Explanation

(a) Income elasticity of demand is the degree of responsive-ness of the quantity demanded of a commodity to a little change in income. Income elasticity of demand can be expressed as:% change in quantity dd

% change in income

(b)(i) Income elasticity between A and B

= Change in quantity dd 96 - 120 = -24

%Change in quantity dd = \(\frac{-24}{120} \times \frac{100}{1}\) = - 20%

Change in income = N36,000 - N20,000 = N16,000

% change in income = \(\frac{16000}{20000} \times \frac{100}{1}\) = 80%

Income elasticity of dd = \(\frac{20}{80}\) = 0.25

(ii) Calculation of Income Elasticity between C and D

Change in quantity = 200 - 160 = 40 %

% change in quantity = \(\frac{40}{160} \times \frac{100}{1}\) = 25%

Change in income = 44000 - 40,000 = 4,000

% Change in income = \(\frac{4000}{40000} \times \frac{100}{1}\) = 10%

Income elasticity of dd = \(\frac{25}{10}\) = 2.5

(iii) Calculation of Income Elasticity between E and F

Change in quantity = 252 - 240 = 12

% Change in quantity = \(\frac{12}{240} \times \frac{100}{1}\)% = 5%

Change in income = 47,000 - 45,000 = 2000

% Change in income = \(\frac{2000}{45000} \times \frac{100}{1} = \frac{40}{9}\) = 4.4%

Income elasticity of dd = \(\frac{5}{4.4}\) = 1.1

Alternative method of solving Question 2(b)

Ey =dd x y

dy q

where dq = change in quantity

dy = change in income

y = old income

q = old quantity

(i) Elasticity between A and B

change in quantity = 96 - 120 = 24

change in quantity = N36,000 - N20,000 = N16,000

old income = 20,000

old quantity = 120

= \(\frac{24}{16000} \times \frac{20,000}{120}\) = 0.25

(ii) Between C and D

dq = 160 - 200 = 40

dy =N40,000 -N44,000 = 4,000

y = 40,000

q = 160

= \(\frac{40}{4000} \times \frac{40,000}{160}\) = 2.5

(iii) Between E and F

2q = 240 - 252 =12

2y = 45,000 - N47,000 = 42,000

y = N45,000, q = 240

= \(\frac{12}{2000} \times \frac{45,000}{240}\) = 1.1

(c)(i) Inferior or giffen good

(ii) Normal good and luxury good

Correct Answer: C. the issue of notes not backed by gold

Correct Answer: B. both countries could gain from trade at the same time, but the volume of the gains depends on terms of trade

Explanation

Reasons why public corporations are established in Nigeria are:

(i) Public corporations are established to avoid wasteful duplication of capital resources.

(ii) To provide infrastructural facilities like roads and railways on which returns may not be forthcoming and which may, therefore, not attract investment from the private sector.

(iii) To prevent monopolistic tendencies resulting in very high prices or charges if undertaken by private enterprises e.g. water, electricity etc.

(iv) Enterprise may require heavy capital outlay that may not be affordable to private enterprises e.g. electricity generation projects.

(v) Control of key industries such as defence or the oil industry in Nigeria in which the government cannot afford competition for strategic reason.

(vi) Government engages itself in economic activities in order to provide essential services at subsidized rates e.g. water.

(vii) To avoid wasteful duplication of capital resources.

(vii) To ensure higher standard by services such as education which require very expensive facilities that may not be affordable to the private sector.

Correct Answer: C. output growth rate

Correct Answer: A. Nigeria produces cocoa more cheaply than Ghana

Explanation

comparative advantage is the ability of an individual or group (Nigeria as the case maybe) to carry out a particular economic activity (such as making a specific product) more efficiently than another activity. Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries.

Correct Answer: A. competing demand for scarce resources

Explanation

(a) Location of industries refers to the choice of a site of a firm in an industry. The factors taken into consideration in choosing a site may be economic or political. On the other hand, localization of industries refers to the concentration of firms of an industry in a particular area.

(b) Advantages of locating industries in the rural areas are:

(i) It checks the drift of young people from the rural areas to the towns and cities.

(ii) Labour is likely to be cheaper in the rural areas.

(iii) Transportation and accommodation problems of staff are likely to be less acute.

(iv) The industrial atmosphere would be more peaceful, free from traffic congestion.

(v) A market would be provided for local raw materials and skills.

(vi) Land is likely to be more easily available in the rural areas.

(vii) It will be easier for the firm to get raw materials in the rural areas.

(viii) It would bring about development and improvement in the standard of living in the area.

Disadvantages of locating industries in the rural areas are:

(i) Basic infrastructure may not be available. The industry may have to provide such Infrastructure at its own expense, thus raising the unit cost of production.

(ii) Skilled workers from the urban areas may be unwilling to work in the rural areas, unless they are given substantial incentives.

(iii) There may not be suitable accommodation that could be rented for use as factories and offices. The business may have to build its own houses at great expense

(iv) It is more difficult for workers to find alternative employment if they lose their jobs for one reason or the other.

(v) Damages and losses may be suffered when moving the goods to the markets in urban areas.

(vi) The market for finished goods may be small or non-existent in the rural areas

Correct Answer: D. inverse

Explanation

A demand curve shows the relationship between quantity demanded and price. The price of a good is inversely related to the quantity demanded in the sense that, the higher the price, the lower the demand, and the lower the price, the higher the demand.

Correct Answer: A. An increase in demand for X will increase supply of Y