JAMB Economics 1986

23 reviewed questions with answers and explanations.

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Question 1

Choice in economic life is necessitated by

  1. The need to construct scale of preference
  2. The opportunity cost of consumption
  3. Unlimited wants
  4. Scarcity of economic resources
Answer and explanation

D: Scarcity of economic resources

Scarce economic resources cannot satisfy every want. People must therefore choose between competing uses of those resources and accept the opportunity cost of their choices.

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Question 2

Which of these is the real cost of satisfying any want in the sense of the alternative that has to be foregone?

  1. Variable cost
  2. Opportunity cost
  3. Total cost
  4. Prime cost
Answer and explanation

B: Opportunity cost

Opportunity cost is the value of the next-best alternative forgone. It measures the real sacrifice involved in choosing one use of resources over another.

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Question 3

Under normal circumstances the concept of consumer sovereignty implies that

  1. The consumer and not the producer owns the means of production
  2. The producer and not the consumer determines what is to be produced
  3. The consumer and not the producer determines what is to be produced
  4. Both the consumer and the producer determine what isto be produced
Answer and explanation

C: The consumer and not the producer determines what is to be produced

Consumer sovereignty means consumer demand guides what firms produce. Consumers signal their preferences through purchases, and producers respond to those market signals.

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Question 8

If a person receives a higher wage than would be necessary to induce him to work, he is said to be receiving

  1. Rent
  2. Profit
  3. Interest
  4. Period of training
Answer and explanation

A: Rent

Economic rent is payment above transfer earnings: the minimum needed to keep a factor in its present use. The excess wage above the worker’s required inducement is therefore rent.

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Question 11

Population density refers to

  1. Densely populated urban centre
  2. The total area divided by the total population
  3. Densely populated rural areas
  4. The total population divided by the total area.
Answer and explanation

D: The total population divided by the total area.

Population density is the number of people per unit of area. Divide total population by total land area, commonly measured in square kilometres.

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Question 13

Which of the following statements describes a mixed economy?

  1. The government and the private sector interact in solving the basic economic problems
  2. The invisible hand solves the basic economic problems
  3. The government produces and distributes all goods and services
  4. Society answers the ‘what’, ‘how’, and ‘for whom’ questions only through the market system.
Answer and explanation

A: The government and the private sector interact in solving the basic economic problems

A mixed economy combines market activity by private businesses with government involvement in economic decisions. It is neither entirely centrally planned nor entirely coordinated through markets.

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Question 14

In drawing an individual’s demand curve for a commodity, which of the following is NOT kept constant? The

  1. Individual’s money income
  2. Price for substitutes
  3. Price of complementary goods
  4. Price of the commodity under consideration
Answer and explanation

D: Price of the commodity under consideration

An individual demand curve shows how quantity demanded changes with that commodity’s own price. Income and the prices of related goods are held constant while the commodity’s price varies.

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Question 15

Given that beef and fish are substitutes, a rise in the price of beef relative to that of fish will

  1. Induce greater demand for beef
  2. Induce greater demand for fish
  3. Induce lower demand for fish
  4. Equate demands for beef and fish
Answer and explanation

B: Induce greater demand for fish

When beef becomes more expensive relative to fish, consumers tend to substitute fish for beef. With other influences unchanged, the demand for fish increases.

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Question 16

The main function of price mechanism is to

  1. Limit consumer demand
  2. Enable producers to make profits
  3. Allocate scarce resources among competing ends
  4. Ensure consumer sovereignty
Answer and explanation

C: Allocate scarce resources among competing ends

Prices signal relative scarcity and help direct resources towards competing uses. Producers and consumers respond to these signals when deciding what to supply and demand.

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Question 25

In a public company, shares are

  1. Sold to one person only
  2. Distributed freely
  3. Advertised to members of the public for subscription
  4. Disposed of by the Chief Executive
Answer and explanation

C: Advertised to members of the public for subscription

A public company can invite members of the public to subscribe for shares. This allows it to raise share capital from a wider group of investors rather than restricting ownership to one person.

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Question 27

One of the advantages of a partnership over a sole proprietorship is that

  1. It is the most popular form of business organization
  2. The partner can easily withdraw from the business
  3. It makes an increase in the capital of the business possible
  4. There is no limit to the number of people who may bring in capital
Answer and explanation

C: It makes an increase in the capital of the business possible

Partners can contribute additional capital to a business. Pooling their resources can raise more finance than a sole proprietor can provide alone, although withdrawal and the number of partners remain subject to the partnership arrangements.

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Question 28

Which of the following is an external economy derived by a firm?

  1. Low cost opportunities enjoyed by being in a place where other producers concentrate
  2. Technical economies enjoyed by varying the factors of production
  3. Economies of management by putting administrators where they are most efficient
  4. Marketing advantages attained through preferential treatment in the purchase and distribution of produce
Answer and explanation

A: Low cost opportunities enjoyed by being in a place where other producers concentrate

External economies arise from developments outside an individual firm, such as specialised suppliers and shared infrastructure in an industrial cluster. Internal technical or management changes belong to the firm itself.

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Question 29

Which of the following advantages of localization of industries may also be a disadvantage?

  1. External economies
  2. Concentration of industries and of people
  3. Development of organized markets
  4. Reduced cost of research
Answer and explanation

B: Concentration of industries and of people

Clustering firms and people can provide labour, suppliers and customers nearby. The same concentration can also cause congestion, pollution and competition for land, making it a potential disadvantage.

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Question 31

To control inflation, the monetary authorities of a country can

  1. Reduce taxes
  2. Advise government to increase its expenditure
  3. Engage in expansive monetary policy
  4. Engage in restrictive monetary policy
Answer and explanation

D: Engage in restrictive monetary policy

Restrictive monetary policy reduces monetary stimulus and can restrain aggregate demand. It is therefore a tool for reducing inflationary pressure, particularly when demand is rising faster than supply.

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Question 32

Which of the following is used by the Central Bank to control the rate of interest?

  1. Bill of Exchange
  2. Banker’s order
  3. Fixed deposit account
  4. Open market operation
Answer and explanation

D: Open market operation

Open-market purchases and sales of securities influence banking-system liquidity and short-term interest rates. The other listed items are financial instruments or account arrangements rather than this central-bank policy operation.

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Question 33

Gresham’s law in Economics shows that

  1. Bad money drives good money out of circulation
  2. Good money drives bad money out of circulation
  3. Gold must be available to maintain the value of paper money
  4. The price level varies directly with the quantity of money
Answer and explanation

A: Bad money drives good money out of circulation

Gresham’s law concerns monies accepted at the same legal face value despite different intrinsic values. People tend to spend the overvalued money and retain the undervalued money, so bad money drives good money from circulation.

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Question 35

The most important economic characteristic differenti ating commercial banks from other financial institutions is their.

  1. Function as a safe and profitable store place for savings
  2. Role in financing balance of payments deficits
  3. Status as an intermediary between savers and borrowers
  4. Ability to create and destroy money
Answer and explanation

D: Ability to create and destroy money

Commercial-bank lending creates deposit money, while repayment of loan principal removes corresponding deposit money. Taking savings and intermediating between savers and borrowers are also activities of other financial institutions.

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Question 37

Which of the following causes of inflation is related to demand-pull inflation?

  1. Low productivity on farms and in firms
  2. Poor storage facilities
  3. Poor distribution system
  4. Increase in government expenditure on construction
Answer and explanation

D: Increase in government expenditure on construction

Higher government construction spending adds to aggregate demand. If demand expands faster than productive capacity, it can generate demand-pull inflation; the other options describe supply-side limitations.

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Question 38

Which of the following is NOT a goal of modern budgets?

  1. The control of inflation
  2. The reduction in income inequality
  3. The shift of all resources from the private to the public sector
  4. Economic development
Answer and explanation

C: The shift of all resources from the private to the public sector

Public budgets may support price stability, redistribution and development. Transferring every resource from private activity to the public sector is not a general objective of modern budgeting.

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Question 40

Tax incidence is the analysis of

  1. How progressive a tax is
  2. How a tax is collected
  3. How distorting a tax is
  4. Who ultimately pays the tax
Answer and explanation

D: Who ultimately pays the tax

Tax incidence identifies who ultimately bears the economic burden of a tax. This can differ from the person or business legally responsible for sending the payment to the government.

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Question 43

The term, balance of trade, can be defined as the

  1. Relation between value of exports and value of imports over a given period of time
  2. Balance owed to the rest of the world in payment for imports
  3. Price paid for imports in terms of exports
  4. Relation between payments of all kinds made by a country to the rest of the world, over a given period of time.
Answer and explanation

A: Relation between value of exports and value of imports over a given period of time

The balance of trade compares the value of merchandise exports with merchandise imports over a period. Exports exceeding imports give a surplus; imports exceeding exports give a deficit.

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Question 44

The terms of trade is often measured by the ratio of the index of export prices

  1. Divided by the index of import prices multiplied by 100
  2. Multiplied by the index of import prices
  3. Plus the index of import prices multiplied by 100
  4. Minus the index of import prices
Answer and explanation

A: Divided by the index of import prices multiplied by 100

Terms of trade compare export prices with import prices. Divide the export-price index by the import-price index and multiply by100 to express the comparison as an index.

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Question 48

The difference between Gross Domestic Product and Gross National Product is accounted for by

  1. Allowance for total depreciation
  2. Total interest payments
  3. Total tax and interest payments
  4. Net income from abroad
Answer and explanation

D: Net income from abroad

Gross national product equals gross domestic product plus net factor income from abroad. The adjustment accounts for income residents earn abroad less income non-residents earn domestically.

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