JAMB Economics 1990

22 reviewed questions with answers and explanations.

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Question 5

One of the major advantage of specialization is that

  1. The worker becomes a tender of machines
  2. It causes more employment of labour
  3. Less machinery is required for production
  4. The worker wastes less time between operations
Answer and explanation

D: The worker wastes less time between operations

Specialisation reduces the need to switch between different tasks. Saving time between operations is one reason division of labour can improve productivity.

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Question 6

Which of the following reward is associated with entrepreneurship as a factor of production?

  1. Salaries
  2. Profits
  3. Interests
  4. Rent
Answer and explanation

B: Profits

Profit is the conventional reward associated with entrepreneurship. Wages reward labour, rent rewards land and interest rewards the provision of capital.

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Question 8

Economies of scale occur when

  1. Marginal cost is falling with input
  2. Average cost is falling with output
  3. Fixed cost is variable
  4. Variable cost is less than fixed cost
Answer and explanation

B: Average cost is falling with output

Economies of scale occur when long-run average cost falls as output expands. The relevant comparison is cost per unit, rather than simply a change in total or marginal cost.

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Question 18

An imperfect market in which there is only one buyer of a commodity is

  1. Monopsony
  2. Oligopoly
  3. Monopoly
  4. Duopoly
Answer and explanation

A: Monopsony

Monopsony is a market with a single buyer. Monopoly describes a single seller, while oligopoly and duopoly concern small numbers of sellers.

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Question 19

The tailoring service is competitive partly because it consists of a large number of

  1. Large-scale enterprises
  2. Medium scale enterprise
  3. Small scale enterprises
  4. Government-owned enterprises
Answer and explanation

C: Small scale enterprises

A large number of small tailoring businesses gives customers alternative providers and limits the market power of any one firm. This is one source of competition in tailoring services.

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Question 20

Which of the following is applicable to a monopolistic firm operating at the output where marginal cost equals marginal revenue?

  1. Cost of production is at a minimum
  2. The plant is of optimum size
  3. Price is above marginal revenue
  4. Average variable cost is at a minimum
Answer and explanation

C: Price is above marginal revenue

For a monopolist selling along a downward-sloping demand curve, marginal revenue lies below price. At an interior profit-maximising output whereMC=MR, price therefore remains above marginal revenue.

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Question 22

In the distribution channels for goods and services, the middleman’s mark-up margin provides a rough measure for the

  1. Quantity discount allowed final consumers
  2. Reward for business entrepreneurship
  3. Effectiveness of government control over economy’s marketing channels
  4. Extent of exploitation of the final consumer
Answer and explanation

B: Reward for business entrepreneurship

A middleman’s margin is the difference between selling and purchase prices. It helps cover distribution costs and provides a gross return for organising the business; it is not automatically a measure of exploitation or net profit.

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Question 26

Capital provided by individuals to the firm by purchasing stocks is called

  1. Debt capital
  2. Fixed capital
  3. Circulating capital
  4. Equity capital
Answer and explanation

D: Equity capital

Buying a company’s shares supplies equity capital and gives an ownership interest. Debt capital instead involves borrowing with a repayment obligation.

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Question 27

Which of the following factors is the most important in siting a petro-chemical plant?

  1. Nearness to the source of raw materials
  2. Nearness tot he source of power
  3. Availability of labour
  4. Proximity of financial institutions
Answer and explanation

A: Nearness to the source of raw materials

Petrochemical production uses petroleum-related feedstocks in large quantities. Access to those raw materials is a major location consideration, affecting supply reliability and transport requirements.

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Question 30

Which of the following is likely to be inflationary?

  1. Tax increase
  2. Increase in unemployment
  3. Budget surplus
  4. Wage increases
Answer and explanation

D: Wage increases

Wage increases can raise production costs and consumer spending, adding inflationary pressure if productivity or output does not keep pace. The other listed changes generally restrain demand.

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Question 31

The basic purpose of imposing legal reserve require ments on commercials banks is to

  1. Assure the profitability of commercial banks
  2. Provide a device through which credit creation by banks can be controlled
  3. Provide a proper ratio between earning and non-bank assets
  4. Provide the Central Bank with working capital
Answer and explanation

B: Provide a device through which credit creation by banks can be controlled

Reserve requirements determine the reserves banks must hold against relevant liabilities. They can be used to influence banks’ capacity to expand deposits and credit, rather than to guarantee profitability.

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Question 32

In the simple banking model with all loans redeposited, no excess reserves and no cash leakage, primary deposits are N100 and the cash reserve ratio is20%. What total credit can the banking system create?

  1. N700.00
  2. N600.00
  3. N500.00
  4. N400.00
Answer and explanation

D: N400.00

In the simple reserve-multiplier model, total deposits can reach100/0.20=N500. Required reserves areN100, leavingN400 as total loans or credit created. The original deposit is included in deposits, not counted as a loan.

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Question 33

Which of the following is a liability of a commercial bank?

  1. Deposits in the bank
  2. Loans made by the bank to individuals
  3. Loans made by the bank to other banks
  4. Bonds purchased by the bank
Answer and explanation

A: Deposits in the bank

Customer deposits are liabilities because the bank owes those amounts to its depositors. Loans made and bonds purchased are assets that can provide future repayments or income.

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Question 37

Under a system of freely floating exchange rate, an increase in the international value of a country (s)currency will cause

  1. Its exports to rise
  2. Its imports to rise
  3. Gold to flow into that country
  4. Its currency to be in surplus
Answer and explanation

B: Its imports to rise

Currency appreciation makes foreign goods cheaper in domestic currency, other conditions unchanged. This tends to increase imports and make domestic exports more expensive to foreign buyers.

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Question 38

The balance of trade is the difference between

  1. Exports and imports of goods and services
  2. Capital inflows and capital outflows
  3. Visible and invisible balances
  4. Exports and imports of goods
Answer and explanation

D: Exports and imports of goods

The trade balance is the difference between merchandise exports and merchandise imports. Services and capital flows are recorded elsewhere in the wider external accounts.

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Question 39

Which of the following is likely to reduce a surplus in the balance of payments of a country?

  1. Devaluation
  2. Increased tarrif on imports
  3. Export promotion
  4. Currency appreciation
Answer and explanation

D: Currency appreciation

Appreciation tends to make exports less competitive and imports cheaper. Other influences unchanged, it can reduce an external surplus by weakening net export receipts.

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Question 40

Which of the following is a tariff?

  1. Limit on the amount of good which can be imported
  2. Interest rate on foreign loans
  3. Government payment to domestic producers for exports
  4. Tax on imported goods
Answer and explanation

D: Tax on imported goods

An import tariff is a tax charged on goods entering a country. A quantitative limit is a quota, while a payment supporting exporters is a subsidy.

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Question 41

An import duty raises the price paid by buyers. Their total expenditure on imports, including the duty, increases if demand for imports is

  1. Elastic
  2. Inelastic
  3. Infinitely elastic
  4. Derived
Answer and explanation

B: Inelastic

With inelastic import demand, the percentage fall in import quantity is smaller than the percentage rise in the price paid. Total buyer expenditure including the duty therefore rises, with other influences unchanged.

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Question 42

Which of the following is likely to hinder labour mobility in Nigeria?

  1. Higher wages elsewhere
  2. Cultural similarities
  3. Good accommodation
  4. Ignorance of job opportunities elsewhere
Answer and explanation

D: Ignorance of job opportunities elsewhere

Workers cannot readily move towards vacancies they do not know about. Lack of information about jobs elsewhere can therefore restrict geographical labour mobility.

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Question 46

Disposable income is an income which

  1. Is available for consumption and saving
  2. Pensioners receive from the government
  3. Is payable to disabled members of the community
  4. Accrues to environmental sanitation authorities for refuse disposal
Answer and explanation

A: Is available for consumption and saving

Disposable income is the income remaining after relevant direct taxes, available for consumption and saving. It is a general income measure rather than a payment limited to pensioners or another group.

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Question 47

In equilibrium, injections are equal to

  1. Withdrawals
  2. Surplus of imports over exports
  3. Government spending
  4. Wages
Answer and explanation

A: Withdrawals

In circular-flow equilibrium, planned injections equal planned withdrawals or leakages. In the fuller model, investment, government spending and exports balance saving, taxes and imports.

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Question 48

Social overhead capital refers to

  1. Balanced growth
  2. Gross investment
  3. The building of infrastructure
  4. Capital formation
Answer and explanation

C: The building of infrastructure

Social overhead capital consists of infrastructure that supports wider economic activity, such as transport links, power and water systems. It provides services used by many producers and households.

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