2024 NABTEB ECONOMICS: 2024 NABTEB ECONOMICS QUESTIONS AND ANSWERS (7272)

NABTEB ECONOMICS

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INSTRUCTION: Answer One Question From Part I and Any Other Four Questions From Part II.

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PART I

(1a)

Percentage change in quantity supplied =( change in QS/Old QS) x (100/1)

= [(240 -150)/150] x (100/1)

= (90/150) x (100/1)

= 60%

Percentage change in price;

= (Change in price/old price) x (100/1)

= [(75 -45)/45] x (100/1)

= (30/45) x (100/1)

= 66.7%

Coefficient of price elasticity of supply = %ΔQS/%ΔP

= 60/66.7

= 0.9

(1bi)

Supply is inelastic.

(1bii)

Supply is inelastic because the coefficient of price elasticity is less than one.

(1c)

(i) Decrease in the cost of yam production

(ii) Increase in the price of yam

(iii) Change in the number of market competitors.

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PART II:

(4a)

Public corporation is defined as a large-scale business organisation set up, owned and financed by the government of a country mainly to provide services to the members of the public.

(4b)

=ADVANTAGES OF PUBLIC CORPORATION=

(i) Autonomy: Public corporation is an autonomous set up. Therefore it enjoys considerable independence and flexibility in its operations. Initiatives can be taken to tap opportunities and to improve efficiency.

(ii) Economies of scale: Since they operate on a large scale, public corporation can reap the benefits of economies of scale. The benefits derived from economies of scale can be passed on to the general public in the form of cheaper prices, stable prices, better quality of service etc.

(iii) Erase of raising funds: Since public corporations are government owned statutory bodies, they can raise the required funds by issuing bonds. They need not entirely depend on the government for their financial requirements.

=DISADVANTAGES OF PUBLIC CORPORATIONS=

(i) Misuse of power: It enjoys immunity from parliamentary inquiry into its day-to-day functioning. Such immunity might induce some officials to misuse their power and indulge in corrupt practices. It takes considerable amount of time and effort to unearth corrupt acts and the corporation loses valuable resources.

(ii) Consumer interests ignored: Many public corporations operate as monopolies. Absence of competition leads to lethargic functioning, reduced focus on efficiency improvements and innovation and poor customer service with the result that consumer interests are ignored.

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(5a)

Taxation is the act or method of imposing a compulsory levy by the government or its agency on individuals and firms or on goods and services.

(5b)

(i) To raise revenue:

Taxes are used to raise income for the government of the country. Through the collection of tax, the finances that are needed for the provision of basic services, general administrative purposes, and finance capital projects within the country are made available to the government.

(ii) To redistribute income:

Through the Pay As You Earn (P.A.Y.E) system, the government can narrow or almost bridge the gap between the rich and the poor by introducing a system of progressive taxation.

(iii) To protect new industries:

Sometimes, the government takes advantage of taxation to protect the newly established industries from competition with firms in foreign countries.

(iv) To control inflation:

Without taxation in some cases, inflation will be quite impossible to control. Taxes are sometimes used as a tool to stop inflation and this is done by the increase in direct tax by the government so that expenditures are not increased.

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(6a)

Stock exchange is an essential part of the capital market which serves as a source of raising capital as well as a forum for financial investment.

(6b)

(i) Valuation of Securities: Stock market helps in the valuation of securities based on the factors of supply and demand. The securities offered by companies that are profitable and growth-oriented tend to be valued higher. Valuation of securities helps creditors, investors and government in performing their respective functions.

(ii) Better Capital Allocation: Profit-making companies will have their shares traded actively, and so such companies are able to raise fresh capital from the equity market. Stock market helps in better allocation of capital for the investors so that maximum profit can be earned.

(iii) Facilitates liquidity: The most important role of the stock exchange is in ensuring a ready platform for the sale and purchase of securities. This gives investors the confidence that the existing investments can be converted into cash, or in other words, stock exchange offers liquidity in terms of investment.

(iv) Making the public aware of equity investment: Stock exchange helps in providing information about investing in equity markets and by rolling out new issues to encourage people to invest in securities.

(v) Transactional Safety: Transactional safety is ensured as the securities that are traded in the stock exchange are listed, and the listing of securities is done after verifying the company’s position. All companies listed have to adhere to the rules and regulations as laid out by the governing body.

(vi) Contributor to Economic Growth: Stock exchange offers a platform for trading of securities of the various companies. This process of trading involves continuous disinvestment and reinvestment, which offers opportunities for capital formation and subsequently, growth of the economy.

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(8a)

Inflation is defined as a persistent rise in the general price level of goods and services. Inflation occurs when the volume of purchases is permanently running ahead of production and too much money in circulation chasing too few goods.

(8b)

(i) Use of contractionary monetary measures: The use of contractionary monetary measures such as increase in bank rate, open market operation, deposit ratio and moral persuasion can helps to control inflation.

(ii) Use of fiscal measures: Inflation can be controlled with the use of fiscal measures to reduce the amount of money in circulation e.g. Increase in direct taxation.

(iii) Effective price control system: Inflation is combated through the use of effective price control system e.g. Price control board by government officials and the application of rationing to maintain price level.

(iv) Reduction in government expenditure surplus budget: When the government reduce expenditure, it goes a long way toward reducing the amount of money in circulation.

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