♟️ June 2023 Cameroon GCE O Level Economics Paper 2 PDF with Detailed Solutions

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Subject Code	0525
Subject Title	O Level Economics
Session	June 2024 Paper 2

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Cameroon GCE O Level Economics Paper 2 Solution - June 2024

GCE O Level Economics Paper 2 June 2024

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1. (a) Define the following:
    (i) Immigration. Answer Immigration is defined as the movement of people from their home country or region to another country, of which they are not native in order to settle and live as permanent residents.
    (ii) Population census. Answer A population census is the official head count of the population of a region or country generally conducted every 10 years to provide information on the population's size, distribution, and other characteristics
    (iii) Death rate. Answer "death rate" also known as the "mortality rate" refers to the number of deaths occurring within a population per 1,000 individuals per year.
    (iv) Rural exodus.     (2+2+2+2=8 marks) Answer Rural exodus refers to the large-scale migration of people from rural areas to urban centers, typically driven by factors like better employment opportunities, higher wages, better access to education and healthcare facilities, which leads to a decline in the population of rural communities; it is essentially the "movement away from the countryside" to cities.
(b) State and explain Four (04) effects of rural urban migration to the urban centres. (8 marks) Answer Increased Population Density/Overpopulation / Congestion:
A large influx of migrants from rural areas rapidly increases the population in urban areas, leading to overcrowding and strain on existing infrastructure like housing, transportation, and sanitation systems.
Housing Shortage and Slums:
Due to the rapid population growth, the demand for housing often exceeds supply, forcing migrants to live in informal settlements or slums with inadequate living conditions.
Pressure on Basic Services:
The influx of migrants puts strain on public services like healthcare, education, and water supply, leading to potential shortages and reduced quality of service for all residents.
Labor Market Impacts:
While migrants can provide a larger workforce, rapid influx can lead to increased competition for jobs, potentially depressing wages and contributing to unemployment, particularly for low-skilled workers.
Informal Economy Growth:
Many migrants may find employment in the informal sector due to limited access to formal jobs, leading to potential exploitation and lack of social security.
Environmental Degradation:
Rapid urbanization can lead to increased pollution, waste disposal issues, and pressure on natural resources due to the higher consumption needs of a larger population.
Social and Cultural Changes:
Migrants bring their cultural practices and traditions to urban areas, leading to increased diversity but also potential social tensions and conflicts with existing communities.
Remittances and Economic Development:
While migrants may face challenges in urban areas, they often send remittances back to their rural communities, which can contribute to economic development in those regions.

(c) Distinguish between a growing population and an ageing population. (4 marks) Answer

In a Growing Population, the birth rate exceeds the death rate, leading to an increase in the total population size while in an Ageing Population the proportion of elderly people (usually those aged 65 and above) is increasing due to lower birth rates and longer life expectancy, resulting in a higher median age.

A Growing Population Faces challenges such as unemployment, pressure on education systems, and overpopulation, particularly if economic resources are insufficient to support the growing number of people while an Ageing Population Faces challenges such as a shrinking labor force, increasing healthcare costs, and higher dependency on government pensions and social security systems.

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2. (a) Define the following:
    (i) A Plant. Answer A plant is a physical establishment or location where production or manufacturing of goods and services takes place. It is typically a factory, workshop, or facility where resources are transformed into finished goods or services. A plant may be part of a larger organization or stand alone.
    (ii) A Firm. Answer A firm is an organization or business entity engaged in the production, sale, or distribution of goods and services for profit. Firms can take various legal forms such as sole proprietorships, partnerships, or corporations. They may operate in different industries and sectors.
    (iii) Vertical integration. Answer Vertical integration occurs when a firm expands its operations either backward into the supply chain or forward into the distribution chain. A firm may acquire suppliers (backward integration) or distributors (forward integration) to control more stages of its production process. For example, a car manufacturer acquiring a tire company is vertical integration.
    (iv) Conglomerate.     (2+2+2+2 = 8 marks) Answer A conglomerate is a large corporation that owns and controls multiple businesses operating in different industries. Conglomerates consist of firms in unrelated industries, and they often diversify to reduce risks. For example, a company that owns businesses in food production, electronics, and real estate is a conglomerate
(b) (i) State and explain Three (03) examples of external economies of scale. (6 marks) Answer Definition: External economies of scale occur when a firm's costs per unit decrease due to factors outside of the firm, typically arising from the growth of the industry or region.

Availability of Skilled Labor: When an industry grows in a particular area, there is often a concentration of skilled labor in that field. This benefits firms because they can hire trained workers more easily and reduce training costs.

Infrastructure Development: As an industry develops, the government or private sector may invest in better roads, communication networks, or utilities, reducing transportation and operational costs for firms in that region.

Supplier Specialization: As more firms in a particular industry locate in an area, specialized suppliers may set up nearby, leading to lower costs for inputs, components, and services for firms.

  (ii) Explain Three (03) importance of small firms to the economy of Cameroon. (6 marks) Answer

Job Creation: Small firms are major employers in Cameroon, providing employment to a significant portion of the population, especially in rural and semi-urban areas where large firms may not operate.

Innovation: Small firms often drive innovation in the economy by developing new products, services, and technologies, which can increase the overall competitiveness of the economy.

Support for Local Economies: Small firms often source materials locally and cater to local markets, helping to support the local economy. They also contribute to the decentralization of economic activities, reducing urban congestion.

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3. (a) Study the table below which shows the demand and supply schedule for fish in a cold store and answer the questions that follow:

Price (Fcfa)	Quantity Demanded (kg)	Quantity Supplied (kg)
100	10000	200
200	8000	500
400	4000	1500
500	2000	2000
600	1000	4000
700	750	6000

(b) (i) What is the equilibrium price and why? (1+1=2 marks) Answer Answer: The equilibrium price is 500 Fcfa. Reason: The equilibrium price is where the quantity demanded equals the quantity supplied. At 500 Fcfa, the quantity demanded (2,000 kg) is equal to the quantity supplied (2,000 kg), creating market balance.
  (ii) Calculate the Price Elasticity of demand as price rises from 400frs to 600frs. (4 marks) Answer

Formula:

\[ \text{Price Elasticity of Demand (PED)} = \frac{\%\text{ change in quantity demanded}}{\%\text{ change in price}} \]

Step 1: Calculate the percentage change in price

Initial price = 400 Fcfa
New price = 600 Fcfa
Change in price = \(600 - 400 = 200\)
Percentage change in price = \[ \frac{200}{400} \times 100 = 50\% \]

Step 2: Calculate the percentage change in quantity demanded

Initial quantity demanded = 4,000 kg
New quantity demanded = 1,000 kg
Change in quantity demanded = \(1,000 - 4,000 = -3,000\)
Percentage change in quantity demanded = \[ \frac{-3,000}{4,000} \times 100 = -75\% \]

Step 3: Calculate PED

\[ \text{PED} = \frac{-75\%}{50\%} = -1.5 \]

Interpretation: The PED is -1.5, meaning demand is elastic. A 1% increase in price leads to a 1.5% decrease in quantity demanded.

(c) If the government fixes the price of fish at 600frs per kg:
    (i) What name will you give to such a price? (2 marks) Answer Answer: The price of 600 Fcfa set by the government is called a price floor. Explanation: A price floor is the minimum price set by the government above the equilibrium price, preventing the price from falling below this level.
    (ii) How many kgs will the government have to buy in order to enforce this price? (2 marks) Answer Answer: The government will need to buy 3,000 kg. Explanation: At 600 Fcfa, the quantity supplied is 4,000 kg while the quantity demanded is 1,000 kg. The excess supply is 4,000 − 1,000 = 3,000 4,000−1,000=3,000 kg, which the government needs to purchase to maintain the price at 600 Fcfa.
    (iii) Suppose the government instead imposed a price of 200frs per kg. List four effects of such a price? (4 marks) Answer

Excess Demand (Shortage): At 200 Fcfa, quantity demanded (8,000 kg) exceeds quantity supplied (500 kg), resulting in a shortage of 7,500 kg.

Rationing: The shortage may lead to rationing, where the available fish must be distributed among consumers, often leading to long queues or unfair distribution practices.

Black Market: A price ceiling below equilibrium often leads to the development of a black market where fish is sold at higher, uncontrolled prices due to the shortage.

Lower Quality: Suppliers may reduce the quality of the fish or cut corners in production due to lower profitability at the artificially low price.

(d) State and explain any three factors that will influence the demand for a commodity. (6 marks) Answer

Price of the Commodity: Explanation: As the price of a commodity rises, the quantity demanded typically falls (law of demand), and vice versa. This is because consumers tend to buy less of a good when it becomes more expensive. Example: If the price of fish increases, people may buy less fish and switch to other alternatives like chicken.

Income of Consumers: Explanation: A rise in consumers' income usually leads to an increase in demand for normal goods, as people have more purchasing power. Conversely, demand for inferior goods may fall as incomes rise. Example: If incomes in Cameroon rise, people might demand more luxury products or higher quality fish.

Tastes and Preferences: Explanation: Changes in consumer preferences due to trends, advertising, or health concerns can influence demand. If a good becomes more popular, demand will increase. Example: If fish is promoted as a healthier option compared to red meat, the demand for fish may increase.

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4. (a) Explain any Four (04) qualities of good money. (8 marks) Answer

1. Durability: Good money must be able to withstand wear and tear over time. It should not deteriorate quickly, maintaining its form and value even after being used many times.
   Example: Metals like gold and silver have been used historically because they last long without degrading.
2. Divisibility: Good money should be easily divisible into smaller units to facilitate transactions of varying amounts. It allows people to purchase both large and small items conveniently.
   Example: A dollar can be divided into cents, allowing both large and small transactions.
3. Portability: Money must be easy to carry and transport. This quality allows people to use it for transactions wherever they go.
   Example: Paper money and coins are easily portable compared to goods like livestock.
4. Uniformity: Each unit of money should be identical to others of the same denomination in terms of value and appearance. Uniformity ensures that no confusion arises during transactions.
   Example: All 500 Fcfa notes have the same value and size, making them easily recognizable.
5. Acceptability: Good money must be widely accepted as a medium of exchange. People must have confidence in its value and be willing to use it in transactions.
   Example: In Cameroon, the Franc (Fcfa) is accepted as legal tender for all goods and services.
6. Scarcity: Money must be relatively scarce to maintain its value. If money becomes too abundant, its value decreases, leading to inflation.
   Example: Gold and other precious metals were historically used because their scarcity maintained their value.

(b) (i) State and explain Three (03) ways by which commercial banks create credit. (6 marks) Answer

1. Accepting Deposits: Banks accept deposits from individuals and businesses. These deposits become the basis for lending money to others, thus creating credit.
2. Lending to Borrowers: Banks provide loans to individuals and businesses from the funds deposited. The loan becomes new money in circulation, as borrowers use it for various transactions.
3. Issuing Overdrafts: Banks allow customers to overdraw their accounts, meaning they can withdraw more than their actual balance. This overdraft becomes a form of credit.
4. Discounting Bills of Exchange: Commercial banks purchase bills of exchange before they mature. The bank pays the bill's holder less than its face value, providing them immediate funds, and the bank receives the full value when it matures.
5. Creating Credit by Purchasing Government Securities: Banks invest in government securities (bonds, treasury bills), providing the government with credit. In return, the bank holds the security as an asset.

  (ii) State and explain Three (03) limitations of the ability of commercial banks to create credit. (6 marks) Answer

1. Cash Reserve Requirements: Banks must keep a certain percentage of their deposits as reserves, limiting the amount of money they can lend out, thus restricting credit creation.
2. Central Bank Regulations: The central bank may impose regulations, such as increasing reserve requirements or limiting interest rates, which restrict the ability of commercial banks to lend and create credit.
3. Availability of Creditworthy Borrowers: Banks are limited by the number of individuals or businesses that are eligible for loans. If there are few creditworthy borrowers, credit creation decreases.
4. Public Confidence in the Banking System: If people lose confidence in the banking system, they may withdraw their deposits, leaving banks with less money to lend and thus limiting their ability to create credit.
5. Liquidity Preference of the Public: If the public prefers to hold onto their money instead of depositing it in banks (e.g., in times of economic uncertainty), the amount available for banks to lend decreases, reducing credit creation.

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5. (a) Distinguish between:
    (i) Devaluation and revaluation. (4 marks) Answer Devaluation is the deliberate reduction of a country's currency value relative to other currencies, typically to make exports more competitive while Revaluation is the deliberate increase of a country's currency value relative to other currencies, typically to control inflation or improve imports.
    (ii) Absolute advantage and comparative cost advantage. (4 marks) Answer Absolute advantage occurs when a country can produce more of a good using fewer resources compared to another country whille Comparative cost advantage occurs when a country can produce a good at a lower opportunity cost than another country.
(b) What do you understand by the following?
    (i) Terms of Trade. Answer Terms of Trade refer to the ratio between the index of export prices and the index of import prices, indicating the purchasing power of a country's exports
    (ii) Balance of Trade. Answer Balance of Trade is the difference between the value of a country's exports and the value of its imports over a certain period of time.
    (iii) Balance of Payment. (2+2+2 = 6 marks) Answer Balance of Payment is a broader measure, including all economic transactions between residents of a country and the rest of the world, covering both the current and capital accounts. (2+2+2 = 6 marks)
(c) State and explain three arguments for trade restrictions. (6 marks) Answer     Protecting domestic industries: Trade restrictions help shield emerging or sensitive industries from foreign competition, allowing them to grow without being overwhelmed by established foreign players.
    National security: Certain industries are vital for national defense and economic security, and trade restrictions prevent dependence on foreign suppliers for essential goods.
    Preventing dumping: Trade restrictions can protect domestic markets from unfair foreign competition where goods are sold below market value to destroy domestic industries. (6 marks)

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6. (a) Explain four determinants of the size of the national income. (8 marks) Answer (i) Natural resources: The availability and quality of natural resources like minerals, water, and land impact a nation's ability to produce goods and services.
    (ii) Capital: The amount of physical capital (factories, machinery, etc.) available affects production capabilities and the efficiency of the economy.
    (iii) Labor force: The size, skills, and productivity of the labor force play a crucial role in determining national output.
    (iv) Technology: Technological advancements improve efficiency and productivity, leading to higher national income.
    (v) Government policies: Economic policies, such as taxation, subsidies, and regulations, affect production levels and the overall economic environment.
    (vi) Entrepreneurship: The ability and willingness of entrepreneurs to innovate, take risks, and start businesses drives economic growth and increases national income. (8 marks)
(b) Explain three problems encountered when measuring national income. (6 marks) Answer     (i) Informal economy: Many transactions in the informal sector go unreported, leading to underestimation of national income.
    (ii) Non-market activities: Household work and volunteer services are not included, though they contribute to the economy.
    (iii) Income distribution: National income does not reflect inequalities in income distribution, which can distort understanding of economic well-being.
    (iv) Environmental degradation: Economic activities that harm the environment are counted in national income without considering the cost of damage.
    (v) Double counting: Mistakes in accounting for intermediate goods can lead to double counting and an inflated measure of national income. (6 marks)
(c) Briefly explain the following:
    (i) Consumption. Answer     (i) Consumption: Consumption refers to the total value of goods and services purchased and used by households for personal satisfaction and needs.

    (ii) Investment. Answer     (ii) Investment: Investment is the expenditure on capital goods, such as machinery and buildings, that are used to produce future goods and services.

    (iii) Gross Domestic Product.     (2+2+2 = 6 marks)Answer     (iii) Gross Domestic Product (GDP): GDP is the total monetary value of all goods and services produced within a country's borders over a specific time period, often used to gauge economic performance. (2+2+2 = 6 marks)

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7. (a) (i) State and explain three causes of economic growth. (6 marks) Answer     - Capital accumulation: Increased investments in machinery, technology, and infrastructure boost productivity.
    - Technological advancement: Innovations and improvements in technology enhance production efficiency and economic output.
    - Labor force growth: A growing and skilled workforce contributes to increased production capacity.
    - Education and human capital: Better education and training improve the skills and productivity of the workforce.
    - Government policies: Supportive policies such as low taxation, regulation, and infrastructure investment promote economic expansion. (6 marks)
  (ii) Explain three limitations of economic growth. (6 marks) Answer     - Income inequality: Economic growth may lead to unequal distribution of wealth, where only a few benefit.
    - Environmental degradation: Growth often comes at the cost of natural resources, causing long-term environmental damage.
    - Inflation: Rapid growth can sometimes trigger inflation, eroding the value of money and reducing purchasing power.
    - Over-dependence on specific sectors: Growth driven by one sector (e.g., oil) can be risky if that sector experiences a downturn.
    - Exclusion of non-market activities: Economic growth ignores non-monetary aspects of well-being, such as leisure time or family care. (6 marks) (b) Explain three disadvantages of economic growth. (6 marks) Answer     - Resource depletion: Faster economic growth leads to the overuse of finite natural resources.
    - Increased pollution: Industrial expansion often causes air, water, and soil pollution, harming public health.
    - Urbanization problems: Rapid growth results in overpopulation in cities, leading to inadequate housing and transportation.
    - Social dislocation: Changes in the economy may cause job displacement and create social tension.
    - Inflationary pressure: Economic growth can cause rising prices, diminishing the real income of consumers. (6 marks)
(c) List two characteristics of underdevelopment. (2 marks) Answer     - Low per capita income.
    - High levels of unemployment.
    - Poor infrastructure.
    - Limited access to education and healthcare.

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8. (a) Distinguish between the following:
    (i) Dead weight and reproductive debt. (4 marks) Answer         - Dead weight debt refers to government borrowing used for non-productive expenditures, such as defense while Reproductive debt is borrowing used to finance productive projects, such as infrastructure, which generates future income. (4 marks)

    (ii) Budget surplus and budget deficit. (4 marks) Answer         A budget surplus occurs when government revenue exceeds its expenditures while a budget deficit occurs when government spending exceeds its revenue. (4 marks)

    (iii) Tax impact and tax incidence. (4 marks) Answer Tax impact refers to the initial point where the tax burden is placed, typically on the buyer or seller while Tax incidence refers to the actual distribution of the tax burden between different parties (e.g., consumers or producers).
(b) State and explain four reasons why the government collects taxes. (8 marks) Answer     (i) Revenue generation: Taxes provide the government with funds for public goods and services like education, healthcare, and infrastructure.
    (ii) Income redistribution: Through taxation, governments can reduce income inequality by using taxes to fund welfare programs.
    (iii) Economic stability: Taxes can help control inflation and unemployment through fiscal policy.
    (iv) Influence behavior: Taxes on harmful goods like tobacco and alcohol discourage consumption.
    (v) Protect domestic industries: Import duties or tariffs help shield local businesses from foreign competition.
    (vi) Environmental protection: Taxes on pollution and carbon emissions encourage businesses to adopt eco-friendly practices. (8 marks)

June 2024 P1

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