exercise 20.30
nominal amount of income for all income groups Budget deficit is the amount by which
Answer A. total expenditure exceeds revenue
C – The proportion of income taken by the tax falls as B. recurrent expenditure exceeds revenue
income increases. C. capital expenditure exceeds revenue
D. recurrent expenditure exceeds capital expenditure
1989/35 UTME
The three major groups of government revenue are 1993/38UTME
A. investment income, direct tax an indirect tax Which of the following are the major disadvantages of
B. import duties excise tax and export duties direct system of taxation?
C. company tax, personal income tax and import duties I. Disincentive to hardwork
D. company tax, import duties and excise II. Difficulties in assessment and collection
Answer III. Imperfections in tax assessment
A – Investment income direct tax and indirect tax. A. I and II B. I and III C. II and III D. I, II and III
Answer
1989/36 UTME C – I and III
The main objectives of public expenditure does not include
A. stabilization of national economy 1994/41UTME Exercise 20.31
B. achievement of a more equitable income distribution Taxes and government expenditures are instruments
C. meeting the social needs of the people A. monetary policy B. tax policy
D. revenue sharing and profit maximization C. economic policy D. fiscal policy
Answer
D – Revenue sharing and profit maximization. 1997/38 UTME
The greatest proportion of government revenue in Nigeria
1989/37 UTME
comes from
A perfect example of a public good is
A. export of raw materials
A. air B. education C. defence D. transport
B. income taxes on individuals and businesses
Answer
C. customs duties and excise taxes
C – Defence.
D. loans and grants from industrially advanced countries
Answer
C – Customs duties and excise taxes.

1989/38 UTME
A balanced budget is defined as a condition of 1997/39 UTME
A. balance of payment equilibrium One of the factors which is likely to check the growth of
B. equality of aggregate demand and aggregate supply public debt is
C. equality of planned receipts and planned expenditure A. bridging the resource gap B. debt repudiation
D. equality of planned exports and planned import C. debt rescheduling D. debt equity swap
Answer Answer
C – Equality of planned receipts and planned expenditure. D – debt equity swap.

1990/34 UTME 1998/36 UTME

A tax on a commodity whose supply is perfectly inelastic is An increase in government expenditure will lead to
A. shifted completely on the consumer A. investment opportunities for foreign investors
B. completely borne by the supplier B. an increase in the level of aggregate demand
C. divided in the ratio 60:40 between consumer and supplier C. an increase in total tax revenue
D. dividend half and half between the producer and the consumer D. reduction in total tax revenue
Answer Answer
B – Completely borne by the supplier. B – An increase in the level of aggregate demand.

577
1998/37 UTME 2003/40 UTME
When an indirect tax is levied on the producer of a good, The effect of an increased in the personal income tax is to
the burden on the consumer will depend largely on the A. rouse the absolute price level B. distort the economy
A. elasticity of demand for the good C. reduce unemployment
B. proportion of the consumer’s income spent on the good D. reduce the disposable income
C. elasticities of demand and supply of the commodity Answer
D. availability of substitutes for the commodity D – Reduce the disposable income.
Answer
A – Elasticity of demand for the good. 2004/22 UTME
Fiscal policy is the government’s plan to control aggregated
2000/43 UTME demand by manipulating
An aspect of taxation that involves normative economics is A. the demand and supply of money
the B. revenue and expenditure
A. tax rate B. fairness of the tax C. tastes and preferences of consumers
C. effect on incentive to work D. tax burden D. the structure of production and employment
Answer Answer
C – Effect on incentive to work. A – The demand and supply of money.
2004/25 UTME
2001/33UTME Exercise 20.32 If budget deficits are financed by borrowing, the crowing
A tax that increases at a higher percentage as income out effect can be offset by an increase in
increases is called A. government expenditure B. savings
A. a proportional tax B. a regressive tax C. interest rates D. exchange rates
C. a progressive tax D. an income tax Answer: C – Interest rates.
2002/39UTME 2004/28 UTME
Which of the following yields more revenue to Nigeria? The tax levied on goods and services at each stage of
A. value added tax B. royalties production is
C. indirect tax D. direct tax A. surtax B. VAT C. ad valorem tax D. PAYE
Answer Answer
C – Indirect tax. B – VAT
2005/49 UTME
2002/42UTME
If government increases the expenditure on public works,
A deficit budget can be used to
the desired effect is
A. stimulate recovery from a trade depression
A. a reduction in the use of capital equipment
B. protect the economy from inflation
B. an increase in the level of employment
C. starve the economy of funds for economic development
C. an increase in the level of inflation
D. provide measures to remedy the balance of payments
D. an increase in the use of capital equipment
Answer
Answer
B – Protect the economy from inflation.
B – An increase in the level of employment.
2003/29 UTME 2006/27 UTME
The major objective of a revenue allocation formula in a When the federal government guarantees a loan for a state
country is to government, such a loan constitutes
A. share revenue between the public and private sectors A. a transferred debt B. a private debt
B. ensure the financial viability of the country C. a public debt D. an inter-governmental debt
C. share the revenue between the different tiers of government Answer
D. divert revenue from areas of surplus to areas of need C – A public debt.
Answer
C – Share the revenue between the different tiers of 2006/30 UTME
government. Personal income tax as a source of government revenue is
increased when the
2003/37 UTME A. tax base is contracted B. tax system is proportional
A greater burden of the taxes on essential goods is borne by the C. tax rate is raised D. retirement age is reduced
A. higher income group B. newly recruited workers Answer
C. lower income group D. contract workers C – Tax rate is raised.
Answer
C – Lower income group.

578
2006/32 UTME 2015/23 UTME
The main source of government revenue in Nigeria is Higher income taxes can be used to control
A. import duties B. capital gain tax A. demand-pull inflation B. high interest rates
C. company income tax D. rents and royalties C. cost-push inflation D. hyper-inflation
Answer Answer
C – rents and royalties A – Demand-pull inflation.
Hint: The government can increase taxes (such as income tax
2006/34 UTME and VAT) and cut spending. Ths improves the
The revenue mobilization, allocation and fiscal commission in government’s budget situation and helps to reduce
Nigeria has the primary responsibility for demand in the economy. Both these policies reduce
A. maintaining the fiscal supremacy of the central government, inflation by reducing the growth of aggregate demand.
the fiscal supremacy of the central government
B. evolving an acceptable wage for public servants 2016/1 UTME
C. evolving an acceptable revenue – sharing formula A country embarks on deficit financing in order to
D. ensuring equity in the sharing of fiscal responsibilities. A. reduce aggregate demand B. increase revenue
Answer C. stimulate investment D. curb inflation.
C – evolving an acceptable revenue – sharing formula Answer
D – Curb Inflation
2012/35 UTME Exercise 20.33
A huge national debt is an indicator that the gold reserves of a 2016/30 UTME
nation has A tax on land will ultimately fall
A. appreciated B. decreased A. partly on agents and users B. partly on users and if owners
C. depreciated D. stagnated C. Entirely on owners D. entire on users
Answer
2018/31 UTME C – Entirely on owners.
An example of an expansionary fiscal policy action is
A. decrease in the corporate profit tax rates 2017/25 UTME
B. decrease in welfare payments Capital gains tax is an example of
C. purchase of government securities A. value added tax B. purchase tax
D. decrease in the bank rate C. sales tax D. income tax
Answer Answer
A – Decrease in the corporate profit tax rate. D – Income tax.

2013/32 UTME 2017/26 UTME

A tax on land will ultimately fall Which of the following is a source of government revenue?
A. partly on agents and users B. entirely on users A. taxes, fees, licenses and fines
C. entirely on owners D. partly on users and owners B. interest, dividends, profits and earnings
Answer C. personal income, disposable income and transfer earnings
C – Entirely on owners. D. grants, aids and borrowing
Answer
2013/46 UTME C – Personal income disposable income and transfer earnings.
A fiscal policy instrument that can influence the demand
pattern in an economy is 2018/32 UTME
A. government spending B. interest rate Taxes and government expenditures are instrument of
C. income tax D. tariff A. monetary policy B. tax policy
Answer C. economic policy D. fiscal policy
C – Income tax. Answer
D – Fiscal policy.
2015/22 UTME
A tax burden on a commodity will be shared equally if the 2019/19 UTME
demand is Ad Valorem tax means
A. fairly elastic B. perfectly inelastic A. a certain percentage tax based on the value of the commodity
C. fairly inelastic D. unitary elastic B. a certain percentage tax based on the volume of the commodity
Answer C. a tax on the income of the consumer
D – Unitary elastic D. payment of a tax on the profits made
Answer
2019/18 UTME Exercise 20.34 A – A certain percentage tax based on the value of the
A budget with a projected revenue in excess of its expenditure commodity
is said to be
A. balance B. surplus C. deficit D. inflationary

579
 5. Economic growth does not necessarily lead to overall
standard of living of the people while development leads
ECONOMIC GROWTH, DEVELOPMENT AND to overall standard of living of the people.
PLANNING 6. Economic growth can be quantified while all aspect of
Economic growth is the process where there is a economic development cannot be quantified.
quantitative increase in the economy’s output and efficiency 7. Economic growth is concerned with total input and
over a period of time. It is the increase in real national output while economic developments is not only
income/national output. During the period of economic concerned with input and output but also the present
growth, there is usually a general increase in the production variety of output.
of goods and services in the country. An economy is said to
be growing if there is a sustained increase in the actual MEASUREMENT OF ECONOMIC DEVELOPMENT
output of goods and services per head. Growth rate measures the rate of development. There are
certain indices used to determine if a country is developed
It is measured as a percentage rise in the national income,
or not. They are as follows:
during a given period of time, usually a year. Economic
1. Real Gross National Product (GNP): This measure
growth leads to economic development.
assumes that for a country to be developed, her
Economic development is the process of growth plus national income figure should be very high. This
change over a sustained period of time. It is the process of measure is very defective. It is used after removing
increasing real per capital income and engineering fluctuation in the general price level due to inflation
substantial positive transformation in the various sectors of and deflation.
the economy. The positive changes which takes place 2. Real Capital Income (YP): This measures the national
improve the general well-being of the people and ensure a income per head of the population. It assumes that for
sustained rise in the standard of living of the masses. development to take place in a country, the rate of
Examples of developed countries include USA, Britain, increase in real income should be over and above the
France, Japan etc. increase in population. The real per capital income is
calculated as follows.
ELEMENTS AND FEATURES OF ECONOMIC Real GNP
𝑌𝑝 =
DEVELOPMENT Total population
1. There should be a more efficient allocation of Where 𝑌𝑝 = real capital income
resources. 3. Life expectancy: This measure the life span of the
2. High level of industrialization. people which may be determined by the standard of
3. There must be reduction in the rate of inequality living. People live longer in developed countries than
between the various incomes classes. less developed ones.
4. Less reliance on imported goods and export promotion. 4. Literacy rate: This is the percentage of the population
5. Establishment of durable political structure that is ofa given age group that can read and write. Higher
devoid of instability. ratesare obtainable in the developed countries
6. Shift from agriculture to manufacturing. compared to the less developed ones.
7. Acquisition of special creative skill by the citizens. 5. Output per worker ratio or per capital output ratio.
8. Availability of basic necessities of life such as 6. Index per capital food production.
qualitative food, shelter, clothing, electricityetc.
9. Diversification from primitive methods of production
to modern and more profitable methods. 2022/20 NABTEB
Economic growth is defined as the
DISTINCTION BETWEEN ECONOMIC GROWTH A. rate of increase in a country's birth rate
AND ECONOMIC DEVELOPMENT B. rate of increase in inflation
1. Economic growth is an increase in real national output C. rate of increase in a country's output
over a period of time; or a sustained rise in real capital D. rate of increase in a country's population
income while development is a transformation of a Answer
country from under developed state to a modern form Rate of increase in a country's output (C)
or developed state.
2. Growth may occur over a period of time while 2019/21 UTME
development sustains the economy for a lifetime. Economic development is defined as
3. Growth may occur in only one or more sectors of the A. positive change plus growth
economy while development occurs in all sectors of B. availability of more goods and services
the economy. C. outward shift of the production possibility curve
4. Industrialization may be used as a basis of measuring D. growth in the national income
growth, while in development, industrialization is a Answer
mere index of measuring development. Positive change plus growth (A)
580
2019/29 UTME FEATURES OF UNDER DEVELOPED ECONOMY
A sustained increased in the per capital income of a country 1. Low income per capital: The low level of income per
over a period of time is called head of the population is due to the low level of
A. economic growth B. economic development productivity which results in low national income or
C. structural change D. stagflation low Gross Domestic Product.
Answer 2. Low standard of living: Less developed countries lack
A – Economic growth. many social amenities. The citizens do not have easy
access to the good things of life, as a result, they
2018/20 NABTEB experience low standard of living.
Economic growth can be described as 3. Low level of employment: Underdeveloped countries
A. quantitative increase in output of goods and services experience high level of unemployment. Many young
B. qualitative increase in the standard of living school leavers find it difficult to secure employment.
C. quantitative increase in the population size 4. Low level of technology: Much production is done by
D. retrogressive change in output of goods and services using primitive methods, the use of modern methods of
Answer production is not widespread. The extent of
Quantitative increase in output of goods and services (A) industrialization is still limited.
5. High level of illiteracy: In most developing countries a
2006/42 Nov large percentage of the population cannot read and
Economic growth entails write. The high rate of illiteracy is due to poverty.
A. increase in per capital income Many people cannot afford the cost of education for
B. decrease in the number of skilled labour their children or themselves. The low level literacy
C. scarcity of goods D. decrease in consumption results in abundance of unskilled labour and relative
Answer scarcity of skilled manpower.
Increase in per capital income (A) 6. Low level of productivity: In undeveloped countries, primary
and primitive method of production is highly adopted. The
1992/25 Nov Exercise 21.1 level of productivity these countries is usually very low
A sustained increase in the per capital income of a country compared to those of developed countries.
over a period of time is called economic 7. Low national income: As a result of low productivity,
A. integration B. growth C. plan D. change the national income of underdeveloped countries is
E. welfare usually very low.
8. Wide gap between the poor and the rich: In
2000/59 Neco Exercise 21.2 underdeveloped countries, there is a very wide and
Which of the following is not a characteristic of a clear gap between the poor and the rich. The rich get
developing country? richer everyday while the poor get poorer everyday.
A. greater dependence on primary function 9. High rate of dependency: In underdeveloped countries
B. high rate of literacy C. high rate of unemployment many extended family and non family members
D. low infrastructural development E. mass poverty acknowledge or depend on the rich man for their daily bread.
10. Population explosion: The population of
2014/24 (OAU, IFE) Exercise 21.3 underdeveloped countries grows at a faster rate than
The difference between economic growth and economic those of developed nations. This is due to lack of
development is that the latter deals with awareness. There is high birth rate.
A. economic growth and structural change 11. High death rate: This is due to disease and
B. economic growth and output change malnutrition.
C. economic growth and GDP change 12. Low saving: Many people spend a large proportion of
D. economic growth and income change their income on food and other essentials of life instead
of investing it. This is due to low income of many
UNDER DEVELOPMENT people. Little is left for saving after their basic
The terms developing, underdeveloped, less–developed and requirements have been met.
third world countries are used in contemporary economic
literature to describe the same group of countries. They 1999/36 Nov
refers tocountries that have not reached a certain level of Underdevelopment may be defined as a situation of
development in terms of structural transformations and A. high per capital income B. optimum population
improvements. C. political and social stability
D. general economic backwardness
Answer: General economic backwardness (D)

581
2006/58 Neco 4. Inadequate skilled labour: There is a deficiency in
Nigeria and Ghana are regarded as developing countries technical know-how in many West African countries.
because of high The indigenous skilled manpower required to handle
A. life expectancy B. per capital income the various development projects is in short supply, the
C. rate of economic growth D. rate of illiteracy relative scarcity of indigenous skilled labour is due to
E. standard of living the high level of illiteracy which exists.These slow
Answer: High rate of illiteracy (D) down the rate of economic growth and development.
5. High population growth rate: The population of most
West African countries has been growing rapidly. This
2020/43 Exercise 21.4 increases the size of the dependent population and
In most developing countries, natural rate of population increases the rate of unemployment. The increasing size
increase is of the dependent population (the children, the aged and
A. high B. low C. easy to ascertain D. very moderate the unemployed) constitutes an economic liability to the
working population. Therefore, little money is left for
2017/41 Exercise 21.5 saving and reinvestment since more and more people
Which of the following is not a feature of economic have to be catered for. Rapid population increase
underdevelopment? therefore tends to nullify attempts at increasing
A. monocultural economy B. high productivity economic growth.
C. low life expectancy D. income and inequality 6. Low level of technology: Technological developement
is a major problem in West Africa as they cannot adopt
modern techniques (mechanized system) in production
PROBLEMS OF ECONOMIC DEVELOPMENT IN neither in agriculture nor in industries. For instance,
WEST AFRICA those in agricultural sector still use crude of primitive
1. Inadequate capital and credit facility base: There is method in farming, fishing, etc. Also those in industrial
inadequate capitaland access to credit facilities to sector adopt the craft method of production of goods
execute the various development projects which would which are of little or no value to foreigners. These make
lead to structural transformations within the economy. us to remain in the vicious circle of poverty.
The shortage of capital results from the existence of 7. High rate of illiteracy: Majority of the West African
the vicious circle of poverty. There is low level of population cannot read and write intelligently. They
income which results in extremely low saving. And therefore have strong aversion to innovation; that is, it
low savings cause a shortage of capital for investment, makes them not to develop much interest in modern
and so the rate of investment is low. The inadequate forms of production. This retards (hinders) economic
capital base has result in great reliance on foreign growth.
capital in the form of loans, grants and aid. The 8. Administrative bottlenecks: There are certain government
problem is that foreign capital usually has ‘strings’ policies which tend to hinder economic development.
attached to it, which cost often do not favour these These include high taxation, the location of development
poor countries. projects in economically unviable areas and delays in
2. Inadequate infrastructural facilities There is acute giving approval to prospective businessmen for the
shortage of modern social amenities, like: establishment of manufacturing industries. Such
i. Good network of expressways, railways. administrative constraints tend to discourage production
ii. Good transport and communication system. and lead to slow economic growth and development.
iii. Reliable pipe-borne water and electricity supply. 9. Huge debt burden: A huge amount of public debt,
iv. Efficient sea and airport facilities. especially overwhelming external debts sets a limit to
v. Reliable postal services, etc. economic growth. A great percentage of our scarce
foreign exchange earnings is used for servicing our public
Except the above are modernized and made available
debts (payment of interest on external loans). This reduces
throughout these countries, there will be little or no
the amount available for investment in economic
hope for economic development. development.
3. Political instability: The governments of many West 10. Inability to exploit already available resources: West
African countries have been experiencing frequent Africans cannot effectively participate in exploration and
crisis. Such crisis show themselves in the form of exploitation of their natural resources. They wholly
internal religious uprisings, civil wars and coups d’etat. depend on expatriates to tap the bulk of their natural
These tend to divert the attention of the government resources. The mining industry, for instance, entirely rely
from development projects to the maintenance of law, on foreign engineers for harnessing the mineral
order and security, leading to heavy expenditure on resources.They cannot also source for local raw materials
them. Also, foreign and indigenous enterpreneurs are - convert natural resources into useful raw materials for
discouraged from investing in productive ventures since their industries’ use. These hinder economic growth and
the safety and profitability of their investments are not development.
guaranteed during periods of political instability.
582
11. Limited market or low effective demand: The small size 4.
Establishment of industries: There is a gap between a
of the market may be caused by the small size of some developed and undeveloped nation is due to the
countries with small population figures. The small size of existence of giant industries in the developed
the market may also result from the low demand for countries. The non-existences of such industries in
commodities, because of the low level of income. This undeveloped countries do not foster economic
low effective demand for products forces firms to limit development. Therefore for the attainment of
their scale of producton. A low level of productivity development, the undeveloped countries must as a
results in slow economic progress. matter of necessity encourage the establishment and
12. Inadequate development banks: Under-developed survival of infant industries.
countries don’t have sufficient number of well managed 5. Political stability: There must be a stable and
development banks that can motivate the public and conducive political climate if development must be
provide medium and long term loans towards attained.
establishment of medium and large scale enterprises. 6. Prudent management: One of the problems facing the
This makes our economic growth to be painfully slow. world today is leadership. A god leader and efficient
13. Agricultural inefficiency: The countries in West African use of the society’s resources must be a fundamental
cannot adopt modern technique (mechanized system) in objective of any country that desires to attain
agricultural sector. They still depend on primitive methods economic development.
of farming, fishing, etc. And they cannot produce suffient 7. Effective development plans: Economic development
foodstuffs for their teaming population. Thus they import requires the effective and efficient allocation of scarce
all sorts of foodstuffs, e.g. frozen fishes and chicken, rice, resources. This entails the use of development plans. A
etc. This reduces their capital below the level deemed good development plan brings rapid economic
adequate for rapid economic growth and development. development.
14. Reliance on single export crops or other products: Some 8. Provision of infrastructural facilities: Availability of
countries rely heavily on single export products as sources infrastructural facilities is a critical factor in the
of income for economic development. Senegal, for instance achievement of economic development goal. To achieve a
relies heavily on groundnuts. Nigeira relies heavily on development goal, the government must ensure that the
petroleum. If the world demand for the single export necessary infrastructural facilities are available.
product falls, the countries in question will be adversely 9. Encouraging high rate of literacy: Education is the bed
affected. The recent oil glut has placed a serious constraint rock of economic development. For the achievement of
on Nigeria’s economic development. Income from economic development. For the developing countries must
agricultural produce is unreliable. If income falls as a result ensure that qualitative education is made available for
of lower world prices or a bad harvest, the economy everybody and at affordable cost.
stagnates. 10. Removal of administrative bottlenecks: All economic
bottlenecks in the administrative course should be
DEVELOPMENT STRATEGIES FOR DEVELOPING strategically removed to prompt quick economic
COUNTRIES development.
The measures that could be taken by West African countries 11. Wider markets could be created through economic
e.g. Nigeria, to achieve development are, but notlimited to integration in West Africa
the following
1. Diversification of the economy: Most undeveloped ECONOMIC PLANNING
countries practice what economist call mono–cultural Economic planning involves allocation of resources by the
economy. The economy depends entirely on ones government to the various sectors of the economy in such a way
sector for development e.g. agriculture or oil, as it is as to lead to smooth and rapid economic growth. Development
the case in Nigeria. No nation ever attains plan is a consolidated economic policy of the government for the
development under this types of economic situation. efficient and equitable distribution of resources to all or some
For the attainment of economic development, the sectors of the economy so as to accomplish certain economic
country must not only look inward, but must as a goal. Such goal is usually to ensure rapid economic growth and
matter of necessity go into other sectors of the country. development of the economy.
Economic planning is the process by which definite targets are set
Such as industry, tourism etc. This is to ensure a for the economy as a whole by a central authority, as resources
balanced economy. are marshaled and directed to the achievement of those targets
2. Import substitution: Under this strategy, the country within a specified period. It involves the deliberate organization
takes all positive steps to produce imported goods of projects in such a way that the available resources are used to
locally or at least find a local alternative for most achieve the minimum satisfaction of the people’s need within a
imported goods. given period. Economic planning requires that the functions of
3. Export promotion: For the attainment of development, public authorities be extended to cover the organization and
the country must boost its foreign exchange earnings. utilization of economic resources. When a government decides to
It can do this by encouraging exports and discouraging plan its economy, it usually sets up a ministry of economic
planning.
import.
583
TYPES OF ECONOMIC PLANNING (a) Level of economic investment, e.g. number of firm.
1. Perspective planning: This planning takes a long (b) Level of social investment, e.g. roads, water,
range view of the economy and convers a period of at electricity, etc.
least 10 years, hence perspective plans are termed long (c) Capital accumulation – saving, foreign exchange
– term plan. earning.
2. Medium–term Plan: This ranges from annual plans to (d) Level of consumption.
plans extending to two or three years. (e) Volume of export.
3. Comprehensive economic planning: This type of (f) Population, etc. And the planners should design
economic planning assists government in planning, measures (find out the means) of accomplishing
coordination and to control macro-economic activities. (achieving) them.
4. Regional Plan: This is the type of plan that focuses on 6. To develope manpower: One of the reasons for
the specific regions of a country. Nigeria’s first development plan was to train high level
5. National Plan: This type of planning overs all and intermediate manpower in order to rduce the acute
geopolitical units in a country. shortage of skilled labour at that time.
6. Partial economic planning: This type of economic 7. To ensure self-reliance: The planners ensure that the
planning is designed to cover specific sector of the country achieve self-sufficiency in all types of goods
economy which the government consider to be lacking and services.
or vital for economic government. 8. To eliminate foreign control of the economy: It is also
7. Democratic economic planning: This type of aimed at encouraging indigenes to fully participate in
economic planning is based on democratic idea. The different economic sectors’ activities so as to reduce the
task of formulating and implementing the plan are extent of foreigners involvement in the economy
normally delegated to experts who work under the (production of goods and rendering of services).
auspices of the government. 9. To encourage private sector: It makes the public aware
8. Authoritative or authoritarian planning: This type of of the proposed economic activities of a nation; and this
planning is usually formulated and executed by enables the citizens to dicsuss them and make useful
socialist or centrally planned economics. In this case, contributions. They even bring their proposed output in
the government is in total control of major economic line with those of the development plan. This raises
activities and allocates resources to the various sectors. overall output.
Examples of countries that practice this are China, 10. To diversify the economy: It is aimed at diversifying
Poland, and former Soviet Union. the economy. That is, it is aimed at developing different
economic sectors and set up strategic or complex (big)
OBJECTIVES OF ECONOMIC PLANNING companies in different economic sectors or different
1. To ensure effective exploitation of resources: The parts of a country.
planners ensure that all unexploited (idle, unused) 11. To have full employment: Economic planning is aimed
resources are thoroughly harnessed and make available to at achieving a level of full employment of labour. The
our various industries. planners ensure that all unemployed and
2. To ensure effective allocation and efficient use of all underemployed labour (people) are fully engaged. And
resources: The planners ensure effective (proper) this raises the level of the national output. We recall
allocation of all resources especially all those specified in that National output refers to ‘total amount of goods
the plan and their efficient (maximum) use in order to
and services produced in a country per period’.
raise output of goods and services.
12. To ensure even distribution of income: It also aimed at
3. To ensure rapid economic growth: To quicken (raise) the
rate of economic growth and development of a country.
bridging the gap between the poor and the rich.
That is, to ensure a greater output of goods and services in 13. To eliminate inflation and deflation: It is also aimed at
a country in order to bring about a higher per capita ensuring stable rices. In other words, it is aimed at
income. Factually, its main aim is to ‘raise the overall reducing high rate of inflation and to eliminate adverse
level of investment in a country’. effects of deflation.
4. To increase output and income:Economic planning is 14. To ensure even development: It is also aimed at brining
drawn up mainly to increase output of goods and service about even development of the country. That is, it
and per capita income in order to raise the general ensures that all parts or states of a country are properly
standard of living of the people. In other works, it is aimed developed.
at eliminating poverty. 15. To easily attract foreign loans: It makes a country to
5. To set high target rates of growth and accomplish easily attract foreign loans and aid for the speedy
them:It is also mainly drawn up in order to set high target implementation of the various projects in the plan. And
rates of growth for: this causes a quick rise in the national output.
i. different economic sectors;
ii. different economic variables (items) like

584
PROBLEMS OF DEVELOPMENT PLANNING IN MEASURES TO ENSUE SUCCESS OF
WEST AFRICA DEVELOPMENT PLAN
1. Inadequate capital: Most West African countries are very 1. Adequate qualified personnel: They should be
poor. They do not have sufficient capital necessary for the abundant qualified economic resources, planners who
successful completion of development plans. can (i) estimate economic resources, (ii) set good target
2. Bad management of resources: In West Africa there are rates of growth, (iii) forecast market trend-level of
few leaders who are truly committed to rendering selfless demand for goods, (iv) have good demographic
services. The high level of corruption is a serious problem knowledge of the country, etc. These lead to efficient
to the successful execution of development plan. formulation of development plan.
3. Inefficient Implementation: Many West African countries 2. Political stability: Government should ensure effective
don’t have experienced and dedicated professionals, like maintenance of law and order. Government should
well-trained statisticians, economists, and other experts design measures to eliminate or reduce all forms of
who can efficiently co-ordinate various economic violence that can hinder successful implementation of
development strategies in different economic sectors and the plan.
effectively implement economic programmes. That is, 3. Elimination of malpractice: Government should ensure
they do not have well trained people who can successfully that it is only hardworking and honest experts (people)
implement the plans. This makes it difficult to achieve that are involved in the implementation of the plan.
much success. This ensures its success.
4. Over reliance on foreign assistance: Most West countries 4. Availability of data: Much efforts should be made to
entirely rely on foreign assistance e.g. loans, aids, gather (obtain) reliable and adequate data (information)
personnel, and capital goods, etc. for the execution of most about the country’s resources. The planners should
of the projects. If there is difficulty in obtaining them collect data on the capacity of different economic
because of conditionalities, the plan’s execution may be sectors. And they should be properly analysed
unnecessary delayed. (evaluated) for the thorough understanding of the
5. Bureaucratic delays: It means slow down in the pace of economy. Efforts should also be made to know the
development. This inherent delay in our lives in the name population structure (its size, distribution, sex
of official procedure delays action. After formulating an composition, working population number of
economic policy, it may take another decade for its unemployed people, etc) as well as as market capacity
implementation. (its size – level of demand for goods and services).
6. Inefficient Co–ordination: There is inefficient These enable the planners to ensure efficient economic
coordination between various agencies involved in the planning.
execution of the projects. This adversely affects its 5. Efficient use of resources: The planners should ensure
implementation. that all specified (stated) resources are efficiently used
7. Over population: Over population increases consumption to execute the various projects stated in the plan. And
and at the same time reduces the amount of money that they should use high quality materials with minimum
could be set aside to execute economic plans. cost.
8. Political instability: In West African countries
development plans have been disrupted by crises. Many of 2015/45
these countries have witnessed incessant internal uprising, A conscious effort of government to achieve a specific set
civil wars e.t.c. Political instability has sometimes led to of goals is
certain development pans being suspended by new A. economic planning B. economic development
government in power some time, if the development plans C. economic growth D. economic target
are continued, there are shifts in targets and areas of Answer Economic planning (A)
emphasis.
9. Inadequate data/wrong statistical information: There is 2015/41
inadequate data on which to base the economic plans. In Which of the following is not an objective of economic
most developing countries, detail information which are planning?
required for planning purposes are either not available or A. need to direct economic development of the country
are unreliable. Such data include the population growth towards the desired direction
rate and the contribution of the various sectors to the GDP.B. desire to ensure a sustained structural development of the
Improper projections and guess work leads to inadequate country
planning. C. desire to widen the gap between developing countries
10. Inadequate manpower: To execute a development plan, and the developed world
we need qualified personnel to oversee its implementation. D. management of scarce resources in the face of unlimited
Some West African countries lack men with technical wants of the citizens
know – how. This hinders the execution of development Answer
plan. Desire to widen the gap between developing countries and
the developed world (C)
585
HISTORY OF NIGERIAN’S DEVELOPMENT PLANS 2. Nigeria’s second National Development Plan (1970 –
Pre independence economic plans 1974): The military take over and the war in 1966/67
The first attempt at economic planning in West Africa was delayed the formulation and implementation of the
initiated by the Secretary of state for the colonies (Britain, in second National Development Plan. The plan which was
1944). This resulted in the launching of the ten year plan for formally launched in September, 1970 has a total capital
development and welfare for Nigeria in 1946. It was initially expenditure of ₦3.27billion. The policy was formulated
scheduled to last from 1946 – 1951 and 1951 – 1956. for the development of agriculture, transportation,
industry, manpower, provision of social utilities e.g.
In 1955, the federal Government of Nigeria launched a
communication, water, electricity, e.t.c. The plan was
development programme to last from 1955 – 1960. This
designed for the construction, renovation and
development plan was centered more on the regions rather than
being a truly integrated National Development plan. A number of
rehabilitation of vandalized properties after 1967 civil
problems were associated with the pre – independence of war.
economic plans.
OBJECTIVES OF THE PLAN
1. The emphasis of the plans bore little relevance to the 1. To establish a free and democratic nation.
needs of West African and Nigeria in particular. 2. To have an indivisible strong and self – relent
2. There was no overall set target of growth. The plans nation.
consisted mainly of a number of uncoordinated 3. To build just and egalitarian society.
projects. 4. To forestall great and dynamic economy.
3. There was no proper project analysis and coordination. 5. To establish a land of bright and full opportunity for
4. There was little or no involvement of West African in all citizens.
the formulation of the plans.
5. Little attention was paid to industrial development. 3. Nigeria’s third National Development Plan (1975 –
Greater emphasis was placed on the building of 1980)
transportation which was meant to stimulate These national development programme was officially
agricultural exports. launched on 29th March, 1975 by the then Head of State,
General Yakubu Gowon. The five years development
Post – independence plans plan had a projected total expenditure of ₦43.3billion.
Nigeria has had four national development plans since The priorities of the plan were for the establishment and
development of refineries and to eliminate liquefied
independence. They are the 1962–1969, 1970–1974, 1975–
natural gas wastages. The plan was also used to boost the
1980 and 1981 – 1985 development plans.
financial base of Nigeria Industrial Development Bank
1. Nigeria’s first National Development Plan, 1962 – and the bank for commerce and industry.
1968: The Nigerian’s first national development plan
was entitled “Comprehensive and Integrated National OBJECTIVE OF THE PLAN
Development Plan (1962 – 1968). The six – year plan 1. A more equitable distribution of income.
which was launched in June 1962 was originally 2. A reduction in the level of unemployment.
3. A balance development of the sectors of the
meant to cover the entire country. It had a total capital
economy.
expenditure of ₦2.36 billion. The plan was launched
4. The diversification of the economy.
in recognition of common character objective and to 5. An increase in real per capital income.
meet national target. In 1966, the plan was suspended 6. An increased supply of highly skilled manpower.
due to the military intervention and the subsequent outbreak
7. The indigenisation of commerce and industry.
of war in the country in 1967.
4. Nigerian’s fourth National Development Plan (1981-
OBJECTIVES OF THE PLAN 1985): The Nigerian fourth national development plan
1. To raise GDP’s growth rate to 4% per annum. envisaged a total expenditure of ₦82.5billion with an
2. To create capita income growth rate of 1% anticipated growth rate of 7%. The aim of this plan were
annually. generally the same as those of the previous plan.
3. To develop agriculture (with emphasis on farm
settlement, cooperative plantation), industry, SOURCES OF FUNDS FOR FINANCING
intermediate and high-level manpower. DEVELOPMENT PLANS
4. To create employment in non-agricultural areas. 1. Domestic sources: This is the commonest source of fund
5. To expand roads, bridges, ports, installed for financing development plan. It includes income from
capacity of electricity and to stabilize the value of the various sources of government revenue as well as
Naira with Pounds. government internal borrowing. The domestic sources are
6. To raise the level of saving and investment and based on the excess of production over consumption. The
ensure even distribution of income among government needs to cut down its expenditure.
individuals and regions. 2. Foreign sources: This includes foreign loans, grants,
credit supplies and other free technical assistance from
abroad.
586
1996/37 Nov 1992/26 Nov
The third development plan in Nigeria covered the period In Economics, electricity supply, communication networks,
A. 1962-1968 B. 1964-1969 C. 1970-1974 e.t.c. are known as
D. 1981-1985 E. 1985-1990 A. capital structure B. project growth
Answer C. development projects D. infrastructural facilities
1975-1980 (none of the option is correct). E. development indices
Answer
Infrastructural facilities (D)
1985/40 UTME
How many National Development plans did Nigeria have 1982/16 UTME
between 1960 and 1984? Some of the major problems hindering economic
A. one B. two C. four D. five E. six development in West Africa are in the area of electricity
Answer supply, communications, education and health. These items
C – Four are known in economics as
A. development projects B. infrastructural facilities
INFRASTRUCTURE C. monoculture D. capital investment
The infrastructure of an economy consists of the basic E. superstructure
facilities (goods and services) which assist directly or Answer
indirectly in economic and social development. B – Infrastructural facilities.
Infrastructure consist of such things as electricity,
transportation network, water supply, telecommunications 2008/46
and irrigation dams. An important feature of economic development is
A. population explosion B. reduction in exports
IMPORTANCE OF INFRASTRUCTURE C. high literacy level D. low exports
1. The existence of an adequate infrastructural base helps Answer
to attract foreign investors into the country high literacy level (C)
2. The infrastructure constitutes part of the stock of fixed
assets in the economy. 2010/59 Neco Exercise 21.6
3. It serves directly as a source of government revenue. The following are developed economies except
4. The existence of an adequate infrastructure narrows A. Canada B. Czech Slovakia C. Latin America
the communication gap between the rural areas and D. Poland E. Sweden
urban areas, and between the different parts of the 2008/57 Neco
country The following are problems of developing planning in
5. The infrastructure provides a stock of skilled and Nigeria except
specially trained manpower for the economy. A. financing constraint B. inadequate workforce
6. It creates employment opportunities for people. C. inadequate infrastructure D. political stability
E. poor and unreliable data
Answer
2023/7 Neco Exercise 21.5* Political stability (D)
a. Distinguish between Economic Growth and
Development. 2008/58 Neco
b. Discuss five features of a developing economy Which of the following is not a characteristic of a
developed economy?
2023/43 A. high capacity utilization B. high level of investment
A country is described as developing if C. high level of technology D. low death rate
A. the population is decreasing E. low literacy rate
B. there is low labour supply Answer Low literacy rate (E)
C. the contribution of tertiary sector to national income is
high 2006/32 Nov
D. the income per head is low Industries producing goods which were once being
Answer imported are called
A country is described as developing if the income per head A. import promotion industries
is low (D) B. export oriented industries
C. import substitution industries
D. export promotion industries
Answer
Import substitution industries (C)

587
2006/43 Nov 2018/34 NABTEB
To increase their pace of development, West African An underdeveloped economy is that in which the
countries should A. level of poverty is low B. level of unemployment is
A. expand their central banks high C. technical know-how is high D. income gap
B. increase their population growth rate between the rich and the poor is narrow
C. encourage capital flight Answer
D. diversify their production base Level of unemployment is high (B)
Answer
Diversify their production base (D) 2021/30 (PC 2)
A benefit of import substitution strategy is that it will
2006/47 Nov A. encourage people to consume imported goods
West African economies mainly undertakes the production of B. worsen a country’s terms of trade
A. services B. raw materials C. manufactured goods C. reduce the volume of foreign investment ina country
D. processed goods D. enhance a favourable balance of payments
Answer Answer
Raw materials (B) Enhance a favourable balance of payments (D)
2015/36 2019/30 Neco
In developing countries, a larger percentage of the labour The idea behind the policy of import substitution strategy is
force is employed in the to promote
A. trade sector B. tertiary sector C. primary sector A. domestic production B. economic diversification
D. secondary sector C. high importation of goods and services
Answer D. local sourcing of raw materials
Primary sector (C) E. sectoral growth in the economy
Answer
2000/43 Domestic production (A)
Mono product economies are those that produce
A. only intermediate products B. petroleum products 2019/56 Neco
C. agricultural products D. one main commodity The quantitative increase in a country’s output over a period
Answer: One main commodity (D) of time is regarded as
A. economic development B. economic diversification
2000/49 C. economic growth D. economic planning
West African countries have low level of economic E. underdevelopment
development due to Answer:Economic growth (C)
A. underpopulation B. inadequate labour
C. failure to plan D. ineffective plan implementation 2018/58 Neco
Answer Inadequate labour (B) The characteristics that distinguishes the developed from
the developing countries is
2017/42 A. behavioural pattern B. colour C. consumption
One way of speeding up of economic development of a D. distribution of goods E. industrialization
country is by encouraging Answer
A. the consumption of consumer goods Industrialization (E)
B. early marriages
C. the importation of more consumer goods 2018/59 Neco
D. saving and investment Which of the following is not a problem of developing
Answer: Saving and investment (D) planning in Nigeria?
A. adequate manpower
1992/29 Nov Exercise 21.7 B. dependence on foreign assistance
Given the present state of the Nigerian economy, which of C. high level of corruption
the following measures will promote a more rapid D. poor identification and coordination of programmes
economic development? E. shortage of relevant statistical data
A. concentration of agricultural export Answer
B. diversification of the economy Adequate manpower (A)
C. complete dependency on foreign loans
D. establishment of more colleges of education
E. reliance on foreign trade

588
1999/49 Nov 2019/42
The process of reducing a country’s imports by encouraging In most underdeveloped countries, development plans do not
local production is known as achieve their objectives due to
A. import creation B. export promotion A. poor coordination between local and national government
C. import substitution D. industrialization B. exportation of more primary products
Answer C. lack of educational institutions in those countries
Import substitution (C) D. urban – rural migration of citizens
Answer:Exportation of more primary products (B)
2002/48 Nov Hint: Developing economies mainly trade in primary exports.
A proposal which is prepared to guide decisions of economic These primary products are transformed into finished goods by
units is called the developed economies and sold to underdeveloped countries.
A. sectoral planning B. comprehensive planning The money raised from the sale of the primary products is then
C. indicative planning D. regional planning used to pay for manufactured imports, this has been a serious
Answer impediments in its developmental strides.
Comprehensive planning (B)
2003/58 Neco
Economic growth is the
2000/42 Nov Exercise 21.8 A. growth in a nation’s life expectancy
Economic growth refers to increase in B. increase in a nation’s population
A. population B. labour force C. savings C. rate of increase in aggregate demand in a country
D. output over time D. rate of increase in a country’s full employment and real output
E rate of increase in a nation’s total infrastructures
2007/40 Nov Answer
Economic growth is the rate of increase in Rate of increase in a country’s full employment and real output
A. a country’s full employment and real output (D)
B. a nation’s total population
C. the number of commercial banks in the country 1991/16
D. the general price level If an economy is growing at an annual rate of 7% and 4% of it is
Answer known to be due to the improvement in labour and capital
A country’s full employment and real output (A) combined, the balance of 3% is usually attributed to
A. land and entrepreneur
1996/28 Nov B. abundance of natural resources
When a country attempts to reduce her import of manufactured C. level of human capital
goods by encouraging firms to produce the goods at home, D. technical progress and related factors
E. discipline in political leaders
such a policy is known as
Answer: Technical progress and related factor (D)
A. import promotion B. import creation
C. export promotion D. export diversification 1995/38 Nov
E. import substitution A major constraint in Nigeria’s first National Development Plan
Answer: Import substitution (E) (1962-1968) was the
A. oil glut B. shortage of foreign currencies
1992/13 C. inadequacy of funds D. economic boom
Economic growth is the E. high rate of inflation
A. rate of increase in a country’s full employment and real Answer: Inadequacy of funds (C)
output B. rate of increase in a nation’s total population
C increase in the growth rate of a nation’s population D.
2009/43
rate of increase in inflation E. growth in birth rate The need for development planning arises largely from the fact
Answer that
Rate of increase in a country’s full employment and real A. aggregate savings exceed aggregate consumption
output (A) B. aggregate consumption equals aggregate savings
C. productive resources are in excess of the demand for them
2019/41 Exercise 21.9 D. productive resources are scarce relative to the demand for them
In most developing countries, a large percentage of the labour Answer
force is engaged in Productive resources are scarce relative to the demand for them
(D).
A. trading B. mining C. agriculture D. manufacturing
2009/44
Economic development is reflected in
A. scarcity of capital B. increase in the price level
C. decline in agricultural production
D. increase in productive capital
Answer: Increase in productive capital (D)

589
2020/44 Exercise 21.10 1994/16
A developing country is one with a high rate of Mono – product economies are those that
A. savings B. unemployment C. industrialization A. have a rich cultural heritage
D. literacy B. produce only raw materials
C. live on the exportation of their raw products
2020/49 D. produce one main commodity
How can natural resources enhance rapid economic growth in a E. specialize in agricultural industries
country? By Answer: Produce one main commodity (D)
A. preserving them untapped for future generation
B. adding value to them after exploitation 2001/60 Neco
C. exporting them in their raw state Which is not a factor affecting economic development?
D. leaving them untapped in order not to destroy the environment A. availability of mineral resources
Answer: Adding value to them after exploitation (B) B. climatic difference C. population size
D. level of per capital income E. racial differences
Answer: Racial differences (E)
2007/57 Neco
The following are the objectives of economic planning 2012/58 Neco
except The following are developed countries of the world except
A. achieving balanced growth B. diversification of the economy A. Brazil B. England C. France D. Holland
C. creation of more employment opportunities E. Norway
D. equitable allocation of resources Answer: Brazil (A)
E. rapid population growth
Answer: Rapid population growth (E) 2012/59 Neco
The description of the Nigerian economy as a mono product
2009/57 Neco economy rests on her over independence on
Economic growth can be defined as A. a diversified economic base B. agriculture
A. a rapid and sustained rise in real output per head C. developed economics D. industrialization
B. a rise in real income per head E. petroleum
C. an increase in technology only Answer
D. insufficiency in food production Petroleum (E)
E. over population in a country
Ans: A rapid and sustained rise in real output per head (A) 1990/40
Which of the following is not a feature of under –
2004/46 Nov development?
To enhance rapid economic development, West African A. high per capital income
B. greater dependence on primary production
countries should
C. low per capital income D. vicious cycle of poverty
A. continue to export their raw materials
E. low level of industrialization
B. encourage foreigners to exploit their mineral resources
Answer
C. develop technology to transform their raw materials High per capital income (A)
D. promote the assemblage of knocked down parts
Answer 1997/33
Develop technology to transform their raw materials (C) If an economy grows at an annual rate of 10% of which 8% is
deemed to be due to improvement in the productivity of labour
2019/20 NABTEB and capital combined the remaining 2% is generally attributed
Economic growth takes place when there is an increase in to the
A. saving overtime B. output overtime A. amount of natural resources
C. population overtime D. investment overtime B. improvement in banking services C. size of population
Answer: Output overtime (B) D. quality of human resources
E. improvement in government fiscal policies
2013/56 Neco Answer
Which of the following will not promote economic Quality of human resources (D)
development in Nigeria?
A. adoption of measures to correct balance of payment deficit 1998/32
B. encouragement of monocultural economy Development plans in Nigeria have deviated from their targets
C. improvement in infrastructural facilities due to
D. initiation of measures to fight corruption A. lack of manpower B. political instability
E. reduction in the rate of population growth C. high population growth rate
D. brain drain in the country E. inadequate land
Answer
Answer
Encouragement of mono cultural economy (B)
Political instability (B)
590
1998/33 2002/10 Exercise 21.14
The level of economic development is low in Nigeria because What are the problems facing development planners in
A. planning has no practice relevance Nigeria?
B. of the pattern of consumer’s spending
C. the country is too large 2003/12
D. of ineffective plan implementation (a) What is economic planning?
E. there is no unique planning model (b) Outline the problems associated with economic
Answer planning in West Africa.
Of ineffective plan implementation (D) Answer
(a) Economic planning involves allocation of resources by
1998/38 the government to the various sectors of the economy
Which of the following constitute the largest exports of the in such a way as to lead to smooth and rapid economic
developing countries to the developed ones? growth.
A. raw materials B. finished consumer goods
C. labour services D. arms and ammunition (b) Problems associated with economic planning in West
E. automobiles Africa
Answer 1. Inadequate capital.
Raw materials (A) 2. Wrong planning and execution.
3. Wrong statistical information.
2016/20 NABTEB 4. Inadequate manpower.
Governments embark on economic planning in order to 5. Rapid population on growth.
A. discourage foreign aid and investment 6. Political instability.
B. encourage rural – urban migration 7. Bad management of resources.
C. increase the economic welfare of the people
D. execute prestigious projects
Answer
Increase the economic welfare of the people (C)
2014/37 2002/11 Nov
Nigeria’s second National development plan lasted between (a) Describe any three feature of a developing economy.
A. 1962-1967 B. 1968-1970 C. 1970-1974 (b) Recommend two measures that can increase the rate of
D. 1974-1980 E. 1980-1985 development in your country.
Answer Answer
1970-1974 (C) (a) Features of a developing economy
1. There is a low income per capital: The low level of
2014/38 income per head of the population is due to the low level
The government strategy put in place to achieve overall of productivity which results in low national income.
economic growth and development is referred to as 2. Low standard of living: Less developed countries lack
economic many social amenities. The citizens don’t have easy
A. depression B. growth C. integration access to the good things of life as a result, they
D. planning E. recession experience low standard of living.
Answer 3. Low level of employment: Developing countries
Planning (D) experience high level of unemployment. Many young
school leavers find it difficult to secure employment.
2001/12 Exercise 21.11 (b) Measures that can increase the rate of development in
your country.
What are the factors that hinder economic development of
1. The provision of economic and social infrastructural
West African countries?
facilities.
2. Direct investment in productive ventures by government.
2013/1 Exercise 21.12 3. The provision of capital through the establishment of
(a) Differentiate between economic growth and economic financial institutions.
development.
(b) List and explain five features of a developing 2018/12 Neco
economy. (a) Define economic growth.
(b) State and explain four factors hindering economic
2011/12 Neco Exercise 21.13 development in Nigeria
(a) What is Development planning? Answer
(b) Discuss any five problems associated with plan (a) Economic growth is the process where there is a
implementation in Nigeria quantitative increase in the economy’s output and
efficiency over a period of time.
591
(b) Factors hindering economic development in Nigeria (b) Reasons why countries embark on economic planning
1. Inadequate capital: There is inadequate capital to 1. Economic planning provides guideline in the allocation of
execute the various development projects which would resources.
lead to structural transformations within the economy. 2. Economic planning creates responsibility and control in the
2. Inadequate economic planning and management: There development of the economy.
is a lack of appropriate policy directives as revealed by 3. These ensure the effectiveness and efficient use of scarce
haphazard development plans. There is delay in resources.
completing feasibility studies on time, because of the 4. Economic planning gives priority to vital projects that are
shortage of competent indigenous manpower. considered very necessary for economic growth and
3. Political instability: This tends to divert the attention of development.
the government from development projects to the 5. Economic planning assist in the diversification of the
maintenance of law, order and security, leading to heavy economy.
expenditure.
4. High population growth rate: The population of most 2017/7
West African countries has been growing rapidly. This (a) What is economic development?
increases the size of the dependent population and (b) State three features of a developing country.
increases the rate of unemployment. (c) Explain any four factors that can speed up economic
development of your country.
2006/12 Nov Answer
(a) Explain the meaning of economic development (a) Economic development is the process of growth plus change
(b) Highlight any five characteristics of a developing over a sustained period of time.
country. (b) Features of a developing country.
Answer 1. There is low income per capital.
(a) Economic development is the process of growth plus 2. Low standard of living.
change over a sustained period of time. It is the process 3. There is a low level of employment.
of increasing real per capital income and engineering (c) Factors that can speed up the economic development in
substantial positive transformation in the various sectors your country.
of the economy. 1. The provision of economic and social infrastructural facilities.
(b) Characteristics of a developing country 2. Sound economic planning and appropriate policy directives.
1. There is a low income per capital. 3. The provision of technical advice to private investors.
2. Low standard of living. 4. Diversification of the economy through a balanced growth of
3. There is a low level of technology. the various sectors and the reduction of reliance on single
4. There is high level of illiteracy. production.

2005/44 Nov
2018/10 NABTEB Which of the following will promote economic development in
Outline four factors that influence the economic development West Africa?
of Nigeria. A. rapid population growth B. inadequate capital
Answer C. high level of technology
1. Inadequate resources. D. reliance on primary production
2. Inadequacy of modern technology. Answer: High level of technology (C)
3. High population growth rate.
4. Political instability. 1984/10 UTME
Which of the following is not an obstacle to economic
development?
2019/12 Neco A. low level of investment B. lack of modern technology
(a) Distinguish between economic growth and development. C. high rate of population growth
(b) Discuss five reasons why country embark on economic D. low productivity E. dedicated leadership
planning. Answer: E – Dedicated leadership.
Answer
(a) Economic growth is the process where there is a 1984/45 UTME
quantitative increase in the economy’s output and Which of the following is not a feature of economic
efficiency over a period of time. During the period of underdevelopment of a country?
economic growth, there is usually a general increase in A. large number of high income earners relative to the population
the production of goods and services in the country while B. high annual income for the few
C. high incidence of poverty
Economic development is the process of growth plus D. low daily calorie intake per person
change over a sustained period of time. It is the process of E. high infant mortality rate
increasing real per capital income and engineering Answer
substantial positive transformation in the various sectors Large number of high income earners relative to the population.
of the economy. (A)
592
1985/18 UTME Exercise 21.15 1994/45 UTME
Which of the following is NOT a feature of under A sustained increased in the production of goods and
development? services in a country is called economic
A. low per capital income B. vicious circle of poverty A. development B. growth
C. low level of industrialization C. diversification D. planning
D. greater dependence on primary production Answer
E. high per capital income B – Growth

1986/47 UTME 1997/45 UTME

Which of the following methods is most likely to lead to an The most important factor in ensuring economic
increased rate of growth in the national economy? development is the
A. an increase in wages and profits A. effective mobilization of domestic savings
B. An increase in consumer demand B. presence of foreign capital
C. a greater fraction of the national product going into investment C. formulation of appropriate government policies
D. a continuous rise in bank loans D. attraction of foreign aids and grants
Answer Answer
C – A greater fraction of the national product going into C – Formulation of appropriate government policies.
investment.
1998/27 UTME
In many developing countries, infrastructural problem is
1988/47 UTME acute due to the shortage of
The most threatening problem for the less developed A. industries and industrial equipment
countries is B. savings, investment and consumption
A. the continual depletion of their soil fertility C. natural resources for development
B. the rise of nationalism C. population explosion D. supporting services that encourage economic activities
D. their indifference towards Answer
Answer D – Supporting services that encourage economic activities.
C – Population explosion.
1998/42 UTME
1989/50 UTME The major objective of economic growth is to
The primary goal of development planning in Nigeria is to A. redistribute income and other benefits of growth
A. increase profitability of enterprises B. equalize opportunities for education and employment
B. achieve a rapid increase in the welfare and standard of C. increase the aggregate expenditure on goods and services
living of Nigerians D. increase the real per capital income
C. increase the level of gross domestic product Answer
D. make Nigeria a super-power Increase the real per capital income.
Answer
B – Achieve a rapid increase in the welfare and standard of 1998/44 UTME
living of Nigerians. Economically underdeveloped countries are characterized by
A. high rate of population growth and how rate of economic
1981/50 UTME growth
A major obstacle to economic development is B. high rate of economic and low rate of population growth
A. a rise in industrial output B. low farm productivity C. high rate of population growth and high rate of economic
C. free trade D. ineffective trade unions growth
Answer D. low rate of population growth and how rate of economic
B – Low form productivity growth
1993/35 Answer
Economic development is distinguishable from economic A – High rate of population growth and low rate of
growth because the former economic growth.
A. is not concerned with growth parameters
B. affects only the poor people 1998/46 UTME
C. also includes an efficient distribution of economic growth Development plans have not been successful in some
D. is an increase in the production of goods and services developing countries largely because of
Answer A. very large working population
C – Also includes an efficient distribution of economic growth. B. increasing level of consumption
C. scarcity of industrial raw materials
D. shortage of skilled labour and experts
Answer: Shortage of skilled labour and experts (D)
593
1999/34 UTME 2005/40 UTME Exercise 21.16
One of the major problems of product distribution in most The problem of planning in Nigeria is mainly in the
developing countries is A. implementation of the plans
A. lack of storage facilities B. large number of middlemen B. appraisal of the plans
C. inadequate man power C. allocation of scarce resources
D. inadequate means of transportation D. articulation of the plans
Answer: D – Inadequate means of transportation.
2005/45
1999/43 UTME Economic growth is different from economic development
Economic development may be defined as economic because economic growth
growth. A. describes expansion and change
A. in a given country B. over a long period B. is measurable but not objective
C. and improved health facilities C. describe expansion and not change
D. and improved distribution of wealth D. is not measurable but objective
Answer Answer: C – Describes expansion and not change.
D – And improved distribution of wealth.
2006/13 UTME
2001/37 UTME Economic growth can be accelerated through
Economic growth can be accelerated through A. increased current investment
A. balancing of savings and consumption B. excess consumption over investment
B. postponement of current consumption C. excess current consumption
C. planned current consumption D. increased current consumption
D. increase current consumption Answer
Answer A – Increased current investment.
D – Increased current consumption.
2007/14 UTME
A continuous increase in nations income accompanied by
2002/36 UTME the structural transformation of all indices is called
Some of the key indicators of under development in a A. economic reforms B. economic planning
country are C. economic development D. economic growth
A. poverty, high level of literacy and low income Answer
B. poverty, low level of literacy and low income C – Economic development.
C. low level of illiteracy, low income and poverty
D. poverty, low income and how unemployment level 2008/34 UTME
Answer A good indicator of economic development is an increase in
D – Poverty, low income and low unemployment level. A. gross national product B. per capital income
C. real national income D. real per capital income
Answer
2002/41 UTME B – per capital income.
One of the major criticism of the 1962 – 19678 National
development plan was that A. it failed to incorporate 2008/35 UTME
lessons gained from earlier plans to enhance its efficiency Economic growth takes place when there is an increase in
B. it came to quickly after the country’s independence C. A. savings over time B. investment overtime
planned expenditure was based too heavily on expected C. population over time D. output overtime
earning from crude oil D. it execution was based largely on Answer
foreign – sourced financial resources D – Output over time.
Answer
A – It failed to incorporate lessons gained from earlier plans 2009/34 UTME
to enhance its efficiency The major reason why countries strive to achieve optimum
growth is to
A. be self-sufficient B. raise general living standards
2004/30 UTME C. raise the level of production
A major reason for having national development plans is to D. reduce aggregate expenditure
A. ensure efficient use of available resources Answe: Raise general living standards (B)
B. involve people in national programmes
C. make government spend more on production
D. ensure that more citizens are involved in planning
Answer: A – Ensure effect use of available resources.
594
2010/36 UTME 2016/22 UTME
National development plans in Nigeria fail mainly because of The growth and development of small and medium scale
A. over dependence on foreign aids enterprises in Nigeria is hampered by
B. poor implementation strategies A. poor regulatory framework
C. inadequate funding of projects B. poor access to credit facilities
D. shortage of skilled man power C. poor management
Answer D. the small size of the market
B – Poor implementation strategies. Answer
2011/31 UTME B – Poor access to credit facilities.
A country achieves economic development when there is
A. an increase in military expenditure 2016/35 UTME
B. an increase in capacity utilization The problem of economic development in Nigeria is that of
C. a sustained increase in per capital income A. poor weather conditions B. over population
D. an even distribution of goods and services C. surplus skilled man power D. inadequate infrastructure
Answer Answer
C – A sustained increase in per capital income. D – Inadequate infrastructure.
1987/50 UTME
Economic development is defined as
A. positive change plus growth
2012/36 UTME Exercise 21.17 B. availability of more goods and service
Rapid economic development in Nigeria is realizable by C. outward shift of the production possibility curve
A. continuous dependence on oil D. growth in the national income
B. concentrating more on agriculture Answer
C. developing the tourism industry A – positive change plus growth
D. diversifying the economy
2014/2015/68 (UI, IBADAN)
2012/37 UTME A sustained increase in per capita income of a country over
The primary reason for desiring economic growth is to a period of time is called
A. control infection B. reduce poverty A. economic growth B. economic development
C. Redistribute income D. raise standard of living C. stagflation D. sustainable income growth
Answer Answer
C – Redistribute income. Economic growth (B)

2013/33 UTME 2018/2019/59 (UNIZIK, AWKA)

One of the goals of development plans in Nigeria is to The level of economic development is low in Nigeria
A. increase the profitability of multi-national businesses because
B. improves the country’s GDP A. planning has no practical relevance
C. achieve higher standard of living for the citizens B. of the pattern of consumers spending
D. deregulate the economy C. of effective plan implementation
Answer D. there is no unique planning models
C – Achieve higher standard of living for the citizens. Answer
There is no unique planning models (D)
2014/33 UTME
A major obstacle to the development of Nigeria economy is 2018/2019/60 (UNIZIK, AWKA) Exercise 21.18
A. low capital formation B. rural-urban migration Development plans in Nigeria have deviated from their
C. over dependence on oil targets due to
D. poor development policies A. lack of manpower B. political instability
Answer C. high population growth D. inadequate resources
C – Over dependence on oil.
2014/34 UTME 2018/2019/68 (UNIZIK, AWKA)
A major feature of an under developed economy is The most threatening problem for the less developed
A. excess capacity utilization countries is
B. rate of population growth A. the continual depletion of the oil reserve
C. low level of standard of living B. the risk of nationalism C. population explosion
D. low level of unemployment D. increase in expenditure
Answer Answer
C – Low level of standard of living. Population explosion (C)

595
2019/8 (UNIBEN, BENIN–CITY) 2014/2015/70 (UI, IBADAN) Exercise 21.19
Economic development is Nigeria, being a developing African country in the sub –
A. a process whereby the real per capital income increases sahara, has put together a development blue – print called
overtime vision 20: 2020 which can ensure that the country becomes
B. an increase in the real capital income as a result of A. one of the 20 developed countries by the year 2020
increase in population B. an African economic ‘Tiger’ by the year 2020
C. a process whereby the money in the economy increases C. one of the 20 largest economies in the world by the year 2020
overtime D. one of the 20 largest economies in sub – Saharan African
D. an increase in the production capacity of the economy as by the year 2020
a result of increase in population E. one of the 20 largest economies in the developing world
Answer by the year 2020
A process whereby the real per capital income increases
overtime (A) 2014/2015/71 (UI, IBADAN) Exercise 21.20
The major objective of economic growth is to
A. redistribute income and other benefit of growth
B. equalize opportunity for education and employment
2018/1 (UNIBEN, BENIN–CITY) C. increase aggregate expenditure on goods and services
In which of the following is per capita income not D. increase the real per capita income
applicable? E. increase access to education
A. comparing the standards of living of different countries 2014/2015/72 (UI, IBADAN)
B. determining the rate of economic group of a country The most common index used for measuring development is
C. determining the subsistence wage A. the level of literacy B. per capita income
D. economic planning C. nutritional levels D. population growth rate
Answer: Determining the subsistence wage (C) E. international development index
Answer
Per capita income (B)
2019/2020/6 (UI, IBADAN)
2014/2015/73 (UI, IBADAN)
Development plans fail mainly because of
Which is NOT a direct effort to increase agricultural
A. corruption and political instability
production in Nigeria?
B. over – dependence on foreign aid
A. Operation Feed the Nation B. Nigerian Youth Service
C. high cost of plan implementation
Corps C. Increased Loans to Farmers and Cooperatives
D. shortage of personnel
D. Research in Agriculture and Extension Services
Answer
E. mechanization of agriculture
Corruption and political instability (A)
Answer
Nigerian Youth Service Corps (B)
2019/2020/8 (UI, IBADAN) 2011/2012/19 (NDU, BAYELSA)
The major characteristic of an underdeveloped nation is Which of the following is not a feature of economic
A. over – dependence on foreign products underdevelopment of a country?
B. dominance of the industrial sector A. large number of high income earners relative to the
C. high per capital income population
D. efficient and sensitive financial sector B. high annual income for the few
Answer C. high incidence of poverty
Over – dependence on foreign products (A) D. high infant mortality rate
Answer
Large number of high income earners relative to the
2014/2015/69 (UI, IBADAN) population (A)
In recent years, Nigerian economy has been registering a
spectacular growth in sector in the last ten years 2011/2012/20 (NDU, BAYELSA)
A. agriculture B. education C. telecommunication Given the present state of the Nigerian economy, which of
D. transport E. distribution the following measures will promote a more rapid
Answer economic development
telecommunication (C) A. complete dependence on oil B. export concentration
C. diversification of the economy
D. introduction of nuclear energy in Nigeria
Answer: Diversification of the economy (C)

596
 dollar terms since 1997. In addition, the government
reached out to the people, and within a few days, South
ECONOMIC LESSONS FROM THE ASIAN TIGERS, Koreans, irrespective of their economic status, home or
JAPAN, EUROPE AND AMERICA abroad, donated precious gold jewelry to help fuel their
ailing economy. The people co-operated because they had
The Concept of Asian Tigers trust in the government which had always carried them
The four Asian Tigers, Asian Dragons and Asian Miracle along.
are various terms used in reference to the highly developed
economies of Hong Kong, Singapore, South Korea and
Taiwan. Since the emergence of the Asian Tigers in 1960s, Factors that account for the rapid development of these
the term tiger economy has come to be attributed by some countries in South East Asia
economic theorists to any economy that has experienced The economy of East Asia is one of the most successful
and continues to experience massive economic growth and regional economies of the world. It is the home of some of
development through its trade and industrial sectors. the world’s largest and most prosperous economies of
Japan, Hong Kong, Singapore, Taiwan and South Korea.
Economic History of the Asian Tigers 1960-2012 Some of the factors that account for the rapid development
The Asian Tigers were notable for maintaining of these countries in South East Asia are:
exceptionally high growth rates (in excess of 7 percent per 1. High savings rate: The Asian Tigers embarked on very
year), and rapid industrialization between the yearly 1960s high saving rates and that mean that they could also
and 1990s. And by the 21st century, all four have developed have very high investment rates, savings is very
into advanced and high income economies, specializing in essential because it is really a means to an end. It is one
areas of competitive advantages. For example, Hong Kong very stable and reasonable means to the end of making
and Singapore have become world leading international investments. They invest in hard things, plants,
financial centres, while South Korea and Taiwan are world properties and equipment, infrastructure, roads, airports
leaders in manufacturing and information technology. The and seaports, education and in people’s skills and these
success stories of their economies are serving as role are the things that make you more productive. They did
models for many developing countries, especially the Tiger not have to go begging around the world, paying high
cub economies of Indonesia, Malaysia, the Philippines and interest rates or worrying that all those other economies
Thailand. that invested in them would pull out.
They save for themselves. In saving upwards of 30-
The ‘tigers’ experienced decades of super growth, based 40% of gross domestic product per years the tigers
largely on state industrial policies which supported exports embarked upon a plan of hugs investments that really
to rich, industrialised nations. Not only that, there was also transformed the economy. Massive increase in
a state-imposed below the market interest rates regime for productivity of labour generally comes from by
loans to specific exporting industries. As a result, these increase in investment it.
economies enjoyed extremely high growth rates, sustained 2. Good political stability: The Asian tigers enjoyed a
over decades. Other notable aspects include major relatively stable political–legal environment for
government investments in education, non-democratic and industrial and commercial growth, stability in
relatively authoritarian political systems during the early government and security were needed in order to make
years of development, high levels of US bond holdings and those investments.
high public and private savings rates. 3. Abundance of labour: There were also plentiful
supplies of relatively low-cost skills and adaptable
However, a period of liberalization did occur in their labour in the Tigers for rapid economic growth.
economic history, but the first major setback experienced 4. A relatively open trading systems: There was a
by the ‘tigers’ economies was in 1997 when Asia witnessed relatively open trading system in the Far East. There
a financial crisis which came in the wake of the world was a zero or low goods, which considerably helped to
economic melt-down. Singapore and Taiwan were the least stimulate cost-efficiency and change.
affected. However, South Korea had a major stock market 5. Developemtn of large and fast growing markets: The
crash arising from high level of non-performing corporate Asian Tigers also succeeded in developing relatively
loans. Hong Kong also came under intensive speculative large and fast growing markets for consumer goods and
attacks against its stock market and currency, necessitating services of all kinds.
unprecedented market interventions by the country’s 6. Presence of abundant natural resources: There was
monetary authority. abundance of various kinds of natural resources.
Agricultural and mineral resources were abundantly
In the three years after the financial crisis, all the four available for the Tigers to use which aided rapid
economies of the Asian tigers bounced back and came out economic development of the Asian countries.
stronger than before the crisis. South Korea, which was the
worst hit of the tigers has tripled its per capita GDP in
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7. Rapid learning capabilities: The East Asian populations The world oil crisis of 1973 adversely affected the economy
demonstrated rapid learning capabilities and skills in of Japan which was virtually dependent on imported
utilizing new technologies, and scientific discoveries were petroleum. The country experienced its first post-war
developed and they put them to good use in production. decline in industrial production and was faced with a high
Work ethics in general tended to be highly positive. rate of inflation.
8. Stable and relatively low wages: The Tigers kept their
The energy crisis led to intensive energy conservation and
wages very low. This means that they could pass along a lot
discovery of alternative sources of industrial energy such
more productivity at low prices to consumers around the
that by late 1970s and 1980s productivity had increased
world. To keep the wages low meant that they had to
significantly. Although there was a growth rate of 5% in
engage in macroeconomic policies that kept their currencies
late 1980s this was higher than those of industrialized
relatively cheap and to sort of sustain political support
nations such as United States (3.8%). In the 1970s, Japan
delivering goods that made the economy richer, were not
was the world's third largest industrial nation in terms of
receiving such high wages yet the latter was all seen as part
GNP, after the United States and the then Soviet Union.
of the plan, and it is something that really worked. It wasn’t
just cheap goods for a rich West and Japan (although that In 1980s, Japan became a leading industrial nation, the
was part of it) but it was holding together this economy in world's largest creditor nation, the largest donor of foreign
this particular way. aid and a major factor in international financial institutions
such as the World Bank and IMF. In 1980s financial
Economic History of Japan institutions in Japan were major international players,
Japan's economic history is mostly studied as a case-point for making Tokyo a world financial center with branches
the spectacular growth it witnessed after the Meiji Restoration, opened abroad to facilitate foreign investments. The
when it became the first non-European power and after the country had some of the world's largest banking and
Second World War when it recovered from economic financial institutions. Japanese securities' firms played a
devastation to become the world's third largest economy. Japan major role in international finances and were members of
is a country which had advanced pre-industrial technology. The major world Stock Exchanges.
country is poor in natural resources, especially iron, and was
therefore frugal with consumable resources. In 1988, the Tokyo Securities and Stock Exchange became
the world's largest Stock Exchange while Osaka Stock
By the end of the pacific war, what remained of the Exchange ranked third behind the New York Stock
Japanese Empire was wrecked by shortages, inflation and Exchange.
currency devaluation. Industrial production and From 1970s, the Japanese economy began to move from
transportation in Japan's shattered cities grounded to a halt. heavy manufacturing to to a more service-oriented base.
The Japanese economy was virtually at a standstill. Wholesaling, retailing, finance, insurance, real estate,
transportation, communications and government services
After the war, the people who were shocked by the level of grew rapidly from 47% of the workforce in 1970 to 59.2%
devastation, swung into action. They set up new factories in 1990. Also in 1980s, the Japanese economy shifted
and equipped them with modern machines, giving Japan emphasis away from primary and secondary activities
competitive advantage over the victor states, who then had (agriculture, mining and manufacturing) to processing, with
older factories. telecommunications and computers becoming very vital.
The process of rebuilding which involved massive Information technology became the most important
investment in electric power, coal, steel and chemicals resource and product, central to Japan's wealth and power.
assisted in economic recovery and surpassing the post- war
periods. Between 1953 and 1965, the GDP expanded by Japan experienced a mild economic slump in mid-1980s.
more than 9% per annum, manufacturing and mining by Her economy experienced a period of boom until 1992
13%, construction by 11%, and infrastructure by 12%. In when there was economic recession. Japan's real GNP
1965, these sectors employed more than 41% of the labour growth slowed to 1.7% and foreign and domestic demand
force, while only 26% remained in agriculture. for Japanese electronics declined. The deflation (recession)
that started early 1990s was as a result of the following:
The mid-1960s witnessed a new type of industrial i. Falling prices of assets: There was a large price bubble
development. Heavy industries and chemical manufactures in equities and real estates in the 1980s, reaching a peak
assumed a new dimension and the economy opened itself to in 1989.
international competition. Automobiles, electronics, ships ii. Insolvent companies: Money lent to individuals and
and machine-tools assumed a new importance. Between companies were invested in real estate whose value fell,
1965 and 1970, the value added to manufacturing and making it difficult for the loans to be repaid.
mining grew at the rate of 17% per annum. Growth rates iii. Fear of insolvent banks: People were afraid that banks
moderated at about 8% per annum. would collapse, and so, they preferred to buy gold or
treasury bonds (US or Japanese) instead of saving their
money.
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In 1990, Japan ranked first among the major industrial vi. Massive investments in infrastructure and in heavy
nations in per capita GNP (of US $23,801), having risen manufacturing industries: The process of rebuilding
sharply from a per capita GNP of US $9,068, in 1980. involved major investments in roads, electric power,
Between 1980 and 2000, Japan was the world's second coal, steel, automobiles, electronics, shipbuilding and
largest economy, only to be surpassed by China in 2010. It chemicals to regain the lost industrial capacity. Rapid
is presently the third largest national economy after the increases in industrial and manufacturing capacity
United States and People's Republic of China and the created economies of large-scale production, making
world's second largest developed economy. the economy to be internationally competitive.
The Japanese Miracle and lessons from Japan vii. Highly developed financial and marketing systems:
The period between 1953 and the early 1970s which The financial market of Japan is among the world's
witnessed unprecedented growth rate in Japan is termed by best. She has some of the world's best banking and
some people as "miracle period growth." The Japanese financial institutions. Capital accumulation and transfer
economy was devastated by the World War II and were readily achievable. This led to high level of
economic activities almost grounded to a halt. But by the quality investment in capital equipment which
early 1970s, Japanese industries had become internationally increased to about 30% of GNP between 1960s and
competitive and the income gap between the country and 1970s.
the United States of America was closed considerably. The viii. Adaptation of foreign/imported technology: Japanese
Japanese miracle was triggered off by factors which companies copied existing American and European
brought about high rate of economic growth and products and improved on them. The industrial base
development. They include: was improved through technology licensing, patent
i. Private sector led investments: High level investments purchases, imitation and improvement of foreign
were propelled by a strong private enterprise economy. The inventions.
profit-motive associated with private sector investment ix. Massive research and development: This led to many
promoted large-scale investments, leading to economies of firms becoming famous for innovations and creativity
scale in production and the turning around of the economy especially in the 1970s and 1980s. More efficient
within a relatively short period of time. production techniques were discovered.
ii. High literacy rate and high education standards: Japan x. High saving rate accompanied with high levels of
is acclaimed to have the highest literacy rate, and the nature investment: There were initial sacrifices in terms of
of educational curriculum encouraged discipline. Human drastically reduced welfare-spending and cut in wages.
capital development was at a high level because of massive This enabled capital accumulation to be facilitated.
investments in education. This encourage productivity. xi. Formation of large enterprise groupings: After
iii. A well-disciplined, relatively cheap, highly educated and World War II, Keiretsu, which were large modern
skilled work force, with reasonable wage demands by business groupings, emerged, leading to economies of
labour unions: These ensured that efforts were scale in production. They embarked on product
concentrated on production, and the highly motivated work- diversification and expansion, and seeking of new
force raised production to optimum levels. There is high markets.
labour productivity accompanied by harmonious labour-
management relations. Cheap labour helped to reduce Economic History of Europe
production costs and encourage massive investments. Europe, as at 2012, comprised more than 731 million
iv. Proper management of natural resources: Japan has people in 48 countries. The poorest states in Europe, in
been frugal in the use of available natural consumable terms of GDP and living standards, are well above the
resources which they put to efficient uses. Conservation of poorest states of other continents. Europe's largest national
energy and efficient management of resources contribute to economy is that of Germany which ranks fourth globally in
the high level of productivity. nominal GDP. Five countries of Europe - Germany, France,
v. Promotion of exports through the development of United Kingdom, Italy and Russia are among the top ten
world-class, responsive export-oriented industries which wealthiest economies in the world. After the end of World
were provided adequate incentives: Export was more War II, European countries have come closer together,
than enough to pay for import of equipment and technology culminating in the formation of the European Union (EU).
without the country falling into debt. In the 1960s, the
economy depended on the massive exportation of The European Union as a whole was the wealthiest and
electronics, automobiles, machine tools etc. From the largest economy in the world as at 2009. The bulk of the
1970s, there was a shift to service- oriented industries population of Western Europe enjoyed the highest standard
which were in high demand in the world market in areas of living in world history. The industrial revolution which
telecommunications, wholesaling, retailing, etc, making the began in Britain spread rapidly across Europe and led to a
country to remain globally competitive. high level of industry in the continent. However, World
War I and II led to the devastation of industries in Europe.
But by the end of the World War II, Europe began to
recover and became highly competitive.
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Six European nations Belgium, France, Germany, Italy, The financial sector of Europe is well developed. Many
Luxembourg and the Netherlands took the first step towards European cities are financial centres with London being the
economic integration by forming a common market of coal largest. A well developed financial sector has made it easy
and steel, The European Coal and Steel Community in for transfer of funds and investments. European banks such
1951. Prior to economic integration, the different countries as Barclays, BNP Paribas, Credit Agricole, Societe
competed among themselves politically and economically. Generale, etc, are among the largest and most profitable in
The decades from 1960 witnessed a decline in economic the world.
growth in Europe as opposed to the Asian Tigers that
witnessed a boom. Europe maintains strong trade relations with China, United
States of America, Japan, and the developing countries of
In the period 1960 to 1969, the European Union countries Africa.
stopped charging custom duties on goods from each other.
There was also joint control over food production making it The European Union has formulated a long-term strategy of
possible for all countries to have enough food to eat. sustainable development in a broad range of its economic,
social and environmental policies. This implies meeting the
Between 1970 to 1979 membership of the EU increased to needs of present generations without jeopardizing the
nine, with Denmark, Ireland and the United Kingdom ability of the future generations to meet their own needs. In
joining on January 1, 1973. The Arab-Israeli War of other words, there should be a better quality of life for the
October 1973 resulted in an energy crisis and compounded present and future generations. Progress is seen in the light
the economic problems of Europe. of meeting short-term and long-term objectives, local and
global actions, and regards social, economic and
In 1981, Greece became the 10th member of EU and in environmental issues as inseparable. Issues such as climate
1986 Spain and Portugal followed, when the single change, energy conservation and other impact of production
European Act was signed. On November 9, 1989 the Berlin on the environment are given serious attention.
wall was pulled down, and East and West Germany were
re-united in October 1990. Economic Lessons from Europe
There are lessons to be learnt by developing countries from
The period 1990 to 1999 saw the development of a closer Europe:
Europe. In 1993, the creation of a single market was i. Economic integration/co-operation: This has helped
completed with the four freedoms of movement of goods, to limit wars which led to waste of resources in the past.
services, people and money. There is also greater co- Co- operation in many areas of development has
operation in matters of security, defence and crime fighting. created economies of scale in production and increased
the level of investment.
The Euro (a common currency) was launched in 1999 and ii. Export-oriented economies: European nations bought
on January 1, 2001 the Euro became the official currency of cheap raw materials from the developing countries and
certain members of the European Union. The initial idea produced manufactured goods in which they have
behind the Euro was that it eliminates exchange rates comparative advantage, for export. A lot of foreign
between the European nations and reduces currency exchange is earned for investment.
fluctuations. iii. Massive investments in manufacturing industries
with reduced reliance on agriculture: Improved
The countries involved in the initial Treaty which created technology in manufacturing has led to the production
the Euro were Austria, Belgium, Finland, France, Germany, of high quality products for export. The manufacturing
Ireland, Italy, Luxembourg, the Netherlands, Portugal and industries of Europe are among the world’s largest due
Spain. They agreed in principle to the creation of a to the use of advanced production techniques
European Monetary Union (EMU). More countries have iv. Massive investment in education and human capital
joined. European countries were only allowed to use the development: The literacy rate in Europe is very high.
Euro when they meet certain criteria among which are: (a) This led to the creation of highly skilled labour required
A low and stable inflation rate. (b) Exchange rate stability. for maintaining and propelling highly developed
(c) Sound public finances. economies. Massive investments in human capital have
led to break through in technology and production
Europe has a thriving manufacturing sector. A large part of techniques.
world's industrial production takes place in Europe. v. Agrarian and industrial revolutions in Britain:
However, due to high wage rate and production costs, These led to discoveries and inventions which changed
Europe is suffering from de-industrialization and off- the economic landscape of Europe. Improvements in
shoring in the labour-intensive manufacturing industries. the technique of production in both industry and
There is movement to the cheaper labour regions of Asia. agriculture created wealth and led to increased
investments.

600
vi. A well-developed financial sector: Europe has a well- x. Purposeful, honest and articulate leadership: The
developed financial sector with financial institutions leadership of the tiger economies were in office to serve
among the leading ones in the world. This makes for the interest of their people and worked hard to ensure
easy accumulation and transfer of capital for that the people enjoyed the good things of life. This
investment. encouraged the people to be productive.
xi. High level of U.S. bond holdings: There were massive
Development Strategies of the Tiger Economies investments in U.S bonds due to the existence of a
The Tiger economies witnessed decades of exceptionally highly developed financial system. A lot of funds were
high growth rate (over 7%) and massive industrialization acquired through this medium for investment purposes.
between 1960s and 1990s due to the following reasons:
i. Export-based industrial policies: They pursued Lessons For the Nigerian Economy
effective industrial policies which supported massive The developing countries of the world, Nigeria inclusive,
exports to the rich industrialized nations of Europe and have a lot to learn from Asian Tigers.
America. A lot of foreign exchange was derived from i. Development of export industries and promotion of
exports and was used to finance investments which certain basic industries: There is need to produce
brought about a high rate of development. competitive industrial goods for the world market, and
ii. Highly developed money and capital markets: They to be export-based rather than being import-based. This
pursued stringent credit policies and state-imposed would help increase the foreign exchange earnings
below- market interest rates for loans to specific export- required for massive investments.
led industries. They have financial institutions which ii. Human capital development and raising educational
are among the best performing in the world and they standards: There is need for massive investments in
enjoy enviable global financial dealings. education and in technological development to increase
iii. Heavy government investment in education and human capital development. The highly skilled
human capital development: High investment in manpower required for production would be available.
education helped in the development of the highly iii. Formulation and implementation of deliberate
skilled manpower (human capital) required for turning government policies: The government must come up
the economy around within a short period of time. Their with the formulation and development of deliberate
stock of human capital are among the best in the world. policies aimed at economic growth. Certain policies
iv. Non-democratic and relatively authoritarian must be put in place that will help the growth of the
political systems during early years of development: economy. Such policies must equally be implemented.
This helped to reduce the cost of governance, with more The government should not just pay lip services to
resources channeled into development efforts. This is these policies, they should actually do something that
unlike many developed and developing economies will add value to the lives of the people that Nigerians
where there is duplication of government institutions can truly testify that this is what they have done.
and official positions leading to high cost of iv. Increased research and development in universities
governance. and colleges: This would lead to the development of
v. High public and private savings rate: Savings were high techniques and production methods required for
in both the public and private sectors. The incentive to save production which are suitable for local needs.
was high and this enabled capital to be accumulated for v. Need to increase the rate of capital formation: This
massive investments in the high-income generating sectors. can be achieved through increases in savings by
vi. Presence of large, highly skilled labour force: There was private/public institutions and the government rather
adequate supply of skilled labour required for production. than the present wasteful expenditure on prestigious but
Labour was relatively cheap and highly productive. non-productive projects. Their savings culture should
vii. Equitable distribution of income, land, and wealth: This be vigorously pursued.
made it possible for a large percentage of the population to vi. Need for honest, articulate, efficient and purposeful
be highly motivated and thereby contributed to production. leadership: Leadership that is interested in the welfare
viii. High level of information technology development: of the citizens would motivate labour to work hard,
Their economies are characterized by massive investments thereby raising the level of productivity. Many leaders
and breakthroughs in information technology development. in developing countries are in power for self-
These helped to boost their external trade and increased aggrandizement.
foreign exchange earnings which are used for further vii. Maintaining social and political stability, together
investment. with a stable macro- economic environment: Most
ix. High life expectancy. This is made possible by adequate entrepreneurs are usually attracted to countries with
care of the population by the government. Basic necessities conducive investment climate. A stable macro-
of life such as health facilities are adequately provided economic and social/political environment would
leading to high life expectancy and higher level of provide a conducive investment climate for local
productivity. entrepreneurs and for foreign investors.

601
viii. Existence of an adequately developed financial 3. What explains the fast growth of the four Asian Tigers?
system: An adequately developed capital market would Answer:
ensure adequate mobilization of capital for industrial Government polices that promoted export-oriented
and economic development. Effort should be grassed to development, public investment in education, a stable
develop the money and capital market. macroeconomic environment, as well as some cultural
ix. Encouraging Industrial development: This can be and geographic factors contributed to their
achieved through deliberate formulation of policies development.
aimed at industrial development. Commercial banks
and other development banks like Bank of Industry 4. What do the four Asian Tigers produce?
(B.O.I) have to be properly funded to give financial Answer
support to industrialists to develop the industrial growth Nowadays, Hong Kong and Singapore are known as
of the economy. two major financial hubs in the region. Taiwan and
x. Development of small and medium scale enterprises South Korea are known for their electronic products.
(SMEs): Nigeria can learn from Asian Tigers on SME
development. SMEs in all countries around the world
are enjoying a new focus now because it is the 5. What countries make up the four Asian Tiger, What
foundation for the development of any country. On the about Japan?
part of the SMEs, they have to personally develop their Answer
businesses, get management training, exposure, The four economies that make up the Asian Tigers are
information and enter into new market. South Korea, Taiwan, Hong Kong, and Singapore.
Japan had developed prior to the Asian Tigers.
2018/32 NECO
Which of the following countries is not a member of Asian Question 6 – 9, Kindly answer True or False
Tigers? 6. The Asian Tigers pursued an export-oriented
A. Hong Kong B. India C. Singapore development.
D. South Korea E. Taiwan Answer:
Answer True
The Asian Tigers represent the highly developed economies
of Hong Kong, Singapore, South Korea and Taiwan; fuelled 7. The Asian Tigers placed an emphasis on public
by exports and rapid industrialization have achieved high investment in education.
levels of economic growth since the 1960s. (B) Answer
True
2022/51 NECO
One of the achievements of Asian Tiger economies is their 8. The Asian Tigers had good economic prospect in the
A. increasing foreign dominance early 1960s.
B. low technological know-how Answer
C. persistent increase in illiteracy rate False
D. rapid industrialization drive
E. total dependence on importation 9. During their development, the Asian Tigers had
Answer maintained a stable macroeconomic environment.
One of the achievements of Asian Tiger economies is their Answer
rapid industrialization drive (D) True

Author’s Questions 10. Which country had developed prior to the Asian
1. What are the four Asian Tigers? Tigers?
Answer Answer
The four economies in Asia South Korea, Taiwan, Japan
Hong Kong, and Singapore – that achieved rapid
economic growth from the 1960s to the 1990s. 11. Which countries started rapid development after the
Asian Tigers?
2. How did the four Asian Tigers develop? Answer
Answer China (mainland)
There is some debate regarding what contributed to the
successes of the Four Asian Tigers, it is widely 12. Which are common factors that can explain the rapid
recognized that export-oriented policies, an emphasis growth of the Asian Tigers?
on education, rapid industrialization drive and a stable Answer
macroeconomic environment supported their growth. High levels of human capital.

602
13. What contributed to the development of the Asian 21. The Japanese miracle was achieved by using which of
Tigers? the following
Answer A. restricted export and import promotion
Low levels of foreign debt. B. restricted export and high company tax
C. restricted import and export substitution
14. Were the Asian Tigers able to maintain macroeconomic D. restricted import and export promotion as well as
stability during the 1997 Asian financial crisis? stimulus to companies in Japan
Answer Answer
No restricted import and export promotion as well as
stimulus to companies in Japan (D)
15. Why is education important in the Asian Tigers’
economic development 22. What lesson can Nigeria learn from the Asian Tigers?
Answer A. to concentrate on primary production
It helps build up human capital. B. to encourage more import of goods
C. to discourage export of goods
16. Asian Tigers refer to all the following countries except. D. to promote export more than import
A. Hong Kong B. Singapore Answer
C. South Korea D. Japan To promote export more than import (D)
Answer
Japan as a country had developed prior to the Asian 23. For Nigeria to become developed, which of the
Tigers ( D) following should attention be given to?
A. expanding its primary sector
B. to remain constant
17. The Asian Tigers refer to the Asian countries that C. encourage industrialization and technology
underwent rapid accelerated economic growth, this D. to de-industrilise as fast as possible
countries are _____ in numbers. Answer
A. ten B. four C. five D. fifteen Encourage industrialization and technology (C)
Answer
The Asian Tigers are four in Numbers (B) 24. To fast-track economic growth and development, Nigeria
needs to
18. Which of the following factors account for the rapid A. give her economy to the Asians to manage
development of the Asian Tigers. B. allow the free flow of goods from Asia countries
A. import promotion B. foreing investment C. learn to produce items currently imported
C. import substitution D. none of the above D. none of the above
Answer Answer
Foreign Investment (B) Learn to produce items currently imported (C)

25. Describe briefly the Economic History of the Asian tigers.

19. South Korea used the following to enhance rapid
development and growth except Answer
The term Asian Tiger refers to a group of countries in the
A. trade protectionist B. new technologies
south-east of Asia which includes Hong Kong which is
C. industrilisation D. IMF policies the administrative zone of China, Taiwan, Singapore,
Answer and South Korea from 1960 to the year 2000, these Asia
IMF policies (D) Economies did something miraculous hence they are
popularly referred to as the Asian Miracles. There was
20. Japanese Miracle means this aggression to develop their economies. The South-
A. the survival of Japanese people East Asia states have placed regional economic
B. the wonders seen by Japan integration as a top priority. They formed the Association
C. the economic downturn experienced by Japan of South-East Asian Nations (ASEAN) with the ambition
D. the economic growth, Japan experienced after the of becoming an official Economic Community in 2015.
devastation of World War II In that short period of 40 years, these Economies became
Answer a big part of the workshop of the world. They were not
Japanese Miracle means the economic growth, Japan just regional players expanding locally they were
experienced after the devastation of World War II (D) expanding globally based on their developmental
strategies which include export-based industrial policies,
highly developed money and capital markets, heavy
government investment in education and human capital
development, high level of information technology

603
 development, purposeful, honest and articulate
leadership, etc.

26. What are the lessons Nigeria will need to learn from the
Asian Tiger’s Economy
Answer:
Nigeria as a country will need to learn the following
from the Asian Tiger’s Economy
1. Formulation and implementation of deliberate
government policies.
2. Strengthening the development of Agriculture.
3. Encouraging Industrial development.
4. Development of Small and Medium Scale Entepriese
(SMEs).
5. Human capital development and raising educational
standards

Author’s Exercise
1. Identify the lesson Nigeria will need to learn from the
Asian Tiger’s Economy?
2. What strategies were employed by the Asian Tigers?
3. Discuss the factors that account for the rapid
development of the Asia Tiger.
4. What are the problems facing Small and Medium-scale
Enterprise in Nigeria?
5. List the countries that constitute the Asian Tigers.
6. Describe the economic history of the Asian Tigers and
Japan.

604
 DISADVANTAGES OF INTERNAL TRADE
INTERNAL TRADE, INTERNATIONAL TRADE AND 1. Limited Choice: Major drawback with internal trade is the
availability of limited products manufactured domestically. It
BALANCE OF PAYMENT restricts the entry of variety of advanced imported products
due to which consumer is left with limited options available.
MEANING OF INTERNAL TRADE 2. No Foreign Earning: Internal trade do not provide any
Internal trade refers to the trade that takes place within the source of foreign earning to the nation. All transactions in
geographical boundaries of a country. It involves buying between the buyers and sellers are settled in domestic
and selling of goods or services within the same country currency only.
and not outside the country. 3. No Sharing of Resources: Countries relying on internal
trade lacks the chance of sharing resources from foreign
Internal trade is also termed as Domestic trade or Home countries. Any scarcity of resources can be easily meet by
importing such resources from foreign land in case of foreign
trade. In internal trade, buying and selling transactions are
trade, but this is not possible in case of internal trade.
done in between buyers and sellers of same locality, town, 4. Lack of Professional Management: Domestic firms
village, cities or from different states but within the same operating within the country may lack professional
country. For example, all the trading activities taking place management due to shortage of funds or unavailability of
within the Nigeria territory is a classic example of an competent workforce. Skilled and qualified workforce can be
internal trade (domestic trade). All payments are processed easily acquired in foreign trade whereas internal trade faces
only in currency of home country. restriction on such movement of labour internationally.
5. Difficulties in Times of Emergency: Countries which
ADVANTAGES OF INTERNAL TRADE practice internal trade faces difficulties in times of
1. No Trade Barriers: Internal trade are bound to follow emergencies like famine, flood, war and scarcity. They face
very few formalities as compared to foreign trade and is difficulty in supply of essential items like food, medicine and
clothes from abroad due to restrictions imposed by them on
free from trade barriers. There is no restriction imposed international movement of goods.
and trade can be conducted freely in any part within the
country. PROBLEMS OF INTERNAL TRADE
2. Provide Economical Goods: Internal trade provides goods 1. The absence of standard units of weights and measures:
at cheaper cost to peoples within the country. Goods The use of standard units of measures for selling
produced domestically are free from any exchange duties and commodities is not widespread. In most cases, commodities
several taxes which bring down its overall cost. are sold in quantities without regard for weight. For example,
3. Less competition:It restrict the entry of any foreign plantains and yams are not sold by weight. Also, the type of
player in domestic market. Market competition exists measure used in selling commodities such as garri, rice and
only in between the local brands of country thereby millet are not the same throughout the country. Milk cups,
prevents the exploitation of domestic firms by foreign cigarette cups, mudu, baskets, etc, are used indifferent
firms. localities.
4. Low Transportation Cost: Trade taking place within the 2. Inadequate storage facilities: Inadequate storage facilities
cause a great loss of goods especially agricultural produce.
country involves low expenses on transportation
Grain and root crops are destroyed by pests and diseeases
facilities. Goods moves at a shorter distance within the during storage. Enough products are not siloed during the
country only which reduces the transportation risk and off-season despite the relatively high demand.
overall cost. 3. Inadequate transport facilities: In many West African
5. Large Employment Opportunities: Internal trade countries, very many areas are inaccessible because of the
generates a large number of employment opportunities poor network and bad condition of roads and other means of
within the country. There are large peoples associated transportation. This leads to difficulty in the marketing of
in various activities of firms operating internally. With goods.
the rise in number of domestic firms, need for 4. Bargaining: This is not a good method of selling
manpower also rises thereby creating new employment commodities. A consumer who is not good at bargaining is
always cheated. Also, it does not make for uniformity in
opportunities.
prices.
6. Mobility of Factors: It enjoys the advantage of mobility 5. Lack of specialization: The same trader may deal in several
of factors of production. All factors like land, labour items. The same farmer may produce several crops.
and capital can be easily moved around within the Therefore the economies derived from large-scale production
country. When a nation is producing everything for and from dealing in single commodities are lacking.
fulfilling its needs internally, it does not need to depend 6. Presence of market trade unions: They exert influence.
on other nations for meeting its needs and makes it an They could prevent other people from joining their trade.
independent economy. They sometimes fix higher prices for themselves, thereby
exploiting consumers.
7. The presence of a large number of middlemen: Before
certain commodities such as cattle, kolanuts etc, reach the
final consumers, they have passed trhogh the hands of a large
number of middlemen. This makes final prices high.

605
MEANING OF INTERNATIONAL TRADE 7. Differences in cost of production and quality of goods:
This is the same as foreign trade, external trade, or The cost of production of certain goods and services are
international specialization of labour. lower in some countries than others. This compels the
International trade refers to the trade between two or more former to buy them from the latter.
countries, which involves the exchange of goods and 8. Differnces in level of efficiency: A very high level of
services among the different nations.Such trade usually efficiency in the use of natural resources enables people
crosses a country’s international boundary and brings of certain countries to produce higher qualities of goods
international buyers and sellers into close contact for and services than others. This therefore necessitates
business transactions. It brings the countries of the world trade between countries.
under one unit both economically and politically. 9. The need to satisfy certain wants: Goods and services
have to be imported because the people, firms or the
THE BASIS OF INTERNATIONAL TRADE government in a country require them, and such
Countries have to produce certain commodities and commodities are either not produced at home or are not
exchange them with other commodities produced by others. produced in sufficient quantities. Trade takes place
Each country produces those in which it has comparative because the countries are not self-sufficient.
cost advantage and exchanges them with those in which it 10. Economic factors: Other reasons for external trade are
has comparative disadvantage. Differences in endowments due to economic factors. Among them are the
which create the need for trade are: following:
1. Differences in climate and soil condition: The (i) It enables countries involved to reap benefits of
different types of climate and soil account for the economies of scale arising from large scale
different types and quantity of crops which are production.
produced by different countries. For example, cocoa (ii) It enables them to increase volume of sale – to
grows well in tropical climate and soil, widen market for their local products through their
2. Differences in natural resources endowment: Some export to other countries.
countries are endowed with abundant mineral resources (iii) It enables them to raise investment and employment
that are not found in other areas like gold, petroleum, opportunities and thereby improving the standard of
copper etc; Crude oil is produced in large quantities in living of their people.
Nigeria but is not found in commercial quantities in (iv) It enables them to raise amount of profit to the
many other West African Countries. Countries that do peak.
have certain minerals buy them from those countries
which produce them. ADVANTAGES OF INTERNATIONAL TRADE
3. Differences in available capital stock: Some countries 1. It leads to increase in the total world output of
have a higher stock of capital than others such countries commodities: The increased productivity is brought
with plenty of capital tend to produce more goods about by international division of labour and
(especially manufactured goods) and in greater variety. specialization. Each country specializes in the
In countries with a low stock of capital, the quantity production of those commodities which it can produce
and variety of goods produced are small. Advanced with minimum costs. Increased world output leads to
countries produce more manufactured goods than the increased world trade.
countries of the third world. The third world countries 2. It brings about a wider market for goods: Producers
import manufactured goods from the advanced within the country are encouraged to produce more
countries. since their goods can be sold in foreign markets. This
4. Differences in level of technology: The inhabitants of a brings about economies of large scale production,
country may have technical know-how (technology resulting in lower costs per unit of output.
knowledge or skills) or high level of technology for the 3. It leads to increasein technical know-how: The less
manufacture of certain goods like machines, vehicles, technically advanced countries gain technical
electronics, etc. Developing countries like Nigeria, knowledge from the advanced countries.
Ghana that cannot produce them, will have no
4. It leads to more efficient allocation of world
alternative than to buy them from developed countries
resources: Productive resources are put to their best
like USA, Germany etc that can manufacture them.
uses. This leads to a reduction in the unit cost of
5. Differences in levels of industrial development: The
production and to increase productivity.
industrialised countries export their surplus
5. It provides employment opportunities for exporters
commodities to the less industralised ones.
and importers: There are some people who derive
6. Differences in skill (talent): The citizens of some
their livelihood from the import of goods from other
countries have specific talents and skills in making
countries or from the export of goods to other
things which people of other countries don’t have. India
countries. International trade brings gains to them and
is famous for cinema. Nigeria for acrobatic dance,
enables them to earn a living.
Brazil for football, etc. India may exchange her skills
with the services of a coach from Brazil.
606
6. It encourages healthy foreign competition: Foreign BARRIERS OF INTERNATIONAL TRADE
competition is introduced through trade. There is The following are the major barriers or problems to
increased research in order to produce competitive international trade
quality goods for the world market and for domestic 1. Differences in language: Countries of the world use
consumers. different languages. For there to be trade between
7. It causes an increase in the standard of living: Each citizens of different countries, there must be a unified
country is able to obtain a greater quantity and variety language structure which will pave way for effective
of goods than it would produce. The inhabitants of a communication.
country are able to obtain consumer goods which they 2. Differences in currency: Countries of the world use
cannot produce but which they require. The increasing different currency. In international trade, there is
level of consumption results in higher standard of usually the need to covert one’s currency to those of
living. another countries or standard currency. The absence of
8. International trade has political benefits: It brings foreign currency means that international trade cannot
about the interdependency of nations. It tends to take place.
promote prospects for world peace and international 3. Difference in custom and culture: Custom, culture
goodwill since countries are dependent on one another, and religion are obstacles to international trade. They
political frictions are reduced. There is greater hinder free trade among nations.
tendency for countries to maintain good relationship 4. Trade Restriction: Imposition of trade barriers by one
with each other. country on other countries’ goods is the worst or one
of the worst problem of international trade. For
DISADVANTAGES OF INTERNATIONAL TRADE instance a trade embargo or ban completely eliminates
1. It may lead to the collapse of infant industries and external trade between countries.
generate unemployment: The infant industries in a 5. Balance of payment deficits: The huge debts which
country may not be able to withstand the competition some countries owe to others seriously hinder them
from foreign goods which are imported. Such from properly participating in international trade.
imported goods are usually cheaper and of higher 6. Transportation issues: Countries of the world live
quality than identical commodities produced at home. thousands of miles apart. As a result, they come
International trade encourages the dumping of foreign together through an effective and efficient transport
goods in a country. system. The absence of good transport system has
2. It may lead to over dependence on foreign countries: hindered international trade between many countries.
Excessive specialization leads to too much dependence 7. Inadequate Capital: The inability to get capital for
which is dangerous in times of crisis between participating in import and export businesses prevents
countries. many people from participating in international trade.
3. International trade may lead to excess production as 8. Political barriers: Different countries have different
a result of excessive specialization: Over production political ideology. The inability of countries to share
could lead to the dumping of the commodities in other the same political belief is also another factor that
countries. This may discourage the producers of such hinders international trade.
goods who are forced to sell at low prices in foreign 9. Desire for self-sufficiency: Almost all nations are very
markets. eager to be self-sufficient in the production of all their
4. It may lead to the import of dangerous commodities basic requirements especially food and household
and ideas: Through international trade, dangerous items etc. This reduces the volume of international
items such as alcohol, hard drugs, arms, e.t.c. may be trade.
imported. Also, through the contact with different 10. Problem of custom formality and high tariff:
countries, immoral ways of dressing, indecent way of Importers and exporters are obliged to fill numerous
living and other evil may spread. custom document and pay high import and export
5. It may lead to unbalanced growth and development: duties before they can import and export goods. These
International trade encourages specialization. discourage many people from participating in
Therefore, excessive specialization in one sector of the international trade.
economy may lead to the neglect of other sectors.
6. International trade has turned developing countries to
consuming rather than producing nations.
7. It discourages self-reliance of nations.

607
 DIFFERENCES BETWEEN INTERNATIONAL 1983/32 UTME
TRADE AND INTERNAL (DOMESTIC ) TRADE International trade is necessary because
1. International trade is a trade between two or more A. no country can live in economic isolation
countries of the world (i.e. across national boundary) B. different countries are differently endowed in natural and
while internal trade is a trade within a country (i.e. man-made resource
within national boundary). C. some countries have comparative costs advantage in the
2. International trade involves foreign exchange production of particular commodities over other countries
transaction while internal trade only involves the use D. the world demand for and supply of various categories of
of local currencies. commodities is expanding very fast
3. In international trade, factors of production do not E. countries want to build up their foreign exchange
move freely from one country to another, but this is reserves
not the case in domestic trade. Answer
4. In international trade, differences in custom, language, B – Different countries and differently endowed in natural
laws etc. hampers business transaction. But in internal and man-made resources.
trade these obstacles are hardly there.
5. International trade is based on the theory of
comparative cost advantage while home trade is not. 2015/32 UTME Exercise 23.1
6. In international trade, there are trade restrictions such The basis of international trade is the
as tariffs, quotas, trade embargo, etc. as trade A. differences in natural resources endowment
protection. However, in the case of domestic trade, B. differences in the population size
there are no trade restrictions. C. prevailing interest rate on multilateral loans
7. International trade may involve balance of payment D. economic system in practice
problems but in domestic trade this does not exist.
8. In international trade weight and measures scales may
differ between countries but in domestic trade same
weight and measure scales are used.
1995/34 Nov
2002/55 Neco Which of the following is applicable to internal trade?
One major difference between internal trade and A. same currency, same language, different countries
international trade is that B. long distances, same language, different currencies
A. internal trade deals in imports while international trade C. same currency, same trade laws, within national
deals in export boundary
B. international trade involves the use of two different D. within a national boundary, same trade laws, different
currencies currencies
C. international trade deals with visible export and imports E. different tariffs, interstate duties and common currency
while internal trade is always being restricted Answer
D. internal trade is the exchange of goods and services Same currency, same trade laws, within a national boundary (C)
between countries while international trade is the exchange
of goods and services within a country
Answer 2008/50 Neco Exercise 23.2
International trade involves the use of two different Which of the following is an advantage of international
currencies while internal trade use only one currency (B) trade?
A. discourages demand for home made goods
1991/22 B. leads to instability in planning
International trade is necessary mainly because C. leads to unhealthy specialization
A. no country can live in economic isolation D. makes room for independence
B. different countries are endowed with the same natural E. makes room for interdependence
and man-made resources
C. some countries have comparative cost advantage in the
production of certain commodities
D. the world demand for and supply of various categories of
commodities is expanding very fast
E. countries want to build up their foreign exchange
reserves
Answer
Some countries have comparative cost advantage in the
production of certain commodities (C)

608
PRINCIPLE OF INTERNATIONAL TRADE THE DIFFERENCE BETWEEN ABSOLUTE
A. ABSOLUTE COST ADVANTAGE ADVANTAGE AND COMPARATIVE ADVANTAGE
A country has absolute cost advantage over another in the In the study of international trade, three different cases are
production of commodities when the same units of resources paramount to note. The first case is where one of the two
could be used to produce more of the two commodities in countries can only produce one of the two commodities. Each of
question in a country than the other. the two countries will be poorer by not engaging in international
Absolute cost advantage also occurs when a country can trade in this situation.
produce a given units of a commodity at a lower average cost The second case is where both countries can produce the two
commodities but one of the two countries can produce one of the
(AC) than another country with the same units of resources.
two commodities better than the other. International specialization
B. COMPARATIVE COST ADVANTAGE
will increase world production in this regard. The third case is
International trade is also based on the theory of comparative
where one of the two countries, say A can produce the two
costs which is an extension of the principle of comparative commodities better than the other country, say B. if this is the
advantage. This theory of international trade was developed by situation, country A is said to be having absolute advantage over
the British economist David Ricardo in the 19th century. The country B in the production of the two commodities. Further,
law of comparative costs states that even if one of the trading where country A is having absolute advantage over country B, the
partners could produce all commodities more cheaply, the principle of comparative advantage will be a decider of which
countries will be better off if each specializes in the production product country A will specialize in and which product country B
of those commodities in which it has the greatest comparative will specialize in if there must be international trade. Consider the
advantage or least comparative disadvantage over others. A hypothetical data below.
country will produce for export those commodities it can
produce more cheaply and import those which it can only It shows the amount it will cost country A and B to produce the
produce at higher costs. same (say 100) units of vehicle and the amount it will cost them
In discussing the theory of international trade, we do not deal to produce the same (say 100) units of computer in dollars.
with absolute advantage but with comparative advantage. The Country A Country B
theory of comparative cost advantage states that countries and Vehicle ($) 70 100
individuals should specialize in the production of such goods Computer ($) 90 150
and services which they have comparative cost and advantage From the above, it is clear that country A has absolute advantage
over the others. A country has a comparative cost advantage in the production of both commodities since it will spend less
over other countries in the production of a commodity in than country B to produce the same quantity as far as each of the
which it has a lower opportunity cost than others. The theory commodities is concerned. Going by the principle of comparative
is based on the idea that no nation is self-sufficient and as a advantage, it is clear that country A has comparative advantage in
result, there is the need for the specialization of nations so as the production of computer. Country A should produce computer
while country B should produce vehicle.
to efficiently allocate the world resources and to make the
entire world a global village.
ASSUMPTIONS OF INTERNATIONAL TRADE ON THE
BASIS OF COMPARATIVE ADVANTAGE THEORY
Cost of producing one unit Cost of producing one The theory of comparative cost advantage shows that world
of computer ($) Unit of Vehicle ($) output will increase if countries engage in international trade.
Country A 100 100 This however is not without some assumptions. The assumptions
Country B 40 80 are as follows:
1. That there are only two countries and just two commodities
In the table above, country B has the comparative advantage in entering into international trade.
the production of computer. Country A should therefore 2. That there is a situation of perfect competition.
produce and export vehicles while country B should produce 3. That there is full employment in the countries in international
and export computer. trade.
4. There is no artificial restriction of trade such as by way of
Now taking the units that can be produced and not the cost of tariffs and quotas.
producing into consideration this time around, given that both 5. That there is nothing like currency restriction.
countries will make use of the same level of resources for each 6. That expansion or contraction of production in countries I
and II is possible without either of diminishing returns or
product, we can have
increasing returns setting in as any allowance for the effects
Products Cocoa Cotton
of this will complicate the exposition.
Country X 100 units 80 units 7. That there are no costs of transport as anything of such will
Country Y 40 units 60 units portend a negative implication on the range within which the
world price of a commodity will fluctuate due to the transport
Country X has a comparative advantage in the production of cost.
cocoa while country Y should specialize in the production of
cotton. The indication or implication of the above assumptions or
better still, limitations of international trade is that practice
often differs from theory.

609
2023/47 Both imports and exports are divided into two categories
Country M enjoys absolute advantage over country N in the 1. Visible items:These are goods (i.e. tangible items)
production of commodities X and Y, if country M which enter into international trade. Visible imports
A. can produce only commodity Y cheaper than country M are goods imported while visible exports are goods
B. is more efficient than country N in producing both exported to other countries.These include petroleum
commodities X and Y product, equipment and machinery, automobiles,
C. is inefficient in the production of both commodities X ammunitions, clothes, books, etc.
and Y 2. Invisible items: These are services (i.e. intangible
D. and country N are efficient in the production of both items) which enter into international trade such as
goods loans, teaching, insurance, banking, tourism and
Answer shipping services. Invisible imports are services
A country has absolute cost advantage over another in the imported into the country while invisible exports are
production of commodities when the same units of resources services exported out of the country.
could be used to produce more of the two commodities in NB: Entreport trade, in simple terms, is a specific form of
question in a country than the other. (B) international trade that comprises both import and
export trade. Under this type, goods and services are
imported from one country so that they can be further
2019/51 Neco exported to another country.
The international trade theory of comparative advantage
was propounded by STRUCTURE, TREND AND DIRECTION OF
A. Adam Smith B. Alfred Marshall C. David Ricardo EXTERNAL TRADE IN WEST AFRICA
D. J. M. Keynes E. J. S. Mill The composition or structure of external trade refers to the
Answer: David Ricardo (C) items of international trade between the countries of West
Africa and the rest of the world. Basically, it consists of
2018/45 NABTEB imports and exports.
International trade is based on the law of A. The main composition of export
A. variable proportion B. comparative cost advantage (i) Agricultural products e.g. cocoa, palm produce,
C. mutual cooperative D. absolute cost advantage groundnut, soya bean, coffee, ginger,timber, hide
Answer: Comparative cost advantage (B) and skin, etc.
(ii) Mineral products, e.g. petroleum, coal, tin,
1999/30 Nov columbite, etc.
The benefits from international trade arise essentially from (iii) Semi-manufactured product, e.g. processed rubber
A. absolute cost advantage B. comparative cost advantage pellets, cocoa flour, groundnut oil and groundnut
C. comparative cost disadvantage cake, palm kernel oil, etc.
D. absolute cost disadvantage (iv) Craft and artefacts.
Answer: Comparative cost advantage (B) (v) Tourism and travels.

1990/8 Nov Exercise 23.3 B. The main composition of import

The law of comparative cost states that a country (i) Manufactured consumer goods e.g. milk, food and
A. should reduce its costs in its trade transactions with the drinks, cars, books and stationery, flour,
rest of the world pharmaceutical, footwear’s, textile and clothing
B. stands to gain if it trades with other countries materials, electronic equipment, tobacco.
C. stands to acquire more goods if it trades with other (ii) Capital equipment, e.g. machinery and equipment,
countries commercial vehicles and spare part, building and
D. should equates its advantages with its disadvantages in construction materials,raw materials.
its trade transactions with other countries (iii) Other goods e.g. arms and ammunition, medicine
E. should specialize in the production of commodities in and medical equipment, chemicals.
which it has the greatest relative advantage over others (iv) Services e.g. tourism and travel, banking,
insurance, skilled labour service, etc.
IMPORTS AND EXPORTS
Imports are goods and services brought into a country from TRENDS IN THE COMPOSITION OF TRADE
other countries of the world. (WITH PARTICULAR REFERENCE TO NIGERIA)
Initially, primary agricultural products constituted the
largest percentage of export in valued terms. Most
Exports are goods and services sold by a country to other
agricultural and mineral products were exported without
countries.
processing. At present, mineral product are contributing
more in value terms and most agricultural product are now
being processed before exportation. Initially, manufactured
610
goods constituted the greatest percentage (about 50%) of 4. Poor transportation and communication links between
import in value terms. At present, the greater percentage of Nigeria and other West African countries: There are
import is made of capital equipment and raw materials. few international transportation routes in West Africa.
Most of the roads and railways were meant for
DIRECTION OF INTERNATIONAL TRADE IN evacuation of products for the Western markets.
WEST AFRICA Communication is easier between Nigeria and Europe
Direction of international trade refers to the origin of import than with other West African countries.
and the destination of export of West African countries. 5. Control of the economy corporations have their bases in
They are as follows: the advanced countries from where they originated.
(i) United Kingdom. Such countries are the main trading partners.
(ii) Other countries of the European Union (EU) such as
France, Germany, Belgium, Netherlands, Italy, etc. BILATERAL TRADE AND MULTILATERAL
(iii) The United States of America. TRADE
Bilateral trade is a trade arrangement or trade agreement
(iv) Russia.
between two countries. The two trading partners may agree
(v) South East Asian Countries (e.g. China, Hong Kong,
on certain terms. For example, Nigeria and Germany could
Japan, Taiwan, Indian).
have a bilateral trade agreement in which each of them
(vi) Other countries – commonwealth countries, Latin
agree to import certain items from the other. Bilateral trade
America, other African countries.
restricts World Trade.
TRENDS IN THE DIRECTION OF TRADE Multilateral trade is a trade agreement among many
Before independence, the different colonial governments countries. It is a distinct innovation in international trade
were the chief origin of imports into and destination of and it encourages international division of labour. Different
export from West African countries. For example, most of goods and services are exchanged in the trade. Nigeria trade
Nigeria import came from the United Kingdom and most of with the United State of America, China, Russia, South
our export were consigned there. The French colonies Africa, Ghana and so on. It is not necessary to have a trade
directed their trading activities towards France. The West balance between each pair of the trading countries. This
African countries supplied the colonial government with enables maximum gain to be derived from external trade.
raw materials and in return got manufactured goods from
them. But with the attainment of independence, the TERMS OF TRADE (TOT)
direction of trade changed considerably in favour of the This refers to the rate at which a country’s exports are
European Union, Americans, South East Asia and Russia. exchanged for its imports. It is expressed as a relationship
The main trading partners with West African countries are between the prices a nation receives for its exports and the
the countries of the EU, South East Asia and USA. price it pays for imports. It is the price ratio between
Nigerians trade with Britain has declined considerably. exports and imports.
However, with the formation of the Economic Community
of West African Countries (ECOWAS), Nigeria is MEASUREMENT OF TERMS OF TRADE
expanding trade with other West African countries. Trade It is measured as
Price index of exports (Px) 100
among them is still limited because most of them are (i) Terms of Trade = × 1
Price index of imports (Pm)
basically producers of primary products.
Price index of exports (Px)
(ii) Terms of Trade = Price index of imports(Pm)
∶1
REASONS FOR LOW VOLUME OF TRADE
BETWEEN NIGERIA AND OTHER WEST AFRICAN Price (Year Being Considered) 100
(iii) Index of exports =
Price (Base Year)
× 1
COUNTRIES
1. Production of identical products: Nigeria produces
Price (Year Being Considered) 100
mostly agricultural and mineral products like many (iv) Index of Imports =
Price (Base Year)
× 1
other West African countries e.g. cocoa, groundnut.
2. Need for imported manufactured goods: A large Average indicies of exports 100
percentage of Nigeria’s import needs is made up of (v) Terms of Trade = ×
Average indicies of imports 1
manufactured goods which are produced by the It is noteworthy that getting the average indices of exports
advanced countries. and imports requires doing the additions of all the indices
3. Close political and economic ties with Britain and the for exports and determining the average and doing the
Western World: For a long time Nigeria had a close tie addition of all the indices for imports and finding the
with Britain (her colonial master). This tie with Britain average respectively. The rule for making remarks on the
and with some other Western countries has continued conclusive results is as follows: High index implies that the
even after independence. terms of trade is very favourable while low index indicates
that the terms of trade is less favourable.
611
UNFAVOURTABLE TERMS OF TRADE Example TT 1
Terms of trade are unfavourable to a country:- The summary of countries C and D import and export are as
i. If she exchanges a large quantity of export for a few follows
quantity of import. Country Price index of Price index of
ii. If prices of imports are higher than the prices of exports ($) imports ($)
exports. C 300 240
iii. If terms-of-trade index is below 100. D 400 500
𝒆𝒙𝒑𝒐𝒓𝒕 𝒑𝒓𝒊𝒄𝒆𝒔 (a) Calculate the country’s terms of trade (TOT).
Or <1
𝒊𝒎𝒑𝒐𝒓𝒕 𝒑𝒓𝒊𝒄𝒆𝒔 (b) Interpret your answer in (a) above.
Solution
If terms-of-trade index is exactly equal100, it implies that (a) Calculation of terms of trade ( TOT )
exports’ prices equates imports; Thus terms of trade are said PX 100 PX
TOT = PM × 1 orPM: 1
to be in equilibrium.
When terms of trade is at equilibrium, we have terms-of- 300 100 300
trade index to be equal 100. Country C = 240 × 1 = 125% Or 240 :1 = 1.25:1
𝑒𝑥𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒
Or =1
𝑖𝑚𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒 400 100 400
Country D = 500 × = 80% or 500 : 1 = 0.80:1
1
If terms-of-trade index is above 100, it implies that (b) Terms of trade ( TOT ) is favourable to country C. This is
exports’ prices are relatively high; Thus terms of trade are Px
because Pm > 1
favourable.
ii. Terms of trade ( TOT ) is unfavourable to country D as
Px
FAVOURABLE TERMS OF TRADE <1
Pm
Terms of trade are favourable to a country: - 2018/54 Neco Exercise 23.4
i. If she can exchange a few quantity of export for a large Terms of trade is calculated as
quantity of import. Index of export price
ii. If prices of exports are higher than the prices of A. Index of import price × 100
imports. B. index of import price – index of index of export price
Index of import price
iii. If terms-of-trade index is above 100. C. × 100
𝑒𝑥𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒 Index of export price
Or >1 D. index of export price + index of import price
𝑖𝑚𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒
Index of import price+index of export price
E. 100
REASON FOR DECLINING TERMS OF TRADE OF
2007/51 Neco
WEST AFRICAN COUNTRIES
If the price index of export is 140% and import is 200%, what
They are highlighted as follow:
is the term of trade?
1. Declining prices of export.
A. 60 B. 70 C. 100 D. 140 E. 280
2. Declining value of export. Answer
3. Rising price of import. Index of average export price 100
4. Increasing value of import. Term of trade = ×
index of average import price 1
5. Rising demand for import.
140 100
6. Declining demand for export. = × = 70 (B)
200 1
7. Higher restriction (embargoes) on West African exports 1997/37
by foreign countries. Terms of trade is the
8. Less restriction (removal of barriers) on import by WestA. ratio of capital movements to export movements
African countries. B. ratio of imports to short term export
C. difference between exports and imports
MEASURES TO IMPROVE WEST AFRICAN D. ratio of short term capital movements to long term capital
COUNTRIES TERMS OF TRADE movements
They are outlined as follow: E. ratio of index of export prices to index of import prices
Answer
1. Increase in the prices of export with inelastic demand.
Ratio of index of export prices to index of import prices (E)
2. Increase in the value of export through improved
technology.
3. Imposition of more trade barriers on import. COMMERCIAL POLICY IN INTERNATIONAL TRADE
4. Reduction in demand for import through monetary and Commercial policy in international trade refers to deliberate
fiscal policies. efforts on the part of a government to intervene in the country’s
5. Decrease in export duties-removal of all barriers against trade relations with other countries. Commercial policy aims at
export. regulating trade and protecting the economy.
6. Raise demand for export through export promotion.
7. Decrease in excise and export duties of export firms.
8. Reduction in prices of export with elastic demand.
612
PROTECTION IN INTERNATIONAL TRADE 5. To correct unfavourable balance of payments: A balance of
This is a trading situation which involves the use of artificial payments deficit occurs when the value of imports exceeds
restrictions or government intervention to safeguard the economy that of exports. This can be reversed (corrected) by lowering
and to limit the volume of trade. the volume of imports through trade barriers and increasing
The various instruments of protection are discussed below. export through subsidies and removal of export duties.
6. To raise level of employment: As trade barriers prevent
INSTRUMENT OF COMMERCIAL POLICY importation of foreign goods, they enable local industries to
1. Tariffs: This is a tax imposed on imported goods. Import survive and operate at full capacity. This enable them to
duties may be increased in order to reduce imports. employ a large number of people.
2. Import licensing: Importers may be required to obtain 7. To prevent foreign subsidized goods: Some governments
licenses for the importation of particular commodities. heavily subsidize cost of production in certain industries.
3. Import quota: This involves fixing a maximum quantity or This lowers their prices both at home and abroad. Except
value of a commodity which may be imported during a given their import is protected by trade barriers, similar local
period. industries cannot survive.
4. Foreign exchange control: The use of foreign exchange for 8. To encourage diversified economy: A country may impose
imports may be controlled. For example, a maximum amount trade barriers in order to avoid risk of specialization. This
may be fixed as Basic Travel Allowance. enables her to diversify the economy (to establish firms in
5. Import substitution: The production of commodities at home different economic sectors).
which would otherwise be imported may lead to a reduction 9. To encourage learning process: Some countries impose
in the volume of world trade. trade barriers in order to encourage their citizens to patronize
6. Prohibitions (Embargo): Outrights bans may be imposed on locally made goods. This enables the producers or firms to
a commodity. This implies that the item cannot be imported survive; and they gradually acquire the desired skills, gain
during the ban period experience and become experts through “learning by doing”
7. Devaluation: This is a commercial Policy which involves or “trial and error”.
lowering the value of a country’s currency in relation to those 10. To raise revenue for the government: Some countries
of other countries. impose tariffs with the main aim of raising revenue. It is a
8. High Subsidies: Granting of high subsidies by the major source of income to many developing countries.
government to local industries, especially export firms, 11. As a retaliatory measure: Trade barriers ma be imposed in
enables them to sell their products at competitive or relatively order to retaliate countries that impose trade barriers on a
low prices (lower prices than those of imported goods). This country’s products especially if it is a long-term measure.
reduces import. 12. To prevent importation of unsuitable and dangerous goods:
9. Administrative controls: Stringent administrative rules may Certain goods like second hand cloths/cars, automatic pistol,
be imposed on the importation of some commodities. This dangerous drugs, cigarette (Indian hemp), etc. which certain
may involve the use of severe rules and regulations and the countries term unsuitable for their citizen’s use may be
imposition of technical and safety regulations in order to banned indefinitely.
make importation difficult. 13. To improve terms of trade: Many developing countries’
terms of trade are not favourable. Thus they impose tariff in
THE CASE FOR PROTECTION order to turn them in their favour.
Many arguments have been made in favour of using various \
forms of protection THE CASE AGAINST PROTECTION
1. To protect infant industry: The newly established large firms A number of arguments have been raised against the use of
in many developing countries are not very efficient in protection in international trade.
production of goods at the initial stage. If they are not
1. It may lead to a fall in total world output of
protected against foreign firms’ keep competition, they
wouldn’t be able to survive. commodities: The use of protection works against the
2. To ensure self-reliance: Many countries wish to use their law of comparative advantage. It therefore results in an
own products in order to reduce the extent of dependence on inefficient allocation of world resources. Also large-
foreign goods. Thus they impose barriers on foreign goods. scale production is discouraged because of the absence
This enables their industries to survive. of large external markets for goods.
3. For strategic purpose: A country may imposed trade barriers 2. The use of protection reduces the quality and variety
in order to protect strategic industries, like arms and of goods available to consumers in a country: Their
ammunition industry. This enables her to improve national choice is therefore restricted, resulting in a fall in the
defence, ensure national security at all times and her victory standard of living.
in war with other countries.
3. The use of proection may lead to higher world prices
4. To prevent dumping: Dumping is the act of selling goods in
foreign countries at prices that are below what they charge at of commodities: This is because of the restriction of
home (or in local market). This reduces demand for local world output as well as the reduction in the quantity of
goods. Thus high import duties or ban may be imposed on imported goods.
such foreign goods. 4. The real income of consumers in a country falls as a
result of taxes imposed on imports: In other words,
there is a fall in the amount of imported goods which
their income can purchase. Their standard of living may
therefore be reduced.
613
5. The use of protective devices may lead to a fall in the DISADVANTAGES OF FREE TRADE
government revenue derived from taxation: This will 1. It encourages dumping.
be true if the demand for imports is elastic. If the 2. It reduces the country’s revenue throughout tariff.
demand for imports is elastic, the higher prices of 3. It promote illegal trade.
imports brought about by higher tariffs will bring about 4. It lead to increase in demand for foreign exchange.
a considerable fall in demand. Therefore, government 5. It discourages economy growth and development in
revenue from this source will fall. developing countries.
6. Infant industries which are protected may fail to 6. Infant countries will not be well protected.
grow up because of excessive protection: Since there
is little or no competition with the goods produced by
developed countries, the infant industries may continue THE CASE FOR FREE TRADE
to operate under conditions of inefficiency. There is no The number of arguments have been raised in favour of free
urge to produce good quality products. trade.
7. It could lead to retaliatory and reciprocal action by 1. There is a higher standard of living:The consumer in
other countries: Retaliation is the use by one country each country obtain goods and services in adequate
of counter-economic measures against another country. amounts and in a wider variety. Increased consumption
For instance, a country can raise tariffs on goods from in terms of quantity and variety result in higher living
another country because its own goods have been standards.
subjected to heavy duties. If a country uses protective 2. There is a wider market for goods:This encourages
devices, other countries may do the same against that large-scale production since the products can be sold in
country. For example, if country ‘A’ impose high foreign markets. The increased production results in
import duties on good from country ‘B’, country ‘B’ is economies of large –scale production.
likely to impose high duties on goods from country ‘A’. 3. Free trade leads to increased world output of
The use of tariffs may stimulate ‘tariff wars’. commodities: This is beause there is more efficient
Reciprocity is a tariff agreement between two or more allocation of world resources, and each country
countries whereby each of them agrees to grant the specializes in the production of the commodity for
same concession as it receives, e.g. importation of duty- which it is best suited.
free goods from each other. 4. Free trade promotes healthy competition among
nations:The healthy competition leads to
improvements in quality of goods. It also leads to lower
world prices.

THE CASE AGAINST FREE TRADE

FREE TRADE 1. It may lead to an adverse balance of payments:
Free trade is trade among countries without any form of Under free trade, there are no restrictions on imports.
restrictions or trade barriers. It therefore arises where Therefore, if the total value of imported goods is higher
circumstances that are likely to hinder or become than the total value of exports, the balance of payments
impediment to international trade are totally removed when may continue to be in deficit. Countries with favourable
making trade agreement or trading with other countries. terms of trade will continue to become better off.
This means that such trade restrictions as tariffs, import and 2. Some countries will gain at the expense of others:
exchange control will be completely removed in While some countries will be placed at an advantage,
international trade. others will be placed at a disadvantage. This is true
because free trade is based on comparative advantage.
Therefore, those countries with more resources will
ADVANTAGES OF FREE TRADE benefit at the expense of those with fewer resources.
1. Free trade brings about increases in total world output. Those with more resources will enjoy a higher standard
2. It brings about more efficient allocation of world of living than the others.
resources. 3. The economy may suffer if there is a fall in world
3. It is a vital tool in promoting large scale production. demand for the products of a country: This is
4. It brings about increase in the world standard of living. especially true if the country depends largely on only
5. It helps to bring international conflict to the barest one product. This may generate unemployment of
minimum. labour and other productive resources.
6. The free flow of goods and services between nations 4. Infant industries may be ‘killed’: This is because
leads to variety of goods and services. cheaper and superior commodities may be imported.
Since the young industries cannot stand the
competition, they may be forced to close down.
614
5. Free trade encourages the dumping of commodities MEASURES USED TO PROTECT INFANT
from foreign countries: This further stifles the INDUSTRIES
domestic industries. Infant industries are usually protected through:
6. It may lead to too much reliance on other countries: 1. Tariffs: The government usually impose duties to protect the
If there is free trade, a country tends to depend on other infant industries through high cost of imported products.
countries for the supply of many of its requirements. 2. Tax exemption and tax holiday: Under the tax exemption
This will lead to problems in times of emergency or scheme, the profit of the infant industries will be tax – free
political crisis. indefinitely while tax – holidays allow for their profits to be
7. It may encourage the importation of dangerous and tax–free for a specified number of years. This is geared
towards enabling the infant industries to grow.
non-essential items: Since there is no trade restriction,
3. Provision of Infrastructural facilities
dangerous drugs, arms, alcohol, etc. may be imported in
4. Provision of soft loans through small and medium scheme
large quantities. Crime may therefore be encouraged. financial assistance
5. Assisting local industries to access foreign markets,
1997/35 processing and packaging of their products for foreign
Free trade means markets.
A. produces are free to determine their prices 6. Improving the technical and managerial ability of local
B. market forces are allowed to determine prices entrepreneur and mangers.
C. non restricted of international trade
D. goods are to be sold free of charge ARGUMENT FOR PROTECTING INFANT
E. people are free to buy in foreign countries INDUSTRIES
Answer: Non restriction of international trade (C) The argument for protection include
(i) Creating greater employment opportunities at home (i.e
2010/46 UTME for the locals of the country).
One of the characteristics of free trade zone is (ii) Development of import-substitutes, thereby making the
A. common tariff against non-member countries economy more self-reliant.
B. free trade mobility within the zone (iii) Conservation of foreign exchange, leading to an
C. different trade policies of non-member countries improvement in the balance of payments.
D. harmonized trade among member countries (iv) Enabling them grow to maturity, thereby being as
Answer: Harmonized trade among member countries (D) competitive as their foreign counterparts.

ARGUMENT AGAINST PROTECTING INFANT

THE INFANT INDUSTRY INDUSTRIES
These are industries that produce goods and services locally (i) Difficulty in removing the protective devices once put
which are growing, but have not yet developed to compete in place.
with their foreign market. Such industries are mostly found (ii) Lack of competition leads to inefficiency and they may
in developing countries. grow.
(iii) Restriction of consumers’ choice to the production of
FEATURES OF INFANT INDUSTRY lower quality products.
1. They do not fully enjoy the benefits of large scale (iv) Exploitation of local consumers of domestic industries
production. by making them pay high prices.
2. They do not operate in modern production environment
which uses the latest technology. ROLE OF MONEY IN INTERNATIONAL
3. They hardly embark on cost saving programmes. TRANSACTIONS
4. They are faced with acute shortage of infrastructural Money is defined as any widely accepted means of
facilities. payment. In contemporary times, money is the most widely
5. Their production technique is basically labour accepted medium of exchange. Money plays a vital role in
intensive. the economic system of any country, be it locally or
6. Most of their material input especially in the area of internationally. Some of theimportant roles of money in
chemical come from developed countries, hence they international transactionsare as follows:
incur high cost of production. 1. As a medium of exchange in international trade:
7. The technical and managerial ability of the entrepreneur Modern trade transaction whether within the country or at
and managers cannot be matched with those in the international level, is based on money. For without
developed countries. currencies, exchange of goods and services across
8. Corruption and sharp practices dominate their sense of international boundaries would have been impossible.
reasoning. Money therefore facilitates the exchange of goods and
9. They are hardly customer oriented hence they do not services among countries in the international market.
consider issues like value and function/analysis,
elimination of waste, etc.
615
2. As a means of Credit facility: In international trade, 2006/46 Nov
credits are sometimes given and payment are made later. The balance between the value of exported goods and
Thus, money enables countries to buy goods on credit in the imported goods is known as the balance of
international market. A. payments B. capital accounts C. trade
3. As a means of wealth storage: Surplus foreign D. current accounts
exchanges from international trade is kept as reserves in the Answer: Trade (C)
form of gold or international currencies such as the dollar.
Such surplus enables countries to finance their budgets 2000/4b Nov Exercise 23.5
deficits. The balance of trade of an economy is said to be favourable
4. As a unit of account in international trade: Without when the value of
money, the balance of trade and payment accounts cannot A. visible import is less than the value of visible export
be recorded in monetary terms. Therefore, it serves as unit B. export is equal to the value of import
of account in international trade. C. import is greater than the value of export D. import
5. As a means of transfer payments: At the international foodstuff is lower
level, some advanced countries like USA, Germany, etc.
use foreign currency to give financial aid to some of the BALANCE OF PAYMENT (BOP)
poor countires. This money facilitates economic The balance of payment is a systematic record or summary
development by means of foreign capital injection, thereby statement of account of all of a country’s economic
helping in the development process of the less developed transaction with the rest of the world during a given period,
countries. usually one year. It shows the relationship between a
6. Promotion of global trade: The use of money at the country’s receipt from other countries and her payment to
foreign scene promotes global trade, which encourages them during the period. That is, it is the difference between
optimal use of the world’s resources. a country’s receipt (income) from and payment
(expenditure) to other countries in international trade.
It is favourable to a country where her receipt from other
countries is greater than her payment to them. It is
unfavourable or adverse where a country’s receipt from
other countries is less than her payment to them. Balance of
payment is determined using what is known as balance of
payment account.

BALANCE OF TRADE (BOT) STRUCTURE OF BALANCE OF PAYMENT

Balance of payment is divided into three major components:
This shows the relationship between the monetary value of
current account, capital account and monetary movement
all visible goods imported and exported by a country in a
account; the first two components represents the actual balance
particular period, usually a year. Balance of trade may be of payments.
favourable or unfavourable. It is favourable to a country (a) Current account: This consists of the visible trade
when value for her visible exports is greater than visible account (balance of trade) and the invisible trade account
imports. On the other hand, it is unfavourable when a (record of services). The balance of trade shows the
country visible imports exceed her visible exports to other relationship between the receipts (for imports) and
countries. Therefore balance of trade shows the differences payments (for exports) for tangible goods, during a period
between exports and imports of visible items when of one year. The invisible trade account deals with receipts
measured in monetary terms. and payment for services such as banking, transportation,
NB: Balance of trade is in equilibrium if a country’s value etc.
of visible imports is equal to the value of visible exports.
EXAMPLES OF ITEMS IN CURRENT ACCOUNT
However, this occurs occasionally.
Visible trade
Cars, drugs, agricultural products, minerals, drinks, etc.
NIGERIA’S BALANCE OF TRADE
Year Exports Imports Trade balance Invisible trade
(₦ million) (₦ million) + surplus; 1. Shipping services/sea transportation.
- deficit 2. Banking services/financial services.
1975 4,925.5 3,721.5 +1,204.0 3. Insurance services.
1976 6,751.1 5,148.8 +1,602.6 4. Travel.
1977 7,630.7 7,093.7 +537.0 5. Tourism.
1978 6,689.0 8,152.0 -1,463.0 6. Government services such as military services:
1979 10,690.0 6,609.0 +4,081.0 administrative services, diplomatic services and so on.
1980 14,683.0 9,658.0 +5,025.0 7. Investment income.
8. Such as interests, profits and dividends.
9. Other transfers.
616
NB: The difference between the visible trade and the invisible Calculation of balance of payments
trade accounts will determine whether there will be a surplus RECEIPTS (₦bn)PAYMENTS (₦bn)
or deficit in the current account. 1. Current Account
₦ ₦
(b) Capital account: This account deals with capital A. Visible exports ₦900 Visible ₦860
inflows and outflows. Such receipt and payment are not meant imports
for current consumption, but for economic consumption. Balance of trade = ₦900bn - ₦860bn = ₦40bn
B.  Invisible  Invisible
The capital account may be broken down into short-term and Exports Exports
long-term capital.  Shipping  Shipping
services services
Short-term capital: This is capital movement from one  Banking  Banking
country to another which lasts for about a year only. Short- services. services.
term capital normally takes the form a short-term loans.  Insurance  Insurance
services. services.
Long-term capital: This is a capital movement having a  Travel.  Travel.
maturity period of up to three years. Long-term movement of  Government  Government
capital takes one of two forms; direct investment or portfolio services services
investment. (military, ₦640bn (military, ₦500bn
administrative administrative
and and diplomatic
Direct investment occurs when firms and invididuals in one diplomatic services)
country transfer funds to another country so as to create new services) Investment
capital there. In direct investment, the incoming investor Investment income
normally holds the controlling share; that is, up to 51 percent income (interest, (interest,
of the equities. profits & profits &
dividends) dividends)
Balance of invisible trade = ₦640bn - ₦500bn = ₦140bn
Portfolio investment occurs when equities or bonds already Current account balance = ₦1540bn - ₦1360 = ₦180bn
existing in a country are purchased by outsiders it does not 2. Capital Account
bring any new physicl capital into existence and does not give  Direct Direct
the foreigner controlling shares. That is, under portfolio investment (by investment (by
investment, the foreign investor can only hold a maximum of foreigners). foreigners).
49 percent of the equities.  Loans from ₦1100bn Loans from ₦1200bn
foreigners. foreigners.
Examples of items in capital account
 Capital Capital
1. Direct investment. repayment of repayment of
2. Portfolio investment. foreigners. foreigners.
3. Sales of assets to foreigners (receipt).  Sales of assets Sales of assets
4. Purchase of assets from foreigners (payment). to foreigners. to foreigners.
5. Capital repayment of foreigners (receipt).
6. Capital repayment to foreigners (payment). Capital Account Balance = ₦1100bn - ₦1200bn = ₦100bn
Balance of Payment/Balance of Current and Capital Account
7. Loans from foreigners (receipt). = ₦2640bn - ₦2560bn = ₦80bn
8. Loans to foreigners (payment). 3. Monetary Movements Account
9. Other capital (long term).  Borrowing Increase in
10. Other capital (short term). from IMF. froeign
11. Government loan to foreigners.  Gifts from reserves.
12. Privates sector investment in foreign firms. other Gifts to other
countries. ₦360bn countries. ₦440bn
13. Bank lending to foreign firms.  Errors and Errors and
14. Withdrawals by foreigners (payments). omissions. omissions.
15. Trade credit given to foreign customers.  Crdit imports. Increase in
16. Other short term transactions. short term
lending to other
countries.
NB: If the receipts of a country exceed her payments, there TOTAL ₦3000bn ₦3000bn
will be surplus in the capital account. On the other hand, if
the payments of the country exceed her receipts, there will
be a deficit in the account.

(c) Monetary movement account: This is the residual or

balancing segment of the balance of payments account.
It shows how short–term deficits in the combined
current and capital accounts are financed and how
short–term surpluses are used up.
617
 BALANCE OF PAYMENT EQUILIBRIUM 5. Inadequate capital: Many developing countries do not
This is a situation in which a country’s total receipts from have large amount of apital with which to set up
other countries is equal to her total payments to such diferent types of large industries to produce many high
countries. It refers to the situation in which value of total quality goods for both local and world market. This
export is equal to the value of total import. reduces export and increases import.
6. Inadequate skilled labour: Under developed countries
BALANCE OF PAYMENT DISEQUILIBRIUM do not have sufficient number of skilled labour to
A balance of payment disequilibrium exists if the total ensure efficient investment of the available capital and
receipts of a country on the combined current and capital proeper marketing of our local goods in other countries.
accounts is not equal to total payments made to other This lowers our export.
countries, during a given period, usually one year. In other 7. Low level of technology: Our low level of technology
words, it is a situation in which total receipts from exports hinders efficient production of high quality consumer
are either more or less than total payments for imports. and capital goods. This reduces our export and raises
our import. This leads to persistent deficit.
TYPES OF BALANCE OF PAYMENT 8. Poor agricultural activities: Due to low agricultural
DISEQUILIBRIUM output, we import various food items like frozen
There are two types chicken, fish, rich, tinned tomatoes, cow, etc. This
i. Balance of payment surplus raises the level of import.
ii. Balance of payment deficit 9. Political instability: Constant civil disturbances like
rioting and militancy, in Nigeria hinder economic
BALANCE OF PAYMENT SURPLUS activities especially crude oil production. As oil is our
Balance of payment surplus occurs when a country’s total major exporting item (foreign exchange earner), a fall
receipts on current and capital accounts exceed her payment in its output makes receipt from export to fall below
to other countries during the given trading period. In this payment for imports.
situation, the reporting country is financially strong in its 10. Huge debt servicing: We spend a lot of money for debt
international trade transaction. servicing i.e. to pay interest on foreign loans and part of
principal. Thus, we don’t have sufficient money to
BALANCE OF PAYMENT DEFICIT invest on (set up) important industries that could
Balance of payment deficit occurs when a country’s produce goods for local and foreign market.
receipts from other countries on current and capital 11. Poor export promotion: We don’t effectively
accounts fall short of her payment to them, within a trading participate in export promotion activities in other
period, usually one year. In this situation, the reporting African countries, needless mentioning developed
country has a weak financial standing in international trade countries. This sets a limit to our export.
transactions especially if the deficit persists for a long time. 12. Mono economy: We almost entirely depend on only
one source of foreign exchange earnings, export of
crude oil. As the value of export of other items is not
CAUSES OF BALANCE OF PAYMENT DEFICIT high, a fall in demand and price of crude oil (as
1. Excessive demand for foreign goods: Our people have occurred n 1980s) has caused a fall in our total receipt
a strong urge for foreign goods. This leads to increase from export.
in import. 13. Low level of capital investment in abroad: We only
2. Inadequate export: Apart from minerals and have surplus in our visible trade account. There are
agricultural products, many African countries cannot persistent (contant) deficit in both invisible trade and
manufacture high quality goods for export due to capital accounts. This is due to our inadequate
inadequate resources (capital). This lowers our volume investment in foreign countries.
of export.
3. High rate of inflation: We have a very high rate of BALANCE OF PAYMENT ADJUSTMENT
Short term Measures
inflation; while other countries have moderate or low
Short term balance of payments dis-equilibrium, does not
rate of inflation. This makes our goods to be more
cause serious problems. A short term balance of payments
expensive than foreign goods. This raises our import
deficit can be financed or paid for by:
and reduces our export.
(i) Short-term borrowing from abroad e.g. the IMF or other
4. Government excessive expenditure: Nigeria spend
countries.
extravagantly on importation of all sorts of goods like
(ii) Importing goods on credit.
iced fish, frozen chicken, cow, vehicles, electronics,
(iii) Using up foreign exchange reserves.
machines, generators, rice, clothes, etc. This causes a
(iv) Selling foreign investments.
rise in import; and leads to persistent balance of
(v) Recalling foreign loans.
payments deficit.
(vi) Exporting gold.
(vii) Limiting debit items and promoting credit items.
618
 Long term measures Examples of Currency Devaluation
A chronic (long term or fundamental) balance of payment Let us assume that the initial exchange rate of the
deficit is what causes serious concern to countries. Long term Nigerian naira and the American dollar is ₦5.00 =
measures are used to correct a persistent balance of payments $10.00. This means that a Nigerian importer would spend
deficit. $1000.00 to buy 40 radios that cost $25.00 each from
(i) Export promotion (export drive): A deliberate policy United States. Total U.S dollars (foreign currency)
should be undertaken to increase the production and required = $25.00 × 40 = $1000.00. Since the exchange
exportation of both invisible and visible items. Export rate is ₦5.00 = $10.00, the total amount of naira can be
promotion could be encouraged through export subsidies, calculated as follows $10.00 = ₦5.00
granting tax concessions to export – based industries and 1000×5
Therefore $1000.00 = 10 = ₦500.00
the development of tourism, etc.
This means that a Nigerian importer would spend
(ii) Import substitute: The government should encourage the
₦500.00 to import the 40 radios.
local production of imported goods. The government can
If Nigerian devalues her currency by 100%, the new
do this by protecting the infant industries through tariffs,
exchange rate would be ₦10.00 = $10.00. That means
giving them tax exemption and holiday. Foreign
that it is now going to cost a Nigerian importer twice
exchange would be conserved and this would help to
what it was before to buy the same number of radios, i.e.
improve the balance of payments.
₦1000.00.
(iii) Fiscal policy: Government could use tariffs (import
duties) as a collective measure. An increase in tariffs
Devaluation would be effective if
would increase import prices, thereby lowering the
(i) Demand for import is elastic.
demand for imports. A decrease in payments to other
(ii) Demand for export is elastic.
countries would improve the balance which can be used,
(iii) Supply of export is elastic.
export prices would fall, leading to increased demand for
(iv) Other countries do not retaliate through competitive
them by other countries. Receipts would increase and
devaluation.
help to improve the balance of payments.
(v) There is no rise in the cost of production.
(iv) Quantitative control of imports: A number of
(vi) A vigorous income policy is maintained.
administrative measures can be put in place to reduce the
volume of imports. These include the use of import
Effects of devaluation of currency
quotas, embargoes, import licensing etc. and reduced
1. Imports become dearer: From the above example, it
payments to other countries would help to remedy the
means that a Nigerian importer has to spend more
balance of payments.
naira to import radios. In general, the residents of the
(v) Foreign exchange Regulation: The government could
devaluing country have to spend more of their local
directly control foreign exchange usage. Stringent
currency to obtain a given quantity of foreign
regulations regarding the buying and selling of foreign
exchange and imports. The prices of imported goods
currencies would help to reduce the volume of imports.
will therefore be higher.
(vi) The use of restrictive monetary policy: The availability
2. Imports will decrease: Since the residents of the
and use of credit should be reduced to create a situation
devaluing country have to pay more of the local
of a liquidity squeeze.
currency to obtain a given quantity of foreign
(vii) By borrowing: In a bid to correct her balance of
currency and imports, they would demand less of such
payment problem, the country may decide to borrow
imports.
money from international organizations. The
3. Exports become relatively cheaper: In the example
international organization established to finance
of devaluation given, the value of the naira has gone
international trade is the International Monetary Fund
down in relation to the dollar. From the example, an
(IMF). The members of the fund can borrow from it
American importer would now spend half the amount
through a “specialized right” (SDR).
of money used previously (in terms of the dollar) to
(viii) Sales proceed of foreign investment: In order to correct
import goods from Nigeria. For example, if he spent
her balance of payment deficit (BOPD), the country may
400.00 dollars to import 80 bags of groundnuts, he
also device to dispose off her investment abroad so that
would now spend $200.00. In general, the devaluation
the foreign currency dominated sales proceeds will be
of currency makes exports cheaper for other countries.
used to rectify the deficit.
Prices of exports also fall.
(ix) Devaluation of domestic currency: Devaluation is a
4. Exports will increase: Since other countries spend
deliberate and legally prescribed reduction of the value of
less of their currency to purchase a given quantity of
a country’s currency in relation to other countries’
goods and services from the devaluing country, the
currencies and to gold. It has the effect of making
demand for exports (by other countries) is increased.
imports to be relatively more expensive than exports. The
Producers of such export items produce more for sale.
increase in exports relative to the demand for imports
5. The resultant effect of all these is that there may be
would make receipts to increase while payments to other
an excess of exports over imports: Bringing about a
countries would decrease. The balance of payments
solution to the balance of payments problems.
would therefore improve.

619
 DEPRECIATION (CURRENCY DEPRECIATION) NIGERIA’S BALANCE OF PAYMENTS
It is a fall in value or price of a country’s currency in Nigeria’s balance of payments has been fluctuating. Before
relation to other countries due to forces of supply and independence, Nigeria had little or no balance of payments
demand in the foreign exchange market. It is a downward problems. The boom in world trade of agricultural products
movement in the value of a currencyin a free Foreign such as cocoa, groundnuts, palm produce, etc (which started
Exchange Market. after the Second World War) led to an accumulation of foreign
reserves. Since little attention was paid to industrial
Its effects development, little foreign exchange was required for the
1. It makes a large quantity of the local currency to be importation of capital equipment.
exchanged for a few quantity of foreign currencies.
Between 1960 and 1970 Nigeria had a balance of payments
2. It makes imports to be more expensive and it thereby
deficit for a greater part of the period. There were deficits
reduces volume of import.
between 1960 and 1964 and a huge deficit in 1967. The
3. It makes export to be cheaper; it therefore increases balance of payments deficit experienced was due to:
volume of export. (i) A decrease in world prices of agricultural products.
4. It leads to improvements in balance of trade. That is, it (ii) High level of importation of capital equipment.
corrects balance of payments deficit, if any. (iii) Large scale payments for invisible items such as shipping,
aviation, insurance, etc.
NB: Currency depreciation can only improve balance of
payments position, if demand for import and export is Between 1971 and 1980 (with the exception of 1977 and 1978)
elastic. It does not have positive effects, rather negative the balance of payments position improved considerably. The
effects, if their demand is inelastic. huge foreign exchange derived from oil exports accounted
The restoration of a value of a currency lost by devaluation largely for the favourable balance of payments for most of the
is called “REVALUATION”. period. There were sharp increases in the price of crude oil
which substantiated the foreign exchange earnings.
DIFFERENCES BETWEEN DEVALUATION AND
CURRENCY DEPRECIATION The period between 1981 and the early 1990s has witnessed a
Devaluation is a deliberate effect of government to reduce severe and persistent pressure on the balance of payments.
her currencies’ value in order to correct balance of payment This unfortunate trend has been caused by a number of factors:
deficit while currency depreciation is not a government (i) World oil glut: There has been a decrease in world
deliberate effort. The fall in the local currency’s value in demand for crude oil leading to a decrease in the price of
relation to other currencies is caused by changes in demand oil, and a consequent decrease in foreign exchange
earnings.
and supply in the foreign exchange market and not by
(ii) Increased import bills: This is arising from higher
government.
demand for capital equipment and skilled manpower to
finance development.
CURRENCY REDENOMINATION (iii) Mounting external deadweight debt: A lot of borrowing
Currency redenomination is the process where a new unit of has been done to finance conspicuous consumption by
money in a country replaces the old unit within a certain government functionaries.
ratio, usually by a factor of 10.
2023/46
It is done by removing zeros from a currency or moving A government may cause a favourable change in her
some decimal points to the left. The aim of currency invisible trade account by
redomination is to correct the perceived misalignment in the A. increasing the export of her primary products
currency and pricing structure and to enhance the credibility B. imposing high tariffs on exports
of the local currency. C. developing tourism and other services
For example, effective 1 July 2007, Ghana decided to D. encouraging people to go for medical treatment abroad
implement a redomination policy by replacing the old Answer
10,000 cedi with a new one called Ghana Cedi, i.e four A government may cause a favourable change in her
zeros were removed from the old currency to arrive at the invisible trade account by increasing the export of her
new one.Two of the reason given by the Central Bank of primary products (A)
Ghana for the redenomination are increasing difficulty in
maintaining accounting and statistical records; and 2023/44
problems with accounting and data processing software Tariffs, quotas and embargos are examples of
A. foreign exchange policies B. trade restriction policies
When implemented, redomination usually results in the C. fiscal policies D. monetary policies
birth of a new currency with a new symbol. In the case of Answer
Ghana, for example, the currency changed from cedi (ȼ) to Tariffs, quotas and embargos are examples of trade
Ghana Cedi (GHȼ). restriction policies (B)
620
2023/45 1997/40
Trade protection will assist economic growth in developing Which of the following is not a visible item in international
countries if it can trade payments?
A. eliminate importation of all commodities A. payment for imported cars
B. generate enough revenue through export duties B. receipts from cocoa exports
C. effectively safeguard newly established firms C. receipts from oil exports
D. allow the importation of cheaper goods people want D. payment for steel imports
Answer E. payments to foreign shipping companies
Trade protection will assist economic growth in developing Answer
countries if it can effectively safeguard newly established Payments to foreign shipping companies (E)
firms (C)
2009/53 Neco
2002/44 Nov The current account under balance of payment shows
An invisible item in the balance of payments accounts is A. flow of goods and services
A. banking service B. import of electronics B. flow of investment and transfer payment
C. export of petroleum D. export of primary products C. merchandise trade and services only
Answer D. merchandise trade, services and transfer payment
Banking service (A) E. monetary movement
Answer
2002/45 Nov Merchandise trade, services and transfer payment (C)
The balance of payments of a country explains the overall
position of the 2007/45 Nov
A. current account of the balance of payments Invisible trade refers to trade in
B. capital account of the balance of payments A. services B. commodities C. capital goods
C. visible and invisible accounts D. military hardware
D. current and capital accounts. Answer: Services (A)
Answer
Current and capital accounts (D). 2011/2012/7 (NDU, BAYELSA)
2003/38 Disequilibrium in the balance of payments mean
Invisible trade refers to trade in A. imports of the country exceeding its export
A. services B. goods and services C. tangible goods
B. deficit in the trade balance
D. crude oil C. capital flowing out of the country exceeds the capital
Answer flowing into the country
Services (A) D. over all deficit or surplus in the current account and
capital account of the balance of payments
2018/55 Neco Answer
The imbalance between a country’s payment and receipts in Overall deficit or surplus in the current account and capital
a given year is referred to as account of the balance of payments (D)
A. balance of payment disequilibrium
B. balance of payment surplus C. balance of trade 1980/14 UTME Exercise 23.6
D. balance of payments deficit By balance of visible trade we mean
Answer A. import and export of goods
Balance of payment disequilibrium (A) B. import and export of services
C. balance of current account in the balance of payments
2001/46 Nov D. balance of capital account in the balance of payments
A country is said to have a favourable current account E. all of these
balance when the money she receives from both visible and
invisible exports 2012/55 Neco Exercise 23.7
A. equals the amounts she pays for both visible and The various ways by which balance of payments deficit can
invisible imports be reduced are referred to as
B. is less than the amount she pays for both visible and A. balance of payments adjustments
invisible imports B. balance of payments disequilibrium
C. exceeds the amount she pays for both her visible and C. capital formation D. exports reduction
invisible imports E. physical control
D. exceeds the amount she pays under capital accounts
Answer
Exceeds the amount she pays for both her visible and
invisible imports (C)
621
1985/37 UTME DEMANDS FOR A NEW ECONOMIC ORDER
Devaluation of the naira as a condition of the international Recently, there have been demands for a reform of the
money fund loan is considered inadvisable because international economy by the people of the third world as well
A. it would allow for more money to be spent on luxuries as by men of conscience in the advanced countries. They have
B. the interest rate on the loan would increase argued for equity in the sharing of the world resources and are
C. it would decrease the demand for Nigeria’s exports no longer satisfied with the status quo. They have advocated
D. it would worsen Nigeria’s foreign exchange situation that there should be significant changes in international
E. Nigeria’s oil would sell for less in the world market resources acquisition and transfer, world output, and power
Answer sharing between the third world and the advanced countries.
Specific demands which have been made include:
D –It would worsen Nigeria’s foreign exchange situation.
(i) Raising and stabilizing export earnings from primary
1993/46 UTME Exercise 23.8 products of the developing countris through commodity
Devaluation is effective when agreements such indexing the prices of the primary
products to prices of manufactured goods.
A. demand for imports is price elastic
(ii) Liberalization of trade by industrialized nations through
B. demand for imports is neutral
the reduction or outright elimination of tariffs on imports
C. production for export is how from the third world.
D. demand for experts in price elastic (iii) Formulation of policies to control the activities of the
multinational corporations in the developing countries.
(iv) Reforms aimed at increasing the participations of the
2018/3 UTME Exercise 23.9 third world countries in the decision–making process of
The reduction in the value of a country’s currency in world organizations.
relation to the value of the currencies to other nations is (v) Facilitating a genuine transfer of technology from the
known as industralised nations to the developing nations.
A. deflation B. inflation (vi) Increasing the share of the developing countries in
C. devaluation D. revaluation industrial production as a means of improving their
terms of trade.
(vii) Commitment of a specified percentage of their GNP by
the industralised nations as aid to the developing
nations.
THE NEW INTERNATIONAL ECONOMIC ORDER (viii) Payment of compensation to the under developed
The Old Order and the Genesis of the New Order countries whose economics were plundered recklessly
by the advanced countries.
For quite a long time, the economically developed countries
(ix) Making Special Drawing Rights (SDR) the major
have dominated the world economic scene. The under- international reserve assets and its issuing to be based
developed countries have been highly dependent on the on development needs rather than on the IMF quota of
industrialized ones, who have continued to dictate the various countries.
functionings of the world economy. The relationship has
been of master and servant. NEED FOR A NEW INTERNATIONAL ECONOMIC
The need for a new order in international economic relations is
Since the Second World War, there has been an ever based on the fact that the developing nations and the
widening gap between the pace of development of the third developed nations alike have realised the need for increased
world countries and the economically developed. Many economic interdependence. It is no longer a question of
third world countries have suffered economic decline due master–servant relationship between the advanced countries
to: and the underdeveloped countries.
(i) Worsening terms of trade of the under-developed
countries. Each of them has to rely on the other to survive the global
(ii) Manipulation of world commodity prices by the economic downturn. It is being realized that no one country
developed countries by advanced countries. can survive up to the beginning of the next century in
(iii) Frustration of the import substituting strategies of the complete isolation from other countries.
developing countries by advanced countries.
(iv) Manipulation of the internal policies of the developing The third world countries require the market of the
countries. industalised nations for the sale of their primary products,
(v) Domination of the economies of the developing while the advanced countries require the market of the
countries through the use of multinational developing countries. Genuine cooperation is required of the
two parties since none of them can totally dominate the world
corporations.
economy without provoking harmful retaliatory
(vi) Heavy dependence of the third world countries on
measures.There is need for a new economic interdependence,
foreign science and technology which are not suited to which must be of mutual respect, peace and brotherhood, if
their needs. nations are to survive the years ahead.
(vii) Political instability.
622
INTERNATIONAL LIQUIDITY SPECIAL DRAWING RIGHT (SDP)
International liquidity refers to the amount of gold, foreign This is the right which the member countries of IMF have
exchange and special drawing right available with IMF with to withdraw from the pool of fund of the organization either
which members can use to finance their international trade. in foreign currency or gold in order to solve their balance of
The amount of these assets available to a country payment deficit. The right is given to members according to
determines how she can use her foreign exchange reserve to their contributions to the pool of funds of IMF. The
rectify her balance of payment problem. The traditional withdrawal may also be way of gold exchange standard.
component of the foreign reserve is “Gold”. It is the major
instrument used in the settlement of international payment. 2001/49 Nov
Special Drawing Rights (SDRs) refers to the
FOREIGN EXCHANGE A. volume of international reserves quota created for
Foreign exchange refers to the stock of currency of other settling imbalances in payments among countries
countries (including gold) available to a country for use in B. orderly exchange arrangement to avoid competitive
international transactions, over a specified period of time. exchange needs of countries
The currency of other countries is got by exchanging them C. concessional financial assistance to less developed
with the local currency. Each country usually fixes the countries
value of its currency in relation to the currencies of other D. advantages enjoyed in international trade by the
countries. This is known as the fixed exchange rate. Some advanced countries
other countries, however, float their exchange rates. Answer
Volume of internal reserves quota created for settling
MEASURES TO CONSERVE FOREIGN EXCHANGE imbalances in payment among countries (A)
Most governments do not usually leave their citizens to
continue to acquire other countries’ currencies without THE GOLD FRENCH POSITION
control the stock of currency of other countries available to This is the quota that every member of the country
a country is usually controlled in order to check or remedy contributes to the IMF pool of fund. It determines every
any balance of payments problems, and also to protect the member’s voting and borrowing rights.
economy generally.
2002/43 Nov
Some measures which can be taken include: The merchandize account balance means the
1. Direct control of the use of foreign exchange. A. current account balance B. trade balance
2. Restriction on imports by using quantitative controls C. capital account balance D. official balance
such as import quotas. Answer
3. Use of tariffs on imports. trade balance (B)
4. Embargo or complete ban on specified items.
5. Import licences. 2018/5b Neco
6. Establishment of import-substituting industries. Which of the following is a monetary policy tool used to
7. Devaluation, and operation of a multiple exchange rate correct adverse balance of payment?
system (flexible exchange rate). A. buying of securities B. increase in bank rate
8. Deflationary monetary policy and fiscal policy. C. increase in tax D. reduction in bank rate
E. reduction of taxes
THE FOREIGN EXCHANGE MARKET Answer
(FOREX MARKET) increase in bank rate (B)
A foreign market is a market that deals in foreign currencies
and transactions. That is, it is a market where foreign 2006/44 Nov Exercise 23.10
exchange rate or simply exchange rate is determined. The ratio of the indexes of export prices to import prices
measures the
International transactions are carried out with the use of
A. terms of trade B. balance of trade C. exchange rate
foreign currencies and this calls for foreign exchange
D. value of trade
market. The market is operated by financial institutions,
with the country’s central bank being in total control. The
Central bank of Nigeria (CBN) is the apex regulatory body
of forex market in Nigeria presently, the bank auctions 2003/40
Which of the following is part of the capital account of the
forex to commercial banks in the country, through the
balance of payments?
Dutch forex market system. The basic aim of this is to
A. net investment from abroad B. import of machinery
control foreign exchange rate through the rationalization of
C. insurance D. transportation cost
the available forex.
Answer
net investment from abroad (A)

623
2019/53 Neco 2012/34 Nov
The following are barriers to international trade except Quotas limit the volume of foreign goods at the
A. currency B. distance C. language D. religion A. foreign market B. transit port C. exporting country
E. tariffs D. port of entry
Answer Answer Foreign market (A)
Religion (D) Hint:A quota is a government imposed trade restriction that limits
the number or monetary value of goods that a country can import
2019/54 Neco or export during a particular period.
If the price index of a country’s average import in 1996 was Countries use quotas in international trade to help regulate the
80, and the index for average export price was 100, the term volume of trade between them and other countries.
trade is
A. 65 B. 75 C. 80 D. 125 E. 130 2012/35 Nov
Answer Which of the following is a debit item in a country’s
Index of average export price 100 balance of payments?
Term of trade = index of average import price × 1 A. exports B. imports C. tourists’ expenditure
100 100 10000 D. resident’s foreign earnings
Term of trade = 80
× 1
= 80 Answer imports (B)
= 125 (D)
2014/33 Neco
In comparative cost theory which of these assumptions is
2007/52 Neco
The theory of absolute advantage was propounded by not true?
A. Adam Smith B. David Ricardo C. King Fisher A. common cost of production
D. J. B. Kynes E. Thomas Smith B. no transport cost involved
Answer C. only two items are produced
David Ricardo (B) D. restriction in factors mobility
E. two countries are involved.
2007/53 Neco Answer
A comprehensive statement of income and expenditure on Restriction in factors mobility (D)
international accounts for one financial year is called
A. balance of payment B. balance of trade C. budget 2014/34 Neco
D. index of trade E. terms of trade The comparison of the sum total of a country’s receipts for
Answer her export and the total payments for import is known as
Balance of payments (A) A. balance of trade B. balance of payments
C. balance account D. capital account
2007/54 Neco Exercise 23.11 E. terms of trade
If the income flow of a country exceeds the expenditure flow Answer
in international transactions, the balance of payments is balance of trade (A)
A. balanced B. deficit C. fluctuating D. restricted
E. surplus 2014/35 Neco
Unfavourabe balance of trade can be checked through the
2013/54 Neco following ways except
International trade differs from internal trade because it A. export promotion B. imposition of embargo
A. involves the exchange of goods and services C. imposition of tariffs D. import substitution
B. involves the use of GSM E. low productivity
C. involves the use of receipts and invoice Answer
D. requires the use of currency Low productivity (E)
E. takes place across national boundaries
Answer
Take place across national boundaries (E) 2016/45 NABTEB
If the value of a country’s visible imports exceeds the value
2013/55 Neco of her visible exports, then the country has a/an
A balance of payment is in surplus when A. equilibrium balance of trade
A. capital inflow equates capital overflow B. unfavourable balance of trade
B. capital inflow exceeds capital outflow C. excessive balance of trade
D. receipts is greater than payment D. favourable balance of trade
E. visible trade is less than invisible trade Answer
Answer Unfavourable balance of trade (B)
Receipts is greater than payment (D)
624
2001/45 Nov 1995/29 Nov
Which of the following items in the balance of payment Expenditure made by government in acquiring permanent
accounts is an invisible transaction? goods and structures is known as
A. import of cars B. export of cocoa A. recurrent expenditure B. current expenditure
C. export of crude petroleum E. earnings from tourism C. overhead expenditure D. fixed expenditure
Answer E. capital expenditure
Earnings from tourism (D) Answer
Capital expenditure (E)
2001/47 Nov
Terms of trade is measured by 2023/42
A.
Price index of imports
× 100 An example of government’s recurrent expenditure is
Price index of exports A. the cost of building a school
Price index of exports
B. Price index of imports
× 100 B. paying salaries of workers
Value of imports Value of exports
C. purchase of new vehicles
C. Value of exports
× 100 D. Value of imports × 100 D. electrification projects in rural areas
Answer Answer
Price index of exports An example of government’s recurrent expenditure is
× 100 (B) paying salaries of workers (B)
Price index of imports

1997/39 1995/30 Nov

The law of comparative cost states that a country
International trade is different from internal trade because
of the A. should reduce its cost in its trade transactions the rest of
A. manufactured goods involved B. currency differentialsthe world
C. homogeneity of products D. heterogeneity of products B. stands to gain if it trade with other countries
E. uniformity of prices C. stands to acquire more goods if it trades with other
Answer: Currency differentials (B) countries
D. should equate its disadvantages in its trade transactions
2002/56 Neco with other countries of the world
The rate at which domestic goods and services are E. should specialize in the production of commodities in
exchanged for imported goods and services is known as which it has the greatest relative advantage over others
A. balance of payment B. balance of trade C exchange Answer
rate D. offer curve E. terms of trade Should specialize in the production of commodities in which it
Answer: Terms of trade (E) has the greatest relative advantage over others (E)

1993/7 Nov 1995/34 Nov

Which of the following is not true of international trade? It Which of the following is applicable to internal trade?
A. increase technological knowledge A. same currency, same language, different countries
B. accelerates economic growth and development B. long distances, same language, different currencies
C. protect infant industries C. same currency, same trade laws, within a national
D. encourages free flow of foreign currencies boundary
E. make available a great variety of goods D. within a national boundary, some trade laws, different
Answer: Protect infant industries (C) currencies
E. different tariffs, interstate duties and common currency
Answer
Same currency, same trade laws, within a national boundary (C)

1995/36 Nov
Which of the following correctly defines terms of trade?
A. trade and other economic agreements between two countries
B. the rate at which a country’s exports exchange for its imports
1993/11 Nov C. the relationship between a country’s imports and
Terms of trade simply means the immigration
A. ratio of exports to imports D. the difference between a nation’s receipts and payments E.
B. sum of exports and imports the sum of trading activities that enables countries to be in good
C. differences between exports and imports terms
D. value of exports less the value of imports Answer
E. volume of exports divided by volume of imports The rate at which a country’s exports exchange for its imports
Answer: Ratio of exports to imports (A) (B)
625
1995/37 Nov 2012/54 Neco
The current account of the balance of payments shows the The following are remedies to an unfavourable balance of
A. flow of goods only B. flow of investment and loans C. payment except
changes in reserve assets D. change in transfer payment E. A. devaluation of currency B. expansionary fiscal policy
flow of goods, services and transfer payments C. export drive industries
Answer: Flow of goods, services and transfer payment (E) D. import substitution stimulation
2009/51 Neco E. over valuation of currency
When the value of a country’s export exceeds her imports, there Answer: Over valuation of currency (E)
will be a
A. deficit current account B. excess visible imports only C. 2020/46
favourable balance of trade D. favourable capital account E. If a country places a total ban on import of palm oil, this
surplus current account restriction describes
Answer: Favourable balance of trade (C) A. a tariff B. a quota C. an exchange control
D. an embargo
2009/52 Neco Answer: An embargo (D)
The following are the differences between domestic and
international trade except 2020/47
A. cultural differences B. currency C. land There is an improvement in a country’s term of trade when
D. language E. laws A. exports prices are falling with import prices rising
Answer: Land (C) B. export prices are rising faster than import prices
C. import and export prices are increasing at the same rate
Hints: The four major components of a current account are
D. both import and export prices are increasing at the same
goods, services, income, and current transfers.
time
2004/42 Nov Answer
The economist associated with the law of comparative Export prices are rising faster than import prices (B)
advantage is
A. David Ricardo B. Adam Smith C. Alfred Marshall D. 2020/48
Lionel Robbins Which of the following factors is not a cause of an
Answer: David Ricardo (A) unfavourable balance of payments?
A. surplus capital account balance B. low production
2004/44 Nov C. unfavourable weather resulting in poor harvest
Trade among West African countries is poor because D. inflation
A. prices are generally high in the region Answer: Surplus capital account balance (A)
B. the countries produce similar commodities 2007/44 Nov
C. transport costs are quite prohibitive In domestic trade, the number of currencies involved is
D. storage facilities are virtually non-existent. A. one B. two C. four D. indefinite
Answer:The countries produce similar commodities (B) Answer: One (A)

2019/45 NABTEB 2015/46

Terms of trade is used to describe A country has favourable terms of trade when the price of
A. the quality of exports B. the direction of foreign trade her
C. purchases on deferred payment basis A. exports rise relative to the prices of imports
D. the rate at which exports is exchanged for imports B. exports fall relative to the prices of imports
Answer C. imports rise faster than the prices of exports
The rate at which export is exchanged for imports (D) D. imports and exports move in the same direction
2001/56 Answer: Exports rise relative to the prices of imports (A)
The relationship between the value of a country’s exports
and imports of merchandise within a given time is referred
to as 2015/47
The abolition of all forms of trade barriers among member
A. balance of payments adjustment B. balance of trade
countries while maintaining common external tariffs against
C. foreign trade D. invisible trade E. terms of trade
non members is a feature of a
Answer A. free trade B. customs unions C. common market D.
Balance of trade (B) economic union
Answer
economic union (D)

626
2015/48 Exercise 23.12 1996/31 Nov
In order to correct adverse balance of payments problem, The most important consideration for specialization in
government should international trade is
A. reduce tariffs B. increase subsidies on exports A. absolute cost advantage B. comparative cost advantage
C. increase tax on local industries C. division of labour advantage D. cumulative advantage
D. reduce personal income tax E. economies of scale advantage
2000/48 Answer
Balance of payments deficit implies that a country is Comparative cost advantage (B)
A. importing more than she is exporting
B. consuming less than she is producing 2008/47
C. living below her means Trade among nations is desirable because it
D. more productive than others A. enables people in a country to know those in other
Answer countries
Importing more than she is exporting (A) B. makes it possible for people in a country to enjoy the
goods and services produced in other countries
2017/46 C. enables residents in a country to understand the
Which of the following items is recorded in a country’s current languages of residents of other countries
account section of the balance of payments? D. makes it possible for a country to have the currencies of
A. investment income B. foreign direct investment C. other countries
long term capital flows D. long term loans
Answer
Answer
Makes it possible for people in a country to enjoy the goods
Investment income (A)
and services produced in other countries (B)
2019/43
Balance of trade involves exchange of 2008/48
A. goods only B. services only C. goods and services Invisible trade refers to trade in
D. goods and capital A. services B. goods and services C. tangible goods
Answer: Goods and services (C) D. crude oil
Answer
2019/45 Exercise 23.13 Services (A)
Devaluation of currency may not correct a balance of payment
deficit if the demand for export is 2008/49
A. perfectly inelastic B. perfectly elastic C. fairly elastic Balance of payment surplus implies that the value of the
D. unitary elastic country’s
A. exports exceeds its imports B. import exceeds its exports
2019/46 C. export is equal to its import
One measure for financing a country’s balance of payment D. term of trade is constant
deficit is through Answer
A. export diversification B. import substitution Exports exceeds its imports (A)
C. short term borrowing from IMF
D. internal borrowing from commercial banks 2009/45
Answer Terms of trade may be defined as the
short term borrowing from IMF (C)
A. trade between one country and another
B. relationship between country’s receipts from other and
1996/28 Nov Exercise 23.14
When a country attempts to reduce her import of manufactured payment to others
goods by encouraging firms to produce goods at home, such a C. rate at which a country’s exports exchange for imports
policy is known as D. difference between the value of exports and imports
A. import promotion B. import creation Answer
C. export promotion D. export diversification Rate at which a country’s exports exchange for imports (C)
E. import substitution
1996/30 Nov 2009/46
Terms of trade is the same as The terms of trade is described as unfavourable when
A. the ratio of export prices to that of import prices A. the price of imports rise relative to those of exports
B. the difference between export prices and import prices B. the price of export rise
C. balance of trade D. balance of payments C. the net income from abroad does not change
E. the sum of export prices and import prices D. the value of exports exceeds those of imports
Answer Answer
The ratio of export prices to that of import prices (A) The price of imports rise relative to those of export (A)

627
2010/45 1995/37 Nov
Which of the following groups of accounts makes up the The current account of the balance of payments shows the
balance of payments? A. flow of goods only B. flow of investment loans
A. the current account; multiple account and capital account C. changes in reserve assets D. change in transfer payments
B. monetary movement account, company account and E. flow of goods, services and transfer payments
international account Answer
C. cash account; double entry account to current account Flow of goods, services and transfer payments (E)
D. capital account, current account and monetary movement
account 2005/45 Nov
Answer International trade is the exchange of goods and services
Capital account, current account and monetary movement A. between two countries B. between contiguous countries
account (D) C. within a country D. between two or more countries
Answer
2010/46 Between two or more countries (D)
A country’s balance of payments is in deficit when
A. a country’s payments for imports of invisible goods are 2005/46 Nov
greater than her receipts from export of invisible goods International trade depends on the concept of
B. the total receipts from her export of visible and invisible A. comparative cost advantage B. absolute cost advantage
goods are greater than her payments for visible and C. absolute cost D. international monopoly
invisible exports Answer
C. it can record a surplus on current account of her balance Comparative cost advantage (A)
of payment accounts
D. the total payments for visible and invisible exports are 2005/48 Nov
greater than the total receipts from her exports of visible Which of the following is not contained in the balance of
and invisible goods payments?
Answer A. exports B. imports C. debentures
The total payments for visible and invisible imports are D. capital movements
greater than the total receipts from her exports of visible Answer
and invisible goods (D) Debentures (C)

1995/30 Nov 2005/47 Nov

The law of comparative cost states that a country The table below shows the production capability of two
A. should reduce its cost in its trade transactions with the countries M and N for two commodities X and Y. study the
rest of the world table and use it to answer question 47.
B. stands to gain if it trade with other countries
C. stand to acquire more goods if it trades with other Good X Good Y
countries Country M 10 tonnes 4 tonnes
D. should equate its advantages with its disadvantages in its Country N 3 tonnes 9 tonnes
trade transactions with other countries of the world In order to benefit maximally from international trade
E. should specialize in the production of commodities in A. country M should specialize in the production of goods X
which it has the greatest relative advantage over others B. country N should specialize in the production of goods X
Answer C. country M should produce both goods
Should specialize in the production of commodities in D. country N only should produce both goods
which it has the greatest relative advantage over others (E)
Answer
Country M should specialize in the production of goods X.
Option A is correct.
1995/36 Nov 2000/57 Neco
Which of the following correctly defines terms of trade? The terms of trade are measured by
A. trade and other economic agreements between two countries Index of export prices Index of export prices 100
B. the rate at which a country’s exports exchange for its imports A. B. ×
Index of import prices Index of import prices 1
C. the relationship between a country’s imports and immigrations
D. the difference between a nation’s receipts and payments E. C. Index of import prices Index of import prices 100
Index of export prices
D. Index of export prices × 1
the sum of total of trading activities that enable countries to be in
good terms Answer
Index of export prices 100
Answer: The rate at which a country’s exports exchange for its B. Index of import prices × 1
imports (B)

628
1992/31 Nov 2010/53 Neco
Terms of trade is used to describe the The following are basis for international trade except?
A. quality of export B. direction of foreign trade A. availability of adequate market B. human capabilities C.
C. terms of purchase on credit level of industrial development D. per capital income
D. rate at which exports exchange for imports E. technical knowledge
E. import and export trade Answer: Per capital income (D)
Answer: Rate at which exports exchange for imports (D)
2010/54 Neco
A record that shows the relationship between one country’s total
1992/37 Nov payments to all other countries and its total receipts from them is
To finance a deficit balance of payments, a country may called
decide to A. balance of payment B. balance of trade
A. reduce production B. secure more factors of production C. capital account D. terms of trade E. trial balance
C. imports more essential commodities Answer: Balance of payment (A)
D. borrow from abroad E. improve its transportation system 2010/55 Neco Exercise 23.17
Answer: Borrow from abroad (D) A country’s balance of payment account consist of _____ account
A. current B. current and capital C. fixed deposit
2018/46 NABTEB D. savings E. savings and capital
When there is a difference between total receipt and total
payments on the balance of payments, there is balance of 1997/33 Nov Exercise 23.18
payments Which of the following is not true of the law of comparative
A. disequilibrium B. surplus C. equilibrium advantage?
D. deficit A. the law of comparative advantage was propounded by David
Answer: Disequilibrium (A) Ricardo
B. it stresses the importance of relative efficiency
1999/27 Nov C. the principle, if followed should increase total world output
Commodity terms of trade is used to describe the D. the law is based on opportunity cost principle
A. exchange ratio among currencies E. it implies that for a country to specialize, it must have absolute
B. exchange ratio between exports and imports advantage
C. import and export trade D. pattern of domestic trade
1997/34 Nov
Answer: Exchange ratio between exports and imports (B)
One of the ways of correcting balance of payment deficit is by
A. selling on credits B. trading with a fewer number of
1999/29 Nov
A country can adjust deficit in her balance of payment by
countries C. investing in other countries
A. an increase in her foreign investment D. introducing exchange control measures
B. lending to poorer nations C. asking for trade discounts E. reducing the volume of trade with other countries
D. a devaluation of her currency Answer: Introducing exchange control measures (D)
Answer: A devaluation of her currency (D)
1997/37 Nov
A record of the value of visible trade between countries is the
2008/51 Neco
The abolition of all forms of internal trade barriers among A. balance of trade B. balance of payments
member nations and the adoption of common external tariffs is C. capital accounts D. current account E. deposit account
known as Answer: Balance of trade (A)
A. common market B. customs union
C. economic union D. free trade E. monetary union 1990/9 Nov
Answer: economic union (C) Which of the following is the correct definition of terms of
trade?
2008/52 Neco Exercise 23.15 A. the agreement between two nations as to how they will trade
The comparison of a country’s receipt for her export and the with each other
total payments made for her imports is known as B. the rate at which a country’s export exchange for its imports
A. absolute advantage B. balance of payment C. the relationship between a country’s receipts from other
C. balance of trade D. comparative advantage countries and its payments to other countries
E. terms of trade D. the relationship between receipts and payments for articles of
2010/52 Neco Exercise 23.16 trade
Terms of trade means E. total operations of the central bank designed to increase the
A. exchange rate between exports and imports demand deposits of commercial banks.
B. increase in percentage of imports relative to imports Ans: The rate at which a country’s exports exchange for its
C. rise in price of exports imports (B)
D. the difference between the value of exports and imports
E. the ratio of the price index of exports to imports
629
1990/4 Nov Calculate:
One of the ways of correcting balance of payments deficits (i) Balance of trade.
is by (ii) Balance and current accounts.
A. selling on credit (iii) Balance on capital account.
B. trading with a fewer number of countries (c) Distinguish between balance on current account and
C. investing in other countries balance on capital account.
D. introducing exchange control and quota system Answer
E. reducing the volume of trade with other countries (a) Balance of trade shows the relationship between the
Answer: Introducing exchange control and quota system monetary value of goods and services, imported and
those exported.
(D)
(b) Balance of trade (Merchandise) = Exports of goods –
Imports of goods
2009/9
Balance of trade = ₦50,000 – ₦35,000
(a) What is
(i) devaluation Balance of trade = ₦15,000
(ii) depreciation of currency (bii) Balance on credit account (receipts)
(b) Outline three measures that can be adopted to correct Credit items
balance of payment deficit. Merchandise 50,000
Shipping, travel, transport 2,000
Answer
a(i) Devaluation is the official reduction of the exchange + Investment income 20,000
value of a national currency in terms of the currencies of Other services 2,500
other countries. Unrequited transfer 2,800
(ii) Depreciation of currency is the reduction of the national 77,300
currency in relation to other currencies as a result of
changes in demand and supply in the foreign exchange Balance on debit account (payments)
market. Debit items
Merchandise 35,000
(b) Measures that can be adopted to correct balance of
Shipping, travel, transport 8,000
payment deficit
(i) Devaluation of currency. + Investment income 5,000
(ii) Foreign exchange regulation. Other services 6,000
(iii) Export promotion. Unrequited transfer 6,000
60,000
(ii) Balance on current account = credit item – debit item
1996/7 Nov Exercise 23.19
(a) Explain the terms of trade and balance of trade. = ₦77,300 – ₦ 60,000
(b) Describe three ways by which a balance of payments Balance on current account = ₦17,300
deficit can be corrected. (iii) Balance on capital account = credit item – debit item
Credit item Debit item
1990/10 Nov Exercise 23.20 47,000 16,000
(a) Define balance of payments account. + 254,000 + 289,000
(b) What are the important items of the invisible trade? 271,000 238,000
₦572,000 ₦543,000
2019/2 NABTEB
(a) Define balance of trade. The items here include direct investment, long term capital
(b) The following table shows the export and import price and short term capital.
indices for two countries (Chile and Peru), use the table Balance on capital account = credit item – debit item
to answer the questions that follows:
Balance on capital account = ₦572,000 – ₦ 543,000
S/N Items of transaction Receipt Payments
Balance on capital account = ₦29,000.
(₦) (₦)
(c) The current and capital accounts represents two
1 Merchandise 50,000 35,000
halves of a nation’s balance of payments. The
2 Shipping, travel, 2,000 8,000
current account represents a country’s net income
transport
over a period, while the capital account records the
3 Investment income 20,000 5,000
net change of assets and liabilities during a
4 Other services 2,500 6,000
5 Unrequited transfer 2,800 6,000
particular period. From the foregoing,
6 Direct investment 47,000 16,000
Balance on current account is ₦17,300
7 Other long term capital 254,000 289,000
Balance on capital account is ₦29,000
8 Short term capital 271,000 238,000
Balance of payment account is is ₦46,300

630
2006/2 Nov Answer
The table below represents an extraction from the balance (a)
of payment account of country X in West Africa. Use the Balance Of Trade Balance Of Payment
information in the table to answer the questions that 1. Balance of trade is the Balance of payment is a
follows: difference between the total systematic record or
Items Receipts (in Payment (in value of exports and the summary statements of
million $) millions $) total value of imports of a accounts of all major
Invisible import – 30 country within a time economic or trading
Visible import – 40 period. transactions between a
reporting country and the
Invisible export 20 –
rest of the world, during a
Visible export 15 – specific period, usually
Interest/profit/dividend 4 25 one year.
(a) Calculate the balance of trade and comment on your 2. It deals with the net profit It deals with the proper
or loss that a country incurs accounting of the
answer.
from the import and export of transactions conducted by
(b) If the price indexes for both import and export for
goods the nation
country X are 400,000 and 300,000 respectively,
3. Balance of trade is the Balance of payment is the
determine the terms of trade. difference that is obtained difference between the
(c) Determine from the export and import of inflow and outflow of
(i) The invisible trade balance. goods. foreign exchange
(ii) The current account balance.
(d) Give an example of visible import and an invisible 4. Capital transfers are not Capital transfers are
export in any West Africa country. included in the BOT included in the BOP
Answer 5. The net effect of BOT can The net effect of BOP is
(a) Balance of trade = Visible Export – Visible Imports either be positive, always zero.
= $15 – $40 negative, or zero.
Balance of trade = $25million (deficit)
The balance of trade is unfavourable, meaning a trade (b) Balance of payment disequilibrium refers to when a
deficit was incurred. country may have a balance of payment deficit or
Price index of export 100
(b) Terms of trade = × surplus.
Price index of import 1
300,000 100 300 (c) Types of balance of payment disequilibrium
TOT = × = = 75
400,000 1 4 (1) Balance of payment surplus: This occurs where a
= 75% (Unfavourable; < 100%) country’s receipt on current and capital accounts
(ci) Invisible trade balance = invisible exports – invisible exceed her payment to other countries, ignoring
import transactions by monetary authorities.
Invisible trade balance = 20m – 30m (2) Balance of payment deficit: This occurs where a
Invisible trade balance = $10m country’s receipts from other countries on current and
= $10m (deficit) capital account fall short of her payment to them,
(ii) Current account balance = balance of trade + invisible ignoring transactions by monetary authorities.
trade balance + investment income
= –$25m + (–$10m) + ($4–$25m)
= –$25m – $10m –$21m
= –$56m\

2012/3 Nov Exercise 23.21 2018/14 NABTEB

(a) Define free trade (a) State the theory of comparative cost advantage.
(b) State any two reasons why free trade exists. (b) Explain the theory of comparative cost advantage
(c) Describe any four instruments of trade restriction. using appropriate diagrams
Answer
2011/11 (a) Theory of comparative advantage states that even if
(a) Differentiate between balance of trade and balance of the trading partners could produce all commodities
payment.
more cheaply, the country will be better off if each
(b) What is balance of payment disequilibrium?
specializes in the production of those commodities in
(c) Explain the different types of balance of payment
disequilibrium.
which it has the greatest comparative advantage or
least comparative disadvantage over others.

631
(b) (c) Balance on current account = balance of trade +
Product Nigeria USA invisible trade balance
Cocoa 150 20 = –$150m + (–$130m)
Television 10 100 = –$150m – $130m
Given 100 dollar to produce each product, Nigeria = –$280m
produces 10 televison and 150 bags of cocoa. Or
Nigeria produces 10 television and 150 bags of cocoa Balance on current account
while the USA produces 20bags of cocoa and 100 = total exports – total imports
televisions. From the table, it is observed that Nigeria = $(200 + 300 + 25 + 30 + 25) – $(250 + 400 + 50 + 75 + 85)
has a comparative advantage in the production of = $580 – $860
cocoa than the USA. If she were to concentrate on the = –$280m
production of television, Nigeria will forgo 15 bags of
cocoa to produce television while the USA will forgo 2000/1 Nov
only 1/5 bags of cocoa to produce 1 television. On the (a) What is current account balance?
other hand, the USA has a comparative advantage in Study the following information carefully and use it to
answer questions 1(b) to 1(e).
the production of television. Nigeria should therefore
As a result of the improvement in the terms of trade of two of
specialize in the production of cocoa while USA
a country’s major export commodities, the total foreign
should specialize in the production of television.
exchange receipts, increased by over 10% above that of the
previous year, 1997. Nevertheless, this was not sufficient
2019/2 enough to balance the country’s current account. The
The extract from a country’s balance of payment account is government therefore took a short term loan of $100million
shown below: from the International Monetary Fund (IMF). The following
Items Import ($ million) Export ($ table summarises the position of the country at the end of
million) 1998.
Agricultural - 200 Exports ($ million) Imports
products ($million)
Mineral products - 300 Minerals 640.00 Machineries 560.50
Consumer goods 250 - Timber 146.50 Spare parts and 280.00
Capital goods 400 - accessories
Insurance 50 25 Shipping and air 55.00 Pilgrimage 220.00
Banking 75 30 transport
Transportation 85 25 Cocoa 240.50 Oil and 150.00
Loans 150 60 lubricants
Tourism 105.20 Food, tobacco 360.00
and drinks
Using the table above, calculate the (b) Calculate the balance of trade.
(a) Balance of trade. (b) Invisible trade balance. (c) Compute the balance on the invisible account.
(c) Balance on current account (d) What is the value of the balance on current accounts?
Answer (d) What was happening to the prices of the country’s major
(a) Balance of trade = visible exports – visible imports exports?
Visible exports = $200 + $300 = $500m Answer
Visible imports = $250m + $400m = $650m (a) Current account balance consists of receipts and payment
Balance of trade = visible exports – visible imports that arise as a result of exchanging consumable goods
= $500m – $650m and services during a given period of time, usually a
Balance of trade = –$150m (trade deficit) year. That is, it records, the value of visible and invisible
transactions that took place between a country and other
countries which are meant for current consumption.
(b) Invisible trade balance = invisible exports – invisible
imports (b) Balance of trade = visible exports – visible imports
Invisible export = $25m + $30m + $25m Visible exports = 640.00 + 146.50 + 240.50
Invisible export = $80m Visible exports = $1,027
Invisible imports = $50 + $75 + $ 85 Visible import = 560.50 + 280.00 + 150.00 + 360.00
Invisible imports = $210m Visible import = $1,350.5
Invisible trade balance = invisible exports – invisible Balance of trade = visible exports – visible imports
imports = $1,027 – $1350.5
= $80m - $210m Balance of trade = – $323.5(trade deficit)
Invisible trade balance = –130m

632
(c) Balance on the invisible account = invisible exports – 2003/52 Neco
invisible imports Invisible trade refers to trade in
Invisible export = 55.00 + 105.20 = 160.20 A. capital goods that cannot be seen B. goods and services
Invisible imports = 220m C. services D. short term and long term capital
Balance on the invisible account = $160.20 – $220 E. tangible goods
Balance on the invisible account = –$59.80m (deficit) Answer: Services (C)
(d) Value of the balance on current account
Balance of trade + Balance on the invisible account 2012/2013/35 (UNIZIK, AWKA)
= –$323.5 + (–$59.80m) Which of the following is not a visible item in international
=–$383.3 trade payments?
(e) The prices of the country’s major exports was low A. payments for imported cars
compared to her imports B. receipts from coca exports
C. payments to foreign shipping companies
2009/47 D. payments for steel imports
Expenditure by foreign tourists in a country will be E. payments for petroleum imports
recorded as Answer: Payments to foreign shipping companies (C)
A. invisible exports B. official transfer C. transfer income 2019/1 (UNIBEN, BENIN–CITY)
D. visible exports All the annual transactions between one country and the rest
Answer of the world that involve an exchange of currency shows
Invisible exports (A) the country’s
A. international trade B. terms of trade
2011/2012/33 (UNIZIK, AWKA) C. balance of payments D. balance sheet
Invisible trade refers to trade in Answer: Balance of payments (C)
A. service B. goods and services C. triangle goods
D. short term and long-term goods 2019/2 (UNIBEN, BENIN–CITY)
E. goods that cannot be seen A favourable balance of trade means
Answer: Service (A) A. a situation in which the value of total imports exceeds the
Hint: Invisible trade refers to an international transaction which value of total export
does not involve tangible goods, but services, such as consultancy B. an excess of merchandise exports and other current credits
services, insurance, banking, intellectual property, international over merchandise imports and other current account
tourism, etc. In other words, it is the export and import of services C. an excess of merchandise exports over merchandise imports
between countries. D. an excess of total credits over total debits in the entire balance
of payments
Answer
2011/2012/35 (UNIZIK, AWKA)
an excess of merchandise exports over merchandise imports (B)
Surplus in balance of payments leads to
A. inflation or increasing prices generally 2019/3 (UNIBEN, BENIN–CITY)
B. increase in foreign reserves Which of the following is a means of placing restriction on
C. decrease in foreign reserves the free movement of goods across national boundaries?
D. government budget surplus A. export incentives B. quotas C. depreciation allowance
E. none of the above D. increase in personal income tax
Answer: Increase in foreign reserves (B) Answer: Quotas (B)
2011/2012/38 (UNIZIK, AWKA) Exercise 23.22 2018/2 (UNIBEN, BENIN–CITY)
Disequilibrium in the balance of payment means Index of export prices
× 100
A. imports of the country exceeding its export Index of import prices
B. overall deficit or surplus in the current account and The expression above defines
capital account of the balance of payment A. devaluation B. balance of trade C. terms of trade
C. capital flowing out of the country exceeds the capital D. deflation
flowing into the country Answer: Terms of trade (C)
D. export earnings exceed cost of imports
2012/2013/34 (UNIZIK, AWKA) 2018/5 (UNIBEN, BENIN–CITY)
By balance of visible trade we mean An account of transactions between one country and the rest
A. import and export of goods of the world in a given year is referred to as
B. import and export of services A. current account B. capital account C. balance of
C. balance of current account in the balance of payments payments D. balance of trade
D. balance of capital account in the balance of payments Answer: Balance of payments (C)
E. all of these
Answer: Import and export of goods (A)
633
2017/10 (UNIBEN, BENIN–CITY) 2014/2015/93 (UI, IBADAN)
Which of the following obstacles to foreign trade is International and inter – regional trade differ primarily because
concerned with specifying the quantity of foreign goods A. comparative advantage is relevant to the former but not to
that can be imported? the latter
A. tariffs B. embargo C. exchange control D. quota B. products flow easily within regions of a country
Answer: Quota (D) C. there are different resource supplies among countries of the
world
2016/9 (UNIBEN, BENIN–CITY) D. of regulations from GATT
In the theory of comparative cost advantage mutual trade E. none of the above
Answer
benefits will occur if countries have
Comparative advantage is relevant to the former but not to the
A. the same domestic price ratio
latter (A)
B. different domestic price ratio
C. the same production costs 2014/2015/94 (UI, IBADAN) Exercise 23.24
D. different production costs Surplus in the balance of payments leads to
Answer: The same production cost (C) A. inflation or increasing price generally
B. increase in foreign reserves
2016/10 (UNIBEN, BENIN–CITY) C. decrease in foreign reserves
Which of the following items make up invisible trade in a D. government budget surplus
country’s balance of payment? E. none of the above
A. exportation of cocoa and rubber
B. exportation of groundnuts and timber 2014/2015/99 (UI, IBADAN)
C. expenditure on tourism Which of the following items in the balance of payment
D. importation of machinery account is an invisible transactions?
Answer: Expenditure on tourism (C) A. imports of cars B. export of cocoa
C. export of crude petroleum D. tourism
2015/7 (UNIBEN, BENIN–CITY) Exercise 23.23 E. import of building materials
Short term deficit in the balance of payments account can Answer: Tourism (D)
be remedied by
A. import substitution B. deflationary policy 2009/2010/60 (NDU, BAYELSA)
C. drawing from resources By balance of visible trade we mean
A. import and export of goods
D. the placement of trade embargo
B. import and export of services
Answer : drawing from resources (C)
C. balance of current account in the balance of payment
D. balance of capital account in the balance of payment
2015/9 (UNIBEN, BENIN–CITY) E. all of them
A common characteristics of international trade is Answer: Import and export of goods (A)
A. artificial barriers B. difference in currencies
C. long distances D. language difficulties 2018/2019/87(NDU, BAYELSA)
Answer: Differences in currencies (B) By terms of trade, we mean
A. ratio of exports to imports
2014/2015/90 (UI, IBADAN) B. difference between export and import
An improvement in the Nigeria’s terms of trade should C. difference between current account and capital account
A. lead to a fall in cost of her imports in terms of what she D. index of export price to import prices expressed as
must sacrifice to obtain them percentage
B. make made – in – Nigeria goods cheaper to buy E. ratio of short term capital movement to long term capital
C. increase Nigeria’s domestic output of commodities movement
D. lead to an increase in her exchange rates Answer: Ratio of exports to imports (A)
E. lead to an increase in Nigeria’s export of petroleum
Answer 2009/15 (OAU, IFE)
Increase Nigeria’s domestic output of commodities (C) By using exchange controls a country tries to eliminate a
balance of payments deficit by
A. limiting her imports to its currency value of exports
B. reducing the nation’s domestic price level
2014/2015/92 (UI, IBADAN)
C. limiting her exports to its currency value of imports
Gains from trade depends on
D. over vauling the country currency
A. comparative advantage B. absolute advantage E. under valuing the country currency
C. distributive cost advantage Answer
D. absolute cost advantage E. none of the above limiting her imports to its currency value of exports (A)
Answer: Comparative advantage (A)

634
Hint: The main purpose of exchange control is to restore the 1978/13 UTME
balance of payments equilibrium, by allowing the imports only A country has a surplus in its balance of visible trade if
when they are necessary in the interest of the country and thus A. the value of imports exceeds the value of exports of goods
limiting the demands for foreign exchange up to the available B. the value of exports exceeds the value of imports
resources. C. the value of goods exported is equal to the value of goods
imported
2008/23 (OAU, IFE) D. it is able to spend a lot on capital programmees
The best index for international comparison of standard of E. commercial banks assets increase
living is the Answer
A. gross national produce B. net national income B – The value of exports exceeds the value of imports of goods.
C. per capital income D. gross national income
Answer 1978/14 UTME
Per capital income (C) The foreign exchange market is a market where
A. graded commodities like wheat, coffee, etc are sold and
2007/10 (OAU, IFE) bought
The “Terms of trade” means B. currencies are sold and bought
A. the trade agreement between two countries C. treasury bills are sold and bought
B. the difference in the volumes of exports of two countries D. government bonds are sold and bought
C. the value of a unit of export in relation to the value of a unit E. treasury certificates are sold
of import Answer
D. none of the above B – Currencies are sold and bought.
Answer
The value of a unit of export in relation to the value of a unit 1978/30 UTME
of import (C) The expression “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 of which
2006/19 (OAU, IFE) exports exchange for imports E. import licensing
When a nation’s export are greater than its imports Answer
A. the net foreign trade is zero D – The rate at which exports exchange for imports.
B. an unfavourable balance of payments exists
C. a favourable balance of trade exists 1978/36 UTME
D. a favourable balance of payment exists Which of the following items in the balance of payments
Answer account is an invisible transaction?
A favourable balance of trade exists (C) A. import of cars B. export of cocoa
C. export of crude petroleum D. tourism
2010/5 (OAU, IFE) E. import of building materials
As it relates to international trade, dumping Answer
A. is a form of price discrimination illegal under us antitrust D – Tourism.
B. is the practice of selling goods in a foreign market at less
than cost 1979/10 UTME
C. constitutes a general case for permanent tariffs The principle of comparative cost is not based on one of the
D. is defined as selling more goods than allowed by an import following assumptions
quota A. there are restrictions in trades
Answer B. there are no costs of transportation
Is the practice of selling goods in a foreign market at less than C. there is perfect competition
cost (B) D. there are no tariffs or import and export quotas
E. there are only two countries and only two commodities
1978/9 UTME entering into international trade
Which is an example of an invisible item in the Trade Account Answer: A – There are restrictions in trades.
of Ghana?
A. export of cocoa from Ghana 1979/22 UTME
B. import of oil from Nigeria The total value of goods and services, sold and bought by a
C. a gift of a Peugeot 504 by a firm in Nigeria top another firm country across its border during a given period, usually a year,
in Ghana is known as
D. payment for shipping and insurance by a Ghanaian A. visible trade B. invisible trade
company to companies outside Ghana C. balance of payments D. balance of trade
E. none of the above E. terms of trade
Answer Answer
D – Payment for shipping and insurance by a Ghanaian C – Balance of payments.
company to companies outside Ghana.

635
1979/37 UTME 1980/37 UTME
The foreign exchange rate of a country is Which one of the following is NOT one of the balance of
A. the interest rate of fixed by the Central Bank payments entries?
B. the price of one national currency in terms of another A. the current account B. foreign exchang
C. the rate at which the central bank issues money e
D. the rate of interest on government bonds C. import and export duties D. short-term capital
E. none of the above E. long-term capital
Answer Answer
B – The price of one national currency in terms of another. B – Foreign reserves.

1979/38 UTME Exercise 23.25 1980/46 UTME

The “term of trade” means Indicate which of the following are invisible trade terms in
A. the trade agreement between two countries a country’s balance of payments
B. the difference in the volumes of exports of two countries A. oil exports and imports B. gold and foreign reserves
C. the value of a unit of export in relation to the value of a C. foreign investments D. dividends and profits
unit of import E. expenditure on shipping and tourism
D. the proportion of total value Answer
E – Expenditure on shipping and tourism.

1980/6 UTME 1981/43 UTME

The terms of trade are said to be favourable only if When a nation’s exports are greater than its import
A. value of total exports equals value of total imports A. the net foreign trade is zero
B. value of merchandise exports is greater than value of B. an unfavourable balance of payment exists
merchandise imports C. a favourable balance of payments exists
C. there are no balance of payment problems D. an unfavourable balance of trade exists
D. there is an increase in the value of a unit of export in E. a favourable balance of trade exists
terms of imports Answer
E. foreign exchange reserves do not change E – A favourable balance of trade exists.
Answer
D – There is an increase in the value of a unit of export in
terms of imports.
1981/15 UTME
1980/13 UTME Summary of production conditions in countries I and II
International trade arises because Amount of Cocoa Cloth(metres)
A. one country has more abundant resources than the other labour (days) (
country t
o
B. one country has the technology to produce the n
commodity while the other has not s
)
C. one country has the maximum comparative advantage or
minimum comparative disadvantage in the production of a Country I 200 600 900
commodity over the other country Country II 200 300 800
D. one country has more man power to produce the
commodity than the other country From the table, we can correctly say in respect of
E. all of the above international trade that
Answer A. country I has absolute disadvantage in the production of
E – All of the above. both cocoa and cloth
B. country I has absolute advantage in the production of
1980/15 UTME both cocoa and cloth
Nigeria earns the major part of her foreign exchange from C. country II has absolute advantage in the production of
the export of both cocoa and cloth
A. man power to other countries B. crude oil D. country II has a comparative advantage in the production
C. petroleum products D. groundnut and cotton of cocoa
E. palm oil and coal E. country II should leave the production of both cocoa and
cloth to country I
Answer
B – Crude oil. Answer
B – Country I has absolute advantage in the production of
both cocoa and cloth.

636
1981/17 UTME 1982/50 UTME
Invisible trade refers to trade in In Nigeria a balance of payment deficit can be solved by all
A. services B. goods and services C. tangible goods of the following EXCEPT
D. short-term and long-term capital A. imposing import bans on some commodities
E. goods that cannot be seen B. imposing import duties
Answer: A – Services C. drawing down on external reserves
D. purchasing foreign exchange from foreign countries
1981/27 UTME
E. devaluation of the currency
Surplus in balance of payments lead to
Answer
A. inflation or increasing prices generally
D – Purchasing foreign exchange from foreign countries.
B. increase in foreign reserves
C. decrease in foreign reserves
1983/28UTME
D. government budget surplus E. none above
Comparative cost doctrine of international trade means
Answer: B – Increase in foreign reserves.
specialization in production
1981/36 UTME A. according to absolute cost advantage
Which of the following is NOT a visible item in B. according to absolute cost disadvantage
international trade payments? C. according to comparative cost disadvantages
A. payment for imported cars D. according to comparative cost advantages
B. receipts from cocoa exports E. on the basis of the availability of labour
C. payment to foreign shipping companies Answer: D – According to comparative cost advantages.
D. payments for steel imports
E. payment for petroleum imports 1983/29 UTME
Answer: C – Payment to foreign shipping companies. The meaning of ‘dumping’ is selling goods in a foreign
market
1982/13 UTME A. at a price below that received in the home market
The difference between visible exports and invisible B. at a price higher than that receive in the home market
imports of a country in money terms, is known as the C. at a price equal to the cost price in the home market
A. balance of trade B. balance of payment D. in order to encourage indigenous producers
C. terms of trade D. foreign reserves E. at a price equal to the selling price in the home market
E. special drawing rights (SDR) Answer
Answer: B – Balance of payments. A – At a price below that received in the home market.
1981/37 UTME 1983/30 UTME
Given international trade statistics of Nigeria for the past 6 Disequilibrium in the balance of payments means
years, which of these statements would you consider to be A. imports of the country exceeding its exports
correct? B. overall deficit or surplus in the current account and
A. the value of industrial exports is declining capital account of the balance of payments
B. the value of industrial imports is constant C. capital flowing out of the country exceeds the capital
C. the share of agricultural exports is increasing flowing into the country
D. the share of agricultural exports is decreasing D. deficit in the trade balance
E. the value of mineral exports is declining E. export earning exceed cost of imports
Answer:The share of agricultural exports is decreasing (D) Answer
B – Overall deficit or surplus in the current account and
1982/22 UTME capital account of the balance of payments.
The purpose of import duties does not include the
A. generation of revenue for government 1983/31 UTME
B. protection of domestic industries Petroleum ‘glut’ in international trade means
C. promotion of international trade A. a fall in petroleum production
D. conservation foreign exchange earnings B. an oversupply of petroleum
E. control of consumption pattern C. a higher petroleum price offered by the buyer
Answer: C – Promotion of international trade. D. a higher petroleum price demanded by the seller
E. higher prices for the consumption of petroleum
1982/46 UTME Exercise 23.26 Answer
When the import of a commodity is limited to a definite B – An oversupply of petroleum.
quantity by using a trade control method, this is known as
A. tariffs B. quotas C. exchange control
D. devaluation E. revaluation

637
1983/33 UTME 1985/36 UTME
Mono-product economies are those that The argument of tariff protection in less developed economies
A. have a rich cultural heritage is that such a measure would
B. produce only raw materials A. raise the price of goods affected abroad
C. live from the export of their raw products B. makes consumers pay a higher price for the domestically
D. produce one main commodity produced output
E. specialize in agricultural industries C. protect young industries from ruinous competition from
Answer abroad
D – Produce one main commodity. D. help reduce excess capacity in domestic industries
E. stifle private investment initiatives
1984/41 UTME Answer
The following except ONE are the differences between Protect young industries from ruinous competition from
international trade and internal trade abroad. ( C )
A. differences in currencies
B. government control 1985/38 UTME
C. mobility of factors of production Foreign exchange control in Nigeria is administered by the
D. cultural differences A. United Bank for Africa B. Union Bank of Nigeria
E. exchange of goods and services C. First Bank of Nigeria D. Central Bank of Nigeria
Answer E. National Bank of Nigeria
D – Cultural differences. Answer: D – Central Bank of Nigeria

1984/42 UTME 1985/42 UTME

Let 𝑃𝑥 represent the price of exports and 𝑃𝑚 the price of imports. The process by which a country attempts to reduce the import
Then the terms of trade (TOT) are said to be favourable if of manufactured goods by encouraging firms to produce these
𝑃𝑥 𝑃𝑥 𝑃𝑥 goods at home is described as
A. < 1 B. = 1 C. >1
𝑃𝑚 𝑃𝑚 𝑃𝑚 A. export promotion B. import substitution
𝑃𝑥 𝑂 < 𝑃𝑥
D. 𝑃𝑚 + 1 E. 𝑃𝑚
<1 C. industrialization D. export diversification
Answer E. import creation
C
𝑃𝑥
>1 Answer: B – Import substitution.
𝑃𝑚

1986/41 UTME
1984/43 UTME
In international trade, a country specializes in the production
Which of the following items does not belong to a country’s current
of a commodity or group of commodities of which it has
account in the balance of payments accounts?
A. a buoyant market B. plenty of raw materials
A. merchandise exports B. merchandise imports
C. the greatest relative advantage
C. travel D. foreign currencies
D. executive man power
E. insurance services
Answer: D – Foreign currencies. Answer
A – Importing more goods and service.
1984/44 UTME
An improvement in Nigeria’s terms of trade should 1986/43 UTME
The term balance of trade can be defined as the
A. lead to a fall in cost of her imports in terms of what she must
A. relation between value of exports and value of imports over
sacrifice to obtain them
a given period of time
B. make made in Nigeria goods cheaper to buy
B. balance owed to the rest of the world in payment for
C. increase Nigeria’ domestic output of commodities
imports
D. lead to an increase in her exchange rates
C. price paid for imports in terms of exports
E. lead to an increase in Nigeria’s export of petroleum
D. relation between payments of all kinds made by a country
Answer
to the rest of the world; over a given period of time
A – Lead to a fall in cost of her imports in terms of what she must
sacrifice to obtain them. Answer
A – Relation between value of exports and value of imports
over a given period of time.
1985/35 UTME
By term of trade, we mean the
A. ratio of exports to imports 1986/44 UTME
The terms of trade is often measured by the ratio of the index
B. difference between current account and capital account
of export prices
C. index of export prices to import prices expressed as a percentage
A. divided by the index of import prices multiplied by 100
D. ratio of short-term capital movements to long term capital
B. multiplied by the index of import prices
movements
C. plus the index of import prices multiplied by 100
Answer
D. minus the index of import prices
C– index of export prices to import prices expressed as a
percentage Answer
Divided by the index of import prices multiplied by 100 (A)
638
1987/41 UTME 1989/41 UTME
Which of the following applies to a commodity sold abroad at a The law of comparative advantage states that a country
price lower than in the producing country? should specialize in the production of a commodity
A. dumping B. counter-trade A. for which local demand is greatest
C. bilateral trade D. trade liberalization B. in which its opportunity cost is lower than that of the
Answer trade partner
A – Dumping. C. for which foreign demand is greatest
1987/42 UTME D. for which there is abundant supply of raw materials
The rate of exchange between domestic and a foreign currency is Answer
defined as the B – In which its opportunity cost is lower than that of the
A. terms of trade trade partner.
B. domestic currency price at a unit of the foreign currency
C. foreign currency price of gold 1989/42 UTME
D. domestic currency price of gold International and inter-regional trade differ primarily
Answer because
Domestic currency price at a unit of the foreign currency(B) A. comparative advantage is relevant to the former but not
to the latter
1987/45 UTME B. products flow across national boundaries
Transfer payments are
C. there are different resource supplies among countries of
A. transfer earnings
the world
B. money transferred from one country to another
C. unearned income D. of regulations from GATT
D. payment transferred from one account to another Answer: B – Products flow across national boundaries.
Answer: C – unearned income 1990/38 UTME
1988/38 UTME Balance of trade is the difference between
When a nation is experiencing balance of payment surplus, it is in a A. exports and imports or goods and services
better position to B. capital inflows and capital outflows
A. increase the foreign exchange reserves C. visible and invisible balances
B. increase its liabilities to foreigners D. exports and imports of goods
C. reduce its foreign exchange reserves Answer
D. devalue its national currency D – Exports and imports of goods
Answer: A – Increase its foreign exchange reserves.
1988/39 UTME Exercise 23.27 1990/39 UTME
Which of the following is a good example of invisible item on Which of the following is likely to reduce a surplus in the
balance of payments account? balance of payments of a country?
A. shipping and aviation B. export and imports A. devaluation B. increased tariff on imports
C. merchandise D. bullion C. export promotion D. currency appreciation
Answer
1989/39 UTME D – Currency appreciation.
Item Amount (Million Naira)
Visible exports 55.54 1991/40UTME Exercise 23.28
Visible imports 53.32 One of the advantages of international trade is that it
Invisible exports 30.56 A. increases world output
Invisible imports 28.70 B. encourages economic independence among nations
Balance 4.08 C. restricts spread of technical knowledge
The amount, ₦4.08 million, shown as balance in the table D. promotes self-reliance and satisfaction with only what
represents can be produced internally
A. terms of payments B. balance on current accounts
C. balance of trade D. terms of trade 1991/41 UTME
Answer: B – Balance on current accounts. There is an improvement in the terms of trade of a country if
A. a large quantity of exports in given up to obtain a unit of
1989/40 UTME imports
By using exchange controls, a country tries to eliminate a balance B. the volume of exports is greater than the volume of imports
of payments deficit by
C. a smaller quantity of export is given up to obtain a unit of
A. limiting her imports to its currency value of exports
imports
B. reducing the nation’s domestic price level
D. the value of exports is greater than the value of imports
C. limiting her exports to its currency value of imports
D. overvaluing the country’s currency Answer
Answer D – The value of exports is greater than the value of
A – Limiting her imports to its currency value of exports. Imports.
639
1992/32 UTME 1994/48 UTME
Because most of the crude oil is exported, the foreign In international trade, shipping and other freight charges are
exchange earnings and the forward linkage effects Nigeria treated as
realizes from her oil production are A. invisible items B. unilateral transfers
A. both high B. respectively high and low C. capital transactions
C. respectively low and high D. both low D. autonomous capital transactions
Answer Answer: A – Invisible items.
A – Both high.
1994/49 UTME Exercise 23.30
A situation in which a commodity is sold abroad below its
1992/46 UTME
cost of production in the home country is known as
If a country has a balance of payment crises, which of the
A. dumping B. counter trade
following measures can best bring about an improvement in
C. bilateral trade D. trade liberalization
the short run?
A. large scale importation of foreign goods 1995/35 UTME
B. investment in capital market abroad The major source of Nigeria’s foreign exchange is the
C. large-scale export of locally made goods export of
D. repayment of debt to her creditors A. skilled man power B. palm-kernel and cocoa
Answer: C – Large scale export of locally made goods. C. crude oil D. groundnut and cotton
Answer: C – Crude oil.
1992/47 UTME Exercise 23.29 1995/49 UTME
The terms of trade of a country is defined as Foreign exchange rate in a free market economy is
𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑖𝑚𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒𝑠 𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑒𝑥𝑝𝑜𝑟𝑡𝑎𝑏𝑙𝑒
A. × 100 B. × 100 determined by
𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑒𝑥𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒𝑠 𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑖𝑚𝑝𝑜𝑟𝑡𝑎𝑏𝑙𝑒
𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑣𝑖𝑠𝑖𝑏𝑙𝑒 𝑖𝑚𝑝𝑜𝑟𝑡𝑠 𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑒𝑥𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒𝑠
A. the government B. the central bank
C. × 100 D. × 100 C. demand and supply D. commercial banks
𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑣𝑖𝑠𝑖𝑏𝑙𝑒 𝑒𝑥𝑝𝑜𝑟𝑡𝑠 𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑖𝑚𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒𝑠
Answer
1992/48 UTME C – Demand and supply.
When a foreigner on a visit to Nigeria, pays for hotel
1997/46
accommodation and meals with some foreign currency, the
Which of the following classes of goods accounts for the
amount paid should be recorded in Nigeria’s balance of
largest proportion of Nigeria’s imports?
payments as an item of
A. food and animal products B. consumer goods
A. Nigeria’s invisible exports trade
C. chemicals D. machinery and transport equipment
B. Nigeria’s import trade C. Nigeria’s visible trade
Answer
D. foreign capital inflow into Nigeria
B – Consumer goods.
Answer
A – Nigeria’s invisible exports trade.
1997/47 UTME
Counter trading in an international arrangement whereby
1993/45 UTME
A. goods and services are exchanged in a manner similar to
Comparative advantage implies that a country will
barter
specialize in producing the commodity
B. goods and services sold on the counter
A. with the highest opportunity cost
C. crude oil is sold to a foreign country
B. for which output per worker is lower than in other
D. goods are shipped to countries on which the United
countries
Nations has placed a trade embargo
C. with the lowest opportunity cost
Answer
D. for which output per worker is the same with those of
A – Goods and services are exchanged in a manner similar
other countries
to barter.
Answer
C – With the lowest opportunity cost.
1997/48 UTME
In recent years, Nigeria’s balance of payments has
1994/46 UTME
continued to register a deficit due to
One of the techniques for rectifying a deficit balance of
I. Increased government overseas spending
payment is
II. Increasing prices of exports
A. import promotion B. devaluation
III. Rising import prices
C. physical intervention D. borrowing from abroad
IV. More payments to overseas investors
Answer
A. I, II and III B. I, II and IV
B – Devaluation.
C. I. III and IV D. II, III and IV
Answer
C – I, III and IV.
640
1998/28 UTME 1999/27 UTME
Export promotion policy is primarily concerned with the The primary objective establishing the export processing
A. processing of raw material to increase their value zone is to
B. making of international routes safe for export commodities A. facilitate agricultural production
C. reduction in the number of imported items B. encourage the production and processing of export
D. encouragement of the production of export commodities commodities
Answer C. erect structures that will facilitate the processing of
D – Encouragement of the production of export imported raw materials
commodities. D. erect economic structures near the port
Answer
1998/47 UTME Exercise 23.31 B – Encourage the production and processing of export
The balance of visible trade is the difference between the commodities.
values of
A. imported and exported goods 1999/46 UTME
B. imported and exported services The most acceptable economic measure for trade protection is to
C. current account and capital account A. improve standards of living
D. exchange rate of local and foreign currencies B. protect infant industries
1998/48 UTME C. safeguard strategic industries
If a country has a balance of payments surplus on current D. promote foreign trade
account, this means that Answer
A. the total invisible export is greater than invisible import B – Protect infant industries.
B. the value of goods exported must be greater than the
value of goods imported 1999/47 UTME
C. there must be positive balance on capital account A free trade area emerges when
D. the aggregate of the balance of trade and the invisible A. traders from one part of the country can move freely to
balance must be positive other parts
Answer B. customs regulations are harmonized among countries
D – The aggregate of the balance of trade and the invisible C. a group of countries decide to remove restrictions on
balance must be positive. imports from one another
D. the UNCTAD is in force
1998/49 UTME Answer
If a country operates freely floating exchange rate system C – A group of countries decide to remove restrictions on
and suffers a balance of payments deficit, the deficit can be imports from one another.
eliminate through
A. arise in the external value of its currency 1999/48 UTME
B. a fall in the external value of its currency Favourable terms of trade is important to a country because,
C. an increase in the volume of imports it facilitates
D. the consumption of more foreign goods A. economic prosperity for importers and exports
Answer B. export of hard currency by the government
B – a fall in the external value of its currency C. economic prosperity for the country
D. import of hard currency by the government
1999/25 UTME Answer
The first petroleum exploring company to discover crude C – Economic prosperity for the country.
petroleum in Nigeria was
1999/49 UTME
A. Mobil B. Texaco C. AgipD. Shell-Bp
Devaluation helps in checking adverse balance of payments
Answer: D – Shell – Bp
if the
A. demand for imports is elastic
1999/26 UTME
B. demand for imports is inelastic
Import substitution industrialization refers to
C. supply of exports is elastic
A. the concentration of industries for even development
D. demand for exports is inelastic
B. setting up of industries for regional development
Answer
C. a situation in which local industries are set up to produce
A – Demand for imports is elastic.
goods formally imported
D. the banning of imports which are substitutes for
domestically produced goods
Answer
C – A situation in which local industries are set up to
produce goods formerly imported.
641
2000/50 UTME 2002/40 UTME
A country’s import price index by 1995 was 50 and her index Import substitution aims at
of export price was 70. Calculate the terms of trade A. substituting agricultural products with industrial ones
A. 20% B. 71% C. 120% D. 140% B. substituting imports with agricultural exports
Answer C. the diversification of industries
𝑃𝑟𝑖𝑐𝑒 𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑒𝑥𝑝𝑜𝑟𝑡 100
T.O.T = × D. improving the balance of payments
𝑃𝑟𝑖𝑐𝑒 𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑖𝑚𝑝𝑜𝑟𝑡 1
Answer
70 100 B – Substituting imports with agricultural exports.
T.O.T = × 1
50

7000
2003/39 UTME Exercise 23.32
T.O.T = 50 The theory of comparative advantage states that a
commodity should be produced in that nation where the
T.O.T = 140% A. absolute cost is least
D – 140% B. absolute money cost is least
C. opportunity cost is least
2001/30 UTME D. production possibly curve increases
To facilitate the exportation of crude oil from Nigeria special
A. air strips were constructed for jets to evacuate the oil 2004/23 UTME
B. roads were built to connect the major oil wells to the ports A country is said to have absolute advantage when she
C. pipelines were laid to connect the major oil wells to the A. has a higher opportunity cost in the production of a good
ports B. can sell to other countries without buying from them
D. railway lines were constructed to connect the major oil
C. can produce more of any good with fewer resources
wells to the ports
D. has a lower opportunity cost in the production of a good
Answer
C – Pipelines were laid to connect the major oil wells to the Answer
ports. C – Can produce more of any good with fewer resources.

2001/49 UTME 2004/31 UTME

The major reason why nations engage in international trade is The difference between payment and receipts for visible
that trade is called
A. it allows free movement of factors of production A. bilateral trade B. current balance
B. it makes possible the use of capital-intensive method of C. balance of payments D. balance of trade
production Answer
C. nations are substantially different in their endowments of D – Balance of trade.
economic resources
D. it affords the trading nations the opportunity to earn high Use the table below to answer questions 42 and 43
profit Country Groundnut (units) Cocoa (units)
Answer Nigeria 8,000 1,000
C – Nations are substantially different in their endowments of Ghana 1,000 8,000
economic resources Total production 9,000 9,000

2001/50 UTME 2005/42UTME

A country with over-valued currency will Applying the law of comparative costs, how many units of
A. expect balance of payments surplus groundnuts with Nigeria produce?
B. have increased demand for her exports A. 7,000 units B. 16,000 units
C. increase her foreign reserve C. 9,000 units D. 8,000 units
D. decrease her foreign reserve
Answer
Answer
8,000 + 1,000 = 9,000 units ( C )
D – expect balance of payments surplus

2002/38
One way of correcting the balance of payments problem of a 2005/43 UTME
country is to The difference in each country’s total output on
A. introduce import promotion measures specification is
B. buy investment abroad A. 16,000 units B. 9,000 units
C. devalue the currency C. 8,000 units D. 7,000 units
D. deemphasize import-substitution industries Answer
Answer Nigeria Groundnut = 8,000 – 1,000 = 7,000
C – Devalue the currency. Ghana Cocoa = 8,000 – 1,000 = 7,000
Option D: 7,000 units.
642
2006/15 UTME Exercise 23.33 2011/42 UTME
Import substitution policy is used to The record of a country’s transaction in international trade
A. check government expenditure is her
B. Correct the balance of payments problem A. capital account B. balance of payment
C. protect local industries C. current account D. balance of trade
D. encourage increased volume of trade Answer: B – Balance of payment.

2007/15 UTME 2011/49 UTME

One of the ways of correcting a deficit balance of payments Trade takes place because of
is to A. marginal utility B. inefficiency in production
A. increase imports C. opportunity cost D. comparative advantage
B. revalue a country’s currency Answer
C. reduce exports D – Comparative advantage.
D. devalue a country’s currency
Answer: D – Devaluate a country’s currency. 2011/50 UTME
The World Trade organization is responsible for
2007/17 UTME A. stability and harmonizing oil prices
The gains from international trade are shared on the basis of B. ensuring equal participation of countries in trade
the C. modernizing world economics
A. terms of trade D. minimizing obstacles to international trade and investment
B. bilateral trade agreements Answer
C. cost of production each of the traded goods D – Minimizing obstacles to international trade and
D. quantity produced of each of the traded goods. investment.
Answer
C – Cost of production of each of the traded goods. 2012/47 UTME
A deficit balance of payments is measured by subtracting
2008/39 UTME the debits from the credits in the
The export promotion strategy is aimed at producing A. current account B. current and capital accounts
A. consumer goods originally imported C. current and escrow accounts
B. machinery for industries D. capital and escrow accounts
C. more goods for exports Answer: B – Current and capital accounts.
D. more goods for domestic consumption
Answer: C – More goods for exports. 2015/15 UTME Exercise 23.34
Balance of trade shows the relationship between the
2009/35 UTME A. internal and external trade
Accordi ng to the theory of comparative advantage, B. total value of visible import and export
specialization will result in C. deficit and surplus balance of payments
A. labor-intensive method of production D. total value of invisible import and exports
B. capital intensive method of production
C. efficient allocation of resources 2016/32 UTME
D. efficient distribution of output One of the ways of correcting a deficit balance of payments
Answer: C – Efficient allocation of resources. is to
A. devalue a country’s currency
2009/36 UTME B. predenominate a country’s currency
Dumping in international trade means selling a good at a C. reduce imports D. reduce exports
A. higher price at home than abroad Answer: A – Devalue a country’s currency.
B. lower price at home than abroad
C. price that equates marginal cost with marginal revenue 2017/34 UTME
D. price above marginal cost abroad The main reason why countries engaged in international
Answer: B – Lower price at home than abroad. trade is the
A. opportunity to earn high profit in trading
2011/36 UTME B. use of capital-intensive method of production
The import-substitution strategy of industrialization is to C. difference in their endowment of economic resources
encourage D. difference in the population structure
A. domestic production B. large scale production Ans: C – Difference in their endowment of economic resources.
C. importation D. exportation
Answer: B – domestic production

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2017/39 UTME 2018/29 UTME
A country uses the foreign exchange control measure to The rate at which a country’s exports is exchanged for her
eliminate balance of payments deficit by imports is
A. limiting her imports to its currency value of exports A. trade balance B. balance of payments
B. limiting her exports to its currency value of imports C. terms of trade D. balance of currency account
C. over valuing the country’s currency Answer
D. reducing the nation’s domestic price level C – terms of trade.
Ans: A – Limiting her imports to its currency value of exports.

2018/7 UTME
International trade is an application of the principle of
A. industrial production B. mass production 2018/33 UTME
C. regional production A situation in which a commodity is sold abroad below its
D. comparative cost advantage cost of production in the home country is known as
Answer A. dumping B. counter-trade
D – Comparative cost advantage. C. bilateral trade D. trade liberalization
Answer
2018/13 UTME A – Dumping.
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑒𝑥𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒𝑠
The formula × 100 is used to measure
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑖𝑚𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒𝑠
2019/24 UTME
the
When a nation is experiencing balance of payment surplus,
A. volume of trade between countries
it is in a better position to
B. direction of international trade
A. increase its foreign exchange reserves
C. commodity terms of trade
B. increase its liabilities to foreigners
D. volume of imports
C. reduce its foreign exchange reserves
Answer
D. devalue its national currency
C – Commodity terms of trade.
Answer
A – Increase its foreign exchange reserves.
2018/14 UTME
Use the table below to answer question 14
2019/27 UTME Exercise 23.35
Products Ghana Sierra Leone
Coffee 8 tonnes 2 tonnes
Item Amount (Million Naira)
Cocoa 7 tonnes 9 tonnes Visible exports 55.54
Visible imports 53.32
If specialization should take place, then Invisible exports 30.56
A. Ghana should produce coffee and cocoa Invisible imports 28.70
B. Ghana would benefit by producing cocoa only Balance 4.08
C. sierra loan should not produce any of the products The amount, ₦4.08 million, shown as balance in the table
D. Sierra Leone should produce cocoa and Ghana coffee represents
Answer A. terms of payments B. balance on current accounts
D – Sierra Leone should produce cocoa and Ghana coffee. C. balance of trade D. terms of trade

2018/15 UTME
Which of the following is an invisible item? 2019/28 UTME
A. petroleum services B. processed rice By using exchange controls, a country tries to eliminate a
C. processed milk D. banking services balance of payments deficit by
Answer A. limiting her imports to its currency value of exports
D – Banking services. B. reducing the nation’s domestic price level
C. limiting her exports to its currency value of imports
2018/28 UTME D. overvaluing the country’s currency
The principle of comparative cost advantage was Answer
propounded by A – Limiting her imports to its currency value of exports.
A. David Ricardo B. Alfred Marshal
C. J. S. Mill D. Adam Smith
Answer
A – David Ricardo.

644
 10. To bring about structural transformation of developing
economies as in reducing the subsistence level and
ECONOMIC INTEGRATION improve the monetization of the economy.
Economic integration is a form of international co– operation
2014/2015/40 (UNIZIK, AWKA)
among some nations to foster mainly, their economic interest.
The main economic goal of ECOWAS is to attain
This helps to eliminate all trade barriers and restrictions hence
A. regional free trade B. multilateral trade
allowing perfect capital mobility, complete freedom of
C. bilateral trade D. economic self – reliance
migration, complete freedom of establishment of businesses
E. the economic emancipation of Africa
and unhindered flow of information and technology. It
Answer
involves close cooperation in certain areas of economic
regional free trade (A)
activity between countries. This is easier when the countries
have common boundaries or are in the same sub – region, and TYPES OF ECONOMIC INTEGRATION
have some common identity. Economic integration encourages 1. Monetary union: In this type of cooperation, different
specialization and it promotes large scale production. It is member countries use separate currencies which can be
highly desirable among nations which are ready to exchanged freely at fixed rate.
demonstrate commitment to it.
2. Currency union: This is a form of economic integration in
2018/53 Neco which different countries make use of the same currency and
The coming together of different national economies for trade share the responsibility for the management of the currency
purposes in order to secure certain benefits is called including its supply.
A. business economy B. economic integration 3. Free Trade Area: In this type of economic integration,
C. economic interaction D. foreign policy member countries agree to remove all restrictions to trade
E. international trade among them. Tariffs, quotas, bans, etc. are not imposed on
Answer goods coming from or going to member countries. An
Economic integration (B) example of a Free Trade Area is the Caribbean Free Trade
Area (CARIFTA). However, each country is free to have its
2016/5UTME own tariff policy as regards commodities from countries
The Economic community of West African states (ECOWAS) outside the free trade area.
is an example of
A. globalization B. regional marketing board Objectives of free trade between countries
C. economic integration D. economic union a. To ensure a more efficient utilization of resources by
Answer introducing competition between the members.
C – Economic integration. b. To encourage specialisation which leads to higher level of
efficiency and increased productivity.
OBJECTIVES OF ECONOMIC INTEGRATION 4. Customs Union: The member adopt a common internal and
1. To increase economic welfare of the member countries external tariff policy. Apart from eliminating all trade barriers
through greater investment, specialization and healthy between them, they adopt a common tariff agreement towards
competition. non–member countries.
2. To present a common front by bringing countries 5. Economic Community (Common Market): In addition to the
together to solve economic problem. adoption of common internal and external tariff policy, there
3. To take advantage of the economies of scale (both is a free mobility of the factors of production between the
internal and external). member states. An economic community also harmonizes
4. To improve and promote economic stability among the development in areas of scientific, social, cultural and
member nations. economic policies.
5. To alleviate if not eliminate poverty among members 6. Economic Union: This is a situation of full economic
countries. integration. It goes a step further than the common market.
6. To speed up industrialisation in the member countries at All economic policies are harmonized; there is free mobility
lower cost. of factors of production and commodities; a common internal
7. To ensure success in the struggle against economic and external tariff structure is adopted. In addition, a common
domination and subjugation by external forces through currency is used and monetary fiscal and income policies are
cooperation. harmonized.
8. To promote liberation and a common market devoid of 7. Political Union: This is the ultimate type of economic
the hurdle of quota restrictions and custom duties and this integration whereby member countries achieve not only
overcome the problem of small size which characterizes monetary and fiscal integration but also political integration.
many domestic markets. The European Union is the only example of a successful
9. To tackle the problems of unevenness of resources voluntary political integration.
endowment by encouraging development in member NB: Former Union of Soviet Socialist Republic was
countries through specialization and large scale supposed to be a political union of independent states but it
production. was generated quickly into a centralized dictatorship. On its
dissolution in 1991, the Commonwealth of Independent State
(CIS) was formed.
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2016/50 NABTEB PROBLEMS OF ECONOMIC INTEGRATION
Which of the following is not a major example of an 1. Lack of basis for trade: Trade links between the various
economic integration? countries has been poor because most of them produce
A. customs union B. free trade area C. currency union identical agricultural and mineral products.
D. monetary union 2. Political and bilateral trade agreements with countries
Answer outside West Africa: Many West African countries have
Currency union (C) close political and economic ties with the Western world.
Hint: The levels of regional integration include; free trade, This tends to jeorpadize some of their trade agreements.
custom union, common market, economic union, political 3. Poorly developed infrastructural facilities: Poor
communication and transportation links among the
union.
member states tends to limit trade.
4. Desire for self autonomy and personal ambitions of the
2003/49 Nov Exercise 24.1 leaders: The implementation of some of the ECOWAS
Which of the following is the highest degree of economic agreements involve loss of sovereignty and lack of
integration? independence of various leaders. Some are not willing to
A. economic union B. common market cooperate at times.
C. custom union D. free trade area 5. Disparity in income and level of development of various
member states: These have made joint development
FEATURES OF ECONOMIC INTEGRATION efforts in some economic activities difficult. Some of the
The following characterise economic integration poor countries cannot pay their dues while the more
1. It leads to trade creation among members. Trade developed countries feel cheated.
creation fosters trade increase and improves the 6. Bottleneck: There are differences in economic and
wellbeing of the members. political ideology which delay decision making process.
2. There is the existence of free trade cooperation among This tends to hamper the integration processes.
members. 7. Insufficient capital: Many of the countries are poor. The
3. Movement of goods and services across the member amount of capital which can be raised for development
nations is liberalized in some cases. projects is limited.
4. The participating countries encourage the facilitation 8. Political and social instabilitiy: Frequent crisis in the
of trade links among the members. region of have frustrated the implementation of some of
5. Citizens in the member countries enjoy free the community’s programmes.
movement. 9. Reluctance in eliminating tariffs: Tariffs on imports are a
major source of revenue for many countries in West
6. There is cooperation in policy formulation as members
Africa. Many are therefore, reluctant to eliminate tariffs
harmonize many critical factors.
on imports from member states.
7. It adopts comparative advantage pattern of production. 10. Jealousy and fears of domination: The smaller and less
economically viable countries are suspicious that the
ADVANTAGES OF ECONOMIC INTEGRATION larger and more economically viable countries would
1. Increased trading activities between member dominate the community. They are therefore not willing to
countries: The elimination of trade barriers would come to terms with other countries.
increase trade between them.
2. More efficient allocation of resources: There will be a 2017/47
higher degree of specialization among the various One problem facing the economic integration of countries
countries. Resources would be properly harnessed. in West Africa is the
3. More effective bargaining power in the world trade: A. presence of large and developed markets
Members which produce unidentical products would be B. uneven development among West African countries
able to obtain better deals from third party countries, C. existence of different central banks in the countries
through the formation of cartels. D. failure of labour to move freely in the region
4. Reduction of unemployment: Free mobility of factors Answer
of production, including labour, would reduce the Uneven development among West African countries (B)
problem of unemployment in the sub-region.
5. Wider market: Member countries would have a wider 2018/10UTME
market for the sale of goods and services, this would The Economic Community of West African States
encourage productivity and reduce under-capacity (ECOWAS) has been slow in achieving its objectives
utilization. because of
6. Increased size of capital: The pooling of resources would
A. the activities of multinationals
enable larger capital to be raised for purposes of financing
B. inadequate personnel at the secretariat
development projects.
7. Improvement in infrastructure: Through joint efforts, C. political instability
infrastructural facilities would be better developed. D. inadequate international support
Answer: C – Political instability

646
2023/6 Neco Exercise 24.2 2007/55 Neco Exercise 24.3
a. Define Economic Integration. The following countries are members of ECOWAS except
b. Expatiate on five benefits of Economic Integration. A. Angola B. Ghana C. Ivory Coast D. Liberia
E. Niger Republic
THE ECONOMIC COMMUNITY OF WEST
1996/32 Nov Exercise 24.4
AFRICAN STATES (ECOWAS)
The treaty of ECOWAS was signed in
The Economic Community of West African States was
A. 1975 B. 1977 C. 1978 D. 1984 E. 1986
formally founded on 28th May, 1975 with Nigeria under the
administration of Yakubu Gowon and Togo under the
administration of Late Gnassing Eyadema playing leading ORGANS OF ECOWAS
The Economic Community of West African States consist of the
roles. These two leaders, as far back as 1972 held series of
following organs or institution
meetings and negotiations after which they sent draft i. Authority of Heads of State and Government: This is the
proposals to other heads of States of West African highest organ of ECOWAS; and it comprises heads of
countries. The administrative headquarters of the government and/or states of member countries. It is the
community is in Abuja, Nigeria while the fund headquarters governing body of ECOWAS; and it makes the major decisions
is in Lome, Togo. ii. The Council of Ministers: It comprises of foreign affairs
The aim was to form an economic union that would ministers of member states. It prepares the agenda for the
challenge and foil the imperialist economic exploitation and meeting of Head of State; and it formulates policies for
approval.
domination of West Africa. ECOWAS is a regional
iii. The Executive Secretariat: This is the administrative organ of
economic grouping that cuts across political and linquistic
ECOWAS. It is headed by secretary general on a four- year
barriers. It is made up of fifteen West African countries, term. He can be reelected for another four years. Its major
namely: Cape Verde, Gambia, Guinea–Bissau, Burkina function is to implement the decisions of Heads of States and
Faso, Mali, Niger, Benin, Guinea, Liberia, Sierra Leone, the council of ministers.
Togo, Cote d’Ivoire (Ivory Coast), Ghana, Nigeria and iv. The Technical and Specialised Commissions: They are
Senegal. responsible for special matters as follows
The only former member of ECOWAS is Arabic speaking a. Transport, telecommunication and energy
Mauritania which also is one of the founding members in b. Social and Cultural issues
1975 and decided to withdraw in December 2000. c. Natural resource, agriculture and industry
Mauritania signed a new associate membership agreement d. Customs, Immigration, trade, monetary and payments.
vi. The Tribunal: This is the legal organ of ECOWAS. Its major
in August 2017.
functions are settle disputes among member states and to
NB: The economic community of West African States interpret ECOWAS treaty whenever the need arises.
became operational on July, 1975 after the treaty was vii. ECOWAS Fund: This is the financial organ of ECOWAS. It
ratified by the member countries. uses the fund to
i. Compensate members who are adversely affected by
2000/50 Nov ECOWAS activities
The Economic Community of West African States ii. Finance developments projects.
(ECOWAS) has its headquarters located in iii. Ensure much cooperation among member states
A. Ghana B. Nigeria C. Liberia D. the Gambia iv. Assist less developed member states.
Answer OBJECTIVES OF ECOWAS
Nigeria (B) 1. Removal of Tariffs: ECOWAS aims at removing customs
duties and other charges that restrict movement of goods
2010/48 among member countries. Removal of tariffs will give rise to
Which of the following is not a member of the Economic free flow of goods from one member country to another and to
Community of West African States (ECOWAS)? reduction in the prices of the goods.
A. Cape Verde B. Mauritania C. Cameroon 2. Common External Tariff Policy: One of the objectives of
D. Niger ECOWAS is to establish a common external tariff policy as
Answer well as common commercial policy with regards to imports
Cameroon (C) from non-ECOWAS countries. This is intended to create a
common market and eliminate unhealthy competition.
2009/ 18 UTME 3. Free Movement of People: This requires abolition of all
Which of the following countries has withdrawn her obstacles that restrict free movement of persons across the
membership of the ECOWAS boarders of member countries. This is to allow free flow of
A. Senegal B. Mauritania C. Guinea Bissau labour and other factors of production from one member
D. Burkina Faso country to another.
Answer
Mauritania (B)
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4. Infrastructural Development: It is the objective of 7. Increase in foreign investments in Nigeria: The high rate
ECOWAS to be involved in jont development of economic of demand for all goods and services in Nigeria has
infrastructural. The member countries are to evolve a common attracted foreigners (Americans and Europeans) to Nigeria
policy that would promote development of transport, to set up their firms. And this has led to our rapid
communiation, energy and other infrastructural facilities in all economic growth and development.
the member countries. 8. Effective harnessing of our resources: ECOWAS has
5. Economic Stability: ECOWAS aims at increasing and enabled Nigeria to properly tap (explore and exploit) a
maintaining economic stability among member states. This large number of her resources as there is a high demand
gave rise to the establishment of the fund for co-operation, for our local raw materials in all West Africa countries
compensation and development as well as joint development (member states).
efforts to ensure growth of member states. 9. High rate of our economic growth and development:
6. Economic Cooperation and Growth: ECOWAS aims at ECOWAS has raised the rate of our (member states –
promotion of economic co-operation in the development of Togo, Ghana, etc) economic growth (increase in output of
member countries. This involves harmonization of economic goods) due to a very high demand for goods in different
and industrial policies of member states and elimination of parts of the sub-region.
disparities in the level of development of members of 10. High standard of living: Increase in all economic
ECOWAS, and promotion of joint venture. activities in Nigeria has led to a rapid rise in investment
7. Harmonization of fiscal and Monetary Policies: This is and employment of labour (people). This has led to a rise
intended to eliminate all the obstacles to the free flow of fund in our level of income and standard of living.
among member countries. This would facilitate trade and
investment, and promote commerce in ECOWAS states. ACHIEVEMENT OF ECOWAS
8. Harmonisation of Agricultural Policies: This is to promote 1. It has created a very large market for Western countries’
common agricultural projects in member countries especially produce and locally manufactured goods. This has
in the fields of marketing, research and agro-industrial encourage the establishment of large industries, like iron
enterprises. and steel complex, in the sub-region.
9. Raising Standard of Living: All joint development 2. It has quickened social and economic development of
programmes are aimed at promoting growth of the economies West African states by encouraging freedom of movement
of the member states to improve their income per capita and and interaction among people of the sub-region.
raise the overall standard of living.
3. It has succeeded to enhance the unity of West Africa
ADVANTAGES TO BE DERIVED FROM ECOWAS
countries. They now present a common front and they
(BENEFITS NIGERIA DERIVES FROM BEING A speak with one voice in international organisation.
MEMBER OF ECOWAS) 4. It has encouraged West African states to trade among
1. High rate of employment: Nigeria has been able to a certain themselves. Andthis has increased the volume of
extent resolve her unemployment problem as there is a high production in each state as members are now importing
rate of setting of both small and large firms and free movement goods from one another and not from abroad.
of Nigerian applicants to other member states to secure gainful 5. It has raised the general standard of living of West
employment. Africans through employment.
2. Exposed to an enlarged market: A small country like Togo, 6. It has led to increase in the bargaining power of West
even a large country like Nigeira will have access to a larger African states with other sub regional groups. And this
market than her small or local market as the goods will be has greatly improved member countries’ terms of trade
moved to all parts of West Africa countries for sale. This with other countries.
increases in our sales volume. 7. It also ensures free and fair elections in member states.
3. Full capacity utilization: ECOWAS has enabled Nigeria (or For example, it has contributed to peaceful conduct of
member states) to operate her industries at full capacity. This political elections in Ghana, Nigeria, Togo, Liberia, etc.
has eliminated waste; and it has enabled us to achieve 8. It has led to free movement of labour and capital within
maximum output. the sub-region. ECOWAS agreement explicitly allows
4. Free movement of our factors of production throughout for free movement of labour (West Africans) within the
West Africa: ECOWAS has enabled Nigerians to freely move sub region. Thus a Nigerian can enter and stay any
to other member countries to set up firms or business units. It
West African country for a maximum period of 90 days
has made our factors of production (labour and capital) to be
without Visa. The ECOWAS treaty on free movement
gainfully employed.
5. Increase in our foreign exchange: Nigeria has accumulated provides that a citizen of a member country visiting any
much foreign exchange as she has been able export her goods member states of the other for a period not exceeding
and services to all West African countries. 90 days, shall enter the territory of that member states
6. Access to more capital - high level of investment: Nigeria has through an official point of entry free visa
been able to raise a very large amount of capital through sales requirements, but the citizen must also possess valid
of her shares, stocks, debentures, bonds, bills, etc in all documents namely passport and international health
West African countries. This has led to increase in our rate certificates.
of investment.

648
9. It has promoted political and military co-operation among PROBLEMS OF ECOWAS
West African countries. For instance, ECOMOG is a 1. Reluctance in eliminating tariffs: Many West African
brain-child of ECOWAS. Each member state now sends countries are reluctant to eliminate all tariffs on goods
peace-keeping force to any member state that is engulfed from member countries since it will lead to a loss of
in Civil War. Also, ECOWAS through ECOMOG revenue. These countries depend largely on import and
forestalls any form of political disturbances in the sub export duties as sources of government revenue. The
region. For example Liberian Civil War was quelled by total elimination of tariffs would lead to a substantial
ECOWAS, uprising in Togo was suppressed by the Union, fall in government revenue.
etc. 2. Inadequate fund: There is a gross inadequacy of fund
2019/50 NABTEB in the Union. It is partly caused by unwillingness of
Under the ECOWAS agreement, a Nigerian can enter and stay some members to contribute their financial quotas to
in Ghana without a visa for a period of ECOWAS. This reduces efficiency and effectiveness in
A. 14 days B. 30 days C. 90 days D. 100 days the ECOWAS’s administrative work and
Answer: 90 days (C) implementation of its policies.
3. Absence of lingua franca and common currency: The
2014/36 Neco absence of the above factors also hinder economic
ECOWAS treaty allows a Nigerian to visit a member state for cooperation in Africa. The inability of the Union to
a period not exceeding _____ days adopt a lingua franca and common currency in the sub-
A. 30 B. 60 C. 90 D. 95 E. 100 region has lowered the level of economic activities and
Answer: 90 (C) other forms of cooperation in West Africa.
4. Similarity of products: The basis for trade is virtually
REASONS FOR LOW VOLUME OF TRADE lacking since most of them produced identical
BETWEEN WEST AFRICAN COUNTRIES commodities which make exchange unnecessary. Most
1. The economies of West African countries are competitive: produce primary products which are either agricultural
Many of them produce identical primary products, products or minerals. The volume of trade among these
especialy agricultural products and minerals. These primary countries would continue to be low for a long time.
products are in higher demand in the industrial markets of 5. High rate of poverty in West Africa: The rampant
Europe and America than in other West African countries. incidence of poverty in West Africa reduce the level of
2. There are still close ties between the countries of West investment, employment and effective demand for
Africa and the advanced countries: The former French goods and services. This hinders the rate of flow of
colonies have strong ties with Franc and the franc. The goods, capital and labour in the region.
same applies to many of the former British colonies who 6. Underdeveloped infrastructure: There are poor links
had until recently very strong ties with Britain. For a long between the member states. The existing transportation
time, their trading activities were directed mainly towards and communication facilities among the members of
their former colonial rulers. the community are inadequate. This would impose
3. Most West African countries import mainly manufactured serious problems to the free movement of persons,
goods: These goods are supplied by the industrialized capital and goods.
nations outside Africa. West African countries produce a 7. Conflict of interests: Bilateral trade agreements and
relatively small quantity of manufactured goods which political ties with other countries outside West Africa
cannot even satisfy internal demand. could lead to a conflict of interest with their ECOWAS
4. The West African economy is still largely controlled by the commitments. Most countries of West Africa have strong
multinational corporations which have their bases in the economic and political ties with some advanced countries
advanced countries: They are found in the mining industry, of the world or with their former colonial rulers. There are
construction, manufacturing etc. Their external trading likely to be conflicts of agreement which will jeopardize
activities which involve credit – financing and insurance are the common tariff agreement among the members of the
largely foreign – oriented. economic community.
5. The means of transporation and communication between 8. Discrimination: Some member states still discriminate
West African countries are still poorly developed: Before against factors of production from neighbouring states.
independence, most of the transportation of routes in these They prefer foreign specialists or skilled manpower and
countries had a north-south direction. They were mainly capital to those of member countries. This hinders the free
flow of factor services among members.
used for evacuating the primary products of these countries
9. Fear of domination: The fear of domination of some
to the ports from where imported goods were also send to
members by others due to difference in size, population
other parts of the country. For a long time, many West and level of development or wealth has seriously
African countries have maintained this pattern, making inter weakened the spirit of cooperation and implementation of
country communication in West Africa less easy. The ECOWAS’s decisions by member states.
means of communication between West African countries 10. Non harmonization economic policies: Having different
are not properly developed, thereby hampering trade monetary, fiscal and exchange rate control policies make
activities. economic cooperation in African states to be difficult.
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11. Political and ideological differences: This arise partly 2005/50 Nov
from differences in political backgrounds. The English Which of the following is a limitation to economic
speaking countries of West Africa tends to have a similar integration in West Africa?
ideology which is different from that of the French A. strong trade ties with formal colonialists
speaking countries. The political ideologies of the various B. effective allocation of productive resources
leaders may also differ. Some wants to practice capitalism C. absence of border disputes
and others socialism or mixed economy. Such political D. economic stability in the region
and ideological differences tend to limit the degree of Answer Strong trade ties with formal colonialists (A)
economic cooperation.
12. Differences in cultural and legal systems: Since the
2010/49 Exercise 24.5
cultural backgrounds of the various countries are different,
Which of the following is not a type of economic
there are bound to be difficulties in agreeing on certain
areas of priority to be embarked upon. The different legal integration?
systems which operate in different countries are bound to A. customs market B. common market C. economic union
cause some difficulties. Problems are likely to arise on the D. free trade area
way of the “Tribunal of the community” in his attempts to
harmonize the laws of the various countries. 2019/47
The major achievement of the economic community of
2023/48 West African States (ECOWAS) is that it has
Which of the following is not a problem facing the A. made capital mobile
Economic Community of West African States (ECOWAS)? B. made possible the use of common currency
A. language barriers C. increased members allegiance to former colonial masters
B. production of the same commodities D. widened the market for goods produced
C. poor transportation and communication Answer
D. inadequate supply of labour Widened the market for goods produced (D)
Answer 2000/50 Exercise 24.6
Production of the same commodities is not a problem facing Which of the following countries is not a member of the
ECOWAS (B) Economic Community of West African States (ECOWAS)?
A. Ghana B. the Gambia C. Cameroun
2000/45 Nov D. Guinea Bissau
The ECOWAS traveler’s cheque was launched to aid
A. smuggling in West Africa B. farming in West Africa 2003/47
C. trade in West Africa D. mining in West Africa A major problem facing the Economic Community of West
Answer: Aid trade in West Africa (C) African States (ECOWAS) as an Economic Integration is the
Hint: The ECOWAS traveler’s cheque was launched to A. increasing population
“enhance regional trade, tourism and integration. B. willingness of members to cooperate
C. geographical contiguity D. weak trade relations
1997/39 Nov Answer: Weak trade relations (D)
Which of the following is not a limitation of the realization of
the aims and objectives of ECOWAS? 2009/55 Neco
A. reliance of member nations on import duties as a major Through membership of the Economic Community of West
source of income African States (ECOWAS) countries have achieved
B. free movement across territorial boundaries of member A. a large market for their products
nations C. differences in currency B. emancipation of Africa
D. reliance on former colonial masters for economic survival C. full employment of resources
E. fear of domination of smaller states by the bigger ones D. higher transportation cost of goods within the region
Answer E. military superiority over other African countries
Free movement across territorial boundaries of member Answer: A large market for their products (A)
nations (B)
2001/59 Neco
1999/50 Nov The headquarters of ECOWAS is located in
One major aim of the Economic Community of West A. Ghana B. Gambia C. Mali D. Nigeria
African States (ECOWAS) is to E. Sierra Leone
A. form one government for all member countries Answer: Nigeria (D)
B. remove barriers to free movement of resources
C. limit trading activities of member countries 2003/56 Neco Exercise 24.7
D. encourage all member countries to speak one language ECOWAS visa lasts for
Answer A. 14 days B. 30days C. 60days D. 90 days
remove barriers to free movement of resources (B) E. 100days
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1993/40 Nov 2003/50 Nov
One of the aims of the Economic Community of West The formation of the Economic Community of West
African States (ECOWAS) is the African States (ECOWAS) as an organization for economic
A. liberalization of trade among member states integration is an attempt to
B. establishment of its headquarters in each of the member A. restrict the movement of resources
states B.creates jobs for foreigners working in West African
C. take-over of businesses in member states countries
D. encouragement of revolts against former colonial C. encourages production of agricultural products
masters D.create expanded market for the West African Community
E. discouragement of trade among member states Answer
Answer Create expanded market for the West African community (D)
Liberalization of trade among member states (A)
2004/48 Nov 2012/11 Neco
A major reason for the establishment of the Economic (a) What is economic integration?
Community of West African States (ECOWAS) was to (b) State and explain four types of regional economic
A. compete with other international agencies integration.
B. develop the domestic trade of member countries Answer
C. control the outflow of foreign exchange in the region (a) Economic integration is the coming together of
D. promote the economic progress of member nations countries with common interest to form themselves
Answer into an organization with the major objectives of
Promote the economic progress of member nations (D) creating better economic atmosphere and removing
trade barriers or other obstacles that diminish the free
1998/22 flow of goods and services in the economies between
The problem of small markets in West Africa can be solved or among the associated members.
through (b) Types of regional economic integration
A. separate planning among the West African countries 1. Monetary union: In this type of cooperation, different
B. meaningful cooperation among the West African member countries use separate currencies which can
countries C. political stability in West Africa be exchanged freely at fixed rates.
D. imposition of high tariffs on West African exports 2. Currency union: This is a form of economic
E. the central banks of West African countries integration in which different countries make use of
Answer the same currency and share the responsibility for the
meaningful cooperation among the West African countries management of the currency, including its supply.
(B) 3. Free trade area: In this type of integration, member
countries agree to remove all restrictions to trade
2006/56 Neco among them. Tariffs, quotas, bans, e.t.c. are not
Which of the following is a problem confronting imposed on goods coming from or going to member
ECOWAS? countries.
A. adequate infrastructural facilities B. common 4. Custom union: This goes a step further than the free
currency and cultural similarities C. common political trade area. In addition to having a common internal
background D. political and ideological differences tariffs policy, they have a common external tariff
E. political stability of member countries policy. Apart from the member countries removing
Answer trade restrictions among them, they set up a common
Political and ideological differences (D) external tariff against non member countries.

2003/11 Exercise 24.8

2006/57 Neco (a) Explain the term economic integration.
The following are advantages of economic integration (b) Highlight any four problems of economic integration
except in West Africa.
A. encouraging uneven distribution of benefit among 2000/10 Neco Exercise 24.9
member countries What factors have hindered the achievements of the
B. facilitating the allocation of productive resources objectives of ECOWAS since its establishment?
C. provision of bargaining power for member countries
D. provision of large market
E. removal of unhealthy competition
Answer
Encouraging uneven distribution of benefit among member
countries (A)

651
2009/11 1994/40
Explain any five objectives of the economic community of Under the ECOWAS agreement, a Nigerian can enter and
West African States (ECOWAS). stay in Ghana without a visa for a period of
Answer A. 14 days B. 30 days C. 60 days D. 90days
Objectives of the Economic Community of West African E. 100 days
States (ECOWAS) Answer: 90 days (D)
1. It encourages free flow of materials and human
resources within the sub region. 2021/45 (PC 2)
2. Adopting a common industrial policy in all member There has been little or no trade among West African
nations. countries because
3. Stimulating large scale production through individual A. they are all self-sufficient and need not trade
development in the member countries. B. goods produced by these countries are of high quality
4. Creating large market that will cater for the products C. they are primary producers and importers of finished
being produced in the sub region. goods
5. Gradually eliminating tariffs with regard to the D. their former colonial masters will not allow trade
importation and exportation of goods between member Answer
nations. Their former colonial masters will not allow trade (D)
1999/6 Nov 2021/47 (PC 2)
In what five ways can member states benefit from the A benefit of the Economic Community of West African
community of West African States (ECOWAS) States (ECOWAS) to member countries is
Answer A. a reduction in government’s expenditures
1. Harmonization of fiscal and monetary policies. B. an increase in the cost of living of the people
2. Harmonizing agricultural policies. C. the conservation of foreign exchange
3. Creating a large market that will cater for the products D. the creation of wider market for commodities
being produced in the sub-region. Answer
4. Promoting common projects in areas of marketing and The creation of wider market for commodities (D)
research.
5. Adopting a common industrial policy in all member 2018/3 (UNIBEN, BENIN–CITY)
Trade indebtedness amongst West African countries is
nations.
settled through the
A. ECOWAS B. West African clearing house
2001/50 Nov
C. council of finance ministers
Through membership of the Economic Community of West
D. African development bank
African States (ECOWAS) countries have achieved
Answer: West African clearing House (B)
A. full employment of resources
B. a large market for their products 2015/10 (UNIBEN, BENIN–CITY)
C. military superiority over other African countries The main objective of establishing a regional grouping is
D. higher transportation cost of goods within the region A. to pursue a common agricultural policy
Answer B. for political integration
A large market for their products (B) C. the adoption of a common external tariff
D. to eliminate trade barriers
2014/2015/37 (UNIZIK, AWKA) Answer: To eliminate trade barriers (D)
Under the ECOWAS treaty on the free movement, a citizen
of a member state can enter and stay in a member state 2014/2015/100 (UI, IBADAN)
without visa for A major trading problem facing ECOWAS is
A. 100 days B. 90 days C. 80 days A. the absence of common currency
D. 70 days E. 10 days B. political instability C. high poverty level
Answer: 90 days (B) D. non – implementation of decisions
E. trade – related political crisis in Ivory Coast
2018/2019/55 (UNIZIK, AWKA) Exercise 24.10 Answer
Which of the following is not a type of economic Political instability (B)
integration?
A. customs market B. common market C. economic union
D. free trade area

652
1982/14UTME
The main economic goal of ECOWAS is the attainment of
A. regional free trade B. multilateral trade
C. bilateral trade D. economic self-reliance
E. the economic emancipation of Africa
Answer
A – Regional free trade.

1982/49UTME
Which of the following countries is not a member of the
Economic community of West African States?
A. Sierra Leone B. Sudan C. Gambia
D. Nigeria E. Guinea
Answer
B – Sudan.

1983/34UTME
The quickest way of achieving an economic union on
regional basis is to remove all
A. currency barriers B. language barriers
C. political barriers D. customs barriers
E. legal barriers
Answer
D – Customs barriers.

1985/39 UTME Exercise 24.11

Under the ECOWAS agreement, a Nigerian can enter and
stay in Ghana without a Visa for a period of
A. 14 days B. 30 days C. 60 days
D. 90 days E. 100 days

1986/46 UTME
ECOWAS will enable the countries involved to achieve
A. comparative political advantage over other countries not
in the region
B. a large market for their products
C. military superiority over countries not in the region
D. lower the transportation cost of goods within the region
Answer
B – A large market for their products.

1992/50 UTME
One of the gains by members states of the Economic
Community of West African states is
A. monocultural dependency B. trade creation
C. trade inversion D. economic independency
Answer
B – Trade creation.

2002/43 UTME
ECOWAS has taken against step towards economic
integration by
A. presenting a united front against foreign economic exploiters
B. introducing a common currency for travelers
C. holding frequent meetings at various state capitals
D. increasing economic stability among members states
Answer
A – Presenting a united front against foreign economic
exploiters.
653
 OPEC conference on 30 November 2016. Gabon terminated
its membership in January 1995. However, it rejoined the
INTERNATIONAL ECONOMIC ORGANISATIONS
organization in July 2016. Qatar terminated its membership
International economic organisation aids international trade on 1 January 2019.
and come to the rescue of countries that have balance of
payments problemsand are in need of development as it is a This means that, currently, the Organisation has a total of
distinct fact that no nation is self sufficient. The inter 13 Member countries.
dependence (co–operation) of countries has been aided by
the industrial revolutions, international division of labour The OPEC statutes distinguishes between the Founder
and the emergence of international trade. This co–operation Members and Full Members – those countries whose
is carried on through one internatonal economic applications for membership have been accepted by the
organisation or the other. Conference.
1995/50UTME The Statute stipulates that “any country with a substantial
The primary objective of all international economic net export of crude petroleum, which has fundamentally
organisations is to similar interests of those of Member Countries, may
A. ensure that third world countries get a better share of the become a full Member of the Organisation, if accepted by a
world’s resources majority of three-fourths of Full Members, including the
B. promote international economic co-operation for the concurring votes of all Founder Members.
mutual benefits of all members
C. enforce structural adjustment programmes on less The statute further provides for Associate Members which
development countries are those countries that do not qualify for full membership,
D. encourage exports from the developed to the less but are nevertheless admitted under such special conditions
developed countries as may be prescribed by the Conference.
Answer
B – Promote international economic co-operation for the The five founding countries were Iran, Iraq, Kuwait, Saudi
mutual benefits of all members. Arabia and Venezuela.
The member countries are presently thirteen. The one’s that
ORGANISATION OF PETROLEUM EXPORTING joined later are Nigeria, the United Arab Emirates (UAE),
COUNTRIES (OPEC) Algeria, Libya, Indonesia, Qatar, Ecuador and Gabon.
OPEC is a voluntary association of oil producing countries Nigeria became a member of OPEC in 1971 as the first
established in September, 1960 to break the monopoly of African member of the organization.
the big foreign oil marketing companies. The main aim of
setting up the organisation was to protect the interest of oil 2018/16 UTME
producing nations and to eliminate competition and price The full meaning of OPEC is
war among them by controlling price and output. OPEC is a A. oil and petroleum exporting countries
form of capital. B. original petroleum exporting countries
C. organization of petrol exporting countries
Member Countries D. organisation of petroleum exporting countries
The Organisation of the Petroleum Exporting Countries Answer
(OPEC) was founded in Baghdad, Iraq, with the signing of D – Organisation of Petroleum Exporting Countries.
an agreement in September 1960 by five countries namely
Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and OBJECTIVES/ROLES OF OPEC
Venezuela. They were to become the Founder Members of 1. To break the monopoly of foreign oil marketing
the organization. companies and have a more effective control over
them:It is meant to enable the oil exporting countries
These countries were later joined by Qatar (1961), to have a greater say in the level of oil production in
Indonesia (1962), Lybia (1962), The United Arab Emirates their territories by encouraging the establishment of
(1967), Algeria (1969), Nigeria (1971), Ecuador (1973), refineries and petrochemicals industries.
Gabon (1975), Angola (2007), Equatorial Guinea (2017)
and Congo (2018). 2. It helps in the stabilization of oil prices to the
advantage of member states: This is achieved by
Ecuador suspended its membership in December 1992, effective management of supply and by influencing
rejoined OPEC in October, 2007, but decided to withdraw demand.
its membership of OPEC effective 1 January 2020. 3. It aims at achieving a fairly stable income from oil
Indonesia suspended its membership in January 2009, while at the same time ensures a steady flow of oil to
reactivated it again in January 2016, but decided to suspend the consumers: The achievement of stable prices will
its membership once more at the 171st Meeting of the lead to a steady flow of income for the member states.
654
4. To provide financial aid to member countries in need (ii) The Board of Governors: It comprises of Governors
of assistance: Soft loans and grants maybe given to nominated by the Member Countries and confirmed by the
members to finance investments in the oil sector. Conference with a term of office of two years. It is headed
by the Chairman of the board of governors, appointed by
5. Fixing production quotas for member countries: It the conference among the governors for one year in
determines the production levels of quantity of crude accordance with the principle of alphabetical rotation. The
oil to be produced by each member country. This is a board of governors direct the management of the affairs of
way of preventing excess supply or oil glut. the organisation and the implementations of the
6. To coordinate and unify the petroleum policies of decisionsof the conference.
member countries: OPEC streamlines the oil policies (iii) The Secretariat: It consist of the Secretary General which
of member countries in line with OPEC standards. is appointed by the Conference for a period of three years,
which term of office may be renewed once for the same
7. To promote economic and scientific cooperation period of time; and such staff as may be required.The
among members. secretariat shall carry out the executive functions of the
8. To reduce competition between member countries organisation in accordance with the provisions of the
and increase the benefits accruing to them through statute under the direction of the Board of Governors.
collective bargaining: Joint negotiations increase their
bargaining power in the world market, making them to ACHIEVEMENTS OF OPEC
have better deal for their products. 1. Regulation of output - fixing production quota: They
periodically fix production quota for their members; and
they must not be succeded. This has made oil price level
2019/59 Neco
to constantly move up.
Which of the following is an objective of OPEC?
2. Effective control of price of oil – price stability: It has
A. diversification of the global economy succeeded to eliminate wide fluctuation in crude oil price
B. exploration of petroleum products in the world market as they have fixed price at which they
C. increase in product supply and prices sell to all consumers.
D. stabilization of exchange rate 3. Taking unanimous action: They now act unanimously.
E. stabilization of oil prices They present a common front against oil producing
Answer: Stabilization of oil prices (E) companies and consuming community.
4. Elimination of exploitation: It has succeded to properly
OPEC SPECIAL FUND curtail (reduce) exploitation (cheating) or nefarious
The special fund was established in 1976 to benefit non- activities of al oil companies.
OPEC members and to provide loan facilities to developing 5. Setting up of OPEC fund:It has set up a common fund for
countries. The fund is administered by a governing alleviating (resolving) financial problems of members as
committee, with a Chairman of Director General. well as those of poor nations, especially third world
countries like non oil producing state.
2019/55 Neco 6. Improve trade relationship: It has succeeded or it
The OPEC special fund was established for the purpose of continues to improve trade relationship among menbers
A. advancing research and development of member and international community as a whole.
countries 7. Acquisition of equity share in oil companies: By 1982, it
B. protect the economic financial assistance to non OPEC passed a resolution that participation (equity share) of oil
developing nations companies should be acquired by members in order to
have effective control in the oil industry.
C. providing soft loans to OPEC members
8. Protection of interest ofmembers: It makes consistent
D. stabilizing prices in the international market
efforts to protect interest of its members.
E. training and retraining of their members 9. It has ehnaced unity among members: It has created
Answer desirable unity among oil producing states which enables
Providing financial assistance to non OPEC developing them to tacke their political, social and economic
nations (B) problems harmoniously.
10. It has created forum for resolving conflicts: It has
ORGANS OF OPEC provided a forum for both foreign oil companies and
In order to achieve the above objectives, OPEC set up three producing states to discuss and resolve their conflict
institutional organs, among them are the following: amicably.
(i) The Conference: It consist of delegations representing 11. It provides employment: It created employment
the member countries. A delegation may consist of one opportunities for people to be employed. For instance, it
or more delegates, as well as advisers and observers. has employed a large number of people from member
When a delegation consists of more than one person, countries.
the appointing country shall nominate one person as the 12. It seek favourable terms of trade for crude oil: It always
Head of Delegation. The Conference is the supreme seek for good conditions for marketing crude oil among
authority of the organisation. consuming community.

655
PROBLEMS OF OPEC SOLUTION TO OPEC PROBLEMS
1. Violation of production quotas: There is much 1. Stabilizing oil prices: Much efforts should be made to
problem of convincing OPEC members to accept the stabilize oil prices at an appreciable level.
production quotas. In most cases, some members have 2. Fixing appropriate production quotas: Appropriate
not always been honest among themselves and have production quotas should be fixed for members and they
openly or secretly raised production level above the should be convinced to accept and faithfully implement
Absence of price’s stability: The stability of oil price, them.
the main aim of OPEC is still elusive (impossible). This 3. Implementation of OPEC policies: Members should be
is mainly due to lack of cooperative attitude among encouraged to implement all OPEC policies as agreed
members as they accord secret preferential treatment to upon by all members.
4. Resolving all conflict: All forms of disagreement
many oil importing countries.
between members and non–members alike should be
2. agreed quotas in order to raise more foreign exchange
amicably resolved for the smooth functioning and rapid
to solve their economic problems progress of OPEC.
3. Political disagreement between member nations: 5. Acting as residual suppliers: All members should
Disagreement on political front has jeopardize the constantly makes efforts to readily adjust supply in
relationship between member nations, for example Iran accordance to the prevailing prices to be quite stable,
and Iraq war created problems for the organisation. even during
4. Absence ofunited front: There is much difficulty in 6. Reducing level of Competition: All form of competition
presenting a common front in either rejecting or between member and non-members countries should be
accepting the oil companies’ superfluous demands, and reduced to the barest minimum. This can be done by
curbing their nefarious actviities or exploitation luring them into any form of agreement that would
tendency. Many members concede their actions, while regularize oil supply and prices.
some object. 7. Imposing penalty on defaulters: Serious penalty and
5. Non implementation of OPEC’s policies: Some sanctions should be imposed on any member who
members are quite reluctant to accept the cartel’s regularly defaults their agreed terms especially fixed
decision and faithfully implement its policies. These quotas and prices.
adversely affect the cartel’s effectiveness.
6. Conservation measures: Stock-piling of oil activities 2007/50 Nov
by some of the major importing countries (especially Which of the following countries is not a member of the
USA) have created much problem of a great fall in organization of Petroleum Exporting countries (OPEC)?
demand and prices of crude oil. A. Nigeria B. Venezuela C. Saudi Arabia
7. Keen competition: Members of OPEC are faced with D. Egypt
keen competition from non-oil producing members Answer
especially UK, Mexico and Norway. This has led to oil Egypt (D)
glut (excess of supply of oil over its demand). This
forces OPEC members to reduce their oil output and 2000/49 Nov
prices especaily in 1980s. Which of the following countries is a member of the
8. Global economic recession: A great fall in economic Organization of Petroleum Exporting Countries (OPEC)?
activities throughout the world has compelled many A. Liberia B. The Gambia C. Ghana D. Libya
consuming countries to reduce their demand for crude Answer
oil. This has lowered oil price. Libya (D)
9. Decline of loyalty: This has made members to ignore or
not very willing to obey OPEC’s rules, especially 2013/5a
allotted production quotas and fixed prices to members Nigeria become a member of the Organisation of Petroleum
has become a great threat to its overall success. Exporting Countries (OPEC) in
10. Struggle for leadership: The continuous struggle for A. 1951 B. 1960 C. 1971 D. 1976 E. 1985
leadership of OPEC by some members especially Answer 1971 (C)
between Saudi Arabia and Iran poses a serious threat to
achievement of OPEC’s objectives. 2009/49
11. Oil glut: The problems of OPEC were compounded by The five countries that established the organization of
the oil glut of 1980s. The situation compelled many Petroleum Exporting Countries (OPEC) are
OPEC’s members to grant price concession to many oil A. Nigeria, Iraq, Venezuela, Kuwait and Ghana
importing contries. That is, the downward pressure on B. Saudi Arabia, Kuwait, Sierra Leone, Iran and Iraq
oil prices compelled many members to entirely violate C. Algeria, Kuwait, Venezuela, Iran and the Gambia
the principles of OPEC by secretly reducing the fixed D. Kuwait, Venezuela, Ira, Iraq and Saudi Arabia
oil prices and exceeding their production quotas. Answer
Kuwait, Venezuela, Iran, Iraq and Saudi Arabia (D)

656
2005/4a Nov Exercise 25.1 2019/40 UTME
A prominent African member of the Organisation of The Economic Commission for Africa was set up by the
Petroleum Exporting Countries (OPEC) is A. UNO B. ECOWAS C. OAUD. IMF
A. Nigeria B. Sierra Leone C. The Gambia Answer A – UNO
D. Ghana
2008/50
2010/47 Exercise 25.2 The Economic Commission for Africa is an agency of the
In order to stabilize oil price in the world market, there is A. organization of African unity
the need for OPEC members to B. African Development Bank C. European Union
A. always have budget deficit D. United Nations Organisation
B. encourages competition among themselves Answer
C. adhere to production quotas United Nations Organisations (D)
D. fix the price of non-oil products
INTERNATIONAL MONETARY FUND (IMF)
2012/49 Exercise 25.3 IMF was initiated by the representatives of the Allied
Which of the following is the major function of the Nations during the Breton Woods Conference, New
Organisation of Petroleum Exporting Countries (OPEC)? Hampshire, USA in July 1944. IMF was formally
A. exploration B. oil transportation C. oil refining established on 27th December, 1945, with a total number of
D. regulation of oil prices members of 44 nations which include United States, Japan,
China, Canada, Western European. It began full operations
in March, 1947 and the organization became a specialized
agency of United Nations. Its headquarters is at Washington
UNITED NATIONS ECONOMIC COMMISSION FOR D. C. USA with a membership of 190 (2020).
AFRICA
The need to establish these organizations arose from the
The United Nations Economic Commission for Africa
difficulties posed by the world wars to international trade
(UNECA) or ECA for short, meaning Economic
and exchange rates. It was set up to create conditions,
Commission for Africa was established in 1958 with its
which are favourable for the growth of world trade and to
headquarters in Addis Ababa, Ethiopia. It is an organ of the
provide financial assistance to members experiencing
United Nations Organisation with the broad aim of
persistence balance of payment difficulties. Member
promoting the social and economic development of Africa.
countries contribute to the pool of fund partly in
international currency (gold) and partly in their local
currencies, according to their quotas;and this established
OBJECTIVES OF ECA
member’s voting and borrowing rights. The institution
1. To collect data, especially those relating to African
therefore has reserve of currency of different countries.
states, analyse them and pass the information to the
Loans from and repayment to the organisation by members
appropriate bodies
are usually made in gold or convertible currencies through
2. To render technical advice to African states.
their respective central banks. Its management is in the
3. To carry out projects that cut across national boundaries
hands of Board of Governors and Directors.
for the overall continental interest.
4. To aid in the establishment of important institutions for
promoting African cooperation and integration OBJECTIVES OF IMF
1. To provide short term credit to member’s nations that
5. To proffer necessary advice to African countries on
has balance of payment problems.
programmes and projects that will enhance sub–
2. To encourage the growth of international trade.
regional, regional and international cooperation.
3. To promote cooperation in monetary matters among
member nations.
4. To encourage rate stability among member countries.
ACHIEVEMENT OF ECA
5. To pave way for the orderly growth of international
1. It has provided technical advice, and its efforts in
liquidity through Special Drawing Right (SDR).
promotion of economic and technical co – operation in
6. To promote free trade and to regulate trade policies.
the continent.
7. To establish multi-lateral system of payment among
2. It has assisted African countries in carrying out their
nations engaged in international trade.
various economic programmes.
8. To give advice to members on how to solve their
3. It has gathered, processed and made available important
domestic financial and economic problems.
data to African States and their institutions.
9. To establish a system which facilitates payment for
4. It has promoted social and economic development of the
goods and services as well as to eliminate restrictions in
continent.
the use of foreign exchange.

657
ADVANTAGES OF IMF TO WEST AFRICA 2. The conditions necessary to borrow money from IM are
1. IMF gives financial aids to the developing countries to always very stiff and very difficult to be met by most
finance their international trade. borrowing nations. They are forced to pay through their
2. IMF gives credit to West African countries to solve nose.
their balance of payment problem (BOPP). 3. Due to stringent measures imposed on borrowing
3. It gives useful advice to member countries on how to nations. IMF loans end up leaving borrowers worse-off
manage their resources more economically. than they were before accepting the credits.
4. It has helped many West African countries to obtain 4. IMF has been severally accused of discriminating
vital statistics required for planning through against the third world countries in it ledning pattern.
conducting country surveys. 5. IMF forces most developing countries to devalue their
5. Through the allocation of Special Drawing Right currencies, which makes it increasingly difficult to
(SDR). IMF allows these countries to withdraw from revamp their economy.
its pool of fund in order to meet their short term 6. IMF sometimes interfere in the economic policies of
balance of payment problem (BOPP). member countries, thereby undermining their economic
and political sovereignty.
NIGERIA AND THE IMF
Nigeria as a member of IMF applied for loan from the body PROBLEMS OF THE IMF
in 1980. This was however denied her due to her inability to 1. Domination of the fund by a few countries: Voting
accept the strict conditionalities which included: rights and credit entitlements of member countries
i. Devaluation of Currency. depend on their contribution quotas. The IMF’s decisions
ii. A rise in interest rate. have therefore been dominated by countries such as the
iii. A freeze in wages. US, the UK, Japan, Germany. Many of the policies of the
iv. Trade liberalization. organization tend to favour them at the expense of the
v. Removal of subsidies. poor nations who contribute very little to the fund.
vi. Reduction in government expenditure on social 2. Difficulty in obtaining IMF Loans–Conditionality:
services. Many of the developing countries have not been able to
cope with the stringent conditionalities of the IMF for
vii. Stoppage of non-statutory transfers to state government.
granting loans.
viii. Deregulation of the economy.
3. Inadequacy of international reserves: IMF faces the
problem of liquidity as international reserves are usually
IMF CONDITIONALITIES inadequate due to increasing use of gold and also the
Before lending money to member nations, especially the declining confidence in dollar as an international reserve
developing countries, the IMF usually demand that the currency which was brought about by the devaluation of
following condition must be met by the prospective dollar arising from the United States balance of payment
borrowing nation: problems.
i. Devaluation of currency by as much as 25% in order to 4. Fluntuating Exchange Rates: In times of balance of
bring the local currency to parity with the U.S. Dollar. payment problem, many members nation deviate from
ii. Export promotion. the rules of the organization by using exchange rate
iii. Deregulation of the economy. variation. This inability to stabilize the exchange rates
iv. Removal of subsidy. has serious adverse effect on international trade.
v. Simplification and rationalization of customs and tariff
structure. SOURCES OF IMF FUNDS AND ITS FACILITIES
vi. Dispatch of IMF officials. 1. Compulsory Financial Facility (CFF):This was
vii. Privatization and commercialization of public introduced in 1963. Its primary aim was to assist
enterprises. countries with BOP problems owing to temporary
viii. Trade liberalization. shortfall in exports earning to have a relieve and to
ix. Reduction in public expenditure. continue trading with other countries without loss of
x. Budget reformation. financial integrity.
xi. Effective and efficient management of available 2. Buffer Stock Financing Facility (BSFF):This enables
resources. members to finance their contribution in international
butter stock in relation on to international commodity
DISADVANTAGES OF IMF TO BORROWER agreement.
1. Developed nations such as U.S., Britain etc, control the 3. Special Oil Facility (SOF): This is given to non oil
organisations, and use it as a political weapon to bring producing nations to assist them to buy oil in
down the governments of developing countries that fail international market.
to dance to their torn by bringing them to their kneels in 4. Special Drawing Rights (SDR): This enables member
times of financial need. nations to withdraw funds from the pool of the IMF to
meet their BOP problems.

658
2023/49 The decision making body of the bank consists of Board of
Assisting members to solve temporary balance of payments Governors and Directors. The bank has a membership of
problem is the reason for the establishment of the 189 (2012).
A. world bank B. International Monetary fund
C. African Development Bank OBJECTIVES/FUNCTIONS OF IBRD
D. Economic Commission for Africa 1. To provide technical support to members.
Answer 2. To provide technical support to countries embarking
A key reason for the establishment of International on developmental projects.
Monetary fund is to assist members to solve temporary 3. To assist in the reconstruction and development of the
balance of payments problem (B) economy of member nations.
4. To give long term credits to needy nations for the
2000/58 Neco purpose of executing capital projects and for boosting
The IMF was established in productivity world-wide.
A. 1914 B. 1930 C. 1944 E. 1945 5. To promote foreign investment by private individuals.
Answer 6. To pool funds from wealthy and developed nations to
1944 (D) poor and undeveloped ones. The bank does this by
borrowing money from developed nations and lending
2006/50 Nov such money to the less-developed nations, at a
The institution responsible for maintaining stable exchange reasonable interest rate.
rate among countries is the
A. International Monetary Fund (IMF) THE WORLD BANK AND NIGERIA
B. Economic Commission for Africa (ECA) The World Bank has assisted Nigeria in various way
C. African Development Bank (ADB) through granting of soft loans, financial aids and technical
D. European Union (EU) supports among which are:
Answer 1. After 1960, the bank granted Nigeria total sum of ₦58
International Monetary Fund (IMF) (A) million for the construction of the hydroelectric power,
station popularly called the Kanji Dam.
2018/57 Neco Exercise 25.4 2. In 1970, it granted the country the sum of ₦60million
The organization established primarily to promote trade and for the reconstruction of oil palm projects.
foreign exchange stability among member countries is 3. After the civil war, the bank assists Nigeria to
called reconstruct many education institutions and other
A. African Development Bank (ADB) facilities that were vandalized by the war.
B. Economic Community of West African States 4. The bank has also assisted the various Agricultural
(ECOWAS) Development Projects (ADP). It also assisted in the
C. International Monetary Fund (IMF) construction of Lagos State water project.
D. Organisation of Petroluem Exporting Countries (OPEC) 5. In 1986, the bank granted Nigeria loan amounting to
E. World Bank ₦425million for the execution of the Structural
Adjustment Programmes (SAP).
INTERNATIONAL BANK FOR RECONSTRUCTION 6. The Bank granted soft loan to the Nigeria universities
AND DEVELOPMENT (IBRD)/WORLD BANK and also made training facilities available in areas of
This institution is popularly known as the World Bank. It economic and agricultural developmental projects.
was established at the same time with the IMF in 1945, 7. Between 1995 and 1997, the bank assisted the Lagos
following the deliberations of the representative of the 44 State government to lay water pipes and provide water
nations which took place at Breton Woods, New Hampshire in areas like Itire, Ikate, Aguda and other parts of the
USA in 1944. Its headquarters is in Washington, D.C. USA. state.

The World Bank was established to help in the IMPORTANCE OF THE WORLD BANK TO WEST AFRICA
reconstruction and development of war – ravaged 1. The bank provides loan to West African countries for
economies to construct the countries which were vandalized them to carry out capital projects.
as a result of first and Second World War. Member 2. The bank gives technical support to the countries in
countries contribute capital to the fund of the bank the execution of developmental projects.
according to their national income or level of development. 3. The bank provides financial aid for the execution of
The bank now aids the development of productive facilities projects in time of need. The bank can also execute
and resources in member’s countries. It borrows money such projects through the various governments.
from rich nations and lend to developing ones 4. IBRD has finance more agricultural, dam, electricity
and gas projects in West Africa.
5. IBRD provides basic developmental information and
advice to the countries
659
SPECIALISED AGENCIES OF THE WORLD BANK AFRICAN DEVELOPMENT BANK (AFDB or ADB)
1. International Development Association (IDA): It is African Development Bank (AFDB) was set up in
specialized in lending money only to the September 1964 with its headquarters in Abidjan, Cote
underdeveloped countries. It gives loans for loan d’Ivoire. It is a bank owned by African countries, which
periods which sometimes ranges from forty to fifty belong to the organization of African unity. Presently, the
years, at very low interest rate. membership of the AFDB includes non-African countries.
2. International Finance Corporation (IFC): It is AFDB commenced operation in July 1,1966. It was set up
specialized in giving out loans to countries for the following an agreement reached in a conference of finance
establishment of manufacturing industries. ministers of some African countries. Both OAU and ECA
contributed to its establishment.
Initially the membership of the organization was made up
2012/56 Neco of twenty–three (23) Independent African countries. In
The International Bank for Reconstruction and 1970, the number of members rose to thirty one (31).
Development (IBRD) is important to a developing AFDB has priority areas in allocating financial aid to
economy, because it members. The body is more concerned with:
A. enhances financial relationship among countries - Multi-national projects which must benefit a large
B. financing of short term balance of payment number of member countries.
disequilibrium - The project must generate employment for the citizens
C. give loans to members for legal proceedings of the member countries.
D. offers grant and aid to finance private projects
E. undertakes feasibility studies relating to economic OBJECTIVES/FUNCTIONS OF AFDB
development 1. It aids economic and social development by giving
Answer credit to African countries in order to facilitate
Undertakes feasibility studies relating to economic economic development within the continent.
development (E) 2. It provides technical support to Africans through the
study and preparation of feasibility reports and the
2008/59 Neco physical execution of developmental projects.
The headquarters of the International Bank for 3. It promotes both private and public investment in the
Reconstruction and Development (IBRD) is located in economy of African countries.
A. Kuwait B. Ivory Coast C. Switzerland 4. It helps in assisting and advising countries to select
D. Venezuela E. Washington D.C. and execute projects that are instrumental to economic
Answer development of the continent.
Washington D. C. 5. It gives financial grants to Africans that are in serious
economic and political problems.
2015/49 6. It helps in fostering economic integratiuon among
Which of the following is a benefit to a member country of member countries.
the world bank?
A. easy access to long term loans 2008/55 Neco
B. management of foreigners African Development Bank (ADB) was established in the
C. mediating in labour disputes year
D. financing balance of payment deficit A. 1944 B. 1960 C. 1964 D. 1982 E. 1994
Answer Answer
Easy access to long term loans (A) 1964 (C)
2004/49 Nov Exercise 25.5 2009/50
The international Bank for Reconstruction and The headquarters of the African Development Bank (ADB)
Development (IBRD) is also known as the was originally located at
A. World Bank B. bank for international settlements A. Cotonou B. Harare C. Abidjan D. Lagos
C. African Development Bank Answer: Abidjan (C)
D. European Economic Commission
2007/56 Neco
2003/31 UTME Exercise 25.6 The African Development Bank was set up I n1964 and has
IBRD as an international monetary institution is concerned its headquarters in
with the A. Burkina Faso B. Ivory Coast C. Liberia
A. balance of payments problems of member nations D. Niger Republic E. Senegal
B. financing of private businesses in member nations Answer: Ivory Coast (B)
C. development of infrastructure in member nations
D. improvement of trade among member nations
660
1998/37 Exercise 25.7 4. It helps poor nations to solve the balance of payment
One of the objectives of the African Development Bank problems.
(ADB) is the mobilization of 5. It promotes international trade.
A. blacks in developed countries to assist Africa 6. It coordinates the activities of the institutions under the
B. quality manpower for member states covering of UN in the areas of international trade and
C. foreigners to assist Africa development.
D. women for economic development 7. It harmonises trade among the developing countries by
E. Africans towards economic progress giving them tariffs.
2003/55 Neco
United Nation Conference on Trade Development (UNCTAD) has
WEST AFRICAN CLEARING HOUSE (WACH) its headquarters at
Its formation on July 1, 1976 was largely due to the efforts A. New York B. England C. Geneva D. Paris E. Moscow
of the Governors of the Central Banks in West Africa to Answer
find a solution to one of the obstacles to trade among West Geneva (C)
African countries.
1999/39
The United Nations Conference on Trade and Development
OBJECTIVE/FUNCTIONS (UNCTAD) was established mainly to
i. To control the level of output of crude oil for the world A. help primary producers by reducing tariffs on their exports
market. B. reduce trade among developing countries
ii. To project the economic interests of member countries. C. grant military aid to developing countries
iii. To maintain the price levels fixed by it for its various D. bring about reduction in prices of manufactured goods only
types of crude oil. Answer
iv. To provide financial aid to the third world nations. Help primary producers by reducing tariffs on their exports (A)

THE ACHIEVEMENT OF WEST AFRICAN THE ASSOCIATION OF AFRICAN CENTRAL BANK (AACB)
CLEARING HOUSE This association was set up in 1966. It consists of Central
i. Declaration of petroleum policies in member nations. Banks of African countries.
ii. Active participation in North-South dialogue aimed at
bringing security into the global economy. OBJECTIVES/FUNCTIONS OF AACB
iii. Instituting oil price structure that is widely recognized i. To bring the African Central Banks under one umbrella.
as standard by producers and consumers. ii. To foster co-operation among African countries in matters
iv. Formation of OPEC fund for intenational development that relate to monetary and banking policies.
in third world nations. iii. To enable African countries to present a common front to
the rest of the world on financial matters that affect Africa
UNITED NATIONS CONFERENCE ON TRADE AND generally.
DEVELOPMENT (UNCTAD) iv. To promote monetary stability to Africans.
UNCTAD was established as a result of the first meeting v. To assist in the formulation of guidelines along with
convened by the United Nations Organisation agency on trade agreements among African countries in the financial and
and development in 1964. This was in response to a call to the monetary field.
United Nations (UN) by the developing countries to convene a
meeting for the purpose of discussing their growing EUROPEAN ECONOMIC COMMUNITY (EEC)
international trade problems and their poor level of This organisation is now called European Union (EU).
development, resulting in the ever – widening gap between the
standard of living of the advanced and the underdeveloped Origin
countries. It acts as international forum between the poor and The European Economic Community (EEC) commonly known
rich nation in resolving the problemsof trade and development. as the European Common Markets was established in 1957 by
As at 1973, the membership of the organization stood at 142, six countries. The founders were West Germany, France, Italy,
with its headquarters in Geneva, Switzerland. The conference Belgium, Luxembourg and the Netherlands. The treaty
convenes every four (4) years. establishing EEC was signed in Rome with its headquarters in
Brussels. In 1973, Britain, Denmark and Ireland joined the
OBJECTIVES/FUNCTIONS OF UNCTAD organization. The treaty of Rome provided for the admission
1. It helps to solve the international trade problems of the to associate members. Some African countries took advantage
underdeveloped nations. of this and became member of the EEC.
2. It helps intervene in the areas where General Agreement
on Tariffs and Trade (GATT) fails to resolve the pressing The major reason for establishing EEC was to promote
problems of developing countries. economic activities among members through the creation of
3. It helps to assist nations to solve their mounting external common market and greater economies of scale.
debt problems. NB: The EEC has metamorphosed into Economic Union
called the European Union (EU)
661
OBJECTIVES OF EEC OBJECTIVE/FUNCTIONS
1. To enhance the mobility of factors of production i. To establish a framework for a Western style economy
between member states. and the basis for a strong private sector in such
2. To harmonise the socio-economic and political economies.
policies of member states. ii. To provide technical assistance and training to
3. To promote free trade among member nations by economies once geared toward communist planning.
minimizing trade barriers such as tariffs. iii. To play a major catalytic role in assisting east European
4. To harmonise monetary and fiscal policies of nations to privatize state owned industries.
members. iv. To finance state sector infrastructures throughout the
5. To establish a common tariff policy among members. region.
6. To bring European nation together economically.
7. To pursue common agricultural transport and
communication policy among the member states. NIGER BASIN AUTHORITY
The organisation was created in 1964, in Niamey, Niger,
RELEVANCE OF EEC NOW EU TO WEST AFRICA under an agreement reached by a number of West African
1. The EU development fund provides fnance for countries. It was originally called the River Niger
promoting development in the developing countries Commission; but its name was changed in 1980. Its head
which are associate members of the EU. Most of the office is Niamey, Niger.
associate members are the former colonies.
2. West African countries have witnessed greater foreign The member countries are the Republic of Benin, Chad,
investment from the EU countries as a result of closer Guinea, Cote d’Ivoire, Liberia, Mali, Niger, Nigeria, Sierra
ties with them. Leone, Togo, Burkina Faso and Cameroon.
3. A lot of trade goes on between EU and West African
countries. Presently, EU’s trade with West African
countries is the aspect of international trade, which is ORGANS OF THE NIGER BASIN AUTHORITY
growing most quickly. This is partly as a result of an i. The conference of Heads of state: This is the highest
agreement reached between the EU and the ACP policy-making body which normally meets every two
(African Carribean and Pacific countries) in 1975 in years.
Lome in which 92% of exports from the ACP countries ii. The Council of Ministers: Its membership consists of
were to be allowed into the EU duty-free. That was one minister from each member country. This organ
further enhanced by another agreement reached in meets once every year, with a chairman elected from
1980. each country.
iii. The Executive Secretariat: This is headed by an
2018/35 executive Secretary, and assisted by a deputy executive
The European economic commission was established to secretary. Its major function is to implement the
attain decisions reached by the Conference of Heads of State
A. free trade area B. customs union C. common market and the Council of Ministers.
D. economic union
Answer OBJECTIVE/FUNCTIONS
Common market (C) i. The main aim of the Niger Basin Authority is to
encourage and coordinate programmes or studies
1993/48 UTME relating to the development and exploitation of the
From which of the following does Nigeria derive trade resources of the Niger Basin. It liases with the member
concessions? states in order to ensure the optimal and effective use of
A. IMF B. World Bank C. ADBD. EEC the water and other resources of the Niger Basin.
Answer ii. It initiates and makes recommendations for studies and
D – EEC projects which involve the member states.
iii. It helps in formulating requests for financial and
technical assistance especially from advanced countries
or orld international organisations.

THE EUROPEAN BANK FOR RECONSTRUCTION

AND DEVELOPMENT (EBRD)
The European Bank for Reconstruction and Development
was established in 1991.

662
CHAD BASIN COMMISSION (CBC) PROBLEMS/CHALLENGES FACING GATT
The Chad Basin Commision was established in 1964. It 1. The developing countries have come to think that their
draws its membership from countries bordering it. These interest would be better served outside GATT.
are the Chad Republic, Nigeria, Cameroon and Niger 2. GATT’s liberalization policy has pushed members
Republic. better from the developed and developing countries to
form regional trading blocs.
OBJECTIVE/FUNCTIONS 3. Since most of the tariff reduction are made on
i. To promote development of the resources around the industrial goods (which the industrialized nation
lake basin. produced), raher than on primary (mainly agricultural
ii. To regulate through articulate guidelines, the use of commodities (which the developing countries
water in the Chad basin. produces). The impression created is that GATT
iii. To underatake joint projects predicated on effective use favours the industrialized countries at the expense of
of the lake’s resources for the mutual benefit of the developing countries.
member countries.
2000/60 Neco
ACHIEVEMENTS Which of the following is a function of OPEC?
i. It established a Development Fund in 1972 to finance A. controlling of the world demand for petroleum
projects that are beneficial to all member countries. B. establishment of the world petroleum prices
ii. It offers enormous opportunities for joint efforts in C. issuance of prospecting licenses
viable ventures in agriculture and fishing, irrigation D. prospecting for crude oil
system, animal husbandry, exploitation of mineral E. selling of crude oil on behalf of member countries
resources and transport activities. Answer
Establishing the world petroleum prices (B)
GENERAL AGREEMENT TARIFF AND TRADE (GATT)
The General Agreement on Tariff and Trade (GATT) was 2003/50
formed in 1948 by 23 countries with his headquarters in The Organisation of Petroleum Exporting Countries
Geneva. Since then, more countries have joined the (OPEC) is an example of a
organization and by 1985, the member had gone up to 85. A. perfect competition B. monopsony C. duopoly
All the important industrialized nations and most of the D. cartel
developing countries are members and they together come Answer
out about 80 percent of the world trade. The establishment Cartel (D)
of GATT was essential to prevent the recurrence of the
2017/48
widespread restrictive trade practices of the 1930s.
One objective of the organization of Petroleum Exporting
Countries (OPEC) is to
OBJECTIVES OF GATT
A. harmonize and stabilize oil prices
1. To promote the principle of non-discrimination in
B. ensure excess supply of oil to consuming countries
trade.
C. subsidise oil prices in member countries
2. To provide common code of conduct in international
D. consist member countries to exploit oil resources
trade.
Answer
3. To provide a machinery for the reduction and
Harmonise and stabilize oil prices (A)
stabilization of tariffs.
4. To grant special tariff concessions on such commodity
2010/50
export as groundnut, palm oil, e.t.c. of developing
Which of the following is not an international economic
countries in order to enhance their accelerated
organization?
development.
A. Economic Commission for Africa (ECA)
5. To remove or limit non trade barriers such as
B. African Development Bank (ADB)
embargoes, quota restrictions and other quantitative
C. World Health Organisation (WHO)
example, persistent unfavourable balance of payment.
D. International Monetary Fund (IMF)
Answer
2002/57 Neco
World Health Organisation (WHO) (C)
The United Nations declaration that seeks to address the
imbalance between the developing and the developed
1998/34
countries in international trade is known as the
The stability of the Nigerian economy depends mainly on
A. Bretton Woods agreement
the export price of
B. general agreements on tariffs and trade
A. groundnut B. cotton C. mineral oil
C. International Monetary Fund
D. palm kernel
D. New International Economic Order E. World Bank
Answer: Mineral oil (D)
Answer: General agreement on tariffs and trade (B)
663
2012/50 Nov 1996/3a Nov
The following are functions of the African Development The major currency used for granting credit to member
Bank in member countries except? countries of the International Monetary Fund (IMF) is the
A. aiding economic and social development A. U.S dollar B. Canadian Dollar C. Pound Sterling
B. providing technical assistance for projects D. Deutschmark E. Belgian Franc.
C. promoting both private and public investment projects Answer
D. issuing currencies and controlling money supply U.S. dollar (A)
Answer
Issuing currencies and controlling money supply (D) 2009/56 Neco
The International Monetary Fund (IMF) was set up mainly to
2015/50 A. cater for financial needs of developed countries
Which of the following is an objective of OPEC? To B. create conditions favourable for the growth of world
A. prevent fluctuation in prices of all commodities trade C. create favourable balance of payment
B. protect the economic interest of all countries D. develop domestic trade E. offset foreign debts only
C. control of output of oil D. discover oil in all countries Answer
Answer Create conditions favourable for the growth of world trade (B)
Control the level of output of oil (C)
1995/39 Nov
2018/59 Neco The Organization of Petroleum Exporting Countries
Which of the following is not a problem of development (OPEC) is an international body established to
planning in Nigeria? A. maintain international peace
A. adequate manpower B. enforce a common import policy among its members
B. dependence on foreign assistance C. control the price and output of crude oil among its
C. high level of corruption members
D. poor identification and coordination of programmes D. determine the countries to which its members should
E. shortage of relevant statistical data export their crude oil
Answer E. protect the interest of oil producing Arab countries
Adequate manpower (A) Answer
Control the price and output of crude oil among its
2004/43 Nov members (C)
A major objective of international financial institutions is to
A. aid countries facing severe economic problems 1995/40 Nov
B. control the spending habits of nations The United Nations conference on Trade and Development
C. enforce the principle of comparative advantage (UNCTAD) is concerned with finding ways to
D. build industries in developing nations A. abolish tariffs on international commodities
Answer B. ensure that international commodity prices are stable
Aid countries facing severe economic problems (A) C. encourage the development of education in African
countries
2004/45 Nov D. organize conference for member countries
A major negative effect of the exploration and export of E. make the UNESCO more responsive to the needs of the
crude oil on Nigeria economy is the developed countries
A. growing unemployment of school leavers Answer
B. neglect of other sources of revenue Ensure that international commodity prices are stable (B)
C. collapse of infrastructural facilities
D. rural-urban drift 2001/12 Exercise 25.8
Answer: Neglect of other sources of revenue (B) How can the international Bank for Reconstruction and
Development (World Bank) contribute to the economic
2004/47 Nov development of your country?
A major aim of the European Economic Community (EEC)
is the 2004/12 Nov Exercise 25.9
A. promotion of a strong defence force (a) State three aims of the organization Of Petroleum
B. establishment of free trade among member countries Exporting Countries (OPEC)
C. development of English speaking West African countries (b) Highlight four problems facing the organization.
D. establishment of industries in major cities of the world (c) Suggest solutions to any two of the problems
Answer highlighted in 12(a) above.
Establishment of free trade among member countries (B)

664
2003/12 Neco 2018/19 NABTEB
Enumerate the problems encountered by OPEC in achieving (a) Discuss the role of the organization of Petroleum
its aims. Exporting Countries (OPEC) in the world oil industry.
Answer (b) What problems militate against the effectiveness of
1. Violation of production quotas by some countries. OPEC in its goals?
2. Inability of the organization to control total world Answer
output and supply of oil. (a) Role of the organization of Petroleum Exporting
3. Political disagreement between member nations. Countries
4. Sabotaging the efforts of OPEC by some advanced 1. To provide financial aid to member countries in need
countries. of assistance:Loans and grants may be given to
5. Fluctuation or instability in world oil prices. members to finance investment in the oil sector.
6. Divergence of interests, problems and needs of 2. To promote economic and scientific cooperation
member countries. among members:It encourages cooperation in areas of
research, information and development technologies,
2012/12 Neco e.t.c. thereby increasing the pace of development in
Mention and explain four aims of organization of Petroleum these countries.
Exporting Countries (OPEC) 3. Fixing production quotas for member countries: It
Answer determines the production level or quantity of crude
Aims of OPEC oil to be produced by each member country.
1. To break the monopoly of foreign oil marketing 4. To coordinate and unify the petroleum policies of
companies and have a more effective control over member countries: OPEC streamlines the oil policies
them:It is meant to enable the oil exporting countries of member countries inline with OPEC standards.
to have a greater say in the level of oil production in 5. It helps in the stabilization of oil prices to the
their territories by encouraging the establishment of advantage of member states: This is achieved by
refineries and petrochemical industries. effective management of supply and by influencing
2. It helps in the stabilization of oil prices to the demand.
advantage of member states: This is achieved by
effective management of supply and by influencing
demand. (b) Problems of OPEC
3. To provide financial aid to member countries in need 1. Inability of the organization to control total world
of assistance:Soft loans and grants may be given to output and supply of oil.
members to finance investment in the oil sector. 2. Fluctuation of instability in world oil prices.
4. To reduce competition between member countries 3. Sabotaging the efforts of OPEC by some advanced
and increase the benefits accruing to them through countries.
collective bargaining:Joint negotiation increases their 4. Political disagreement between member nations.
bargaining power in the World market, making them 5. Violation of production quotas by some countries.
have better deal for their products. 6. Divergence of interests, problems and needs of
member countries.
2005/12 Nov
Highlight the roles of the organization of Petroleum
Exporting Countries (OPEC)
Answer 1994/10
1. It helps in the stabilization of oil prices to the Functions of the International Monetary Fund (IMF)
advantage of member states. 1. They provide short term credit to member nations that
2. To promote economic and scientific cooperation have balance of payment problems.
among members. 2. IMF gives financial aids to the developing countries to
3. To provide financial aid to member countries in need finance their international trade.
of assistance. 3. They give advice to members on how to solve their
4. To reduce competition between members countries domestic financial and economic problems.
and increase the benefits accruing to them through 4. They pave way for the orderly growth of international
collective bargaining. liquidity through Special Drawing Right (SDR).
5. To coordinate and unify the petroleum policies of 5. They establish muti-lateral system of payment among
member countries. nations engaged in international trade.
6. To break the monopoly of foreign oil marketing 6. They encourage the growth of international trade.
companies and have a more effective control after
them.

665
1993/10 Nov 2019/9 (UNIBEN, BENIN – CITY)
(a) Why was the International Bank for Reconstruction A world organization that helps any willing country to solve
and Development (IBRD) established? her balance of payment problem through its financial
(b) How does Nigeria benefit from its establishment standby credit facilities is called the
Answer A. GATT B. IMF C. UNDP C. ECA
(a) The International Bank for Reconstruction and Answer
Development (IBRD) was established to help in the IMF (B)
reconstruction and development of war-ravaged
economies. It was to reconstruct and develop the 2019/10 (UNIBEN, BENIN – CITY)
countries which were vandalized as a result of the first The Organization of Petroleum Exporting Countries
and second world war. (OPEC) is
(b) Nigeria benefit from its establishment: A. an oligopolistic market B. a monopolistic market
The world bank has assisted Nigeria in various ways C. a perfect market D. a monopsonistic market
through granting of soft loans, financial aids and Answer
technical support among which are: A monopolistic market (B)
1. After 1960, the bank granted Nigeria total sum of Hint:In the economic literature, the Organisation of the
₦58million for the construction of the hydroelectric Petroleum Exporting Countries (OPEC) is usually treated as
power, station popularly called the Kainji Dam. a monopoly and a cartel. The dominant firm model is one of
2. In 1970, it granted the country the sum of ₦60 million the variants of the cartel model.
for the construction of oil palm projects, e.t.c.
2018/9 (UNIBEN, BENIN – CITY) Exercise 25.10
The foremost international financial institution concerned
2009/12 with the provision of long term finance to developing
Give five reasons for the continued existence of the countries is the
organization of Petroleum Exporting Countries (OPEC) A. IMF B. IBRD C. UNCTAD D. EEC
Answer
1. To protect the interests of its members. 2001/52 Neco
2. It has helped in the stabilization of world oil prices OPEC is an example of a
thereby preventing wide fluctuations in oil prices and A. cartel B. monopoly C. monopsony
output. D. monopolistic competition E. perfect competition
3. It has been responsible for seeking favourable markets Answer
for oil produced by its members. Cartel (A)
4. The existence of OPEC has led to improve trade Hint: OPEC is usually treated as a monopoly and a cartel.
relative among members and the international The dominant firm model is one of the variants of the cartel
community as a whole. model.
5. OPEC provides employment for many people
especially from the member nations. 2015/8 (UNIBEN, BENIN – CITY)
6. OPEC helps to educate its members and the The International Development Association, International
international community through its regular meetings Finance Corporation are specialised agencies of
where issues are thoroughly discussed and A. the United Nations Economic Commission
communiqués issued. B. the African Development Bank
C. the European Economic Community
D. the World Bank
2007/2008/64 (UNIZIK, AWKA) Answer
The International Bank for Reconstruction and The world bank (D)
Development (IBRD) is important to the developing nations
because it 2019/2020/16 (UI, IBADAN) Exercise 25.11
A. gives loan to members for legal proceedings WHO is an agent of
B. offers grants and aids for defence A. AU B. EU C. ECOWAS D. UN
C. enhance financial relationship among countries
D. offers soft loan for educational and health services 2019/2020/21 (UI, IBADAN)
E. offer grants and aids to finance private projects The headquarter of IMF and world bank are located at
Answer A. Geneva and Montreal B. Genova and Vienna
Enhance financial relationship among countries (C) C. New York and Geneva D. Washington
Answer
Washington (D)

666
2008/2009/3 (NDU, BAYELSA) 1992/49 UTME Exercise 25.13
As a member of the OPEC, Nigeria is in a favourable The Nigerian Trust Fund is managed on behalf of Nigeria
position to by the
A. export crude oil B. control world crude oil prices A. World Bank
C. borrow money from members B. International Monetary Fund
D. reap the benefit of a cartel C. African Development Bank
Answer D. Economic Commission for Africa
reap the benefit of a cartel (D)
1993/50 UTME
2008/2009/12 (NDU, BAYELSA) The international bank for reconstruction and development is
The international bank for Reconstruction and Development important to developing countries because it
(IBRD) is important to the developing nations because it A. gives loans to member countries for legal proceedings
A. gives loan to members for legal proceedings B. offers grants and aid for defence
B. offer grants and aids for defence C. offers loans to member countries for socio-economic activities
C. enhance financial relationship among countries D. offers grants and aid to finance luxury projects
D. offers loan for educational and health services Answer
Answer C – Offers loans to member countries for socio-economic
Enhances financial relationship among countries (C) activities.

2017/2018/99 (DELSU, ABRAKA) 1994/50 UTME

One of the main objectives of OPEC is The borrowing rights of a member country of the
A. assist multinational companies to monopolise market international monetary fund are determined by
B. protect the interest of multinational companies A. the seriousness of the country economic problems
C. stabilize the income of developed member country B. it balance of payments position
through price and output stability C. its quota to the fund D. the size of gold reserve
D. fix and allocate production quotas to member nations Answer
Answer C – Its quota to the fund.
Stabilize the income of member country through the price
and output stability (C) 1995/36 UTME
The most important goal of OPEC is to
A. present a united front for the purpose of raising prices of
1998/50 UTME Exercise 25.12 crude oil
The Economic Commission for Africa was set up by the B. bring unit among the petroleum exporting countries
A. UNO B. ECOWAS C. OAU D. IMF C. ensure political stability among member states
D. ensure that rules on quota production are strictly followed
Answer
2013/9 (OAU, IFE) D – Ensure that rules on quota production are strictly
Identify one among the following which is NOT part of the followed.
objectives or functions of the African Development Bank 1997/31 UTME
(ADB) The main problem of the organization petroleum exporting
A. provision of technical assistance for development countries is how to
projects A. prevent members from violating their quota
B. provision of funds for the supply and demand of B. enhance the quality of petroleum products
infrastructural facilities C. compete with the North Sea producers
C. adoption of a common tariff policy for trade and D. ensure viable crude reserves
development Answer
D. provision of fund for agricultural development A – Preventing members from violating their quota.
Answer
Adoption of a common tariff policy for trade and 1997/49 UTME
development (C) The organization which provides credit to help countries achieve
short-term balance in their balance of payments is the
A. economic community of West African states
2006/15 (OAU, IFE) B. international monetary fund
Which of the following is not a member of OPEC? C. international bank for reconstruction and development
A. Indonesia B. Iran C. Venezuela D. Egypt D. African development bank
Answer Answer
Egypt (D) B – International monetary fund.
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1997/50 UTME 2008/46 UTME
An important feature of a cartel is that The OPEC marketing policy of fixing minimum price
A. members do not reduce price below the cartel price allows members to
B. each member has a fixed output above which it is not A. sell above minimum price
expected to produce B. sell below minimum price
C. a powerful member fixed the price at which others will sell C. determine to price and quantity to sell
D. members fixe the prices for their products D. negotiate price with customers
Answer Answer
B – Each member has a fixed output above which it is not A – sell above minimum price
expected to produce.
2010/48 UTME
One of the objectives of ADB is to
2000/33 UTME
A. provide subsidies on imported goods to members countries
As a producers association, the OPEC expects its members B. promote economic and social development of member countries
to maintain production where marginal cost is C. mobilize short-term loans for member countries
A. greater than price B. equal to average cost D. provide technical assistance to only poor member countries
C. equal to price D. less than price Answer
Answer B – Promote economic and social development of member
D – Less than price. countries.
2000/49 UTME 2013/39 UTME
Being a member of the OPEC, Nigeria is in a favourable Government participation in the oil industry was
position to necessitated by the
A. exports her crude oil A. annual increase in production
B. control world crude oil prices B. formation of OPEC
C. borrow money from members C. high demand for crude oil
D. reap the benefit of a cartel D. huge investment outlay
Answer: D – Reap the benefit of a cartel. Answer
2002/48 UTME B – Formation of OPEC.
The major purpose of the African Development Bank is to
A. provide loans for trade development 2013/47 UTME
B. provide leans for infrastructural development One of the main achievements of the Economic
C. provide loans for development banks in distress Commission of Africa is
A. eliminating trade restrictions among states
D. educate peasant farmers new techniques
B. encouraging transport and communication development
Answer
C. guaranteeing a steady flow of foreign investment into Africa
B – Provide loans for infrastructural development. D. providing the machinery for collaboration on monetary issues
2004/24 UTME Answer
The European Union was formed to A – Eliminating trade restrictions among states.
A. promote free trade within member nations
B. promote economic integration in non-member countries 2015/28 UTME Exercise 25.13
C. assist countries to achieve their economic goals The major function of international monetary funds in the
D. finance development projects in member nations A. provision of short-run loans to medium scale industries
Answer B. provision of long-term loans for infrastructure
A – Promote free trade within member nations. C. development of agriculture in member countries
D. maintenance of stable exchange rates
2005/50 UTME
2017/40 UTME
An institution that regulates trade relations among members
is the The role of IBRD as an international institution is to
A. ADB B. OPEC C. EU D. IMF A. improve trading among member nations
Answer: B – OPEC. B. finance private businesses in member nations
C. facilitate the development of infrastructure in member nations
D. solve the problem of balance of payments of member nations
2006/10 UTME
Answer
The organization whose aim is to solve the trade problems
C – Facilitate the development of infrastructure in member
of less developed nations is
nations.
A. UNECAB. UNCTADC. WTO D. OECD
Answer
B – UNCTAD
668
 international oil market. It is colloquially referred to as
“black gold”. Since 1983, Nigeria has significant oil
MAJOR NATURAL RESOURCES deposits in the Niger Delta. In Nigeria, the exploration of
Natural resources are material and human endowments crude oil started at Oloibiri in the present Bayelsa State by
existing in a place which can be exploited for the creation shell BP in 1958. Nigeria has reaped huge benefits from oil
of wealth. Natural resources are categorised into two, exploration since these present times. Petroleum still
namely: accounts for the major part of Nigeria’s GDP.
(i) Human resources and
The world’s top ten oil producing countries are Saudi
(ii) Material resources
Arabia, Russia, United States, Iran, China, Mexico,
(1) Human resources: This consist of people generally Venezuela, Norway, Iraq, Nigeria.
along with their knowledge, education, skills, intellect,
The top ten oil consuming countries are United States,
physical strength, spiritual strength, aptitudes, culture
Japan, China, Germany, Russia, Brazil, South Korea, India,
and so forth. Adequate human resources are crucially
France and Italy.
important to the development of any nation. Human
resources need to be adequately complemented by Many oil producing developing countries are members of
material resources for development to be fully the Organization of Petroleum Exporting Countries
enhanced. (OPEC). African member countries include Nigeria, Libya,
(2) Material resources: These are resources which become Algeria, Gabon, Congo and Angola. OPEC aims at
useful only with appropriate intervention of human affording its memberssome measures of control over the
resources. The resources include those found embedded prices and production of petroleum.
in the earth which is otherwise known as mineral
resources. For example, wehave the fossil fuels 2019/58 Neco
(petroleum, coal and natural gas), preciousmetals (gold, Crude oil in Nigeria was discovered in commercial
silver uranium), diamond and others. quantities in the year
The other material resources are found on the surface of A. 1945 B. 1954 C. 1960 D. 1958
the earth. For example, forest resources and Answer
hydropower. 1958 (C)

2020/49 2009/60 Neco

How can natural resources enhance rapid economic growth Oil was first discovered in commercial quantity in _____
in a country? By states
A. preserving them untapped for future generation B. A. Amasoma, Bayelsa B. Bonny, Rivers
adding value to them after exploitation C. exporting C. Oloibiri, Bayelsa D. Igbo-Koda, Ondo
them in their raw state D. leaving them untapped not to E. Warri, Delta
destroy the environment Answer
Answer Oloibiri, Bayelsa (C)
Adding value to them after exploitation (B)

2005/43 Nov NNPC AND OPEC

The sources such as gold, diamonds bauxite and limestone The Nigerian National Petroleum Corporation(NNPC) and
are known as the Organisation of Petroleum Exporting Countries (OPEC)
A. capital resources B. artificial resources each have a role to play in the production, refining and
C. secondary resources D. natural resources marketing of petroleum, which has had tremendous impact
Answer on the Nigerian economy.
Natural resources (D)

PETROLEUM THE NIGERIAN NATIONAL PETROLEUM CORPORATION

Petroleum which is commonly called crude oil is the The Nigerian National Petroleum Corporation (NNPC) is
naturally occurring oily bituminous liquid which is made up body charged with the development and management of
of various hydrocarbons. It occurs in large quantities Nigeria’s petroleum resources. It was established on April
embedded in the earth’s crust and beneath the sea beds. The 1, 1977, and was assigned the responsibility for the
petroleum industry contributed more than 95% of the total exploration, production and refining of petroleum, as well
revenue of the country and provided employment to as the distribution and foreign marketing of crude oil and
millions of Nigerians through prospecting, refining, petroleum products. The responsibility is a heavy one,
transportation and marketing of the product. especially as the country’s development depends
inextricably on it.
Nigeria as a ‘mono-product’ or one product’ economy has
become very sensitive to the fluctuations in the
669
Before the establishment of the NNPC, oil revenues grew 2015/29 UTME
steadily from 0.08% to 13.9% of the total foreign exchange One of the major activities in the upstream sector of the
earnings between 1958 and 1968 and reached an exciting Nigeria petroleum industry include
height of 87.23% in the 1970s, largely at the expense of the A. transportation of finished products
agricultural sector of the economy. The situation, however, B. refining of crude oil
is changing as the Federal Government of Nigeria has C. marketing of refined petrol
launched a Structural Adjustment Programme (SAP) which D. exploration of crude oil
is working towards reducing the level of dependence on oil. Answer
D – Exploration of crude oil.
The NNPC is very much a part of the government’s
economic diversification programme using earnings from 2009/46 UTME
oil. Oil revenue contributes about 90% of the country’s Activities in the oil and gas industry are classified into
foreign exchange earnings and the NNPC has to ensure A. oil exploration and distribution
minimal disruptions to essential sectors of the economy. B. refining and marketing of finished products
The corporation pursues the government policy of C. upstream and downstream
maintaining steady rates of oil production and, D. exploration and drilling
simultaneously, ensures that the nation’s economic eggs are Answer
not placed in one basket. D – upstream and downstream

THE NNPC’S ROLE IN THE PRODUCTION OF PROBLEMS OF NNPC

PETROLEUM i. Corruption: The rate and level of corruption in the
The exploration department of the NNPC is charged with Corporation is very high. This exists at all levels of the
the primary responsibility of searching for and idenitifying Corporation’s activities.
all hydrocarbons accumulations and assessing the prospect ii. Poor financial management: Financial resources
of all other areas invested in the corporation, while the available to the corporation have often been poorly
production department has to undertake the task of drilling, managed.
production and reservoir engineering activities. iii. Cash squeeze: Many times the corporation does not
Concentrated efforts in seismic data acquisition, processing have enough money to run its day to day operations.
and interpreting the information culminated in the drilling iv. Poor maintenance: The corporation’s machines and
of more than 60 wells by the division between 1976 and equipment are poorly maintained resulting in frequent
December 1986. Of these wells, more than 40 were drilled breakdowns.
offshore, while the rest were drilled on shore. It is v. Political intereference: The Corporation suffers from
significant that more than 50% of all the wells drilled too much interference by govenrments rendering the
encountered petroleum, only a few were abandoned for corporation inefficient.
mechanical reasons and the rest were dry. This ratio is
encouraging and comparable with the results obtained in the IMPORTANCE OF PETROLEUM
more technologically advanced countries. Nigeria’s daily 1. It is the major source of fuel for powering vehicles of
crude oil production is more than 2 million barrels per day various kinds.
but production levels and oil prices are controlled by 2. It is used for powering industrial machines.
OPEC. 3. It is used for the production of electricity in
applications ranging from small generators to mega
UPSTREAM AND DOWNSTREAM power plants.
Activities in the oil and gas industry are normally classified 4. Petroleum supplies many useful industrial materials,
into two – upstream and downstream. The upstream covers plastics, synthetic rubber, floorings, paints, fertilizers,
all those activities related to the exploration, discovery and agrochemicals and so forth.
extraction of oil and gas and their treatment; and 5. Petroleum earns significant income for several
transportation and delivery to designated export terminals countries.
or refineries. The downsteam segment comprises all other 6. It contributes importantly to domestic and
activities from delivery to the processing plant. These international trade.
include refining and subsequent conversion to chemical 7. Ensuring adequate distribution and sustained supply of
products, transportation of the finished products and related petroleum forms a logical basis for international
auxiliary services. politics and relations among countries.
8. Petroleum and its derivatives are used in the
manufacture of medicines, rain boots, rain coats,
impermeable wear and other useful items.

670
ADVANTAGES/POSITIVE IMPACTS OF PETROLEUM IN 3. Profligacy in government spending: The discovery of
THE NIGERIAN ECONOMY petroleum in commercial quantities in Nigeria’s Niger Delta
1. Contributions to the GDP: Petroleum is the major greatly increased income resulted into an explosion of
contributor to Nigeria’s Gross Domestic Product. It government expenditure.
also contributes significantly to Nigeria’s income per 4. Sabotaging of oil pipelines: The sabotaging of oil pipelines
capital. by thieves in a bid to illegally siphon fuel has has a negative
impact on the Nigerian economy. In recent years at various
2. Creation of employment:The petroleum industry
locations big-scale and small-scale thieves have vandalise
provides employments for a large number of Nigerians oil pipelines to obtain oil which they go and sell. This
and foreigners at various levels of skills ranging from amounts to a significant loss.
minimally qualified to highly qualified persons. 5. Environmental pollution: Most of the land and water ways
3. Source of foreign exchange: Much needed foreign in locations where petroleum is exploited have been
exchange comes to Nigeria through the exportation of polluted via oil spillage and other unethical practices.
petroleum products. Pollution renders such land useless to agriculture. Pollution
4. Source of Government Revenue: Taxes paid by of land and water ways negatively impacts these legitimate
companies and individuals operating in the petroleum economic activities.
industry form significant portion of government
revenue. This revenue is used by the government in PROBLEMS FACING THE PETROLEUM INDUSTRY
providing public infrastructure, roads, housing, 1. Inadequate indigenous skilled manpower: This has led
educational and health facilities. to the importation of foreign skilled manpower with its
5. Transfer of foreign technology:Because of the attendant problems such as delays in completion of
presence of petroleum in the country, these repairs, repatriation of scarce foreign exchange, etc.
technologies and superior technical expertise are 2. Frequent breakdown of refineries: Poor maintenance
brought into the country to be passed on to Nigerians. culture, sabotage, etc, have led to frequent breakdown
With time the capacity of Nigerians to operate in areas of refineries. This results in acute scarcity of petroleum
requiring such expertise is enhanced. products and need for importation.
6. Boosting the economy: Commerce is highly 3. Vandalisation of oil pipelines: There are many
dependent on transportation, which in turn is powered reported cases of illegal tapping of crude oil and oil
by petroleum industries such as transportation and products from pipelines by unscrupulous elements who
petrochemical industries are highly dependent on the either want to get rich quick, or protest.
petroleum industry for inputs. 4. Mismanagement and corruption: There are reported
7. Meeting internal energy demands:Petroleum crucially cases of mismanagement of funds by corrupt officials
meets the country’s internal energy demands. Much of who prefer their personal gains, to the interest of the
Nigeria’s electricity is generated from plants using public.
fossil fuels as inputs. 5. Political unrest and hostile attitude of the oil
8. Assisting communities with needed communities: Production has sometimes been halted in
infrastructure:Many companies which operate in oil mineral producing areas due to the hostile attitude of
Nigeria’s oil rich Niger Delta assist their host the natives and attack by mililtants on oil installations
communities in various ways such as providing piped and wells.
water supply, electricity, community clinic, 6. Inadequate funding by government: There are reports
scholarships, school buildings, e.t.c. of under funding of the refineries and other oil-
producing units by the government. This has led to poor
DISADVANTAGES/NEGATIVE IMPACTS OF PETROLEUM maintenance and to the breakdown of the refineries.
IN THE NIGERIAN ECONOMY 7. Persistent scarcity of petroleum products: Scarcity of
1. Resource depletion:The on – going natural processes petroleum products is a frequent phenomenon in
which resulted in the formation of petroleum in the Nigeria. Many times, the petroleum dealers create
earth’s crust took millions of years to be completed. In artificial scarcity in order to sell at high prices.
a mere space of few hundred years since humans being Sometimes, petroleum scarcity results from the fact that
started using petroleum economically, almost a third most of the refineries in the country either do not
of the known reserves have been used up. This operate at all or operate far below the installed capacity.
voracious rate of depleting such a key resource is 8. Smuggling of petroleum products: There is the
fueling projections to the effect that, going by the tendency for some people to smuggle petroleum
present rate of consumption, within about 200 years products to other West African countries for sale at
from now, all petroleum reserves on earth would have higher prices. This worsens the problems of the scarcity
been used up. of petroleum products in the country.
2. Neglect of key sectors: Despite huge increases in the
expenditure of government as a result of income from
petroleum, key sectors relating to development still
went largely ignored.
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2003/50 UTME 5. Production of useful chemicals:Many useful
An adverse environmental impact of the petroleum industry chemicals are derived from coal. Such chemicals are
on the economy is used for making medicines, fertilizers, pesticides,
A. the vandalization of oil equipment other agrochemicals as well as some other
B. oil spillage hydrocarbon products.
C. communal riots D. community development
Answer DEMERITS/DISADVANTAGES REGARDING THE
B – Oil spillage. USE OF COAL
1. Contributing to the green house effect:Burning of
2006/1 UTME coal produces green house gases which is carbon
The oil producing areas in Nigeria are agitating for special dioxide. Like the roof of a green house, carbon dioxide
compensation owing mainly to traps the earth’s heat preventing it from escaping back
A. the high level of poverty B. constant of flooding into space. With time, the earth’s surface temperature
C. environmental pollution builds up and may contribute to the phenomenon
D. the high level of unemployment called global warming.
Answer 2. Formation of fly ash: Burning coal releases a
C – Environmental pollution. substance referred to as fly ash into the atmosphere.
Fly ash contains toxic heavy metals such as arsenic
COAL and cadmium. People which breathe in such air long
Coal is a combustible organic rock composed principally of enough later develop respiratory problems. This is a
carbon, hydrogen and oxygen. Coal is different from serious public health hazard.
charcoal. Coal is mined from the ground but charcoal is 3. Pollution of air and water ways: Burning coal
derived from trees. Coal has a higher density than charcoal pollutes the air with smoke and other noxious gases.
and is therefore heavier for equal volume. The on-going The remnant ashes also pollute the land and water
process which produces coal lasts millions of years and the ways when they are discharged from the plant.
primary material from which it is formed are ancient plants 4. Rapid response depletion: Coal along with other fossil
buried in the earth’s crust. Coal occurs naturally in many fuels took millions of years to form. However, they are
locations on earth. In Nigeria, the principal locations spread being depleted at such a rapid rate that these reserves
across many states in the South East of the country. Coal, can become exhausted within a few hundred years
petroleum, natural gas and oil shells are collectively from now.
referred to as fossil fuels because they are formed from the
remains of plants and animals buried in the earth crust. GOLD
Large deposit of coal is found in several countries in Africa, Gold is a soft, dense, bright yellow metal. It is the most
Europe, Asia, Australia and North America. precious of the precious metals and has been associated
with beauty and value since the dawn of civilization. It
USES/IMPORTANCE OF COAL exists naturally in the earth’s crust, alluvial deposits, and
1. Generation of electric power:Coal is burnt in electric also in sea water. It is widely distributed. Gold is a very rare
power plants to heat water into steam which is then element being 75th in the order of abundance of elements in
used to drive turbines of generators. In many industrial the crust of the earth. It is always naturally occurring in
countries coals forms the major fuel used in producing form of a gold-silver alloy called electrum. However, it still
electricity. occurs in chemical combination with some minerals.
2. Production of heat for locomotives and industrial
machines: In China and some other countries of Gold is obtained from various ways through surface
South-East Asia, Coal is used for the powering of train panning of streams, dredging of rivers, hydraulic mining,
locomotive and various industrial machines. sinking of shafts to gold ores in the earth’s crust and others.
3. Refining iron and steel: Coal is used in the iron and The mined ore is refined by smelting.
steel industry for the extraction of iron from its ore. West African countries which have gold in commercial
Iron ore is mined along with much associated quantities include Ghana, Cote D’ Ivoire, Liberia, Sierra
impurities from the ground. Its refining is done with Leone, Guinea and Senegal. Exploitations of this metal has
the use of coal. contributed positive to the economies of these countries.
4. Formation of synthetic fuels: Fuel companies convert
coal into synthetic gas or liquid fuels through PROPERTIES OF GOLD
processes of gasification and liquefaction. Coal in his 1. Gold has an attractive bright yellow colour and
unchanged is cumbersome to transport. However, manifest high lustre. It is priced for its beauty.
through conversion into synthetic fuel, it is more 2. Pure gold is the most malleable of all metals (can be
readily transported and used. These fuel derivatives hammered into a flat sheet).
are burned for the production of energy.

672
3. Pure gold is the most ductile of all metals (can be 10. Food industry: High-end restaurants and hotels use
stretched to form thin wire). gold leaf to coat their extravagant foods. The metal is
4. Gold is relatively inert. It resists corrosion and not toxic and has no taste or smell. It will however not
tarnishing. get digested.
5. Gold is one of the softest metals.
6. Gold is non – magnetic. COPPER
7. Gold is a good conductor of heat and electricity. Copper is brownish-red in colour and a naturally occurring
element which is present in the earth’s crust, in oceans,
USES OF GOLD lakes and rivers, sources of copper range from minute trace
1. Jewelry: For thousands of years, Gold has been used to amounts to rich mine deposits. Copper is an essential
make glittering necklaces, rings, etc. Infact, the element, meaning that all plants, fish and animals need
everlasting popularity of gold is due to the jewelry copper to function
industry. Gold is versatile. It can be shaped into any
shape and size. Also, it can make a pretty alloy on other It is more common in the earth’s crust than gold and it is in
metals. Gold is also associated with people who have fact the 25th most abundant element in the crust. Although,
deep pockets. This also enhances some form of it occurs in the pure state naturally, it is however more
popularity for the metal. usually found in association with gold, silver, lead and
2. Making currency: Long time ago, gold was used to bismuth in ores. This metal occurs in various quantities at
make coins that were used as standard currencies for locations all over the world.
many kingdoms. The tradition has so far declined but,
most governments save their property in the form of The metallurgy involves obtaining the ore, crushing and
gold. It is estimated that almost 10% of all the gold washing it to remove external impurities and then heating it
produced is used as a form of currency. In modern in the furnace to smelt it. The smelted materials yields
times, gold has be digitalized. It is currently treaded in almost pure copper which is further refined to 100 percent
the Exchange Traded Funds as a tool for trading. purity by electrolysis.
3. Dentistry: Gold has been applied in dental treatment
for more than a thousand years. It is used for crown PROPERTIES OF COPPER
refilling and bridgework. Gold is non-toxic and does 1. Copper has high electricity conductivity second only to
not develop rust; hence the reason for its widespread that of silver.
use. In the recent past, gold has been applied for 2. Copper is very ductile.
covering teeth for beauty. 3. It has high heat conductivity.
4. Medicine: The Chinese use gold in ancient times for 4. Copper is very malleable.
the treatment of skin ulcers and small pox. In modern 5. It readily combines to form various alloys.
days, gold is used to make nanoparticles used for the 6. Copper is easily electroplated, alone or as a base for
treatment of cancer. They are applied for their small other metals.
size to deliver drugs to targeted areas in the body durng
chemotherapy treatments. USES OF COPPER
5. In space: Space exploration exposes individuals to 1. Copper is a good choice for kitchen sink because it is
dangerous sun rays and other materials. Gold is used to generally resistant to corrosion and it has anti– microbial
protect astronauts from these particles. Therefore, their properties.
gear has a gold plate to act as a filter. In another 2. Copper is used in making electrical conductors generally;
application, it is used by space vehicles to reflect wires, outdoor power lines, cables, cords, terminals and so
infrared rays. forth. No other element has been as extensively used as
6. Manufacturing: Gold can conduct heat and electricity copper in this regard.
while reflecting light. Also, it is used as a lubricant in 3. Copper is used for making parts of electrical machinery
heavy machinery. such as generators, motors, switches, signal devices,
electromagnets, communication devices and so forth.
7. Decoration: Many high-end buildings are decorated
4. It is useful for making household utensils and ornamental
with the use of antique gold. Gold leaf is widely applied
objects.
for these works. 5. Copper is used for making jewelry, commemorative coins,
8. Printing: Gold is currently gaining momentum in 3D mementoes and medals.
printing. It can also be used for coating CDs to resist 6. Pipes used to convey water or substances requiring zero –
scratches. Furthermore, gold ink is long-lasting of high level contamination are often made of copper alloys.
quality. 7. Copper is used for making various useful alloys. For
9. Electronics: Gold is a natural conductor of electricity. instance, bronze (alloy of copper and zinc) and brass
Therefore, it is used in making compouter chips (alloy of copper and tin) have been extensively used in
enabling easier passing of information and reception. applications where higher strength or resistance to
corrosion is desired. Other copper alloys include
gunmetal, German silver and monel metal.
673
DIAMOND IRON AND STEEL
Diamond is a mineral form of the element carbon. Other Iron is a magnetic, malleable, silvery white metal which has
forms of carbon include graphite and coal. Diamond is the been extensively used since prehistoric times. The earliest
hardest natural substance known and it is greatly valued as known articles made from iron date back from Egyptian
a precious stone. They are crystals of pure carbon atoms. civilization to around 4000 BC. The period of time in
They are billions of years and they form at great depths civilization when iron was variously used for making
beneath the earth’s surface. utensils and ornaments has come to be known as the Iron
Age. The copper age preceded the Iron Age. Iron rarely
Globally, South Africa is the leading producer of diamonds.
occurs in a free state in the earth’s crust. It is more
Diamonds also occur in commercial quantities. In
commonly found associated with other metals in ores.
Botswana, Ghana, Liberia, Sierra Leone, Tanzania and the
However, it is still very widely distributed over the earth
Democratic Republic of Congo. Although the Nigerian
and it is 4th in abundance among all the elements in the
landmass contains almost every other mineral of
earth’s crust. The only metal that is more abundant than
significance, diamonds are yet to be located in commercial
iron is aluminium. In Nigeria, iron exists in significant
quantities in the country. Outside Africa, Australia,
commercial quantities in Kogi State where Ajaokuta Steel
Venezuela, Guyana, Brazil and Liberia are the major
Plant is based. Other steel plants are located at Aladja,
producers of diamonds. Significant reserves yet to be fully
Katsina and Oshogbo. It is also found in some states in the
mined have been discovered in Canada.
country.
PROPERTIES OF DIAMOND
On its own, iron is weak and typically has to be converted
1. Diamond is the hardest substance known while it
into steel to make it more applicable for construction and
resists being scratched; it readily scratches other
industrial purposes. Iron ore is crushed and heated in
materials including steel and glass.
furnaces to convert it into pig iron which is further refined
2. They are excellent conductor of heat i.e. diamond feels
in furnaces and converted to steel through the addition of
cold to touch and is sometimes colloquially called
coke (a form of coal) and limestone. Therefore, steel is an
“ice”.
alloy of iron and carbon with an admixture of other
3. They are not conductors of electricity.
elements to contribute other desirable properties in the
4. They resist attack by acids and bases.
metal. Removal of excess carbon and other impurities
5. Diamonds manifest excellent brilliance. Brilliance
makes the steel stronger. The 5 main classifications of
refers to the fraction of light that falls on a diamond
steels are carbon steels, alloy steels, high strength low alloy
that the diamond returns to the eye of the observer.
steels, stainless steels, and tool steels.
Higher proportion of light returned indicates more
brilliance. PROPERTIES OF IRON
6. Diamonds also manifest excellent fire. Fire is the 1. Iron is soft and malleable.
ability of a substance to split white light into colours2. Iron is ductile.
of the rainbow. The fire increase as the degree of 3. Iron is easily magnetized at ordinary temperatures. In fact
separation among the colour arises. iron is the only commonly occurring metal that has this
ability.
USES OF DIAMOND 4. Iron is a chemically active metal. It combines easily with
1. Highly valued gems:Flawless diamonds are highly various elements and compounds.
valued gems. They are very highly priced and rare. 5. Iron becomes corroded in moist air. The corrosion is the
2. Used for making cutting tools: Diamonds which form of a reddish-brown substance commonly called rust.
contain flaws are classified as industrial grade. These
are used in making cutting devices, drill bits and hard USES OF IRON
machinery surfaces. 1. Iron is processed into steel which is then used in the
3. Used for polishing processes: Diamond powder is manufacture of steel rods, plates, and so forth for
used in the processes of polishing, cutting, abrasion construction and industrial purposes.
and so forth. They also find other uses in 2. Iron is converted into cast iron or wrought iron and used
manufacturing. to make different machine parts, engine blocks, vices,
4. Industrial applications: Industrialization diamonds tools and other devices.
are used for making various equipment which are 3. Iron is used for making galvanized sheet metal used for
various applications.
employed in oil, gas and solid minerals mining;
4. Iron is used for making permanent magnets or
electronics, dentistry, optics, medicine and high
electromagnets which are employed in motors, generators,
temperature applications. transformers, loudspeakers, microphones, switches and
5. Scientific applications: Diamonds are well suited for various other electrical gadgets.
experimental used involving high temperatures and 5. The element iron is an important natural component of
pressures. They also find use in radiation and photo blood. Iron is thus used for medicinal purposes in making
detection. capsulses, tablets, and tonics.
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FOREST RESOURCES neither do they pollute the environment. In addition, they
Natural resources are associated with forest and wood are cheaper to operate and they have longer useful lives.
lands. Forests are homes to diversified species of plants and The only disadvantage in economic terms is the huge cost
animals and they supply varied products principal of which of construction involved in the building of hydroelectric
in timber processed into wood. Wood is one of the world’s plants.
most useful materials and it is converted into an array of Nigeria is naturally blessed with abundance of rivers which
products such as: possess significant potential for the generation of
1. Mechanically derived products:Wood is used for hydroelectricity. Since 2005, a privatization programme that
making furniture, tools, machines, weapons, has been underway to boost electricity demand and supply,
fabrication, household utensils, building construction, leading to the Transmission System Provider of Nigeria (TSP)
vehicle construction and ship building. Other uses being handed over to Manitoba Hydro International of Canada
include for making sports equipment, canoes, mortars, under a three to five year management agreement.
ladders, ironing boards, pestles, scaffolding caskets, The African Development Bank has been investing USD 100
oars, toothpicks, toys, shoe soles, black boards million in hydropower plant maintenance, repairs and
investment. As a result, in 2017 the proportion of hydropower
smoking pipes, fishing rods, pencils, artificial limbs,
on the grid went up to 26 per cent from 15 percent in 2015.
handles and others.
Under this programme, the 760 MW kainji and 578MW Jebba
2. Manufactured board products: Examples are several projects were rehabilitated.
kinds of plywood, particle board clip board, laminated
wood, fibre board and hardboard. The Ministry of Power and Ministry of Water Resources have
3. Pulp and paper products: Pulp and paper which are established a partnership for the development of serveral
among the most useful products known and are existing hydropower plants, including the 30 MW Gurara 1,
processed from soft wood trees obtained from the 10MW Tiga, 10 MW Oyan, the 8MW Challawa and the
established forest plantations. 6MW Ikere plants. In addition, the 700 MW Zungeru and the
4. Chemically derived products: They include dyes, oils, 40MW Kashimbila hydropower plants are currently under
gum, tannins, tar, pitch, ethyl alcohol, acetone, construction.
methanol, molasses, cellophane, charcoal, rubber,
some plastics and several others. A consortium from China constructing the 3,050 MW
5. Fuel: Firewood and charcoal are still important Mambilla plant began preparations after an agreement between
sources of energy in many areas of the world. the Minister of Power, Works and Housing of Nigeria and the
6. Medicines: Forests are also the ultimate source of consortium was signed. Nigeria’s so-called “Three Gorges
plants used in synthesizing medicines, drugs and other Project” will include the four RCC gravity dams (Nyadam,
useful substances. Frequently, drug companies search Sumsum dam, Nghu dam and Api weir) with over 700km of
for exotic plants in forests. They also create transmission lines.
plantations for proper cultivation of their useful plants
of interest. CONTRIBUTIONS OF MINERALS TO WEST
AFRICAN ECONOMIES
HYDROPOWER (A) POSITIVE CONTRIBUTIONS
Hydropower, or hydroelectric power, is a renewable source 1. Boosting of domestic international trade: The
of energy that generates power by using a dam or diversion presence of mineral resources in many African
structure to alter the natural flow of a river or other body of countries has boosted domestic and international trade
water. in those places. The exploited resources for most party
Nigeria is bestowed with large rivers and natural falls. The are exported to earn income, part of which is brought
main water resources that provide rich hydropower back to the country. Local businesses supply the needs
potential are the Niger and Benue rivers as well as Lake of employees to the industries concerned and also
Chad basin. With an estimated 1,800𝑚3 per capita per year provide support services for continued operations of
of renewable water resources available, this is not a water the industry.
poor country, yet it is ranked as an economically water 2. Provision of foreign exchange: Exportation of the
scarce country due to a lack of investment and management resources mined or produced provides much needed
to meet demand. foreign exchange for the government of the country.
Rivers contribute enormously to the development of any 3. Creation of jobs: The development of an industry to
nation. In economic terms, they enhance commerce by tap the particular resource or other industries to use the
providing means of transportation and opening up of remote products of the parent industry invariably creates jobs
areas of the country. Uniquely, they are also exploited for at various levels of skills.
the provision of electrical energy through the building of 4. Transfer of technology: An organized process of
hydroelectric plants. technological transfer through overseas training of
Hydroelectric plants have key advantages ove fossil fuel- local persons is often instituted. With time, much of
fired plants because they do not depelete earth’s resources, the control of the industry is transferred to the citizens
of the country concerned.
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5. Provision of income for the government: Apart from 3. Deforestation: Forest constitute the earth’s remarkable
foreign exchange, more income comes into the coffers ecosystems, contributing their part in the sustenance of
of the government through various taxes and duties climates and the preservation of natural species. As
levied on imported machines and equipment. these forest are lost, these species lose their homes and
6. Contribution to the country’s overall development: means of sustenance and may actually become extinct.
The story of development in many African countries is 4. Desertification: Desertification poses challenges as
incomplete without the mention of the key resources the soils which lose their plant cover become poorer
through which this has been brought about. In the case over time and less useful for agriculture. Some areas
of Nigeria, the key resource is petroleum and its become like deserts as exploitation of timber and other
derivative products. South Africa’s key resource is vegetation progresses.
diamond that of Ghana was gold. Botswana, Liberia 5. Landslides: Uncontrolled mining activities sometimes
and Sierra Leone have also benefited from diamonds. result in landslides.
6. Flooding: Flooding on a large scale in many parts of
(B) NEGATIVE CONTRIBUTIONS the world is actually linked to the melting of polar ice
1. Neglect of other sectors of the economy: In many caps due to global warming which is a side effect of
West African countries, the development of a exploitation of natural resources.
particular resource always implies appalling neglect of 7. Earthquakes: As oil is mined from the ground, water
other key sectors of the economy. While the favoured should ideally be pumped in to replace it. If this is not
industry makes some progress, other equally important done, earthquakes can occur in the area due to
industries retrogress. imbalance created in geologic formations. Other
2. Profligacy in government expenditure: Income which reasons for occurrence of earthquakes also exist.
a mineral resource brings to the country, many African 8. Destruction of habitats: Exploitations of a resource
governments have shown real profligacy in spending. sometimes destroys the natural homes of plants and
3. Corrupt practices by functionaries of the animals.
government: Easy money has a way of corrupting 9. Global warming: The earth’s atmosphere is gradually
functionaries of government. In many African becoming hotter because of combustion of fuels. This
countries government officials are both held is due mainly to heightened presence of green house
responsible for their actions only on paper. Despite gases, principally carbon dioxide in the atmosphere.
existing laws to the contrary, corruption continues Carbon dioxide results from the combustion of fossil
unabated because the money keeps on coming in and fuels and other materials like the green house or a car
only the poorly connected are sometimes brought to with all its glass windows would up. Carbon dioxide
book for corruption. traps heat which enters the atmosphere and prevent it
4. Environmental degradation: The exploitation of from escaping back to space. This is ordinarily
mineral resources particularly petroleum has caused beneficial without it the earth would be too cold for
degradation of the environment due to oil spills for human habitation.
instance in many locations.
2000/1 Nov
2020/50 Which of the following is a primary product?
The following are positive roles played by mineral A. electronics B. crude oil C. machineries D. furniture
resources in the economy except Answer
A. degradation of the environment Crude oil (B)
B. contribution to a country’s GDP
C. creating opportunities for job placement 2000/44 Nov Exercise 26.1.
D. introduction of external technology Which of the following hard currencies is usually used in
Answer pricing crude oil per barrel?
Degradation of the environment (A) A. pound sterling B. euro currency C. machineries
D. US dollar D. yen
ENVIRONMENTAL CONSEQUENCES OF EXPLOITATION
OF NATURAL RESOURCES
2012/60 Neco
1. Resource depletion: Available resources become
The vulnerability of the Nigerian economy to external
much smaller quantity as they are gradually used up.
shock is based on the
2. Environmental pollution: Air, water and land steadily
A. ease of absorbing external shock
become polluted as exploitation of resources
B. fluctuation of petroleum product prices
progressively.
C. industrial disharmony
D. stability of petroleum products prices
E unreliability of agricultural sector
Answer
Fluctuation of petroleum product prices (B)
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2003/59 Neco Exercise 26.2 2007/12 Nov
The first commercial oil well in Nigeria was discovered in Diamonds are more expensive than water because the price
A. 1938 B. 1951 C. 1958 D. 1961 of a product tends to reflect its
A. total value B. marginal value
2003/60 Neco
C. revealed preference D. consumer surplus
The two largest oil producing states in Nigeria are
Answer: marginal value (B)
A. Borno and Bauchi State B. Edo and Imo State
C. Ondo and Edo State D. Delta and River State
2007/13 Nov
E. Niger and River States
Steel can be classified as
Answer
A. a capital goods B. an intermediate goods
Delta and Rivers States (D)
C. natural resources D. an imperishable product
Hint: The top 5 highest oil producing states in Nigeria
Answer Natural resources (C)
include: Akwa–Ibom, Rivers, Delta, Bayelsa, and Cross
River.
2019/29 NABTEB
2000/43 The factor which embraces all natural resources is
Mono-product economies are those that produce A. land B. rocks C. mineral deposits D. petroleum
A. only intermediate products B. petroleum products Answer: Land (A)
C. agricultural products D. one main commodity
Answer 2013/57 Neco Exercise 26.3
One main commodity (D) Petro-chemical industries are located in River States due to
the presence of
2002/60 Neco A. coal deposits B. cocoa products
The Nigerian economy is often referred to as a mono- C. crude oil deposits D. iron and ore deposits
cultural economy because of its heavy dependence on E. oil palm products
A. agriculture B. imported goods C. IMF loan
D. petroleum E. solid minerals
Answer
Petroleum (D)
2013/60 Neco
2009/59 Neco The negative contribution of oil exploration to Nigerian
One of the positive contributions of the petroleum industry economy is the
to Nigeria’s economic development is that it A. creation of employment
A. creates ecological problems B. creates political unrest B. creation of mono-product economy
C. creates uncertainties in government revenues C. provision of foreign exchange
D. is a major foreign exchange earner D. provision of fund for development
E. suppresses agricultural development E. provision of raw materials for petrochemical industry
Answer: Is a major foreign exchange earner (D) Answer
Creation of mono – product economy (B)
2007/42 Neco
Which of the following factors will not be considered in
locating timber wood processing industry? 2019/49
A. constant power supply B. functional infrastructures Exploitation of forest resources becomes a major problem
C. good transportation and communication network when
D. government policy and political influence A. communities fight over ownership
E. supply of raw materials B. they are not renewed C. they are neglected
Answer D. the supply is fixed in the long-run
Government policy and political influence (D) Answer
They are neglected (C)
2007/60 Neco
The first oil refinery in Nigeria was established as
A. Alesa Eleme B. Araomi C. Kaduna 2019/50
D. Oloibiri E. Warri Natural resources that are renewable are found in the
Answer A. mining sector B. traditional sector
Alesa Eleme (A) C. agricultural sector D. secondary sector
Hint:Nigeria’s first oil refinery which is at Alesa Eleme Answer
near port harcourt, began operations in late 1965 with a Agricultural sector (C)
capacity of 38,000 barrels per day, enough to meet domestic
requirements at the time.
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2008/60 Neco 1996/36 Nov
The positive effect of oil discovery in Nigeria includes the In Nigeria, since the mid-seventies, the major source of
following except government income is
A. creation of employment A. personal income tax B. petroleum revenue
B. congestion of urban centres C. value added tax D. import duties
C. improved per capital income E. agricultural produce
D. source of foreign exchange Answer: Petroleum revenue (B)
E. substantial source of revenue to government
Answer 1996/38 Nov
Congestion of urban centres (B) Which of the following is a positive contribution of
petroleum to the Nigerian economy? It
2001/57 Neco A. is the largest foreign exchange earner
The major source of Nigeria’s foreign exchange is the B. increases government expenditure
export of C. has contributed to environmental pollution
A. cocoa and rubber B. crude oil D. has made Nigeria a monocultural economy
C. groundnuts and cotton D. palm kernel E. offers employment opportunities
E. skilled manpower Answer: Is the largest foreign exchange earner (A)
Answer
Crude oil (B) 1995/10 Nov Exercise 26.5
Highlight the role of petroleum in the Nigerian economy.
2017/50 1997/10 Nov Exercise 26.6
The negative effects of mining in West Africa does not Outline the three merits and any two demerits of the
include petroleum industry in Nigeria.
A. reafforestation in rural communities
B. land degradation C. destruction of farmlands 2006/11 Nov Exercise 26.7
D. pollution of water bodies Describe any three positive and two negative effects of the
Answer development of major natural resources on the economy of
Reafforestation of rural communities (A) your country.

2016/49 NABTEB 2014/2015/80 (UI, IBADAN) Exercise 26.8

The major disadvantage of the petroleum industry to The petroleum industry in Nigeria is
Nigeria is the A. the sole source of the nation’s revenue
A. generation of mass employment B the oldest industry in the country
B. development of military and kidnapping C. the main stay of the economy
C. environmental pollution D. a factor in the decline in the nation’s foreign reserves
D. neglect of the agricultural sector E. in the hand of NNPC
Answer: Environmental pollution (C)
2013/40 UTME
2014/39 Neco Exercise 26.4. The deregulation of the petroleum sector in Nigeria will
Which of the following is not a positive effect of petroleum bring about
to Nigerian economy? A. efficiency in pricing and distribution of the products
A. development of monoeconomy B. an end to the importation of fuel
B. establishment of oil related industries C. an end to foreign firms dominance
C. improvement of balance of payments D. fixing appropriate production quotas
D. positive foreign policy Answer
E. provision of wide range products A – Efficiency in pricing and distribution of the products.
1994/25
Petro-chemical industries are located in Rivers State of
Nigeria due to the presence of
A. favourable climate B. coal deposits
C. oil palm products D. an undulating terrain
E. oil deposits
Answer: Oil deposits (E)

678
 5. The MDGs bring attention to the measurement of
well-being beyond income, and this helps bring
APPLIED ECONOMICS AND CONTEMPORARY
ECONOMIC ORGANISATIONS funding towards achieving the goals.
6. The MDGs help human development by providing
CURRENT ECONOMIC PLAN a measurement that is not based solely on income,
Nigeria like other developing nations, has faced several but prioritises interventions, such as in basic health
development challenges.In line with the current trends and and education.
innovations, the Nigerian government has adopted some
economic plans to overcome such challenges.These include MILLENNIUM DEVELOPMENT GOALS (MDGs)
the MDGs (Millennium Development Goals), NEEDS The Millennium Development Goals (MDGs) was
(National Economic Empowerment and Development formulated with the following goals:
Strategy), and Vision 2020. i. Goal 1: Eradicating of extreme poverty and hunger.
ii. Goal 2: Achievement of universal primary
MILLENNIUM DEVELOPMENT GOALS (MDGs) education.
The Millennium Development Goals (MDGs) were iii. Goal 3: Promotion of Gender Equality and Women
established in 2000 after the Millennium summit, where all Empowerment.
world leaders present adopted the United Nations iv. Goal 4: Reduction of Child Mortality.
Millennium Declaration. The MDGs, as they are popularly v. Goal 5: Improvement of Maternal Health.
known, are eight international development goals, which vi. Goal 6: Combating HIV/AIDS, malaria and other
193 United Organisations have agreed to achieve by 2015. diseases
The sole aim is to encourage development by improving vii. Goal 7: Promotion of Environmental Sustainability.
social and economic conditions in the world’s poorest viii. Goal 8: Creation of a Global Partnership for
countries. The forum had met in order to conclude a two – Development.
year consultation process covering issues such as poverty
eradication, environmental pollution, human rights and The targets for each of the goals are as follows:
protection of the vulnerable (women and children). The Goal 1
Brahimi report was used as the mandate given by the UN (a) To reduce by half the proportion of people living on
Security Council in the area of peace and security. less than 1 US dollar a day.
(b) To reduce by half the proportion of people who
The MDGs focus on three major areas of human suffer hunger.
development, namely strengthening the human capital; Goal 2
improving infrastructure and increasing social, economic To ensure that all boys and girls complete a full course of
and political rights, with a view to improving the standard primary schooling.
of living.
Goal 3
The MDGs have general policy suggestion, but each To eliminate general disparity in primary and secondary
country has specific needs with the policy framework. education, preferably by 2005 and at all levels by 2015.

IMPORTANCE OF MDGs Goal 4

1. The MDGs strengthen the commitment of To reduce by two-thirds the mortality rate among children
developed countries to help developing countries under five years.
and encourage the flow of aids and information
sharing. Goal 5
2. The MDGs have helped in obtaining debt relief for To reduce by three-quarters the maternal mortality rate.
Nigeria. The elimination of unsustainable annual
debt service payments to external debtors provides Goal 6
more resources for the country to provide primary (a) To halt and begin to reverse the speed of HIV and
education, primary health care and rural AIDS.
infrastructure, as well as aids poverty reduction. (b) To halt and begin to reverse the incidence of
3. The joint responsibility of both the developing and malaria and other diseases.
developed countries for achieving the MDGs
increases the likelihood of their success, which is Goal 7
reinforced by their 189-country support. To ensure environmental sustainability.
4. Prioritizing interventions helps developing
countries with limited resources to make decisions Goal 8
about where to allocate their resources through To develop a global partnership for development.
public policies.

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EXTENT OF ACHIEVEMENT OF THE MDGs IN CHALLENGES OF IMPLEMENTATION OF MDGs
NIGERIA (i) Inadequate access to MDGs funds.
(i) Eradicate extreme poverty and hunger: (ii) Corruption and mismanagement of funds.
People living in poverty declined from 65.6% (iii) Inconsistencies in government policies.
in 1996 to 54.4% in 2004. Many people are (iv) Poor and decaying infrastructures.
being empowered by the poverty eradication (v) Inadequate data for planning.
programmes. (vi) Gender discrimination.
(ii) Achieve Universal Primary Education: Net (vii) Poor co-ordination of MDGs projects.
enrolment and retention in primary schools has (viii) Conflict of interests.
increased. The literacy rate among the 15 – 24 (ix) Poor monitoring and evaluation.
year olds has also increased. These are as a (x) Over-dependence on oil sector for government
result of the UBE (Universal Basic Education) revenue (80%).
programme.
(iii) Promote gender equality and empower Author’s Question 1
women: The ratio of boys to girls in primary, 1. The main aim of Millennium Development Goals are
secondary and tertiary education has improved. the following except
Women being empowered economically and A. ensuring environmental sustainability
politically to assume more challenging roles in B. promote gender equality
society. C. eradicate extreme poverty and hunger
(iv) Reduce child mortality: There are D. provision of exclusive cars in 2015
improvements in under-five mortality rates Answer
from 210 per 1000 live births in 2003 to 197 in Provision of exclusive cars in 2015 was not among the main
2004. The mortality rate is higher in rural areas aims of the Millennium Development Goals. (D)
than in urban areas. The relatively high level of 2. Which of the following international Organisation
child mortality is as a result of relatively low promote gender equality and empower women?
maternal education, low coverage of A. ECOWAS B. UNO C. OPEC D. MDG
immunization, high incidence of poverty, weak Answer
primary health-care system, etc. Millennium Development Goals (MDGs) is an
(v) Improve maternal health: Maternal mortality international organization that aimed at promoting
is still relatively high. Against a global target of gender equality and empowerment of women. (D)
less than 75 per 100,000 live births in 2015,
Nigeria recorded 800 per 100,000 in 2004. THE NATIONAL ECONOMIC EMPOWERMENT
High cost of treatment, poor cultural and social AND DEVELOPMENT STRATEGY (NEEDS)
practices, low patronage of health institutions, NEEDS stands for National Economic Empowerment and
etc, are major factors. Development Strategy, which was derived from the urgent
(vi) Combat HIV/AIDS and other diseases: requirement for value re-orientation.
Prevalence of HIV rate fell from 5.8% in 2001
Therefore, the bedrock of NEEDS is its vision of a Nigeria
to 4.4% in 2005. Despite the decrease, there is
with a new set of values and principles, which will facilitate
still a high incidence of HIV due to unsafe
the achievements of national goals of wealth creation,
blood transfusion, unsafe injection and sexual
employment generation and poverty reduction.
practices. There is still stigmatization and
It is described as a Nigeria’s plan for prosperity, popularly
discrimination against people living with
Christened a “Home grown programme” by the formal
HIV/AIDS.
President of Nigeria Chief Aremu Olusegun Obasanjo, it is
(vii) Ensure environmental sustainability: A lot
a four years medium term plan for the period of 2003 to
still needs to be done in this regard. The rich
2007.
environmental resource-base of Nigeria is
It is a development strategy anchored on the private sector
constantly undermined by deforestation, flood,
as the engine of growth, wealth creation, employment
erosion, desertification, oil pollution, gas flare,
generation and poverty reduction. Thus, the private sector is
etc. Housing is inadequate to meet the demands
the executor, the director, investor and manager of
of the rapidly increasing population.
businesses under NEEDS.
(viii) Develop a global partnership for
The goals of NEEDS are wealth creation, employment
development: A lot of benefits have been
generation, poverty reduction and value-orientation. The
derived from partnership with the international
achievement of these national goals depends on a sound
community especially in areas of debt
economic framework, NEEDS has fashioned a reform
servicing, improvement in balance of
agenda with emphasis on strengthening the economic
payments, technology transfer, etc.
environment, and strengthening the growth agents within
the system.
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REFORM PROGRAMMES OF NEEDS 2. When was National Economic Empowerment and
NEEDS rest on four key pillars as follows: Development strategy founded in
(a) Government and institutional reforms: in areas of A. 2013 B. 2003 C. 2019 D. 2002
public sector reforms, privatization and liberalization, Answer
reforms in governance, transparency and anti-corruption, National Economic Empowerment and Development
and service delivery by government agencies. Strategy founded in 2003. (B)
(b) Private sector reforms: to address issues of security, rule
of law, infrastructure, finance, privatization and 3. Explain the concept of NEEDS.
liberalization, trade and regional integration.
Answer
(c) Human rights development agenda/social charter:
National Economic Empowerment and Development
which would address issues of health, education,
Strategy as a programme emphasizes creation of
integrated rural development, housing development, youth
development, employment, safety nets gender and employment opportunities, emphasizes on self
geopolitical balance. employment and self reliant for economic growth and
(d) Re–orientation of the people with an enduring African development.
value system.
VISION 20:2020
OBJECTIVES OF NEEDS MEANING
1. Reformation of government and public institutions through The Vision 2020 is a vision statement that articulates the
restructuring, right sizing, reprofessionalising and long-term intent to launch Nigeria back to the path of
strengthening to deliver effective service to people. sustained social and economic progress and accelerate the
2. Accelerated economic development with emphasis on the emergence of a truly prosperous and united Nigeria by the
private sector of the economy as the key engine of year 2020. Recognizing the enormous human and natural
development. endowments of the nation, the blueprint is an expression of
3. Poverty eradication through job creation and reduction of Nigeria’s intent to improve the living standards of her
unemployment. citizens and place the country among the Top 20 economies
4. Wealth creation, value reorientation, diversification of the in the world with a minimum GDP of $900 billion and a per
economy, and boosting of non-oil export.
capita income of no less than $4000 per annum and able to
5. Improvement of agricultural productivity by offering
consolidate its leadership role in Africa, and establish itself
farmers improved irrigation, machinery and crop varieties.
6. Addressing issues such as lack of fresh water for household as a significant player in the global economic and political
use, unreliable power supply and decaying infrastructures. arena.
7. Reduction of inflation to single digits.
Nigeria’s targets for 2020 are based on a dynamic
NEEDS has succeeded in some aspects of the economy but comparative analysis of the country’s potential growth rate
still has some grounds to cover. The government is the and economic structure vis-à-vis those of other Top 40
enabler, the facilitator and the regulator of NEEDS. economies in the world. This implies that the Nigerian
economy must grow at an average of 13.8% during the time
NEEDS STRATEGIES ARE: horizon, driven by the agricultural and industrial sectors
(i) Accelerated privatization; over the medium term while a transition to a service-based
(ii) Liberalization and private sector development; economy is envisaged from 2018.
(iii) Anti-corruption, transparency and accountability.
(iv) Public sector reforms and governance and institutional OBJECTIVES OF VISION 2020
reforms. Fundamental to the vision are two broad objectives
a. To make efficient the use of human and natural
Author’s Questions 2 resources to achieve rapid economic growth.
1. NEEDS stands for b. To translate the economic growth into equitable social
A. National eradication economic developing states development for all citizens.
B. Nigeria education eradication development strategies These aspirations are defined across four dimensions:
C. National economic empowerment and development i. Social Dimensions: A peaceful, equitable, harmonious
strategies and just society, where every citizen has a strong sense
D. Nigerian empowerment emphasizes developing of national identity and citizens are supported by an
states educational and healthcare system that caters for all,
Answer and sustains a life expectancy of not less than 70 years.
NEEDS stands for National Economic Empowerment ii. Economic dimension: A globally competitive
and Development Strategy. (C) economy that is resilient and diversified with no
globally competitive manufacturing sector that is
tightly integrated and contributes no less than 25% to
Gross Domestic Product.

681
iii. Institutional Dimension: A stable and functional safety nets are absolutely essential to achieviing desirable
democracy where the rights of the citizens to human capital outcomes and addressing some negative
determine their leaders are guaranteed, and adequate trends in the sector. One of the options would be
infrastructure exists to support a market friendly and domesticate the sectoral transformation in order to model
globally competitive business environment. globally accepatable health transformation around the
iv. Environmental dimension: A level of environmental country’s unique national culture and institutions.
consciousness that enables and supports sustainable
management of the nation’s God-given natural INSTITUTIONAL FRAMEWORK FOR VISION 20:20
endowments to ensure their preservation for the A number of institutions were set up in Nigeria to ensure
benefit of present and future generations. the successful driving of vision 20:2020.
(a) National council on Vision 20:2020: It is the apex
THE SEVEN POINTS AGENDA OF VISION 2020 institution chaired by the President, to provide
1. Power and energy: This are two subsectors leadership and direction for the development plan.
prioritizeunder the seven point agenda. A power (b) National Steering Committee on Vision 20:2020:
generation target of 60,000MW was envisaged. This is chaired by the Minister of National planning
2. Food security and agriculture: Agriculture contributes and charged with the responsibility of:
42% of Nigeria’s GDP and engages over 65% of the (i) Developing the guidelines for implementation
country’s workforce. The sector is constrained by of vision 20:2020 and the monitoring and
enormous challenges and is characterised by low output, evaluation strategy.
inefficient and antiquated production tools and (ii) Encouraging the key MDAs, states and local
infrastructures. The Seven point agenda expects a “5-10 governments, to prepare and implement their
fold increase in yield and production”, which would component of vision 20:2020 in line with
result in massive domestic and commercial outputs and national priorities.
technological knowledge transfer to farmers. (iii) Developing a template for preparing the vision
3. Wealth creation and employment: More than two thirds 20:2020 strategic plan and annual
of Nigerians are poor. The incidence of poverty has been communication of progress (COP), and
increasing at a significant rate since independence. By collating same to prepare the annual
virtue of African’s undue reliance on revenue from non–
performance report for the National Council.
renewable sources such as oil, Nigerai has yet to develop
industrially. On–going reform is focused on wealth
(c) Secretariat of the National Steering Committee.
creation through diversified production, especially in the (d) National Technical Working Group: This is to
agricultural and solid mineral sector. comprise about 20-25 groups of experts of experts
4. Transportation Sector: Transportation is one of the four (4) for the identified thematic areas, to provide support
sectors prioritized in the seven point agenda as a result of its to the national steering committee.
cross cutting implicatons for the development of the (e) Stakeholder Vision 20:20: Comprises about 20-25
Nigerian economy. The thrust of the transport policy is the major stakeholder committee to prepare its vision
attainment of efficient inter – modal system that would 20:2020 document based on guidelines in line with
effectively link the different means of transportation. Not national goals and priorities, as improved by the
only would this bring down the cost of doing business, it National council.
will also enhance the growth of Gross Domestic Product (f) Economic Management Team (EMT): The
(GDP) of the country. An overviewof the transportation chairman and vice-chairman are members of the
sector cover five area namely, inter- modal transportation, National Council and National Steering Committee.
rail transportation, roadtransportation, zonal intervention This is to ensure that the vital link and adequate
road projects across all six geopolitical zones and marine feedback between the National Council and
transportation. National Steering Committee are established. The
5. Land reform: The land reform issue is still at the EMT is to serve as a “Think Tank” for driving the
discussion stage and the question is can the next four visioning process.
years or so see anything concrete in land reform?
6. Security: Security of life and property represents one of HOW VISION 20:2020 WILL BE ACHIEVED
the most important constitutional duties of any The economic transformation strategy for Nigeria is
government. Security, the maintenance of law and order anchored upon three thrust:
are the foundation on which the success of all initiatives 1. Creating the platform for success by urgently and
of Government, in ensuring good governance is immediately addressing the most debilitating
anchored. The primary challenge of national security constraints to Nigeria’s growth and competitiveness;
revolve around the ability of the government to discharge 2. Forging ahead with diligence and focus in developing
its responsibilities to the governed. A joint collaboration the fabric of the envisioned economy by;
of all security organization in the country will help check (a) Aggressively pursuing a structural transformation
mate such threats to life and properties of the populace.
from a mono-product economy to a diversified,
7. Education and Human Capital Developmnet: The
industrialized economy.
provision of health, education and functional social
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 (b) Investing to transform the Nigerian people into ECONOMIC DEVELOPMENT CHALLENGES IN
catalysts for growth and national renewal, and a NIGERIA
lasting source of comparative advantage; and Economic development challenges can be described as
(c) Investing to create an environment that enables the various impediments, natural, man – made or even
co-existence of growth and development on an infrastructural, that militate against rapid economic progress
enduring and sustainable basis. and developing of a nation. Nigeria is faced with a number
3. Developing and deepening the capability of of challenges. These include: mounting poverty, ravaging
government to consistently translate national strategic effects of HIV/AIDS and other diseases, inadequate power
intent into action and results by instituting evidence- and energy supply, corruption, increasing debt burden,
based decision making in Nigeria’s public policy resource control issues, etc.
space. Such challenges are multiple and multifaceted.

CHALLENGES TO VISION 20:2020 DEBT BURDEN

(i) Inadequate data for planning. Debt could be defined as a financial obligation meant to be
(ii) Inconsistencies in government policies. fulfilled to a creditor within a stipulated period of time. A
(iii) Inefficient human resources debtor could be an individual or a nation when the accrued
(iv) Poor co-ordination of Vision 20:2020 projects. interest on such a debt is overridden the initial amount
(v) Conflict of interests. borrowed to a great extent and of which the payment period
(vi) Inadequate access to stipulated funds. has also been exceeded.
(vii) Poor monitoring and evaluation.
(viii) Corruption and mismanagement of funds. The debt burden of a nation often acts as an impediment to the
(ix) Over-dependence on oil sector for government rapid growth of the economy especially in a developing
economy. This is because most of the time, a lot of energy and
revenue (80%).
resources that could have been used for meaningful economic
development are channeled towards servicing and repayment
Author’s Questions Z of external debts. Most of the third world economic challenges
1. Outline the seven points Agenda of vision 2020. resulted largely from long term indebtedness to the World
Answer bank, International Monetary Fund or the Paris club.
I. Power and energy.
II. Food security and agriculture. DEBT RELIEF
III. Wealth creation and employment. Debt relief is a financial term used to describe a state or
IV. Mass transportation. method of financial succor given to a nation with a huge
V. Land reform. external debt profile. It is also a financial relief given to a
VI. Security. nation witnessing economic depression or downturn. However,
VII. Qualitative and functional education. debt relief often takes different forms, depending on the
2. Explain objectives of vision 2020. peculiar economic circumstances of the debt of a nation and
I. The environmental dimension: Envisions the intention of the creditor. It could be an outright writing off
effective management of our natural of some accumulated debt interest. It could also be a reduction
environmental. or a downward review of the initial agreed borrowing rate.
II. The institutional dimension: Expects a stable Moreover, there are circumstances where some long term
democracy. debts are actually cancelled. But for this to happen, the
III. The social dimension: Envisions an equal borrowing country must have repaid the loan to some
society that can sustain a life expectancy of at reasonable extent. When this occurs, it is called debt
least 70 years. cancellation.
IV. The economic dimension: Envisages a vibrant
economy, where manufacturing sector can Both debt relief and debt cancellation are usually given to
encourage meaningful economic development in the
contribute at least 25 percent to Gross Domestic
borrowing nation. Nigeria was a beneficiary of this relief in
Production (GDP).
2003 during the administration of President Olusegun
3. Nigeria vision 2020 have how many focuses Obasanjo.
A. three B. four C. two D. one
Answer
The vision 2020 focuses on two broad objectives. (C)
a. To make efficient use of human and material resources
to achieve rapid economic growth.
b. To translate the economic growth into equitable social
development for all citizens.

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POVERTY 5. Environmental Degradation: In many parts of the
MEANING OF POVERTY world, environmental degradation – the deterioration of
This is a condition of lacking adequate resources for the natural environment, including the atmosphere,
reasonably comfortable living. In Nigeria, a large bodies of water, soil, and forests – is an important cause
percentage of the population live in conditions of of poverty.
destitution and want – a situation in which the degree of 6. Individual Responsibility and Welfare Dependency:
poverty is so great that means of mere subsistence such as There are different beliefs about individual
food, clothing and shelter are grossly inadequate. Despite responsibility for poverty. Some people believe that
the apparent wealth of the nation, the majority of the poverty is a symptom of societal structure and that
populations live below the poverty line. Wealth is some proportion of any society inevitably will be poor.
accumulated by relatively few individuals and institutions. 7. Low Productivity in Agriculture: The level of
productivity in agriculture is low due to subdivided and
Poverty ordinarily is the inability of an average person to fragmented holdings, lack of capital, use of traditional
take three square meals a day. It is the inability of a person methods of cultivation, illiteracy, etc. This is the main
to acquire the basic things or necessities; that is food, cause of poverty in the country.
clothing and shelter. However, by international standards, a 8. Low Rate of Economic Development: This is when
poor person is someone who is earning or living below one the rate of economic development in a State is below
dollar per day. the required level. Therefore, there persists a gap
between the level of availability and requirements of
There are absolute poverty and relative poverty. goods and services. The net result is poverty.
1. Absolute poverty or destitution:This refers to the 9. Unemployment: The continuously expanding army of
deprivation of basic human needs which commonly graduates is another cause of poverty. Job seekers are
includes food, water, sanitation, clothing, shelter, health increasing at a rate, higher than the expansion in
care and education. It refers to a set standard which is employment opportunities.
consistent over time and between nations. Absolute poverty
depends not only on income but also on access to services. EFFECTS OF POVERTY
An unemployed person is largely a poor person and poverty
2. Relative poverty: This is the economic inequality to some schools of thought, is a disease which can manifest
in the location or society in which people live. Relative its symptoms in the following ways:
poverty views poverty as socially defined and dependent on (i) Low standard of living: Consumption of basic
social context; hence poverty is a measure of income necessities such as food is inadequate. Hence,
inequality. It is usually measured as the percentage of resistance to disease is low. Many feel bored with life
population with income less than some fixed proportion of since they cannot afford many necessary
median income. Relative poverty is the most useful measure requirements to make life worth living.
for ascertaining poverty rates in wealthy, developed nations. (ii) Inadequate level of education: Many families find it
difficult to train their children to higher levels of
CAUSES OF POVERTY education, contributing to the inadequate supply of
1. Overpopulation: Overpopulation, the situation of skilled labour.
having large numbers of people with two few resources (iii) High incidence of diseases: Many people cannot
and too little space, is closely associated with poverty. afford the cost of medical treatment in hospitals;
2. Global Distribution of Resources: Many experts agree hence they rely on quacks, leading to prevalence of
that the legacy of colonialism accounts for much of the malaria, typhoid, HIV and other diseases. These take
unequal distribution of resources in the world economy. a heavy toll on the population.
In many developing countries, the problems of poverty (iv) Low level of productivity of the work force: The
are massive and pervasive. poverty of a large percentage of the workforce makes
3. High Standards of Living and Cost of Living: them to lack the physical and mental energy required
Because people in developed nations may have more for effective production.
wealth and resources than those in developing (v) Low life span: The average life span in Nigeria is
countries, their standard of living is also generally low. The debilitating effects of poverty lead to early
higher. Thus, people who have what would be death among the majority of the populace.
considered as adequate wealth and resources in (vi) Frequent social crisis: Many cases of civil crisis and
developing countries may be considered poor in turbulence are partly attributed to the general poverty
developed countries. and unemployment in the country.
4. Inadequate Education and Employment: Illiteracy (vii) High incidence of social vices: Vices such as
and lack of education are common in poor countries. loitering, prostitution, armed robbery, etc, abound.
Governments of developing countries often cannot
afford to provide for good public schools, especially in
rural areas.
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POVERTY ALLEVIATION AND ERADICATION The agency has four basic schemes which formed the
Poverty alleviation refers to the processes and policies put bedrock of its operation. These are as follows:
in place to reduce the general level of poverty in the 1. Youth Empowerment Scheme.
country. On the other hand, poverty eradication refers to the 2. Rural Infrastructure and Development Scheme.
complete elimination of poverty. Poverty can be said to be 3. Social Welfare Service Scheme.
eradicated if all the people in the country have adequate 4. Rural Resources Development and Conversion Scheme.
resources for reasonably comfortable living.
The following are some of the suggested poverty PROGRAMME OPERATION OF NAPEP
alleviation/ eradication methods; To facilitate the operation and programme implementation
1. Provision of Social Welfare Services: Basic health of NAPEP, the government put in place certain directive
facilities and social infrastructure should be provided measures to be adhered to. These include the following:
through government/private partnership initiatives. 1. Emphasis on complementary collaboration and
2. Provision of credit facilities:Small scale businessmen coordination among the various tiers and institutions of
should have access to soft loans and other financial government.
services and benefits.
3. Government Subsidized Housing Plan:There should 2. Collaboration among government, donors, non-
be creation of low-income housing estates that would be governmental organizations (NGOs) and local
affordable to` the average income earner. communities.
4. AgriculturalIncentiives: Avenues for improved and
increased agricultural activities should be created. This 3. A multi-agency implementation structure, coordinating,
would guarantee abundant provision of food that can monitoring and evaluating organs, was established to
feed the ever-growing population. ensure cost-efficient delivery targets with optimal social
5. Reduction of youth restiveness and social vices:Youth benefits.
empowerment programmes that can eradicate
redundancy and idleness should be organized. This NAPEP, in its coordination and monitoring mandates, has
would allow for basic skill acquisition and thus over the years touched the lives of poor Nigerians through
guarantee employment and self-reliance. its various catalytic intervention programmes and effective
monitoring. This has contributed in reducing the poverty
POVERTY ALLEVIATION AGENCIES level from about 65.5% in 1999 to about 54.4% in 2004
A number of agencies have been set up by the government
with the mandate to embark on activities to help reduce the
level of absolute poverty and create employment for the NATIONAL DIRECTORATE OF EMPLOYMENT
teeming Nigerian populace. These include: the National (NDE)
Agency on Poverty Eradication Programme (NAPEP), the The National Directorate of Employment (NDE) is an
National Directorate of Employment (NDE), the National intervention organization established by the Federal
Eradication Council, etc. Government of Nigeria to create jobs and facilitate
employment. In recent times, it has been directing its efforts
NATIONAL AGENCY ON POVERTY towards making Nigerian youth proud owners of their
ERADICATION PROGRAMME various businesses. NDE is an agency under the Ministry of
The National Agency on Poverty Eradication Programme Employment and Productivity, though with considerable
(NAPEP) was established in 2000 by the (democratic) level of autonomy.
government of President Olusegun Obasanjo, but became
operative in 2001. It was mainly established to eradicate The objectives of the Directorate are to:
poverty in the Nigerian society through creating self- i. Design and implement programmes to combat mass
employed micro businesses and engaging in other economic unemployment.
activities. NAPEP’s mandates are as follows: ii. Articulate policies aimed at developing work
1. Serve as the symbol of the Federal Government’s programmes with labour intensive potential;
commitment to poverty eradication. iii. Obtain and maintain a data bank on employment and
2. Monitor and coordinate all poverty eradication activities vacancies in the country with a view to acting as a
in the country. clearing house to link job seekers with vacancies in
3. Spur and ensure mass participation in the economic collaboration with other government agencies; and
development process. iv. Implement any other policy as may be laid down, from
4. Implement and coordinate Social Safety Nets in Nigeria. time to time, by the Board.
5. Sensitize and catalytically empower the poor to have a
voice and express their ideas.

685
THE FOUR CARDINAL PROGRAMMES OF NDE SYMPTOMS OF AIDS
AND THEIR RELATED ACTIVITIES Some of the notable symptoms of AIDS include:
1. Vocational skill development programme. 1. Recurrent fever lasting for more than four weeks.
2. Rural development and agricultural training scheme. 2. Persistent stooling and diarhoea.
3. Entreprenuerial development programme. 3. Inexplanable loss of weight and tiredness.
4. Skill acquisition centre. 4. Mental retardation and loss of appetitite.
5. Loss of the hair.
Some trade schemes which exist in the National Directorate 6. Swelling along the neck and in the armpit.
of Employment includes 7. Constant night sweating.
1. Grade entrepreneurial skill acquisition and training:
CONTROL AND PREVENTION OF HIV/AIDS
Meant to train graduates on specific trades/business
Control of HIV/AIDS can be in form of:
skills. 1. Using a latex condom with spermicide when people
2. School leaver vocational skill acquisition: This is to engaged in sexual intercourse.
impart scientific vocational knowledge to secondary 2. Avoiding sexual intercourse with anyone who is known
school leavers, who perhaps might not be able to cope to have been infected or whose HIV status is not known.
with the rigour of academic demands. 3. Not sharing needles, blades, hair cutting equipment or
3. Information and communication technology scheme: other skin piercing instruments used for tattooing or
This is done in line with the current world ICT circumcision.
compliant campaign policy. 4. Seeking HIV counseling and testing if HIV infection is
4. Master craftsman and women: This is intended to detected.
teach our young men and women the mastery of local 5. Abstinence from sexual intercourse for the adolescent
craft business skills. until they are ready to establish a mutual monogamous
5. Graduate attachment programme: This programme is relationship within context of marriage.
done in conjunction with a view of placing gradates in 6. Refraining from using or injecting illicit drugs.
job vacancies that exist in such organizations. 7. Seeking treatment if addicted to illicit drugs or the
‘gateway drugs’ (alcohol, marijuana and cocaine).
HIV/AIDS AND THE ECONOMY
MEANING: HIV means Human Immunodeficiency Virus; a EFFECTS OF HIV/AIDS ON THE ECONOMY
virus that weakens the body immune system, ultimately 1. HIV/AIDS patients are often discriminated against at home
causing AIDS. and work places and even by some blood family members,
thus creating psychological and emotional trauma in the
AIDS refers to Acquired Immune Deficiency Syndrome, a victims.
cluster of medical conditions, often referred to as opportunistic 2. AIDS is fast becoming a main cause of death in young
infections and cancers and for which, to date, there is no cure. adults, resulting in a significant loss of the skilled and
unskilled work force and the economically productive
SOME CAUSES AND SYMPTOMS OF HIV/AIDS segment of the population.
Likely causes include: 3. The increasing infant mortality rate due to AIDS has
1. Unprotected sexual intercourse, whether oral or vagina, resulted in the erosion of the successes of child survival
especially with multiple sexual partners. programmes in the past decades.
2. Mother to child transmission through pregnancy. This 4. The increasing number of AIDS and tuberculosis patients
occurs invitro and also possibly at birth. This virus could in overcrowded hospital wards is a heavy burden that is
also be transmitted through breast feeding. straining the often inadequate resources of ministries of
3. Sharing or reusing of contaminated needles for injecting health everywhere.
drug by drug abusers or for therapeutic procedures. 5. Premature death of both parents due to AIDS is leaving
4. Receipt of infected blood of blood products, donated behind more and more orphans. Elderly people are also
organs and semen. thus being left without care. Both situations result in
5. People with a history of sexually transmitted diseases complex social problems and heavy dependence on the
(STDs) have a higher incidence of HIV infection. active working population.
6. Ignorance about the causes and modes of transmission of
It is important to note here that the virus is not spread by mere HIV/AIDS has led to the stigmatization of HIV infected
touching, hugging or eating with an infected person. It is and AIDS patient.
spread by casual or social contact. Moreover, there is no 7. Economic potential and contributions of HIV/AIDS
documented evidence yet that the virus is spread by patients are actually underestimated in the society. As such,
mosquitoes, ticks, bedbugs, in swimming pools or by sharing they are schemed out of relevant appointments where their
cups, eating and cooking utensils, toilets and air space with potentials can be best manifested.
infected individuals. Therefore HIV infection and AIDS are
not contagious. AIDS is therefore more than just a medical problem. It is a
social and economic problem which demands a multi-sectoral
approach to solve.
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CORRUPTION AND THE ECONOMY a cost of doing business, to be recoupled from revenues.
MEANING OF CORRUPTION Consequently, if the costs become too high or
Corruption is defined as a dishonest dealing or evil unpredictable, they disengage or shun the country
behaviours found in both private and public institutions that altogether.
have served as bottlenecks to development. It is the act or 5. Government’s inability to finance budget
effect of making a change from moral to immoral standards expenditures– deficit financing: By affecting tax
of behaviour. It includes such things as bribery, poor collection, corruption has adverse budgetary
attitude to work, embezzlement of funds and public consequences. Tax revenue is used to finance budget
property, misuse of public funds and property, etc. expenditures, therefore, with reduced tax revenues, the
revenue section of the national budget is reduced,
Corruption is indeed found in every facet of life and is a resulting in adverse budgetary consequences.
cankerworm that has eaten so deep into human life and 6. Abandonment of development projects Corruption
society. It has destroyed meaningful economic progress and has resulted in an alarming neglect of infrastructural
hindered our nation’s development. development. This is because much of the money voted
for such development has been embezzled by public
CAUSES OF CORRUPTION officers. This has resulted in very poor roads,
Many reasons have been adduced for the involvement of dilapidated school buildings, poor health delivery,
people, especially those in public offices, in corrupt ineffective power supply, inconsiderate housing
practices. Such reasons may be summarized as follows: policies, and a host of other problems.
1. Inordinate ambition for wealth accumulation and 7. Poor maintenance of public infrastructure: Because
luxurious living. of corruption, maintenance and repairs always take a
2. Greed and selfish interest of public office holders. back seat to new projects. For fear of being exposed,
3. Lack of contentment with their positions and legitimate corrupt officials prefer to approve new projects rather
earnings. than spend to revamp the old corrupt projects they
4. A desire to be among those who live ostentation approved in the first place. The result is that new
lifestyles. project are constantly being undertaken whilst existing
5. Lack of patriotism and integrity on the part of such infrastructure is left to deteriorate.
public office holders. 8. High rate of criminality: Corruption has resulted in an
6. Self centredness and pursuit of personal ego at the inordinate ambition to acquire wealth by unemployed
expense of the overall welfare and development of youths and idle school leavers who now engage in all
society. sorts of crime such as cyber fraud armed robbery and
7. Loss of human feeling. 419. This is further kindled when they look at the
extravagant and luxurious lifestyle of our corrupt
EFFECTS OF CORRUPTION ON THE ECONOMY political leaders and others.
The negative effects of corruption on the economy are great 9. Corruption reduces investment and economic
indeed. Let us look at some of them here. growth: Funds meant for investment are either wholly
1. Low national moral standards and values: A low or partly diverted to private use, thereby reducing the
national moral standards is another effect of corruption. level of investment. Growth and development are
Now virtually all sectors of the Nigerian economy are therefore stifled.
corrupt in one way or the other. If it is not financial 10. Corruption leads to uncertainty in economic
misappropriation, then it is placement or promotion transaction: The prevalence of corruption arguably
irregularities, all of which are acts of corruption. influences the economic environment through the
2. High prices to consumers: When entrepreneurs and creation of significantly higher levels of risks and
businessmen are required to pay bribes before uncertainty in economic transactions. Uncertainty is
necessary permits are issued, they tend to view it as a present both in the context of individual economic
cost of doing business and therefore pass that cost onto transactions and in terms of heightened fears about
consumers who suffer from high prices. future developments in the broader economic
3. Poverty: Corruption can impoverish a nation. Thus a environment. This fear and uncertainty translate to
corrupt economy is said to be a poor economy. There is reduced business growth and reduced gross domestic
no urge to generate employment for the teeming product.
unemployed population. Hence, the standard of living
of the people generally continues to fall over time. SUGGESTED MEASURES AGAINST CORRUPTION
4. Reduced foreign direct investment: According to 1. Long terms of imprisonment should be given to indicted
World Bank Development (1997), FDI may still flow to corrupt officers. This would serve as a deterrent to
countries in which corruption is systemic but only if others who might want to indulge in corruption.
bribery is affordable and results are predictable. 2. There should be assets declaration by public officers
Corruption can have a negative effect on foreign before assuming office, and asset valuation upon leaving
investment because for most foreign firms, corruption is office.
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3. Salaries of political office holders should be moderate CHALLENGES IN THE NIGERIA POWER SECTOR
and made public, especially those of the legislators. Over the past few decades, successive governments have
4. Pension and entitlements of government retirees should tried to improve the power supply. Trillions of Naira had
be paid promptly and with every sense of urgency. been spent, but little had been achieved. The problems we
5. Due process should be strictly adhered to in the award of face today are a testimony to the inadequacy of past policies
public/government contracts. and the strongest possible signal that Nigeria needs to adopt
6. Government at all levels should speedily effect the a radically different approach to finding a lasting solution.
payment to workers of any minimum wage that has been
signed into law. That, practically, no government has The key challenges militating against the efficient delivery
ever done. This is a clear mockery of our laws and of adequate and reliable electricity supply in Nigeria could
indicates a high level of corruption. be summed up as follows:
7. Offspring of corrupt officers should be disallowed from 1. High capital intensive nature of power sector
serving any national or local capacity in the future at projects: Public sector funding has been inadequate
least a decade after they left office. for both maintenance of the current system and the
development of new energy sources.
POWER AND ENERGY SUPPLY
Power and energy supply, as used here, refer to sources of 2. Inadequate power generation capacity: In
physical or mechanical force that can be put to work. comparison with other countries, Nigeria’s average
Sources of power and energy include fuel, water, heat, wind daily generation of 4,000 MW (2021) is grossly
etc. In Nigeria, power and energy supplies to industries are inadequate for a population of more than 200 million
inadequate. There are frequent power outages, and many people. Factors affecting the generation capacity
rural areas are yet to be served with electricity. include old power plants (three hydro and three
thermal plants are more than 20 years old; one thermal
It is self-evident that the poor performance of the electricity plant is just a little ‘younger’, while only three thermal
power sector in Nigeria has been a significant barrier to plants are less than 10 years old); vandalisation of
private investment in the country as well as to overall existing power infrastructure; gas supply constraints
development and economic growth. The sector’s structure and inadequate maintenance of equipment that stems
was dominated by the state owned power entity, Power from procurement bottlenecks, lack of skilled
Holding Company of Nigeria (PHCN) formerly the maintenance personnel in the sector and the
National Electricity Power Authority (NEPA). However, dependence on imports of parts and foreign experts to
the dissatisfaction with the performance of PHCN, effect repairs and overhauls.
characterized by its insufficient electricity generation, high
costs, irregular distribution of electric power, inability to 3. Transmission network; This is currently inadequate
finance new or expanded infrastructure, and inadequate and inefficient in carrying the current power generated
machinery for effective billing and collection of bills, as well as moving generated power to where it is
necessitated its reform and liberalization. Therefore, experts needed. There have also been high transmission losses.
in the field stress that the process of reform and
liberalization of a low capacity electricity power sector like 4. Inefficient billing and metering system: One of the
Nigeria’s should include the following key elements: major challenges facing the Nigerian power sector is
1. Mandating PHCN to operate according to commercial the low efficiency in billing and revenue collection by
principles. the distribution companies. Estimated bills are given to
2. Introduction of competition. consumers without further reconciliation for actual bill.
3. Restructuring of PHCN’s supply chain to enable full This is exploitative and unjust. Most of the time,
liberalization, which entails unbundling PHCN’s consumes pay for services they did not enjoy. Little
business structure into several operational and wonder the high level of corruption in the electricity
distribution enterprises. power sector.
4. Privatization of the electricity generation and
distribution businesses under dispersed ownership, to 5. Sector reforms; This has not yet been completed.
encourage private investors and operators to bring in Areas of focus include strengthening industry
financial resources, technical and managerial expertise regulation, reforming industry and market structure,
to correct PHCN’s deficiencies. development of commercial framework to support
5. Development of economic regulations that is private investment, and effective working together
independent of government control. among the successor companies. Tariffs for gas and
6. Restricting government’s role in policy formulation electricity need to reflect market prices and be set at
and execution. levels to attract private sector investment.
On 1 November, 2013, the privatization of PHCN was
completed, with the handing over of the share of certificates
and licences to 14 new core owners of the company.
688
PROBLEMS ASSOCIATED WITH LOW POWER S/N Geopolitical Zone Resource Endowment
AND ENERGY SUPPLY 1 South-South Limestone, Uranium,
(i) High operating costs: Cost of production by firms and Manganees, Lignite, Lead
public institutions is relatively high as a result of the and Zinc, Salt, Oil and
huge amounts of money spent on purchase and Gas, Marble, Clay,
maintenance of generating sets and on fuel. Gypsum, Iron Ore,
(ii) Capacity underutilization: Many industries cannot Kaolin, Gold, Dolomite,
work at full capacity because of inadequate electric Phosphate, Bitumen and
power, leading to loss of potential output. Barites.
(iii) Environmental pollution: Great reliance on 2 South-East Region Lead, Gold, Salt, Coal,
generating sets has led to high emission of waste Limestone, Clay, Iron
gasses into the air, with a consequent pollution of the Ore, Lignite, Barites,
environment. Gypsum, Oil and Gas,
(iv) Loss of foreign exchange: Great reliance on the Marcasite.
importation of generating sets has led to huge amount 3 South-West Region Kaolin, Feldspar, Tatium,
of foreign exchange being used. This has contributed Granite, Columbite,
to the worsening balance of payments. Marble, Cassiterite,
Aquamarine, Dolomite,
RESOURCE CONTROL Syenite, Glass Sand, Clay,
Resource control is a proposal and an agitation by some of Bitumen, Tar, Sillimanite,
the federating states of Nigeria to control and manage their Dimension Stones, Gold,
internally generated income (IGR). It is an idea which Talc, Tantalite,
intends to allow states to generate their own income, share Tournamline.
and utilize them for appropriate developmental projects as 4 North-Central Emeralds, Tin, Marble,
opposed to the practice of these resources such as solid Region Granite,
mineral, agricultural produce, and petroleum, being Tantalite/Columbite,
controlled and distributed by the centre. Lead/Zinc, Barites, Iron
Ore, Kaolin, Cassiterite,
Resource control as intended cannot be effectively achieved
Gold, Dolomite,
without the enthronement of fiscal federation, that is, true
Bentonite, Pyrochlore,
federalism as was practiced in the pre-oil boom days. This
Clay, Coal, Uiofram, Salt,
would allow every state to be more efficient, self-
Bismuth, Fluoride,
sustaining, and grow at their own pace. In a true federation,
Molybdnite, Gemstone,
as opposed to the present quasi federation we are practicing,
Oil and Gas, Bauxite,
where the centre is all-in-all and does the sharing of
Sapphire, Tousmaline,
resources, states would develop their resources and
Quartz, Amethyst, Zircon,
endowments to meet their needs, as the regions did in the
Limenite, Galena,
independence era.
Feldpars, Limestone,
Resource control envisages a situation where certain Mica, Cooking Coal, Talc,
percentages of the IGR based on agreed parameters would Clay, salt, Chastropyrite
be remitted to the centre for general and common 6 North-West Region Gold, Kaolin, Tomaline,
developmental purposes. This is as against a situation where Phosphate, Gypsum,
the centre does the apportioning and control of state Silica, Sand, Clay,
generated resources. With resource control, the present Laterite, Potash, Plakos,
system of monthly allocation of revenue to the states by the Marble, Aquamarine,
centre would cease to exist. Resource control, therefore, is Ruby, Cassiterite,
synonymous with fiscal federation and state autonomy. Tantalite, Topaz Granite,
Gold, Salt, Sapphire
The Nigerian environment is heavily endowed with a wide Rock, Glass Sand, Clay,
range of resources that can be applied to diverse uses to Asbetoes, Serpentine,
enhance socioeconomic producitivty. As seen from the Amethyst, Kyamte,
table below there is no geopolitical zone of the country that Graphite, Silimanite,
is not amply endowed with materials that can be utilized to Mica, Fuorspars, Copper
facilitate economic growth and development.
Source: Modified after Federal Ministry of Solid Minerals.

689
FEATURES OF RESOURCE CONTROL
1. The federating states are resource autonomous.
2. The IGR is the factor for development.
3. Institution of fiscal federation (true federalism) is
paramount.
4. A fraction of IGR is remitted to the centre for
perceived common development purposes.
5. Federation account allocation is fizzled out.
6. Resource control is state control and ownership of
resources e.g. solid minerals, agricultural products, and
oil become the asset of states where they are found.

ARGUMENTS IN FAVOUR OF RESOURCE

CONTROL
1. Resource control would bring rapid state infrastructure
development that can aid economic activities and
development.
2. Adequate attention is likely to be paid to individual
and state welfare needs. This would lead to improved
standard of living.
3. Untapped natural resources and agricultural produce
like coffee, cocoa, groundnut as well as gold, bitumen,
iron ore and barite would be adequately attended to
and developed.
4. Diversification of the economy would be realized.
5. A sense of ownership and fulfillment would be
guaranteed.
6. There would be massive employment in the states.

ARGUMENTS AGAINST RESOURCE CONTROL

1. There is the possibility of secession of the federating
states, thereby threatening the sovereignty of Nigeria.
2. Uneven development of the regions/states especially
the non-oil states and states that are less endowed with
natural resources would occur.
3. Unhealthy rivalry and jealousy among the states,
necessitated by wealth superiority will manifest.
4. Boundary disputes are likely to be rampant among the
states.
5. The parameters for determining the percentage of the
IGR to be remitted to the centre by the states may be
controversial, such as whether it is going to be by
population, derivations or geographical size.
6. ‘Resource control’ is seen as an attempt towards
confederation, whereby the states might become
unnecessarily too powerful.

690
 ANSWER PAGES

Chapter One 2.13 free gift of nature 4.22 Median

1.1 Uses scientific methods to explain 2.14 interest 4.23 Middle value in the set
observed phenomena 2.15 rent 4.24 3
1.2 Deals with an aspect of human behaviour 2.16 wages 4.25 48.9
1.3 A study of the ways man devises to 2.17 4.26
satisfy his unlimited wants from limited 2.18 main risk bearer 4.27 N7.40
resources 2.19 income 4.28 N5.00
1.4 Aggregate or general economy 2.20 land 4.29 10
1.5 A detailed examination of specific 2.21 profit 4.30 Mean
economic units that make up the 2.22 skill of labour 4.31 4.5
economy system 4.32 Mean and percentage
1.6 Needed to satisfy human wants are Chapter Three 4.33 Mean
limited 3.1 the price mechanism allocate resources 4.34 ₦2.67
1.7 Resources being limited 3.2 capitalist economy 4.35 Mean
1.8 Real cost 3.3 resources are directed by the price 4.36 4th observation
1.9 50 oranges mechanism 4.37 Is a balancing point in an observation
1.10 Opportunity cost 3.4 capitalist economic system 4.38 43
1.11 A shirt and a bag 3.5 socialist 4.39 80
1.12 Dress and jewelry 3.6 socialist economy 4.40 Can be used to calculate open ended
1.13 Improvement in production techniques 3.7 socialism distribution
and practices 3.8 socialist economy 4.41 3.43
1.14 How much of the resources of society are 3.9 capitalist system 4.42 1.67
used to produce a particular commodity 3.10 capitalist economy 4.43 Standard deviation
1.15 Change in production techniques 3.11 capitalist economy ∑(𝑥−𝑥̅ )2
1.16 Fully and efficiently utilized 3.12 socialist economy 4.44 √
𝑁
1.17 List of goods and services in order of 3.13 mixed economy 4.45 67.2
priority 3.14 price system 4.46 Standard deviation
1.18 M 3.15 promotes income unequally 4.47 Variance
1.19 Increasing relative cost 3.16 the price mechanism saves the ∑(𝑥−𝑥̅ )2
1.20 Make goods and services available to the government from the pains of 4.48 √
𝑁
final consumer distributing scarce goods and services 4.49 Standard deviation
1.21 Satisfies wants 3.17 capitalist economic system 4.50 frequency
1.22 Ranking of goods and services 3.18 socialist economy 4.51 rows and columns
1.23 Allocate scarce resources to satisfy 3.19
human wants 3.20 In the former prices acts as signals in the Chapter Five
1.24 limited supply of goods and services allocation of resources, it is the central 5.1 want supported with ability to pay
1.25 real cost authority that performs this function in 5.2 consumers tend to buy more when price
1.26 the science which studies human the latter is falling
behaviour as a relationship between ends 3.21 allocate scarce resources among 5.3 slopes downward from left to right
and scarce means which have alternative competing uses 5.4 whose demands falls when the income
uses 3.22 the forces of demand and supply of its consumers increases
1.27 scarcity 3.23 public need, which is determined by the 5.5 competitive demand
1.28 our resources are limited market 5.6 labour
1.29 choose between alternatives, given 3.24 the central planning of all production 5.7 are substitutes
limited resources 3.25 5.7*
1.30 real cost 5.8 responsiveness of demand to changes in prices
1.31 allocate scarce resources to satisfy Chapter Four 5.9
human wants 4.1 helps to determine the unit of 5.10
1.32 scale of preference measurement of variables 5.10*
1.33 resources 4.2 5.11 price of the commodity
1.34 an aspect of human behaviour 4.3 simple bar chart 5.12
1.35 forgone alternative 4.4 5.13 derive demand
1.36 limited 4.5 5.14 . normal goods
1.37 a commodity is not available 4.6 Histogram 5.15
1.38 satisfies want 4.7 Pie chart 5.16 their demand falls as income rises
4.8 5.17 age distribution
Chapter Two 4.9 5.18 complementary goods
2.1 all of these 4.10 5.19 fairly
2.2 production 4.11 $2,400; 3:4 5.20 competitive demand
2.3 drilling for crude oil 4.12 15%; N18m 5.21
2.3* 4.13 Cumbersome to determine actual value 5.22 2
2.4 land as the earth’s surface 4.14 36 5.23 labour
2.5 rent 4.15 4.0 5.24 an inferior goods
2.6 wages Σ𝑥
4.16 𝑥̅ = 5.25 complementary demand
2.7 entrepreneur n
4.17 N7.40 5.26 demand is
2.8 risk bearing 5.27 perfectly elastic demand
4.18 7.8
2.9 royalties 5.28 prices of goods x
4.19 3.2
2.10 enterpreneur 5.29
4.20 6
2.11 lower propensity to consume 5.30 Greater than unity
4.21 23
2.12 homogenous
691
5.31 8.14. allowing price to fall towards 11.15. a monopoly market
5.32 a derived demand equilibrium 11.16. monopsony
5.33 availability of factors of production 8.15. less than the equilibrium supply 11.17. monopolistic competition
5.34 Downsloping 8.16. restrict demand and restrict supply 11.18. marginal cost curve
Chapter Six 8.17. N2 11.19. An oligopoly
6.3 no change in supply as price changes 8.18 ₦3.75 11.20. negatively sloped
6.4 8.19. N2.00 11.21. few sellers in the647
market
6.5 price of the product 11.23. MC = MR
6.6 Chapter Nine 11.23. heterogeneity of products
6.7 quantity offered for sale at a given price over a 9.1. all of these
period of time 9.2. allocate resources according to absolute Chapter Twelve
6.8 positive advantage 12.1. unlimited
6.9 quantity offered for sale at a given price over 9.3. diseconomies of scale 12.2. sole proprietorship
a period of time 9.4. internal economies of scale 12.3. partnership
6.10 goods available to the market at a given 9.5. marginal product 12.4. Deed of Partnership
price and at a given period Change in total product 12.5. Articles of Association
9.6.
Percentage change in supply Change in variable factor 12.6. Shareholders
6.11 9.7.
Percentage change in price 12.7. 2 and 50 respectively
6.12 elastic 9.8. marginal product 12.8. cooperative society
6.13 1.25 9.9. individual activities 12.9. privatization
6.14 74 9.10. direct, indirect 12.10. ordinary shares
6.15 perfectly inelastic 9.11. impersonal organization 12.11. does not enjoy limited liability
6.16 42.0 9.12. creation of utility yielding goods and 12.12. prompt decision making and
6.17 weather, price and technology services implementation
% change in quantity supplied 9.13. production of goods and services for
6.18 12.13. control and supervision
% change in price consumption
6.19 80kg 12.14.
9.14. 15 12.15. public company
6.20 ₦10 9.15. utility is created or added
6.21 ₦30 12.16. entrepreneurship
9.16. 12.17.
9.17. an increase in output 12.18. cooperative society
Chapter Seven 9.18. splitting the process of production into
7.1 total utility 12.19. shareholders
different parts to be completed by each 12.20. one person bears all the risk
7.2 change in total utility that results from a person
one unit change in the quantity of a good 12.21. previous personal saving
9.19. X = 46, Y = 6 12.23. tendency to become joint stock
consumed 9.20. 2
7.3 consumed companies
9.21. 3 12.23. cartel
7.4 average utility 9.23. decreasing
7.5 marginal utility may fall even though his 12.24. the board of directors
9.23. 213 12.25. the debts of a company can only be paid
total utility may be rising 9.24. 53
7.6 diminishing marginal utility for its own assets
9.25. 27 and 1 12.26. advertised to members of the public for
7.7 consumer surplus
7.8 subscription
Chapter Ten 12.27. involves the provision of direct services
7.9 power of satisfaction of want 10.1. zero
7.10 utility 12.28. a public limited liability company
10.2. rent on land 12.28. two to fifty
7.11 use of goods and services 10.3. total
7.12 marginal utility 12.29. 2
10.4. cost of production of an extra unit of a 12.30. privatization
7.13 utility goods produced by a firm
7.14 30 12.31. debenture
10.5. total cost 12.32 an interest bearing security
7.15 10.6. N10
7.16 marginal product 12.33
10.7. the cost of producing a unit of output
7.17 consumption 10.8. N36.00
7.18 marginal utility decreases as Chapter Thirteen
10.9. cost of machine 13.1. distribution chain
consumption increases 10.10. (AR × Q) – TC
7.19 consumption 13.2. wholesaler
10.11. decreasing 13.3. the wholesaler
7.20 10.12. wages 13.4. bulk breaking
10.13. all factor inputs that are employed 13.4*
Chapter Eight
8.1. a price which equates demand with 13.5.
Chapter Eleven 13.6.
supply 11.1. perfect competition
8.2. Demand is equal to quantity supplied 13.7. Manufacturer  wholesaler 
11.2. interdepence of firms
8.3. The quantity demanded differs from the retailer  consumer
11.3.
quantity supplied 13.8. offering credit facilities to consumers
11.4. a monopolist
8.4. an excess supply 13.9. wholesalers
11.5. marginal cost equals marginal revenue
8.5. demand and supply are equal 13.10. keeping variety of goods and services
11.6. a perfect market
8.6. price system 13.11. wholesalers
11.7. make normal profits
8.7. market forces 13.12. distribution
11.8. reducing total output to match pric
8.8. excess supply 13.13. wholesalers
11.9. oligopsony
8.10. 4 naira 13.14. wholesaler
11.10. supply and demand are equal
8.11. equilibrium price is attained 13.15. retailers to consumers
11.11.
8.12. price system 13.16 breaking of bulk
11.12. P = MR = MC
8.13. allocate scarce resources among 11.13. preferential treatment
competing ends Chapter Fourteen
11.14. few sellers and buyers
14.1. reduce its size
692
14.2. population increases in geometric 16.6 the advantages accruing to one firm as a 18.11 decrease in bank rate
progression while food production result of the existence of other firms in 18.12 excessive government expenditure
increases in arithmetic progression the same locality 18.13 increasing budget deficit
14.3. be at a slower rate than population 16.7 diseconomies of scale 18.14 inflation
growth 16.8 large market 18.15 deflation
14.4. The total population divided by the total 16.9 industries temporarily protected by tariff 18.16 imports
area barriers until mature enough to compete 18.17 discounting bills of exchange
14.5. working population on world markets 18.18 homogeneity
14.6. population of the country 16.10 adequate supply of unskilled labour 18.19 deposits
14.7. improved working condition 16.11 causing structural unemployment 18.20 borrowers gain
14.8. wage rate differentials 16.12 tax increases 18.21 V = velocity of circulation;
14.9. Disguised 16.13 encourages urban – rural migration 18.22 inflation
14.10. 16.14 an aggregation of individual firms 18.23 deflation in the economy
14.11. vertical producing similar commodities 18.24
14.12. increased productivity per workers 16.15 internal economies 18.25
accompanied by improvement in the 16.16 group of firms with similar product 18.26
quality of output 16.17 localization 18.27 a double coincidence of wants
14.13. 16.18 raw materials 18.28
14.14. rural-urban migration 16.19 18.29 creditors
14.15. birth rate – death rate 16.20 none of the above 18.30 used to measure value of goods and
14.16. the total population divided by the total 16.21 external economies services
area 16.22 skilled labour 18.31 increasing supply and holding wages
14.17. geographical distribution of population 16.23 concentration of firms of an industry constant 18.32 bank rate
14.18. processing of petroleum oil 16.24 spread development 18.3 speculative functions
14.19. Rev. Thomas Malthus 16.25 diseconomies of scale 18.34 acceptability
14.20. expand 18.35 ordinary
14.21. 50 Chapter Seventeen 18.36 price level
14.23. providing a sound framework for policy 17.1 18.37 legal tender
formulation 17.2 18.38 need for double coincidence of wants
14.23. 470,000 17.3 18.39 increase in factor prices
14.24 10% 17.4 18.40 stable in value
14.25. provide the government with statistics on17.5 18.41 production cost is high
present size of the labour force 17.6 18.42 stagflation
14.26. 2,000,000 17.7 18.43 stagflation
14.27 17.8 18.44 1.03%
17.9 18.45 ving standards have fallen by 128%
Chapter Fifteen 17.10 I – APC
15.1 it provides employment for over 65% of 17.11 2.1
the labour force in West Africa 17.12 ₦26,666.66 Chapter Nineteen
15.2 agriculture 17.13 19.1 accepting deposits
15.3 supply of machinery the industrial sector 17.14 rate of taxation 19.2 mint money
15.4 subsistence 17.15 19.3 printing of currency
15.5 mainly for the needs of the immediate 17.16 indirect taxes 19.4 accept deposits withdrawable by cheque
family 17.17 per capital income (PCI) 19.5 underwriting and issuing of shares
15.6 large scale farms of cash crops 17.18 gross domestic product 19.6 stock exchange
15.6* 17.19 net income from abroad 19.7 security market
15.7 inadequate storage facilities 17.20 indirect taxes 19.8 loan sought is long term
15.8 the guarantee of food security 17.21 capital depreciation 19.9 issuing of currency
15.9 adequate storage and processing facilities 17.22 equal to 1 19.10 they issue the currency for the country
15.9* 17.23 MPS 19.11 its yield is based on profits
15.10 land tenure 17.24 GDP per capital 19.12 advances to consumers
15.11 17.25 consumption 19.13 the Central Bank
15.12 17.26 Income, output and expenditure 19.14
15.13 provision of food 17.27 2.5 19.15
15.14 primitive methods 17.28 value added 19.16 debentures
15.15 cotton 17.29 Exports 19.17 heavily taxed
15.16 subsistence farming 17.30 C + I + G + (X – M) 19.18 the rate of interest
15.17 Benin 17.31 inflation and deflation 19.19
15.18 land fragmentation 17.32 net income from abroad 19.20 acceptance of deposits from the public
15.19 agriculture 19.21 total amount receivable by all factors of
Chapter Eighteen production
15.20 I, II and III only 18.1 money 19.21 total transactions to monetary
15.21 acquisition of techniques 18.2 barter system transactions
18.3 general acceptability 19.21 the central bank
Chapter Sixteen 18.4 double coincidence of wants 19.22 pension funds custodians
16.1 employment generation 18.4* 19.23 long-term financial instruments
16.2 employ an increasing number of labour 18.5 demand for money 19.24 reserve ratio
16.3 nearness to raw materials 18.6 precautionary 19.25 provide fund for short-term financing
16.4 raw materials 18.7 general price level 19.26 the person who write out the cheque
16.5 external economies of scale 18.8 inversely with the price level 19.27 the central bank
18.9 price index 19.28 all of the above
18.10 purchasing power of a country 19.29 deposits
693
19.30 the central bank Index of export price Chapter Twenty Six
23.4 × 100
Index of import price 26.1. US dollars
Chapter Twenty 23.5 visible import is less than the value of 26.2. 1958
20.1 fiscal policy visible export 26.3. crude oil deposits
20.2 ensure efficiency in resources allocation 23.6 import and export of goods 26.4. development of mono-economy
20.3 revenue and expenditure of government 23.7 balance of payments adjustments 26.5
20.4 false declaration of assets 23.8 demand for experts in price elastic 26.6.
20.5 income and company tax 23.9 devaluation 26.7.
20.6 VAT 23.10 terms of trade 26.8. the main stay of the economy
20.7 excise duty 23.11 surplus
20.8 tax which takes a higher proportion of 23.12 subsidies on exports
extra naira received as income rises 23.13 perfectly elastic
20.9 23.14 import substitution
20.10 23.15 balance of trade
20.11 personal income tax 23.16 the ratio of the price index of exports to
20.12 disposable income imports
20.13 fiscal policy 23.17 current and capital
20.14 high tariffs 23.18 the law is based on opportunity cost
20.15 direct tax principle
20.16 proportional 23.19
20.17 excise duties 23.20
20.18 proportional 23.21
20.19 a tax on petrol 23.22 overall deficit or surplus in the current
20.20 economical account and capital account of the
20.21 subsidy to farmers balance of payment
20.22 23.23 drawing from resources
20.23 23.24 increase in foreign reserves
20.24 23.25 the value of a unit of export in relation to
20.25 the value of a unit of import
20.26 are borne entirely by landlords 23.26 quotas
20.27 will be borne by buyers alone 23.27 shipping and aviation
20.14 security 23.28 increases world output
𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑖𝑚𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒𝑠
20.29 inelastic 23.29 × 100
𝑖𝑛𝑑𝑒𝑥 𝑜𝑓 𝑒𝑥𝑝𝑜𝑟𝑡 𝑝𝑟𝑖𝑐𝑒𝑠
20.30 total expenditure exceeds revenue 23.30 dumping
20.31 fiscal policy 23.31 imported and exported goods
20.32 a proportional tax 23.32 opportunity cost is least
20.33 stagnated 23.33 encourage increased volume of trade
20.34 surplus 23.34 total value of visible import and export
23.35 balance on current accounts
Chapter Twenty One
21.1 growth Chapter Twenty Four
21.2 high rate of literacy 24.1 economic union
21.3 economic growth and structural change 24.2
21.4 high 24.3 Angola
21.5 high productivity 24.4 1975
21.5* 24.5 customs market
21.6 Latin America 24.6 Cameroun
21.7 diversification of the economy 24.7 90 days
21.8 output over time 24.8
21.9 agriculture 24.9
21.10 unemployment 24.10 customs market
21.11 24.11 90 days
21.12
21.13
21.14
21.15 high per capital income Chapter Twenty Five
21.16 implementation of the plans 25.1 Nigeria
21.17 concentrating more on agriculture 25.2 adhere to production quotas
21.18 political instability 25.3 regulation of oil prices
21.19 one of the 20 largest economies in the world 25.4 International Monetary Fund (IMF)
by the year 2020 25.5 World Bank
21.20 increase the real per capita income 25.6 development of infrastructure in member
nations
25.7 Africans towards economic progress
Chapter Twenty Three 25.8
23.1 differences in natural resources 25.9
endowment 25.10 IMF
23.2 makes room for interdependence 25.11 UN
23.3 should specialize in the production of 25.12 UNO
commodities in which it has the greatest 25.13 African Development Bank
relative advantage over others 25.13 Maintenance of stable exchange rates

694