1. “If all the earth’s economists were laid end to end, they could not reach an agreement or so the saying goes. If
economics is a scientific discipline, why do economists seem to quarrel so much? Politicians and reporters are fond of pointing out that economists generally argue both sides of every issue of public policy. Physicists on the other hand do not debate whether the earth revolves around the sun or vice versa…
There is much area of agreement among economists than most people think. Virtually all economists, regardless of their politics agree that taxing polluters is one of the best ways to protect the environment”.
Source: Economics-Principles and Policy, 2nd Edition by William J. Baumol and Alain S. Blinder (page 16)
(a) State four reasons why economists disagree. (4 marks)
(b) Suggest one reason why economists should not disagree. (2 marks)
(c) Outline three differences between economics and other sciences like Physics. (6 marks)
(d) Name any four tools used by economists to analyze economic concepts. (4 marks)
(e) Give four reasons why we study economics. (4 marks)
2. Assume that the Upper Noun Valley Development Authority (UNVDA) is a firm under a perfectly competitive
market producing rice. UNVDA chooses to produce 100 bags of rice where its average total cost (ATC) is lowest at 12,000 FCFA. A bag of rice sells at 18,000 FCFA.
(a) i) Calculate its marginal cost at the output of 100 bags of rice. (2 marks)
ii) What is its marginal revenue when 100 bags of rice are produced? (2 marks)
(b)
(i) From the information above, which objective is this firm pursuing? (2 marks)
(ii) List three other objectives that UNVDA could equally pursue. (3 marks)
(c) Calculate the total profit of UNVDA when it produces and sells 100 bags of rice. (4 marks)
(d) (i) Sketch a diagram to show the market situation of UNVDA using its marginal cost, marginal
revenue, average total cost and average revenue curves. (4 marks)
(ii) Outline three merits of a perfectly competitive market. (3 marks)
3. A closed economy in equilibrium has total consumption of 600 million FCFA and investment of 300 million
FCFA. Consumption is a constant proportion of disposable income.
(a) Calculate the equilibrium level of national income. (3 marks)
(b) Consider that the government sector is incorporated and that one fifth of all income is taxed while
public spending on goods and services amounts to 260 million FCFA.
(i) Determine the new equilibrium level of national income. (5 marks)
(ii) Determine the budgetary situation. (3 marks)
(c) The economy is exposed to the rest of the world with total exports of 250 million FCFA and imports
equal to one sixth of total consumption spending.
(i) Determine the new equilibrium level of national income. 1(5 marks)
(ii) Calculate the value of the multiplier. (4 marks)
4. The information on table 1 below represents the balance sheet of an imaginary commercial bank.
Table 1
LIABILITIES (million FCFA) ASSETS
(million FCFA)
Sight deposits 300 Cash in the bank’s till 80
Time deposits 500 Balances at the Central Bank 120
Other Liabilities 200 Money at call and short notice 50
Treasury bills 50
Investments 100
Loans ?
Special deposits 75
TOTAL 1,000 TOTAL ?
(a) (i) Calculate the amount of money given out as loans. (3 marks)
(ii) Calculate the required cash reserve ratio. (2 marks)
(iii) List two assets that yield no profit to this commercial bank. (2 marks)
(b) Calculate the percentage of total assets held as:
(i) Liquid assets. (3 marks)
(ii) Illiquid assets (3 marks)
(iii) Give reasons to justify that this bank is pursuing the twin objectives of liquidity and
profitability. (4 marks)
(c) If a customer deposits an additional 100 million FCFA in his account, what is the maximum additional
loan this bank can grant? (3 marks)
5. “Publicly held corporations are private collectivities. They have thousands of individual owners, whose
relation to the firm is apt to be remote, impersonal and often temporary. Unlike Sole Proprietors, Partnerships and even closely held companies or corporations, the distant relation between the owners and their property creates a problem of control. Whether a corporation is privately held or is publicly traded, it usually hires professional managers for day to day management. The professional managers in turn are entrusted to make decisions on the owners’ behalf, including the hiring and firing of other employees. The legal term for their role is that of a “fiduciary’, meaning they are supposed to set their interests aside and manage the organization impartially”.
Source: Business, Government, Society: The Global Political Economy, by Arthur A. Gold Smith 2002. page 234
(a) (i) List two differences between publicly and privately held companies.
(4 marks)
(ii) Which term is used to explain the underlined phrase in the passage? (2 marks)
(b) (i) Enumerate four advantages Sole Proprietorships have over Joint Stock Companies.
(4 marks)
(ii) Outline three advantages of a publicly held company. (3 marks)
(c) (i) What name is given to companies that are ‘publicly traded”? (1 mark)
(ii) List two important documents required to start up a Joint Stock Company. (2 marks)
(iv) State four roles of professional managers in an enterprise. r (4 marks)
