| Subject Code | 0525 |
| Subject Title | O Level Economics |
| Session | June 2022 Paper 1 |
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Cameroon GCE O Level Economics Paper 1 Solution - June 2022
1. An appropriate strategy to encourage industrialization in Cameroon is:
Explanation: Tax holidays reduce the financial burden on new industries, encouraging investment and growth. For example, providing a 5-year tax exemption allows businesses to reinvest profits, stimulating industrialization.
2. If the government sets the price of a good below equilibrium, it will lead to:
Explanation: A price ceiling below equilibrium creates a shortage as demand exceeds supply. For instance, capping rent prices may increase demand for housing while discouraging landlords from offering more units.
3. A gradual fall in the value of fixed assets over time is known as:
Explanation: Depreciation occurs as fixed assets like machinery wear out or become obsolete. For example, a machine costing $10,000 may lose value annually until it’s worth $0.
4. The quality of money which ensures that all transactions are made possible in an economy is:
Explanation: Money must be widely accepted as a medium of exchange. For instance, a $10 bill is accepted universally in the U.S. to purchase goods or services.
5. The basic economic question concerned with the distribution of goods and services is:
Explanation: This question addresses who benefits from economic output, such as allocating luxury goods to high-income groups and basic goods to low-income groups.
6. A government policy achieved by setting a minimum and maximum prices is known as:
Explanation: Fiscal policy involves government interventions like price controls to stabilize markets. For example, minimum wage laws ensure fair pay.
7. A likely economic problem that will result when output of some firms becomes the inputs of others in national income accounting:
Explanation: Double counting inflates GDP by counting the same value twice. For example, counting both the sale of steel and the cars made from it.
8. A complete shift of the demand curve to the right is known as:
Explanation: This reflects higher demand at all price levels, possibly due to increased income. For example, better technology might make a product more desirable.
9. A bank consumer, Mary, has 70,000FCFA in her current account at BICEC and she is allowed to withdraw 120,000FCFA. Determine the amount of overdraft given to her:
Explanation: Overdraft is the excess amount withdrawn beyond the account balance. Here, \( 120,000 - 70,000 = 50,000 \).
10. How much will a Cameroon businessman require to buy a car in FCFA, given that the said car costs 1000 pounds and where 1 pound = 600FCFA:
Explanation: Multiply the cost by the exchange rate: \( 1000 \times 600 = 6,000,000 \).
11. Roads, national defence and street lights are good examples of:
Explanation: Public goods are non-excludable and non-rivalrous. For instance, anyone can use streetlights without reducing availability for others.
12. At what price will a consumer be able to buy 8 apples, given that the demand function P = 240 - 5Q, where P is the price in FCFA and Q is quantity of apples:
Explanation: Substituting Q = 8 : P = 240 - 5(8) = 200 .
13. The theory which has a pessimistic view on the rapid population growth, was proposed by:
Explanation: Malthus argued population grows faster than food supply, leading to famine unless checked by natural limits.
14. How many denominations of paper money exist in the currency used in Cameroon:
Explanation: Cameroon’s Central African CFA franc has six denominations: 500, 1000, 2000, 5000, 10,000, and 20,000.
15. The omissions made when calculating the national income are represented by:
Explanation: Errors and omissions account for unrecorded activities or misreported data, ensuring balance in national income estimates.
16. One of the following is a characteristic of development:
Explanation: Development involves improved living standards, often indicated by higher average income.
17. Identify two organizations from the list below which are unincorporated:
i) Sole proprietor
ii) Partnership
iii) Joint stock company
iv) National/public corporations.
Explanation: These are owned directly by individuals without separate legal identity from their owners.
18. A debt contracted for the fight against malaria is a good example of:
Explanation: While beneficial, it doesn’t generate direct economic returns like infrastructure projects.
19. When government decides to use price control as a measure to curb inflation, a category of inflation is produced known as:
Explanation: Prices are artificially held down, creating shortages as demand exceeds supply.
20. The ability to increase labour to increase output and quality of work within a short period of time is referred to as:
Explanation: Efficient labor maximizes output using minimal resources. For example, skilled workers complete tasks faster and more accurately.
21. A market situation in which there is only one buyer of a given commodity is referred to as:
Explanation: A monopsony exists when there is only one buyer for a product or service. For example, a single company hiring workers in a mining town creates a monopsony for labor.
22. The formula; value of visible export less value of visible imports is used to calculate:
Explanation: The balance of trade is calculated by subtracting the value of imports from exports. For instance, if Cameroon exports $50M worth of cocoa and imports $30M worth of machinery, its balance of trade is $20M.
23. "A situation where producers produce, taking into consideration what consumers want," is generally referred to as:
Explanation: Consumer sovereignty ensures producers cater to consumer preferences. For instance, increasing demand for electric vehicles pushes car manufacturers to produce them.
24. The exchange of goods between Cameroon and Japan can be better described as:
Explanation: Bilateral trade involves two countries exchanging goods and services. For example, Cameroon exports timber to Japan and imports electronics.
25. If the bank operates on a cash rate of 10%, and receives an initial deposit of 10 million FCFA, it will create a maximum deposit equal to:
Explanation: Using the cash reserve ratio formula, Maximum deposit = Initial deposit / Cash ratio, 10,000,000 / 0.1 = 100,000,000.
26. When national income increases such that the quality of life improves in an economy, we refer to it as:
Explanation: Economic development includes income growth and improved quality of life, such as better healthcare and education.
27. The concentration of firms belonging to a particular industry in one region is referred to as:
Explanation: Localization occurs when firms cluster in a region for benefits like shared infrastructure. For instance, Silicon Valley houses numerous tech companies.
28. What is the population size, which is considered to be optimum:
Explanation: The optimum population balances resources with population size to maximize welfare.
29. Direct taxes meet the criteria of a good tax system for the reason that:
Explanation: Direct taxes are progressive, ensuring higher earners contribute more, increasing revenue. For example, income taxes are a significant source of government revenue.
30. The practice of division labour is limited by:
Explanation: Division of labor requires a large market. A small market limits specialization as fewer goods and services are demanded.
Question 31 is based on the diagram shown
31. What is the coefficient of price elasticity of demand?
Explanation: Perfectly elastic demand implies infinite responsiveness to price changes. For example, a slight increase in price causes demand to drop to zero.
32. Which of the following restrictive trade instruments generate revenue to the state?
Explanation: Tariffs are taxes on imports, generating government revenue and protecting domestic industries.
33. One of the following is a benefit of a small holder from the main plantation:
Explanation: Plantations often support smallholders with inputs like improved seeds to enhance productivity.
34. A market situation where there is excess demand, such that the supplier of the good takes advantage to impose a price higher than the normal is known as:
Explanation: A sellers’ market occurs when demand exceeds supply, allowing suppliers to increase prices. For instance, housing shortages often create sellers' markets.
35. One of the following is a direct form of state intervention in an economy:
Explanation: Price controls, such as setting maximum prices, directly regulate the economy. For example, governments may cap essential goods prices during crises.
36. Which one of the following will reduce the supply of labour in Cameroon?
Explanation: Extending school age reduces the labor force as more individuals remain in education longer.
37. Which one of the following will be the economic effect of increasing direct taxes in an economy?
Explanation: Higher direct taxes lower disposable income, discouraging investment and economic growth.
38. A business organization which operates with the objective "not for profit" is:
Explanation: Co-operatives prioritize member welfare over profit, often reinvesting any surplus for members’ benefit.
| Units of Consumption of Good A | Marginal Utility (Utils) | Total Utility (Utils) |
|---|---|---|
| 1 | 100 | - |
| 2 | 60 | 160 |
| 3 | - | 200 |
| 4 | 10 | - |
| 5 | 0 | 210 |
39. What is the marginal utility for this consumer when he consumes one unit of Good A?
Refer to the table provided.
Explanation: Marginal utility is the satisfaction from consuming one additional unit. Here, the first unit provides 100 utils.
40. A market structure where firms practice product differentiation but there is freedom of entry and exit is known as:
Explanation: Monopolistic competition combines product differentiation with market freedom, like restaurants offering unique dishes in competitive markets.
41. Suppose the total cost of a company is 250,000 FCFA, total variable cost is 100,000 FCFA, and output is 20 units. What is the total fixed cost?
Explanation: Total fixed cost is Total cost - Variable cost = 250,000 - 100,000 = 150,000.
42. A balance of payment deficit can be corrected in the short run by:
Explanation: Devaluation makes exports cheaper and imports more expensive, correcting deficits.
43. The cost of production which does not change as output changes in the short run is called:
Explanation: Fixed costs remain constant regardless of output. For example, rent for factory space does not change with production levels.
44. Company A WZ decides to raise capital through the sale of shares as follows:
- 100 preference shares of 5% at 500 FCFA each
- 50 debentures of 5% at 1,000 FCFA each
- 300 ordinary shares at 500 FCFA each.
What is the value of capital raised by the sale of the most risky share?
Explanation: Ordinary shares are riskier due to variable dividends. The total value is 300 x 500 = 500,000.
45. Assume the GDP for country Z is 450 billion FCFA and the GNP is 550 billion FCFA. What is the value of Net Property Income Received from Abroad (NPIRA)?
Explanation: NPIRA is GNP - GDP = 550 - 450 = 100.
46. Mr. Tarh in a sunny day gets 50 utils from consuming a bottle of coke. When he settles for the second bottle, his total satisfaction rose to 90 utils. An attempt to consume the third bottle caused his marginal utility to fall to 30 utils. What is his total utility for consuming the third bottle?
Explanation: Total utility after the third bottle is 90 + 30 = 120.
47. Which other name is given to the "maximum price" used by the government to protect consumers?
Explanation: Ceiling prices cap maximum allowable charges to protect consumers. For instance, rent controls in cities prevent excessive rent hikes.
48. The population of a country is 30 million people. 40% is made up of the labour force, while 30% is made up of the young. Determine the dependency ratio of this population:
Explanation: Dependency ratio is (Dependent population / Labor force population) x 100 = (30% + 30%) / 40% x 100 = 150%.
49. A government borrows from the following sources:
- Banks within the country: 10 million FCFA
- Corporate sector at home: 20 million FCFA
- Private individuals at home: 5 million FCFA
- Foreign banks: 40 million FCFA
- Foreigners: 25 million FCFA
What is the value of the internal debt?
Explanation: Internal debt includes domestic sources: 10 + 20 + 5 = 35.
50. Which of the following could be considered an injection into the circular flow of income?
Explanation: One of the key objectives of central banks is to control money supply to ensure economic stability and growth.
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