24 reviewed questions with answers and explanations.
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The main economic objective behind the production of goods and services in any economy is to
B: Satisfy human wants
Production creates goods and services to satisfy human wants. Profit is an incentive for many firms, but it is not the purpose of every form of production.
AI-reviewed · source checkedDivision of labour is limited by
A: The size of the market
Specialised production needs a market large enough to absorb the output. The extent of demand therefore limits how far tasks can be divided.
AI-reviewed · source checkedThe production within the domestic territory of a country is called the
B: Gross domestic product
Gross domestic product measures production within a country’s economic territory. It concerns domestic production, rather than the nationality of the producers.
AI-reviewed · source checkedIn discussing the reasons why wages differ between occupations, which of the following should be regarded as a cardinal point that needs to be emphasized?
B: Demand and supply
Occupational wages reflect the interaction of demand for particular skills and their supply. Training costs, working conditions and bargaining can influence those market conditions.
AI-reviewed · source checkedThe advantages that accrue to a firm as the size of the firm increases are known as
C: Internal economies
Internal economies arise from expansion within the firm, such as spreading overhead costs or using specialised equipment. External economies arise from growth outside the individual firm.
AI-reviewed · source checkedOne of the advantages of large-scale production is that
C: The firm can use labour-saving machinery
A large volume of output can justify specialised, labour-saving machinery whose fixed cost would be too high for a small operation. The other choices describe possible disadvantages.
AI-reviewed · source checkedWhich of the following is NOT an obstacle to economic development?
E: Dedicated leadership
Dedicated leadership can support effective institutions and development programmes. Low investment, weak technology and low productivity are obstacles rather than improvements.
AI-reviewed · source checkedAn ageing population refers to an increasing proportion of which group?
E: Old people
Population ageing means older people account for a growing share of the population. It concerns older women as well as older men, not simply one sex.
AI-reviewed · source checkedLet TC be total cost, TFC fixed cost, TVC variable cost, ATC average total cost, AVC average variable cost, AFC average fixed cost and Q positive output. Which equation is NOT true?
D: TVC = AVC/Q
Average variable cost equals total variable cost divided by output: AVC = TVC/Q. Rearranging gives TVC = AVC × Q, so dividing AVC by Q does not give TVC.
AI-reviewed · source checkedIf X and Y are two goods, then the cross elasticity of demand for X with respect to Y is defined as the
A: Percentage change in the quantity of X divided by the percentage change in the price of Y
Cross-price elasticity compares a percentage change in demand for one good with a percentage change in the price of another. Using percentages makes the measure independent of the units.
AI-reviewed · source checkedFor two substitute goods, the cross elasticity of demand is
D: Positive
When the price of one substitute rises, buyers tend to demand more of the other, other factors unchanged. The two changes have the same sign, giving positive cross-price elasticity.
AI-reviewed · source checkedWhich is NOT an associated problem of a binding maximum-price control?
A: Excess supply
A binding maximum price is below the market-clearing price. Quantity demanded exceeds quantity supplied, creating a shortage rather than excess supply; rationing and unofficial markets may result.
AI-reviewed · source checkedIn the standard single-price monopoly model with downward-sloping demand, price at an interior profit-maximising output is
B: Greater than marginal cost
For a single-price monopolist facing downward-sloping demand, marginal revenue is below price. At an interior profit maximum MR = MC, so price exceeds marginal cost.
AI-reviewed · source checkedIn taxation, the benefit principle requires that
C: Only those who derive benefits from services provided from public revenue should be taxed
The benefit principle links a person’s tax contribution to benefits received from publicly funded services. This differs from the ability-to-pay principle, which focuses on income or wealth.
AI-reviewed · source checkedPricing and output decisions of sellers are highly interdependent in markets known as
A: Oligopoly
In oligopoly, a few major sellers must consider how rivals will respond to changes in price or output. This strategic interdependence is its defining feature.
AI-reviewed · source checkedThe economic goal of public utilities is to
D: Provide essential services
Public utilities supply essential services such as water or electricity. Revenue and cost control support that purpose; maximising dividends is not their defining economic goal.
AI-reviewed · source checkedThe most important characteristic of money is
C: Acceptability
Money works as a medium of exchange because people generally accept it in payment. Portability helps, but an easily carried object is not money if others will not accept it.
AI-reviewed · source checkedOne of the major effects of an increase in government expenditure on a nation’s economy is that it
D: Raises the level of aggregate demand
Government purchases are a component of aggregate demand. Other spending unchanged, an increase in government expenditure raises aggregate demand; the final output effect depends on the economy’s conditions.
AI-reviewed · source checkedPublic expenditure on services, such as education and health, is known as expenditure on
C: Social services
Education and health are classified as social services because they support people’s capabilities and welfare. They are distinct from administrative overheads and economic infrastructure services.
AI-reviewed · source checkedUsing the same resources, Nigeria can produce either 20 tonnes of cocoa or 10 metres of lace; Austria can produce either 12 tonnes of cocoa or 8 metres of lace. On the basis of comparative advantage, which specialisation follows?
E: Austria should produce lace and Nigeria should produce cocoa.
For Nigeria, one metre of lace costs 20/10 = 2 tonnes of cocoa; for Austria it costs 12/8 = 1.5 tonnes. Austria has the lower opportunity cost of lace. Nigeria gives up less lace per tonne of cocoa, so its comparative advantage is cocoa.
AI-reviewed · source checkedThe following, except ONE, are the differences between international trade and internal trade.
E: Exchanges of goods and services
Both domestic and international trade involve exchanging goods and services. Borders can introduce differences in currency, regulation and factor mobility, but exchange itself is common to both.
AI-reviewed · source checkedWhich of the following items does NOT belong to a country’s current account in the balance of payments account?
D: Foreign currencies
The current account records trade in goods and services and income/transfers. Exports, imports, travel and insurance are current-account transactions; foreign currency itself is a financial asset, not a service or merchandise flow.
AI-reviewed · source checkedAn improvement in Nigeria’s terms of trade should
A: Lead to a fall in cost of her imports in terms of what she must sacrifice to obtain them
Improved terms of trade mean export prices rise relative to import prices. A country can obtain a given amount of imports by sacrificing fewer exports, other conditions unchanged.
AI-reviewed · source checkedWhich of the following is NOT a feature of economic underdevelopment o a country?
A: Large number of high income earners relative to the population
Widespread high incomes are inconsistent with the low average living standards described by underdevelopment. High incomes for a small minority can coexist with widespread poverty.
AI-reviewed · source checked