ECONOMICS PAPER III — QUESTIONS & ANSWERS
1. Increasing returns to scale occur when:
a. firm is operating below the optimum size
b. the expansion of a firm produces economies and greater efficiency
c. optimum factor combination or proportion is attained
d. all of the above
Answer: d
2. A production technique is labour intensive when it uses:
a. half of capital input
b. less of labour in relation to capital
c. more of labour in relation to capital
d. all of the above
Answer: c
3. The curve which produces the same level of output is called:
a. Isocost
b. Isoquant
c. MP curve
d. AP curve
Answer: b
4. The long-run as used in economics implies a period:
a. long enough for both fixed and variable factors of production to change
b. of 25 years
c. of one financial year
d. long enough for fixed factors of production to change
Answer: a
5. Agro-allied industry involves:
a. production enterprises based on agricultural produce
b. production on a joint stock basis
c. production of only cash crops
d. production of only food crops
Answer: a
6. Socialist mode of planning is based on:
a. Development plan
b. rolling plan
c. central plan
d. perspective plan
Answer: c
7. The major fiscal policy instruments in Nigeria are:
a. taxation, tariff, public expenditure
b. taxation, tariff, interest exchange
c. taxation, tariff, interest rate
d. taxation, tariff, imports
Answer: a
8. Output is increasing at a decreasing rate in which of the stages:
a. stage III
b. stage II and I
c. stage II
d. stage III and II
Answer: c
9. Which of the three stages in the law of variable proportion is the most important?
a. stage III
b. stage IV
c. stage I
d. stage II
Answer: d
10. The theory of a firm employing the marginal labour at a point at which the marginal or extra product is equal in value to the marginal wage is called:
a. economic rent
b. geographical mobility
c. closed shop
d. the marginal product theory of labour
Answer: d
11. When the quantity of a good does not change at all as price changes, demand is said to be:
a. perfectly inelastic
b. unit elasticity
c. perfectly elastic
d. elastic
Answer: a
12. A downward pressure on the price of a commodity toward the equilibrium results from:
a. increase in demand
b. decrease in demand
c. decrease in supply
d. b and c
Answer: b
13. Under the gold standard, a surplus of payment means:
a. a shipment of gold away from the surplus country
b. an inflow of gold into the country having a surplus
c. a general fall in prices
d. increased mining of gold
Answer: b
14. In deductive economics, economists usually:
a. go from theory to fact
b. go from facts to theory
c. go from theory to thinking
d. go from theory to synthesis
Answer: a
15. Which of these economists is a strong advocate of fiscal policy?
a. J.M. Keynes
b. Adam Smith
c. David Ricardo
d. Karl Marx
Answer: a
16. Which of these economists is associated with theory of population?
a. Adam Smith
b. David Ricardo
c. Rev. T. Malthus
d. J.M. Keynes
Answer: c
17. The theory of division of labour is best associated with:
a. Ricardo
b. Keynes
c. Marx
d. Adam Smith
Answer: d
18. The private sector in Nigeria is made up of:
a. household
b. corporate bodies
c. incorporated business and household
d. joint stock companies
Answer: c
19. Which of the following cost items refers to price?
a. variable cost
b. opportunity cost
c. fixed cost
d. average cost
Answer: b
20. The balanced budget multiplier is equal to:
a. -b
b. -1
c. 1
d. 1/(1-b)
Answer: c
21. The basis for all economic activities is:
a. scarcity
b. poverty
c. opportunity cost
d. unemployment
Answer: a
22. Which of the following is not a leakage in the circular flow of income:
a. import of a Datsun car
b. personal saving
c. export of crude petroleum
d. indirect company tax
Answer: c
23. In a market structure, monopoly means:
a. one seller with close substitute
b. one seller with no close substitute
c. one seller with complementary goods
d. all of the above
Answer: b
24. If a firm can sell as much as it wishes at a given market price, that firm is:
a. an industry
b. competitive firm
c. a monopolist
d. an oligopolist
Answer: b
25. Ricardo's law of comparative advantage is based on:
a. the law of diminishing return
b. the law of increasing relative costs
c. the law of diminishing marginal utility
d. the opportunity cost theory
Answer: d
26. If the demand curve for product B shifts to the right as the price of product A declines, it can be concluded that:
a. A and B are substitute goods
b. A and B are complementary goods
c. A is inferior good and B is a superior good
d. A is a superior good and B is an inferior good
Answer: b
27. GNP can be measured by:
a. the total market value of final goods produced in the economy
b. the total value of all intermediate goods produced in the economy
c. the total value of all sales in the economy
d. none of the above
Answer: a
28. A market is said to be purely competitive if:
a. the product is standardized
b. no individual seller has control over the market price of the product
c. there is a very large number of independent sellers
d. all of the above
Answer: d
29. At equilibrium, a firm that is a competitor in its output market but a monopolist in its labour market will pay a wage rate:
a. equal to the marginal revenue product
b. less than the marginal revenue product
c. impossible to determine from the information given
d. greater than the marginal revenue product
Answer: b
30. A dual economy is one in which:
a. there exists a modern industrialized sector as well as traditional sector
b. there exists a traditional sector and government sector
c. there exists an agricultural sector and a monetary sector
d. none of the above
Answer: a
31. The Organization of Petroleum Exporting Countries (OPEC) is an example of:
a. perfect competition
b. duopoly
c. cartel
d. monopsony
Answer: c
32. Which of the following will not cause an increase in the supply of guinea corn?
a. an improvement in guinea corn farm technology
b. a fall in the price of farm machinery
c. a decrease in the price of milled guinea corn
d. general improvement in farm technology
Answer: c
33. Choice is necessary because:
a. goods are many and varied and one must therefore choose
b. one cannot consume everything
c. resources are scarce relative to wants
d. all of the above
Answer: c
34. Which of the following is not a factor reward?
a. wages
b. rents
c. interest
d. premium
Answer: d
35. Which of the following is not an advantage of division of labour?
a. increased productivity
b. monotony
c. efficiency
d. development of specialised machinery
Answer: b
36. When production is based on free enterprise, firms seek to maximize:
a. profit
b. output
c. innovation
d. choice
Answer: a
37. The unit price of a firm's output is similar to its:
a. marginal revenue
b. marginal product
c. average product
d. average revenue
Answer: d
38. The degree of cross elasticity coefficient between two commodities tells the extent of their:
a. demand or supply
b. cheapness
c. scarcity
d. existence
Answer: d
39. An economic system which is regulated by invisible hand is called:
a. planned economy
b. market economy
c. communist economy
d. feudalistic economy
Answer: b
40. Economic development can be defined briefly as:
a. economic growth plus change
b. economic growth minus change
c. growth in savings
d. growth in income per capita
Answer: a
41. A commodity has a perfectly inelastic demand. The imposition of a specific tax would raise the price of the commodity:
a. exactly by the amount of tax imposed
b. to a monopoly price
c. out of the reach of the consumers
d. higher than the amount of tax imposed
Answer: a
42. Among the disadvantages of monopoly is that it leads to:
a. higher output and lower price
b. lower output and higher price
c. higher output and higher prices
d. lower output and lower prices
Answer: b
43. The population of a country is regarded to be greater than the optimum if:
a. output per capita increases as population increases
b. output per capita decreases as population increases
c. output per capita decreases as population decreases
d. output per capita remains constant as population increases
Answer: b
44. Two commodities X and Y substitute if:
a. their cross elasticity is less than unity
b. the price of X falls resulting in the fall of the price of Y
c. their cross elasticity is positive
d. all of the above
Answer: c
45. Which of these is not included in National income computation?
a. the income made by musicians
b. the income of farmers
c. the income of soldiers
d. the income of aged parents which was sent by a working son
Answer: d
46. If the marginal utility of commodity X rises above that of commodity Y, then:
a. MUx/Px > MUy/Py
b. MUx/MUy = Px/Py
c. Px/Py > MUx/MUy
d. MUy/MUx > Px/Py
Answer: a
47. If a firm sells 3,000 units of a commodity at ₦10 per unit and 5,000 units at ₦8 per unit. Calculate the elasticity of demand.
a. marginal revenue = ₦2.00
b. total revenue = ₦40,000
c. elasticity of demand = 3.3
d. value added = ₦10,000
Answer: c
(%ΔQ = 2,000/3,000 = 66.7%; %ΔP = -2/10 = -20%; Ed = 66.7/-20 = -3.33)
48. If the quantity demanded of a commodity rises from 100 units to 110 units as its price falls from ₦10 per unit to ₦9 per unit, the demand elasticity may be classified as:
a. infinite
b. unitary
c. elastic
d. inelastic
Answer: b
(%ΔQ = 10/100 = 10%; %ΔP = -1/10 = -10%; Ed = 10/-10 = -1, unitary)
49. A profit-maximizing firm produces the level of output at the point where:
a. marginal cost crosses the average variable cost
b. marginal cost crosses the average total cost
c. average total cost intersects with the vertical axis
d. marginal cost equals marginal revenue
Answer: d
50. Suppose the price of tooth paste falls from ₦2.00 to ₦1.90, the quantity demanded increases from 110 to 118; then the price elasticity of demand for tooth paste is:
a. 0.79
b. 1.37
c. 3.94
d. 2.09
Answer: b
(Midpoint method: %ΔQ = 8/114 = 7.02%; %ΔP = -0.10/1.95 = -5.13%; Ed = 7.02/-5.13 ≈ -1.37)