1. Distinguish between a change in quantity demanded of a commodity and change in demand. What are the factors responsible for a change in the demand for fish in Nigeria?
2. The equations:
¼Qd + ½P = 75
Qs = 9.5P − 70
are the demand and supply equations for kerosene in Nigeria respectively.
- a) If the price of kerosene is seen by government as too low and to eliminate hoarding, it decided to increase the price to ₦40.37k per litre. What will be the new quantity demanded and the effect in the market?
- b) What will be the new quantity demanded and the effect in the market?
3. Write short notes on the following:
- i) Subsistence economic system
- ii) Production possibility frontier
- iii) Economic System
- iv) Equilibrium and what determines the equilibrium point
4. a) Suppose the demand for millet is Qd = 710 − 4P² and the supply of same commodity is Qs = 38 + 2P², where Q is quantity and P is price.
- i) Determine the equilibrium quantity and price
- ii) From your answer in (ai), draw the demand and supply curves and labelled correctly.
b) Define the concept of labour and list its characteristics.
5. Why do wages differ in different occupations?
6. Choice arises because of scarcity of resources. Discuss.
---
1. Distinguish between a change in quantity demanded of a commodity and change in demand. What are the factors responsible for a change in the demand for fish in Nigeria?
2. The equations:
¼Qd + ½P = 75
Qs = 9.5P − 70
are the demand and supply equations for kerosene in Nigeria respectively.
- a) If the price of kerosene is seen by government as too low and to eliminate hoarding, it decided to increase the price to ₦40.37k per litre. What will be the new quantity demanded and the effect in the market?
- b) What will be the new quantity demanded and the effect in the market?
3. Write short notes on the following:
- i) Subsistence economic system
- ii) Production possibility frontier
- iii) Economic System
- iv) Equilibrium and what determines the equilibrium point
4. a) Suppose the demand for millet is Qd = 710 − 4P² and the supply of same commodity is Qs = 38 + 2P², where Q is quantity and P is price.
- i) Determine the equilibrium quantity and price
- ii) From your answer in (ai), draw the demand and supply curves and labelled correctly.
b) Define the concept of labour and list its characteristics.
5. Why do wages differ in different occupations?
6. Choice arises because of scarcity of resources. Discuss.
# ECONOMICS PAPER I (2023) — FULL ANSWERS
---
## Question 1: Change in Quantity Demanded vs. Change in Demand & Factors Affecting Demand for Fish
### Distinction Between Change in Quantity Demanded and Change in Demand
#### Change in Quantity Demanded
A **change in quantity demanded** refers to the movement **along the same demand curve** caused exclusively by a **change in the price of the commodity itself**, while all other factors remain constant (ceteris paribus).
- It is represented as a movement **up or down** the existing demand curve
- When price rises → quantity demanded falls (movement up the curve)
- When price falls → quantity demanded rises (movement down the curve)
- Also called **extension** (when quantity increases due to price fall) or **contraction** (when quantity decreases due to price rise)
---
#### Change in Demand
A **change in demand** refers to a **shift of the entire demand curve** to the right (increase in demand) or to the left (decrease in demand), caused by factors **other than the price** of the commodity itself.
- It means consumers are willing to buy **more or less** at every price level
- A **rightward shift** = increase in demand (more demanded at same price)
- A **leftward shift** = decrease in demand (less demanded at same price)
---
### Comparison Table
| Basis | Change in Quantity Demanded | Change in Demand |
|---|---|---|
| Cause | Change in the commodity's own price | Change in factors other than own price |
| Graphical representation | Movement along the demand curve | Shift of the entire demand curve |
| Curve position | Stays on same curve | Moves to a new curve |
| Type | Extension or contraction | Increase or decrease |
---
### Factors Responsible for a Change in Demand for Fish in Nigeria
#### 1. Change in Income of Consumers
Fish is a normal good for most Nigerians. When household incomes **rise**, people can afford to buy more fish — demand increases. During economic downturns, falling incomes reduce demand for fish.
#### 2. Change in Price of Substitute Goods
Fish has substitutes such as chicken, beef, goat meat, and beans. If the price of **beef or chicken rises**, consumers switch to fish, increasing demand for fish. If substitute prices fall, demand for fish decreases.
#### 3. Change in Price of Complementary Goods
Fish is consumed with complementary foods like rice, yam, and pepper. If the price of these **complements rises significantly**, demand for the combination (including fish) may fall, reducing fish demand.
#### 4. Change in Consumer Tastes and Preferences
Cultural practices, religious observances (e.g., fasting periods), health trends, and food habits significantly influence fish consumption. Growing awareness of the **health benefits of fish** (omega-3 fatty acids, protein) has increased demand in urban areas.
#### 5. Population Size and Structure
Nigeria has a rapidly growing population. A **larger population** means more consumers and greater total demand for fish. Additionally, coastal and riverine communities traditionally consume more fish.
#### 6. Seasonal and Weather Factors
Fish supply and consumption in Nigeria is **seasonal**. During festive seasons (Christmas, Eid, New Year), demand for fish rises. Flooding or drought affects fishing activities, indirectly affecting demand patterns.
#### 7. Government Policies
Government subsidies on fish farming, import duties on foreign fish, or food assistance programs directly affect fish availability and affordability, thereby influencing demand.
#### 8. Consumer Expectations
If consumers expect fish prices to **rise in the future** (due to seasonal scarcity or policy changes), they may buy more now, increasing current demand.
#### 9. Availability of Credit/Access to Finance
When consumers have access to credit or purchasing power through mobile money and microfinance, they can afford to buy more fish, increasing demand.
#### 10. Advertising and Awareness
Campaigns promoting fish consumption for nutritional benefits increase consumer awareness and shift demand rightward.
---
## Question 2: Kerosene Demand and Supply — Calculations
### Given Equations:
- **Demand:** ¼Qd + ½P = 75
- **Supply:** Qs = 9.5P − 70
---
### Step 1: Find Equilibrium Price and Quantity (Before Government Intervention)
**Rearrange the demand equation:**
$$\frac{1}{4}Qd + \frac{1}{2}P = 75$$
$$\frac{1}{4}Qd = 75 - \frac{1}{2}P$$
$$Qd = 4(75 - \frac{1}{2}P)$$
$$Qd = 300 - 2P$$
**At equilibrium: Qd = Qs**
$$300 - 2P = 9.5P - 70$$
$$300 + 70 = 9.5P + 2P$$
$$370 = 11.5P$$
$$P = \frac{370}{11.5} = \textbf{₦32.17}$$
**Equilibrium Quantity:**
$$Qd = 300 - 2(32.17) = 300 - 64.34 = \textbf{235.66 units}$$
**Verify with supply:**
$$Qs = 9.5(32.17) - 70 = 305.6 - 70 = 235.6 ✓$$
---
### Part a & b: New Price = ₦40.37k per litre
#### New Quantity Demanded at P = ₦40.37:
$$Qd = 300 - 2P$$
$$Qd = 300 - 2(40.37)$$
$$Qd = 300 - 80.74$$
$$\textbf{Qd = 219.26 units}$$
#### New Quantity Supplied at P = ₦40.37:
$$Qs = 9.5(40.37) - 70$$
$$Qs = 383.52 - 70$$
$$\textbf{Qs = 313.52 units}$$
---
### Effect in the Market:
| | Before (P = ₦32.17) | After (P = ₦40.37) |
|---|---|---|
| Quantity Demanded | 235.66 | 219.26 |
| Quantity Supplied | 235.66 | 313.52 |
| Market Condition | Equilibrium | Excess Supply |
**Analysis:**
- At the new higher price of ₦40.37:
- Quantity demanded **fell** from 235.66 to **219.26 units** (consumers buy less)
- Quantity supplied **rose** from 235.66 to **313.52 units** (producers supply more)
- This creates an **excess supply (surplus)** of:
$$313.52 - 219.26 = \textbf{94.26 units surplus}$$
**Conclusion:**
The government's price increase to ₦40.37 above the equilibrium price of ₦32.17 creates a **price floor (minimum price)**. The result is a **market surplus** — suppliers produce more than consumers are willing to buy at that price. While this may reduce hoarding (as supply exceeds demand), it could lead to wastage and unsold stock unless government purchases the surplus or finds alternative distribution channels.
---
## Question 3: Short Notes
### i) Subsistence Economic System
A **subsistence economic system** is the most basic and primitive form of economic organization in which individuals, families, or communities **produce only enough to meet their own immediate needs** — there is no surplus production for trade or sale.
**Key Features:**
- Production is primarily for **self-consumption**, not for market exchange
- Relies mainly on **agriculture, fishing, hunting, and gathering**
- Very little or no use of money — barter may be used for limited exchanges
- Technology is simple and traditional — hand tools, animal power
- Output is highly dependent on **weather and natural conditions**
- No division of labor beyond basic age and gender roles
- Characteristic of **pre-industrial and some rural developing economies**
- Found in parts of rural Africa, Asia, and among indigenous communities
**Limitations:**
- Cannot generate economic growth or development
- Vulnerable to natural disasters and crop failures
- No savings or capital accumulation for investment
---
### ii) Production Possibility Frontier (PPF)
The **Production Possibility Frontier (PPF)** — also called the Production Possibility Curve (PPC) — is a graphical model showing the **maximum combinations of two goods** that an economy can produce when all its resources are **fully and efficiently employed**, given a fixed level of technology.
**Key Concepts:**
1. **Scarcity** — The PPF illustrates that resources are limited, so producing more of one good requires producing less of the other.
2. **Opportunity Cost** — Moving along the PPF involves a trade-off. The opportunity cost of producing more of Good A is the amount of Good B that must be sacrificed.
3. **Efficiency:**
- Points **ON** the PPF = productive efficiency (all resources fully used)
- Points **inside** the PPF = productive inefficiency (resources underutilized — unemployment, recession)
- Points **outside** the PPF = currently unattainable (beyond current productive capacity)
4. **Economic Growth** — Technological advancement or increased resources shift the PPF **outward** (rightward), allowing more of both goods.
5. **Shape** — The PPF is typically **concave to the origin** (bowed outward) due to the **law of increasing opportunity costs** — as more of one good is produced, increasing amounts of the other must be sacrificed.
**Diagram:**
```
Good B
|\.
| \
| \ ← PPF (concave)
| \
|_____\____
Good A
```
---
### iii) Economic System
An **economic system** is the organized set of **institutions, mechanisms, rules, and processes** that a society uses to answer the three fundamental economic questions:
1. **What** to produce? (Which goods and services?)
2. **How** to produce? (Which production methods and resources?)
3. **For whom** to produce? (How is output distributed?)
**Types of Economic Systems:**
1. **Traditional Economy** — Decisions based on customs, habits, and traditions. Subsistence farming dominant. (e.g., rural tribal communities)
2. **Command/Planned Economy** — Central government makes all economic decisions. (e.g., former USSR, North Korea)
3. **Market/Capitalist Economy** — Decisions made through free market forces of supply and demand. Private ownership dominant. (e.g., USA)
4. **Mixed Economy** — Combines elements of both market and command economies. Government intervenes in key areas while market forces operate in others. (e.g., Nigeria, UK, most modern economies)
**Importance of Economic Systems:**
- Determines how resources are allocated
- Shapes income distribution and social welfare
- Influences the pace and pattern of economic development
---
### iv) Equilibrium and What Determines the Equilibrium Point
**Equilibrium** in economics refers to a **state of balance** in which opposing forces are equal and there is **no tendency for change**. In market analysis, equilibrium occurs when the **quantity demanded equals the quantity supplied** at a particular price — called the **equilibrium price** (or market-clearing price).
**Market Equilibrium:**
$$Qd = Qs \text{ at the Equilibrium Price (Pe)}$$
At equilibrium:
- There is **no excess demand** (shortage) or **excess supply** (surplus)
- The market **clears** — all goods produced are sold
- Both buyers and sellers are satisfied with the price and quantity
**What Determines the Equilibrium Point:**
1. **Demand Conditions** — The position and slope of the demand curve, determined by consumer income, tastes, prices of substitutes/complements, and population.
2. **Supply Conditions** — The position and slope of the supply curve, determined by production costs, technology, number of producers, and input prices.
3. **Price Mechanism** — The interaction of buyers and sellers in the market. If price is above equilibrium, excess supply pushes it down. If price is below equilibrium, excess demand pushes it up — until equilibrium is restored.
4. **External Shocks** — Changes in technology, government policy, natural disasters, or global events shift supply or demand curves, establishing a **new equilibrium**.
5. **Time** — Markets may take time to reach equilibrium, especially in markets with slow adjustment (like housing or labor markets).
---
## Question 4a: Millet Demand and Supply — Equilibrium Calculations
### Given:
- **Demand:** Qd = 710 − 4P²
- **Supply:** Qs = 38 + 2P²
---
### i) Equilibrium Quantity and Price
**At equilibrium: Qd = Qs**
$$710 - 4P^2 = 38 + 2P^2$$
$$710 - 38 = 2P^2 + 4P^2$$
$$672 = 6P^2$$
$$P^2 = \frac{672}{6} = 112$$
$$P = \sqrt{112} = \textbf{₦10.58}$$
**Equilibrium Quantity:**
$$Qd = 710 - 4(112)$$
$$Qd = 710 - 448$$
$$\textbf{Qd = 262 units}$$
**Verify with Supply:**
$$Qs = 38 + 2(112)$$
$$Qs = 38 + 224$$
$$\textbf{Qs = 262 units ✓}$$
**∴ Equilibrium Price = ₦10.58 and Equilibrium Quantity = 262 units**
---
### ii) Demand and Supply Schedule and Curves
**Generate points for the curves:**
| P | P² | Qd = 710−4P² | Qs = 38+2P² |
|---|---|---|---|
| 2 | 4 | 694 | 46 |
| 4 | 16 | 646 | 70 |
| 6 | 36 | 566 | 110 |
| 8 | 64 | 454 | 166 |
| **10.58** | **112** | **262** | **262** |
| 12 | 144 | 134 | 326 |
**Diagram:**
```
Price (P)
(₦)
14 | /Qs
| /
12 | /
| / ← Equilibrium (262, ₦10.58)
10.58|....../......\
| / \
8 | / \ Qd
| / \
6 | / \
| / \
4 |/ \
|___________________________
0 100 200 262 300 400 500 600 700
Quantity (Q)
```
**Label:**
- **Qd curve** slopes downward (left to right) — inverse relationship between price and quantity demanded
- **Qs curve** slopes upward (left to right) — direct relationship between price and quantity supplied
- **Equilibrium point E** at intersection: **P = ₦10.58, Q = 262 units**
---
## Question 4b: Labour — Definition and Characteristics
### Definition of Labour
**Labour** is defined as the **human effort — physical or mental — applied in the production of goods and services** in exchange for wages or salaries. It is one of the four factors of production (land, labour, capital, enterprise) and is the only factor that is human in nature.
Labour encompasses all forms of human work:
- **Manual/Physical labour** (farming, construction, factory work)
- **Mental/Intellectual labour** (teaching, medicine, engineering, management)
The supply of labour in an economy depends on the **size of the working population**, the **number of hours worked**, and the **quality/productivity** of workers.
---
### Characteristics of Labour
1. **Labour is Inseparable from the Labourer**
Unlike other factors of production, labour cannot be separated from the person providing it. The worker must be physically or mentally present to provide the service — a teacher must attend class; a doctor must examine the patient.
2. **Labour is Perishable**
Labour that is not used is lost forever. An idle worker's productive capacity for that day cannot be stored or recovered. This makes the bargaining position of workers weak — they cannot withhold their labour indefinitely like a producer can withhold goods.
3. **Labour Has Feelings and Emotions**
Workers are human beings with emotions, motivations, aspirations, and grievances. Unlike machines, they respond to incentives, working conditions, recognition, and leadership. This makes labour management more complex than managing other factors.
4. **Labour is Mobile (Geographically and Occupationally)**
Workers can move between locations (**geographical mobility**) and between jobs or industries (**occupational mobility**), though various barriers (skills, culture, language, family ties, professional licensing) limit this mobility in practice.
5. **Labour Supply is Influenced by Non-Economic Factors**
Unlike supply of goods, labour supply is affected by social norms, cultural practices, family responsibilities, health, education levels, and personal preferences — not just wage rates.
6. **Labour Productivity Varies**
Different workers have different levels of skill, education, experience, motivation, and health, leading to **significant variation in productivity** even for the same task or occupation.
7. **Labour Cannot be Stored**
The services of labour cannot be inventoried. Once a working period passes without use, that labour time is permanently lost — unlike raw materials or finished goods that can be stored.
8. **Labour Supply in the Short Run is Fixed**
The total supply of labour in an economy cannot be quickly increased — it depends on population growth, education, and training, all of which take years. This makes short-run labour supply relatively inelastic.
---
## Question 5: Why Wages Differ in Different Occupations
Wages vary significantly across different jobs, industries, and locations due to the following reasons:
#### 1. Differences in Education and Training Required
Occupations requiring **longer and more expensive education and training** (medicine, law, engineering) pay higher wages to compensate workers for the time, effort, and cost invested in acquiring qualifications. This is called **compensating differential**.
#### 2. Differences in Skill and Talent
Highly **specialized or rare skills** command premium wages because the supply of workers with such abilities is limited relative to demand. A neurosurgeon or a professional footballer earns far more than a general worker due to unique talent.
#### 3. Demand for Labor in Different Industries
Wages are higher in industries where the **demand for labor is strong and growing** (oil and gas, telecommunications, banking) compared to sectors with weak or declining demand (subsistence agriculture, traditional crafts).
#### 4. Differences in Working Conditions
Jobs that are **dangerous, dirty, physically demanding, or socially undesirable** pay higher wages as compensation for discomfort and risk. Examples include mining, deep-sea fishing, refuse collection, and night shift work.
#### 5. Geographical Location
Workers in **urban areas** generally earn more than rural workers due to higher cost of living, greater demand for labor, and concentration of high-paying industries. Remote or hardship postings attract location allowances.
#### 6. Trade Union Strength
**Strongly unionized occupations** can negotiate higher wages through collective bargaining. Workers in sectors with powerful unions (petroleum workers, teachers' unions, airline workers) typically earn more than unorganized workers in similar skill levels.
#### 7. Experience and Seniority
More experienced workers command **higher wages** than new entrants because accumulated knowledge, contacts, and track record make them more productive and valuable to employers.
#### 8. Mobility of Labor
When workers have **low geographic or occupational mobility** (due to licensing requirements, family ties, or specialized skills that are not transferable), employers in those sectors can pay lower wages. High mobility increases wage competition and tends to equalize wages across locations.
#### 9. Government Wage Policies
**Minimum wage legislation, public sector pay scales**, and government pay reviews directly set wages in certain sectors. Public servants may earn differently from private sector workers for similar roles due to policy-driven pay structures.
#### 10. Nature of the Employment Contract
Permanent, full-time employment typically offers **higher total compensation** (including benefits, pension, health insurance) than casual, part-time, or contract work — even at similar nominal hourly rates.
#### 11. Gender and Discrimination
Despite equal pay legislation, **discrimination based on gender, ethnicity, or age** continues to cause wage differentials in many economies, with women and minorities often earning less for equivalent work.
#### 12. Productivity and Performance
In performance-based industries (sales, banking, entertainment), **output-linked pay** means high performers earn significantly more than average workers in the same occupation.
---
## Question 6: Choice Arises Because of Scarcity of Resources — Discussion
### Introduction
The fundamental economic problem facing every individual, household, firm, and government is **scarcity** — the condition in which **human wants are unlimited but the resources available to satisfy them are limited**. This basic reality makes **choice** not merely an option but an **unavoidable necessity** in economic life.
---
### The Concept of Scarcity
**Scarcity** does not mean that resources are rare in an absolute sense — it means that at any given time, available resources (land, labour, capital, and enterprise) are **insufficient to satisfy all human wants simultaneously**.
Resources are scarce because:
- Land is geographically limited
- Labour time is finite (24 hours in a day)
- Capital goods take time and resources to produce
- Raw materials are exhaustible
Human wants, on the other hand, are **unlimited and insatiable** — satisfying one want typically gives rise to new ones. A person who gets food then wants clothing; clothing leads to desire for shelter; shelter leads to desire for comfort and luxury.
---
### Why Scarcity Necessitates Choice
Because resources cannot satisfy all wants at once, every economic agent must **choose** which wants to satisfy and which to leave unsatisfied. This applies at all levels:
#### 1. Individual Level
A student with limited pocket money must choose between buying a textbook, food, or transport. They cannot buy all three if funds are insufficient. The **scale of preference** guides this choice — ranking wants by urgency and importance.
#### 2. Household Level
A family with a fixed monthly income must allocate money among food, rent, school fees, healthcare, and entertainment. Every decision to spend on one item is a decision NOT to spend on another.
#### 3. Firm Level
A company with limited capital must choose between investing in new machinery, expanding to a new location, or increasing its advertising budget. Resources committed to one option are unavailable for others.
#### 4. Government Level
A government with a fixed national budget must choose between spending on healthcare, education, defense, infrastructure, and social welfare. Every budget allocation reflects a choice — more money for one sector means less for another.
---
### The Concept of Opportunity Cost
Every choice involves **sacrifice** — giving up the next best alternative. This is called **opportunity cost** — the value of the best foregone alternative when a choice is made.
**Example:** If Nigeria's government chooses to spend ₦500 billion on defense rather than education, the opportunity cost is the schools, universities, and trained graduates that could have been produced with that money.
Opportunity cost makes choice **meaningful and costly** — it is not free to choose, even when money is not involved.
---
### The Production Possibility Frontier and Choice
The **PPF** graphically illustrates the necessity of choice under scarcity. An economy producing two goods (e.g., food and clothing) must choose how to allocate its limited resources between them. Producing more food means producing less clothing — a choice must be made about where on the PPF to operate.
---
### Conclusion
Scarcity is the **root cause** of the economic problem. Without scarcity, there would be no need for choice, no opportunity cost, and no economics as a discipline. Because resources are limited and wants are unlimited, every individual, firm, and government must **continuously make choices** about the best use of available resources. The study of economics is fundamentally the study of **how rational agents make these choices** to maximize satisfaction, profit, or social welfare under conditions of scarcity.
As the economist Lionel Robbins defined it: *Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.*