ECN 001: Principles of Economics I
Question 1
Using appropriate illustrations and examples, explain how economic problems of a society are solved in different economic systems. [15 marks]
Question 2
(a) Distinguish between the following cost concepts:
i. Implicit cost and explicit cost. [3 marks]
ii. Fixed cost and variable cost. [3 marks]
iii. Average cost and marginal cost. [3 marks]
(b) Explain any four features of a perfectly competitive firm. [6 marks]
ECN 002: Principles of Economics II
Question 3
Consider the Nigerian income model where:
Y = C + I + G + (NX)
C = 200 + 0.75Yd
I = 100
G = 100
T = 0.2(Y − 40)
NX = 100 − 0.15Y
Calculate:
(a) Geometrically derive the equilibrium level of income. [3 marks]
(b) Equilibrium level of income [3 marks]
© The value of consumption expenditure [2 marks]
(d) The value of net export [1 mark]
(e) The value of tax revenue [1 mark]
(f) From your analysis, what nature of budget is operating in the Nigerian economy? [2½ marks]
(g) What are the effects of foreign trade on the equilibrium income of Nigerian economy? [2½ marks]
Question 4
(a) Define the term ‘national debt’ [3 marks]
(b) What are the reasons for public debt? [6 marks]
© How could domestic debt be managed? [6 marks]
ECN 003: Applied Economics I
Question 5
(a) With reference to the Nigerian economy, enumerate the developmental objectives of an economy. [7½ marks]
(b) List and explain common features of a developing country. [7½ marks]
Question 6
(a) Assess the socio-economic effects of increasing population on the Nigerian economy. [10 marks]
(b) How could an increase in population in Nigeria be curtailed? [5 marks]
ECN 004: Applied Economics II
Question 7
(a) With the aid of an appropriate diagram, describe the concept of “minimum wage”. [5 marks]
(b) Analyse the socio-economic implications of fixing the minimum wage at ₦30,000 per month as embedded in the proposed 2019 Federal Government National Budget. [10 marks]
Question 8
Highlight the possible trade-off that may occur between the following macroeconomic goals:
(a) Price stability and full employment. [5 marks]
(b) Economic growth and price stability. [5 marks]
© Balance of payments equilibrium and full employment. [5 marks]
ANSWERS
ECN 001
Question 1
Every society faces the problems of what, how, and for whom to produce, solved differently by each system:
- Free market economy: solved by the price mechanism; consumer demand determines output; firms use least-cost methods; goods go to those with purchasing power (e.g., USA).
- Command economy: government decides output, methods, and distribution based on need (e.g., former USSR).
- Mixed economy: market forces and government intervention both operate — private sector for consumer goods, government for public goods (e.g., Nigeria, UK).
- Traditional economy: decisions guided by custom and habit; subsistence-based (e.g., rural Northern Nigeria).
Nigeria operates a mixed economy balancing efficiency and equity.
Question 2
(a)
i. Implicit cost — opportunity cost of using owned resources, no cash paid. Explicit cost — actual monetary payment to external factors (wages, rent).
ii. Fixed cost — does not change with output (rent, insurance). Variable cost — changes directly with output (raw materials, labour).
iii. Average cost — total cost per unit (AC = TC/Q). Marginal cost — cost of producing one more unit (MC = ΔTC/ΔQ); AC falls when MC<AC, rises when MC>AC.
(b) Features of perfect competition: price taker, homogeneous products, free entry and exit, perfect information (also: many buyers/sellers, no transport cost, mobile factors).
ECN 002
Question 3
Yd = Y − T = Y − (0.2Y − 8) = 0.8Y + 8
C = 200 + 0.75(0.8Y + 8) = 206 + 0.6Y
(a) Equilibrium found geometrically where the AE line (AE = 506 + 0.45Y) intersects the 45° line (Y=AE).
(b) Y = 506 + 0.45Y → 0.55Y = 506 → Y = 920
© C = 206 + 0.6(920) = 758
(d) NX = 100 − 0.15(920) = −38 (trade deficit)
(e) T = 0.2(920) − 8 = 176
(f) T(176) > G(100) → Budget Surplus of 76
(g) Foreign trade reduces equilibrium income here — the marginal propensity to import (0.15) is a leakage; the trade deficit (NX=−38) lowers aggregate demand. Open economy multiplier = 1/0.55 ≈ 1.82, smaller than a closed-economy multiplier.
Question 4
(a) National debt: the total accumulated amount a government owes domestic and foreign creditors from borrowing to finance deficits — includes domestic and external debt.
(b) Reasons for public debt: budget deficit financing, capital project financing, war/defence spending, recession stabilisation, natural disasters/emergencies, low tax base.
© Managing domestic debt: debt restructuring, sinking fund establishment, revenue enhancement (broaden tax base), expenditure rationalisation, debt-for-equity swaps, cautious monetisation.
ECN 003
Question 5
(a) Developmental objectives: sustained economic growth, full employment, price stability, equitable income distribution, poverty reduction, industrialisation/diversification, balance of payments stability.
(b) Features of a developing country: low per capita income, high unemployment/underemployment, dependence on primary sector, low technology, high population growth, dual economy, poor infrastructure, high external debt burden.
Question 6
(a) Economic effects: unemployment, reduced per capita income, pressure on government spending, food insecurity, infrastructure deficit. Social effects: urban congestion/slums, high crime rate, strain on education, public health challenges, environmental degradation.
(b) Curtailing population growth: family planning education, female education/empowerment, poverty alleviation, incentive-based policies, rural development.
ECN 004
Question 7
(a) Minimum wage: a legally stipulated lowest wage employers must pay, a price floor set above market equilibrium wage. On a labour market diagram, minimum wage (Wm) above equilibrium (W₀) causes quantity supplied (Ls) to exceed quantity demanded (Ld), creating unemployment = Ls − Ld.
(b) Positive implications: improved worker welfare, reduced poverty, increased consumer spending, reduced income inequality, improved morale/productivity.
Negative implications: unemployment (especially SMEs), inflation, fiscal pressure on government, reduced export competitiveness, growth of informal employment, regional disparities in cost of living.
Question 8
(a) Price stability vs full employment (Phillips Curve trade-off): expanding demand for full employment raises inflation; contracting demand to control inflation raises unemployment. Nigeria faced both simultaneously in the 2016 recession (stagflation).
(b) Economic growth vs price stability: growth-stimulating demand expansion raises inflation; controlling inflation via higher interest rates slows growth. Moderate, stable growth can somewhat coexist with anchored inflation.
© Balance of payments vs full employment: boosting domestic demand for employment raises import spending, worsening the current account; correcting BOP deficit (deflation, devaluation) raises unemployment. Expenditure-switching policies (devaluation, export promotion) can partly reconcile both.