| Subject Code | 0525 |
| Subject Title | O Level Economics |
| Session | March 2023 Paper 1 |
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Cameroon GCE O Level Economics Paper 1 Solution - March 2023
1. If the cross elasticity of demand between good A and B is zero, these goods are:
Explanation: Goods are independent when their cross elasticity of demand is zero, meaning a change in the price of one good has no effect on the demand for the other.
2. What makes land different from labour as factors of production?
Explanation: Unlike labour, land cannot be moved from one location to another, making it geographically immobile.
3. Which of the following increases credit creation?
Explanation: Credit creation increases when banks lend more despite collateral limitations, as long as there is liquidity to support lending.
4. In agriculture, small holders’ scheme and plantation agriculture are different in that:
Explanation: Small holders’ schemes typically involve small-scale farmers operating on smaller plots of land, while plantation agriculture involves large-scale operations.
5. From the diagram, calculate price elasticity of supply when price moves from 10FCFA to 15FCFA:
Explanation: Price elasticity of supply is calculated using the formula % change in quantity supplied ÷ % change in price. For this problem, the calculated value is 0.67.
6. The birth rate of a given country is twenty per thousand. How many births will likely occur in the country if its population is 15,000,000 people?
Explanation: The number of births is calculated as (Birth rate ÷ 1000) × Total population = 20 ÷ 1000 × 15,000,000 = 300,000.
7. The value-added tax is different from the payroll tax because the value-added tax is:
Explanation: VAT is considered regressive as it takes a larger percentage of income from low-income individuals and is classified as an indirect tax because it is imposed on goods and services.
8. A household allocates the following amount for its liquidity preference:
Transaction motive = 130,000
Speculative motive = 40,000
Precautionary motives = 60,000
What is the active balance?
Explanation: Active balance refers to money held for transaction purposes. It excludes speculative and precautionary motives, which are 100,000 (130,000 - 40,000 - 60,000).
9. The cost incurred by a firm even when it has not started producing is known as:
Explanation: Fixed costs are expenses that a firm incurs regardless of production, such as rent or salaries of permanent staff.
10. The difference between fiscal policy and monetary policy is that fiscal policy:
Explanation: Fiscal policy focuses on taxation and government revenue collection, as opposed to monetary policy, which regulates the money supply and interest rates.
11. Given the quantity demanded and supplied in the forms of equations Qd = 32 – 3p and Qs = 8p – 12 respectively, the equilibrium price is:
Explanation: To find the equilibrium price, set Qd = Qs: 32 – 3p = 8p – 12. Solving for p gives the equilibrium price of 20.
12. A cooperative society is different from other forms of business units because their voting rights depend on the:
Explanation: In a cooperative society, every member has equal voting rights regardless of their capital contribution, ensuring fairness and equality.
13. Which of the following financial institutions may request for a special deposit?
Explanation: BEAC (Bank of Central African States) may require a special deposit as it regulates monetary policies within the Central African region.
14. Which of this statement is true about this trade (based on Table 1 showing items of trade in an imaginary economy)?
Explanation: Based on the table, the exports exceed imports, resulting in a favorable balance of trade that is greater than the invisible balance.
15. What is the marginal product of the third worker (based on Table 2 showing the total product and the number of workers in a firm)?
Explanation: Marginal product is the change in total product when an additional worker is added. The total product with 3 workers is 490.
16. The burden of national debt can effectively be reduced when it is:
Explanation: Repaying debt during deflation increases the real value of money and reduces the burden of national debt.
17. Which of the following would reduce the benefits to be gained from the division of labor?
Explanation: Division of labor thrives on the production of standardized goods. A decrease in demand for such products undermines the benefits of specialization.
18. Which of the following is a characteristic of an imperfect market?
Explanation: In an imperfect market, individual buyers or sellers have the ability to influence prices, which differs from the characteristics of a perfect market.
19. A farmer who cultivates palms for home consumption can be classified under:
Explanation: Indirect production refers to production activities aimed at satisfying future needs, such as cultivating palms for personal or household use.
20. The continuous reduction in the share of manufacturing in the national output in Cameroon is known as:
Explanation: De-industrialisation occurs when there is a decline in the manufacturing sector's contribution to a country's GDP, often accompanied by economic shifts towards the service sector.
21. A regional policy has as aim to:
Explanation: Regional policies aim to reduce disparities between different regions by avoiding over-congestion in urban areas and promoting balanced development.
22. Company Z Ltd succeeds in transferring 250 FCFA out of a custom duty of 1,000 FCFA to its customers in the form of increased prices. What is the nature of price elasticity of demand of this company product?
Explanation: A fairly inelastic demand indicates that the company can pass part of the custom duty to customers through increased prices without a significant reduction in quantity demanded.
23. The total utility of 3 cups of water consumed is 21 utils, while the marginal utility of the 3rd cup of water consumed is 5 utils. What is the total utility of 2 cups of water consumed?
Explanation: The marginal utility of the 3rd cup is 5 utils. Total utility of 2 cups = Total utility of 3 cups (21 utils) - Marginal utility of the 3rd cup (5 utils) = 16 utils.
24. Devaluation is different from revaluation in that devaluation:
Explanation: Devaluation reduces the value of a country's currency relative to others, making exports cheaper and imports more expensive, which can help correct a balance of payments deficit.
25. The optimum size of a firm is that size where:
Explanation: A firm achieves its optimum size when it operates at a level where profits are maximized by balancing costs and revenue effectively.
26. Calculate the gross national product of country X given:
- Net property income from abroad = 25
- Depreciation = 30
- Gross domestic product = 50
Explanation: Gross National Product (GNP) = GDP + Net property income from abroad + Depreciation. Thus, GNP = 50 + 25 + 30 = 105MFCFA.
27. What name is given to the curve labeled X?
Explanation: The curve labeled X represents the average product, which is the output per unit of input at various levels of production.
28. What is the value of the bank’s liquid assets?
- Notes and coins in till = 5
- Deposits with central bank = 5
Explanation: Liquid assets include cash and deposits easily convertible into cash. Here, liquid assets = 5 + 5 = 10MFCFA.
29. One of the factors responsible for the low productivity of agriculture in Cameroon is:
Explanation: Poor-quality inputs and lack of knowledge about proper farming techniques often lead to low agricultural productivity in developing countries like Cameroon.
30. A group of countries that have abolished trade barriers amongst themselves but each member country is free to impose its own barriers to non-members is called:
Explanation: A free trade area removes tariffs between member countries but allows them to maintain independent policies for trade with non-member countries.
31. A firm has a total fixed cost of 4,000 FCFA a year. The average variable cost is 250 FCFA for 20 units of output produced. At this level of output, its average total cost is:
Explanation: Average Total Cost = Total Cost / Quantity. Total Cost includes fixed and variable costs: (4000 + 250*20)/20 = 5000 FCFA.
32. What tax system is illustrated by the table below?
| Income (FCFA) | Amount paid as tax |
|---|---|
| 150,000 | 1,000 |
| 100,000 | 1,000 |
| 50,000 | 1,000 |
Explanation: A proportional tax system imposes the same tax amount on all incomes, irrespective of the income level.
33. Diminishing returns to variable factors occur when there is:
Explanation: Diminishing returns occur when additional input leads to a smaller increase in output.
34. The method of calculating national income which involves the summing up of the final values of agriculture, transport and communication, banking, and other services is known as:
Explanation: The output method calculates national income by summing up the final values of goods and services produced.
35. Which of the following is the most important source of finance to modern companies?
Explanation: Companies often rely on equity financing, where shares are issued to raise capital.
36. A situation of both high rate of inflation and unemployment in the economy is known as:
Explanation: Stagflation refers to an economic condition characterized by high inflation and unemployment.
37. The opportunity cost of spending four hours studying Economics the night before G.C.E mock examination would be:
Explanation: Opportunity cost is the value of the next best alternative foregone, in this case, the grade.
38. Which of the following is a disadvantage of a planned economy?
Explanation: In a planned economy, decisions are made centrally, limiting consumer choice and sovereignty.
39. The law of demand states that:
Explanation: According to the law of demand, as price decreases, quantity demanded increases, and vice versa.
40. Which of the following is NOT a characteristic of money?
Explanation: Money must be scarce to retain its value, so an unlimited supply is not a characteristic of money.
41. The total value of goods and services produced in a country in a year, excluding net income from abroad, is known as:
Explanation: GNP measures the total value of goods and services produced, including net income from abroad.
42. Which of the following factors affects the supply of a commodity?
Explanation: The supply of a commodity is directly influenced by the cost of production.
43. Why is it said that the market is cleared when supply equals demand?
Explanation: The market clears when the quantity demanded equals the quantity supplied, leaving no surplus or shortage.
44. What happens when goods are in excess supply?
Explanation: Excess supply creates downward pressure on prices to encourage higher demand and clear the surplus.
45. Which of the following does not affect price elasticity of supply?
Explanation: Price elasticity of supply is influenced by factors like production flexibility, stock levels, and production time, but not by advertisement.
46. Which of the following will cause price elasticity of supply to be greater than 1?
Explanation: When producers can quickly adjust supply by using existing stock, the price elasticity of supply becomes more responsive.
47. Based on Table 5 showing the production possibility of Cameroon and Nigeria, which country should specialize in the production of cars?
Explanation: Nigeria has a comparative advantage in cars due to its lower opportunity cost in car production compared to Cameroon.
48. What does capitalism refer to?
Explanation: Capitalism is characterized by private ownership of resources, where decisions are guided by market forces.
49. What is the maximum deposit of a commercial bank if the initial deposit is 40,000 FCFA and the cash ratio is 20%?
Explanation: The maximum deposit is the initial deposit amount as commercial banks need to maintain the required cash ratio.
50. The shift in the supply curve from S0S0 to S1S1 may be caused by:
Explanation: A decrease in production costs allows suppliers to increase supply, causing a rightward shift in the supply curve.
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