JAMB Economics 1991

28 reviewed questions with answers and explanations.

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Question 1

In market economy, the question of what, how and for whom to produce are solved by the

  1. Elected representatives of the people
  2. Planning committee
  3. Price mechanism
  4. Government
Answer and explanation

C: Price mechanism

In a market economy, prices coordinate decisions about production and consumption. Demand and supply influence what is produced, how resources are used and who can purchase the output.

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Question 2

Economic goods are termed scarce goods when they are

  1. Not available in sufficient quantities to satisfy all wants for them
  2. Not produced in sufficient quantities to satisfy effective demand for them
  3. Of high quality
  4. Of primary importance in satisfying the needs of a society
Answer and explanation

A: Not available in sufficient quantities to satisfy all wants for them

Economic scarcity means available quantities cannot satisfy every want for a good. It is distinct from a temporary market shortage at a particular price and does not depend on the good being high quality.

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Question 4

Macroeconomics is a study of economic science from the point of view of

  1. Resource markets or production units
  2. Individual producers of consumers
  3. Aggregate or general economy
  4. Companies or individual firms
Answer and explanation

C: Aggregate or general economy

Macroeconomics studies the economy as a whole, including aggregate output, employment, inflation and total spending. Individual consumers and firms are principally studied in microeconomics.

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Question 6

If units of a variable factor are increasingly added to a fixed factor and the marginal physical product keeps increasing, production is said to be taking place under condition of

  1. Increasing returns to the variable factor
  2. Increasing returns to scale
  3. Constant returns to the variable factor
  4. External economies of scale
Answer and explanation

A: Increasing returns to the variable factor

Increasing marginal physical product means each additional unit of the variable input adds more output than the preceding one. Because another input remains fixed, this concerns returns to the variable factor rather than returns to scale.

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Question 7

At any given level of output, the total cost of a firm equals the

  1. Marginal cost plus the average cost
  2. Fixed costs less its variable cost
  3. Average cost multiplied by its output
  4. Economic costs multiplied by variable costs.
Answer and explanation

C: Average cost multiplied by its output

Average cost is total cost divided by output. Rearranging gives total cost equal to average cost multiplied by the quantity produced.

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Question 10

Using the original price and quantity as the base, a ballpoint pen falls in price from N1.00 to N0.60 and quantity demanded rises from200 to300. What is the magnitude of price elasticity of demand?

  1. 1.25
  2. 0.80
  3. 0.50
  4. 0.40
Answer and explanation

A: 1.25

Using the original price and quantity as the base, quantity rises100/200=50% and price falls0.40/1.00=40%. The elasticity magnitude is0.50/0.40=1.25.

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Question 11

If a society is operating on the production possibility curve, this implies that the resources are

  1. Fully and efficiently utilised
  2. Fully but inefficiently utilised
  3. Efficiently but not fully utilised
  4. Abundant
Answer and explanation

A: Fully and efficiently utilised

A point on the production possibility frontier uses available resources fully and productively for the stated technology. A point inside the frontier indicates unused resources or productive inefficiency.

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Question 15

The cross-elasticity of demand between complemen tary goods is

  1. Unitary
  2. Positive
  3. Zero
  4. Negative
Answer and explanation

D: Negative

When the price of one complementary good rises, demand for the other tends to fall. The price and cross-quantity changes have opposite signs, producing negative cross-price elasticity.

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Question 16

Resources are efficiently allocated when production takes place at that output where price equals

  1. Marginal revenue
  2. Average variable cost
  3. Marginal cost
  4. Total cost
Answer and explanation

C: Marginal cost

In the standard model without external costs or benefits, allocative efficiency occurs when marginal benefit, represented by price, equals marginal cost. This balances the value of another unit with the resources needed to produce it.

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Question 19

In a perfectly competitive market, the firm is in long- run equilibrium at the output where

  1. Marginal cost is minimum
  2. Average cost is minimum
  3. Total revenue is maximum
  4. Marginal revenue is maximum
Answer and explanation

B: Average cost is minimum

Under the usual free-entry competitive model, long-run equilibrium eliminates economic profit and places firms at minimum average total cost. Price equals average cost and marginal cost at that output.

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Question 23

The ordinary partner in a partnership

  1. Takes no active part in management of the business
  2. Has limited liability in case of business failure
  3. Has unlimited liability in case of business failure
  4. Cannot be sued personally on matters relating to the business
Answer and explanation

C: Has unlimited liability in case of business failure

An ordinary or general partner has unlimited liability for the partnership’s debts. This differs from a limited partner whose liability is restricted under the applicable partnership form.

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Question 28

Industries tend to be located closer to market centres than to the sources of major raw materials if the

  1. Products are relatively cheap to transport to market centres
  2. Products are relatively more expensive to transport than the major raw materials
  3. Raw materials are bulky
  4. Raw materials can also be imported
Answer and explanation

B: Products are relatively more expensive to transport than the major raw materials

A firm tends to locate near its customers when finished goods cost more to transport than its raw materials. This reduces the more expensive outward transport leg, other costs unchanged.

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Question 29

One disadvantage of trade by barter is that

  1. People are happier when they exchange the same quantities of goods through the medium of money rather than by baster
  2. The person wishing to buy good X may not have good Y which is what the other person wants
  3. One person must always be cheated when trade takes place by barter
  4. It increase the initial cost of producing goods
Answer and explanation

B: The person wishing to buy good X may not have good Y which is what the other person wants

Barter requires a double coincidence of wants. Someone seeking goodX may lack the goodY desired by its owner, preventing a direct exchange even when both parties wish to trade.

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Question 30

One of the functions of Development Banks is to

  1. Mint money for the development of the economy
  2. Provide short-term loans to commercial banks
  3. Provide medium and long-term finance for development of the banking system
  4. Provide medium and long-term finance for the development of the economy
Answer and explanation

D: Provide medium and long-term finance for the development of the economy

Development banks provide medium- and long-term finance for productive investment and broader development projects. They do not mint currency, and their role extends beyond financing the banking sector alone.

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Question 31

For money to perform effectively as a store of wealth and a standard of deferred payment, it should be

  1. Portable
  2. In attractive form
  3. Stable in value
  4. Spent more on capital goods than on consumer goods
Answer and explanation

C: Stable in value

Stability in purchasing power helps money preserve wealth and express future obligations reliably. Large unpredictable changes in value make saving and deferred payment less dependable.

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Question 33

With debts fixed in nominal terms, an unexpected rise in inflation

  1. Discourages trade by barter
  2. Favours debtors at the expense of creditors
  3. Increases the real income of salary earners
  4. Increases the value of a country’s exports
Answer and explanation

B: Favours debtors at the expense of creditors

Unexpected inflation reduces the real purchasing power of a fixed nominal repayment. Borrowers repay in money worth less than anticipated, benefiting at the expense of lenders.

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Question 34

Banks aid economic expansion and development by

  1. Being very strict in lending policies
  2. Mobilizing savings for investment lending
  3. Paying interest on deposit accounts
  4. Charging high interest on loans
Answer and explanation

B: Mobilizing savings for investment lending

Banks connect financial resources with investment opportunities and provide lending services. Financing productive investment can expand output and support economic development.

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Question 35

The term ‘Stock of Capital’ means

  1. Amount of money necessary to start a business
  2. Total amount receiveable by all factors of production
  3. Amount of equipment plant and inventory existing at a time
  4. Total amount available for economic development
Answer and explanation

C: Amount of equipment plant and inventory existing at a time

A capital stock is measured at a point in time and includes productive equipment, plant and inventories then available. Investment is a flow that adds to this stock over a period.

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Question 37

Budget deficit is the amount by which

  1. Total expenditure exceeds revenue
  2. Recurrent expenditure exceeds revenue
  3. Capital expenditure exceeds revenue
  4. Recurrent expenditure exceeds capital expenditure
Answer and explanation

A: Total expenditure exceeds revenue

A budget deficit occurs when total government expenditure exceeds revenue for the period. The gap concerns overall spending and receipts rather than only one expenditure category.

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Question 39

Personal distribution of income implies

  1. The way income is distributed among specific households or spending units
  2. The distribution of income according to basic resource classes
  3. Dividing income according to industries
  4. Dividing income between personal taxes consumption expenditures and savings
Answer and explanation

A: The way income is distributed among specific households or spending units

Personal income distribution describes how income is shared among individuals or households. Functional distribution instead classifies income by factor rewards, such as wages, rent and profit.

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Question 40

One of the advantages of international trade is that is

  1. Increases world output
  2. Encourages economic independence among nations
  3. Restricts spread of technical knowledge
  4. Promotes self-reliance and satisfaction with only what can be produced internally
Answer and explanation

A: Increases world output

Trade can increase world output by allowing countries to specialise according to comparative advantage. The same resources can then produce a larger combined output than under less efficient allocation.

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Question 42

Under flexible exchange rates, a deficit could be corrected by

  1. Freezing the gold point
  2. Appreciation of other currencies
  3. Removing export subsidies
  4. Removing tariffs
Answer and explanation

B: Appreciation of other currencies

If foreign currencies appreciate relative to the domestic currency, the domestic currency depreciates. This can make exports cheaper abroad and imports dearer at home, helping reduce a deficit when trade responds sufficiently.

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Question 44

The age distribution of a country’s population is of economic importance because it affect the

  1. Pattern of expenditures
  2. Size of the army
  3. Optimum size of firms
  4. Location of industries
Answer and explanation

A: Pattern of expenditures

Different age groups have different needs for education, housing, health care and other goods. Population age structure therefore affects household and public expenditure patterns.

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Question 45

It is important to measure the National Income of a country because

  1. It is a major determinant of the standard of living
  2. It reveals hazards of development like pollution and congestion
  3. It reveals the distribution of the citizens’ savings in foreign banks
  4. Its size determines the extent of political stability
Answer and explanation

A: It is a major determinant of the standard of living

National income indicates the resources generated by production and is relevant to living standards. It is useful alongside population, distribution and other welfare measures, because the total alone does not capture every aspect of wellbeing.

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Question 46

The Gross Domestic Product is defined as the total value of

  1. All final goods and services produced in a country during the year
  2. All assets of a country in a particular year
  3. Exports net of total value of imports
  4. All receipts.
Answer and explanation

A: All final goods and services produced in a country during the year

GDP is the value of final goods and services produced within an economy during a stated period. Counting final output avoids repeatedly counting intermediate goods used in production.

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Question 47

A maize farmer sells output forN10 with no purchased inputs. A flour miller buys inputs forN10 and sells forN12; a baker buys forN12 and sells forN15; a shopkeeper buys forN15 and sells forN20. What is total output by the value-added approach?

  1. N57.00
  2. N37.00
  3. N20.00
  4. N15.00
Answer and explanation

C: N20.00

Value added is sale value minus purchased inputs. The stages add10,2,3 and5 naira respectively, for a total ofN20. Adding every sale would count intermediate production more than once.

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Question 48

If W stands for wages/salaries, P for profit, R for interest and Z for rent on land and real estate, then national income is

  1. W - P - R - Z
  2. W + P + Z - R
  3. P - R - Z + W
  4. W + P + R + Z
Answer and explanation

D: W + P + R + Z

The income approach adds the rewards paid to factors of production. With the given symbols, wages, profit, interest and rent are all added: W+P+R+Z.

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Question 49

In the national income and product accounts, double counting is avoided if

  1. Only final goods are counted
  2. Only intermediate goods are counted
  3. Only intermediate and final goods are counted
  4. The value of all goods and services are added together
Answer and explanation

A: Only final goods are counted

Counting final goods avoids including the same intermediate production repeatedly. Alternatively, summing value added at each stage reaches the same final-output total.

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