Economics 2012 Jamb Examination

Net National Product (NNP) represents the total market value of all final goods and services produced by a country's residents after accounting for depreciation. Depreciation, also called capital consumption allowance, measures the wear and tear on fixed assets over time. Hence, NNP is obtained from Gross National Product (GNP) by subtracting depreciation.\[ \text{NNP} = \text{GNP} - \text{Depreciation} \]

The multiplier (k) is determined using the formula:\[ k = \dfrac{1}{1 - MPC} \]Substituting \( MPC = 0.75 \):\[ k = \dfrac{1}{1 - 0.75} = 4 \]This implies that every unit increase in investment results in a fourfold increase in national income.

When the government or any authority sets a price higher than the equilibrium price, producers are encouraged to supply more since higher prices mean higher profit margins. However, demand decreases because buyers find it expensive, resulting in a surplus. Therefore, fixing price above equilibrium increases the quantity supplied.

The price system, through the interaction of demand and supply, acts as a signalling mechanism that guides producers and consumers. Prices indicate where resources are most valued, ensuring that scarce resources are allocated efficiently to their most productive uses. This makes option C the key economic role of the price mechanism.

In the long run, all factors of production can be adjusted, allowing firms to operate more efficiently. When all inputs are increased and output increases by a greater proportion, the firm experiences increasing returns to scale. This occurs due to improved coordination, specialisation, and efficient utilisation of resources.

In production theory, an isoquant represents combinations of inputs that yield the same level of output, while an isocost line represents combinations that can be purchased with a given budget. The firm achieves equilibrium when the isoquant is tangent to the isocost, meaning the firm produces the maximum output possible for the given cost level.

The long-run average cost (LAC) curve is an envelope of several short-run average cost (SAC) curves. It is tangent to the minimum point of only one of these SAC curves, which represents the firm’s most efficient scale of production. This occurs where the firm achieves optimal plant size for minimum average cost in the long run.

The slope of the total utility curve represents marginal utility. A decline in the slope means that marginal utility is falling. However, if the consumer increases the quantity consumed after this point, total utility could still rise at a decreasing rate, showing that marginal utility initially rises before eventually diminishing. Thus, increasing consumption can temporarily increase marginal utility up to a point of saturation.

Agricultural supply, particularly of crops like cocoa, depends heavily on natural and technical conditions. The effectiveness of fertilisers, pest control, and soil management directly affects yield levels. Therefore, efficient fertiliser use enhances cocoa productivity and influences supply more strongly than demand factors.

Elasticity of supply measures how responsive quantity supplied is to changes in price. If quantity supplied remains unchanged despite price fluctuations, the supply is perfectly inelastic. This is represented graphically by a vertical supply curve where elasticity equals zero.