JAMB Economics 1991 Past Questions & Explanations

A co-operative society is a voluntary association of people who come together to achieve common economic interests. Members contribute capital and share profits according to agreed rules.

One of the major disadvantages of co-operative societies is that they are poorly financed. This is because:

• Members usually contribute only small amounts of capital.

• Shares are not sold to the general public.

• It is difficult to raise large amounts of money for expansion.

As a firm grows larger, its organizational structure becomes more complex. This often leads to bureaucratic delays, where decisions take longer because they must pass through several levels of management. Such delays reduce efficiency, slow innovation, and can hinder further expansion of the business.

An ordinary partner (general partner) is a person who:

• Takes an active part in managing the business.

• Shares in the profits and losses.

• Has unlimited liability, meaning if the business cannot pay its debts, the partner's personal assets can be used to settle the debts.

In the long run, a perfectly competitive firm earns only normal profit because new firms can enter the industry when profits are high and existing firms can leave when losses occur.

For a firm to be in long-run equilibrium, the following conditions must hold:

• Marginal Cost (MC) = Marginal Revenue (MR) = Price (P)

• Price (P) = Average Cost (AC) at its minimum point

Under perfect competition, many firms compete, so no single firm can influence price. The market determines the price, and firms produce where:

Price (P) = Marginal Cost (MC)

As a result:

• Price is lower

• Output is higher

• Consumers enjoy greater welfare.

Resources are efficiently allocated when firms produce the quantity of output where:

Price (P) = Marginal Cost (MC)

Cross elasticity of demand measures how the demand for one good changes when the price of another good changes.

For complementary goods, the relationship is inverse:

• When the price of one complementary good increases, the demand for both goods falls.

• When the price of one complementary good decreases, the demand for both goods rises.

A market is in equilibrium only when quantity demanded equals quantity supplied (Qd = Qs). Whenever they differ, there is either excess demand (shortage) or excess supply (surplus), leading to disequilibrium.

Any point on the Production Possibility Curve represents full employment and efficient use of available resources. Points inside the curve indicate underutilization, while points outside are unattainable with current resources.

Using the percentage (midpoint) method: % change in quantity = 40%, % change in price = 32%, so Elasticity = 40 ÷ 32 = 1.25. Since elasticity is greater than 1, demand is elastic.

Total Variable Cost = Total Cost − Total Fixed Cost (TVC = TC − TFC). This is the standard cost relationship used in Economics.

Total Cost (TC) is the overall cost incurred by a firm in producing a given level of output. It is calculated as:

Total Cost = Average Cost × Quantity (Output)

This is because Average Cost (AC) is derived by dividing Total Cost by the quantity produced (AC = TC ÷ Q). Rearranging this formula gives us TC = AC × Q — meaning if you know the average cost per unit and multiply it by the number of units produced, you arrive at the total cost.

When additional units of a variable factor cause the marginal physical product to increase, production is in the stage of increasing returns due to improved specialization and efficiency.

Macroeconomics studies the economy as a whole. It deals with national income, inflation, unemployment, economic growth, and the general price level rather than individual consumers or firms.

Opportunity cost is the next best alternative forgone. Since the student chose the book instead of the mirror, the mirror is the real cost of buying the book.

Economic goods are scarce because human wants are unlimited while resources are limited. Scarcity means goods cannot satisfy all human wants at the same time.

In a market economy, the forces of demand and supply (price mechanism) determine what to produce, how to produce, and for whom to produce. The government or planning committee does not make these decisions.