Economics · Oct / Nov 2022 · Paper 22 · Question 1

Calculate how many dollars 6400 Nigerian naira would have bought in 2019. 16 (1).

Identify two ways a bank could increase demand for its services. Open more branches (1)

carry out an advertising campaign (1)

improve online / mobile banking (1).

State why a merger between two commercial banks is a horizontal merger. Same stage of production / both in the tertiary (service) sector / same sector (1)

same industry / same product / same service (1)

can increase market share (1).

Explain two reasons why a large US commercial bank may charge a high price for its services. Logical explanation which might include: High spending on opening new branches / advertising campaigns / developing online banking (1)

need to get back costs / make a profit / may experience diseconomies of scale (1). May offer high quality services (1)

have high demand / customers willing to pay a high price (1). High degree of monopoly / market power / control 32% of market (1)

customers may have brand loyalty / reluctant to switch banks / lack of substitutes / inelastic demand / can charge high prices to earn high profits/raise total revenue / be a price maker (1). High incomes in the US (1)

many customers have the ability to pay a high price (1). Employ skilled / well educated workers (1)

so may pay high wages / may have high costs of production (1). 4 One mark for each of two reasons identified and one mark for each explanation.

Analyse how an increase in unemployment may affect the Nigerian government’s budget. Coherent analysis which might include: Likely to increase a deficit / reduce a surplus / may result in a budget deficit (1). Tax revenue likely to fall / budget likely to fall (1)

due to lower incomes (1)

less income tax revenue (1)

lower profits (1)

less corporation tax revenue (1)

lower spending (1)

less indirect tax revenue (1)

government may cut taxes to reduce unemployment (1). Government spending likely to rise (1)

more spending on e.g. benefits / subsidies to the poor / law and order/ healthcare (1)

may be more spending on measures to reduce unemployment / expansionary fiscal policy (1)

may spend less on other areas e.g. education (1).

Analyse the relationship between countries’ average years of schooling and birth rates. Coherent analysis which might include: Overview Generally, an inverse relationship / the more years of schooling, the lower the birth rate / the fewer years of schooling, the higher the birth rate (1). Supporting evidence Up to 2 marks maximum for two pieces of relevant supporting evidence e.g.:

Nigeria has more years of schooling than Eritrea but a higher birth rate (1). Comments More years of schooling is likely to cause people to form partnerships / have children later / focus on careers / increase awareness of contraception/family planning / increase health / reduce size of families (1)

increase cost of raising children / having more children may reduce the ability of families to keep their children in education for many years / exception may be result of other influences e.g. differences in fertility rates / differences in social attitudes (1). 5 No marks for just stating what the figures are e.g. Germany has 15 years of schooling and a birth rate of approximately 8. US has 14 years of schooling and a birth rate of approximately 12. Argentina has 11 years of schooling and a birth rate of approximately 16 etc.

Discuss whether or not a subsidy, given to farmers by the Nigerian government, would reduce the deficit on the current account of its balance of payments. Award up to 4 marks for logical reasons why it might, which may include: It should raise supply / increase output (1)

equivalent to lower cost (1)

lower price (1)

increasing international competitiveness (1). There may be more funds available to invest (1)

raise quality (1)

increase exports / reduce imports (1). Award up to 4 marks for logical reasons why it might not, which may include: It may increase inefficiency (1)

as firms rely on the subsidy (1)

may not pass on the benefit of the subsidy to consumers (1). Nigeria may have a high inflation rate (1)

which may offset the cost advantage of the subsidy (1). There may an increase in incomes at home (1)

which may increase imports / divert exports to the home market (1). There may be a recession abroad / decrease in incomes of trading partners (1)

which reduces exports (1). Lower export prices will not raise export revenue if demand is inelastic (1). The exchange rate may rise (1)

increasing export prices / lowering import prices (1). Farmers may import e.g. more machinery (1). There may be adverse weather conditions / disease (1)

which reduces quality / quality may remain poor (1). There may be import restrictions / increase in import restrictions imposed by other countries (1). Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease… ...because of reason e.g. incomes may be lower. Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education.

Discuss whether or not the US government should impose a minimum price on chocolate. Award up to 4 marks for logical reasons why it should, which may include: It will raise price (1)

reduce demand / demand contracts / quantity demand falls / consumption falls. (1)

reduce obesity (1). Social cost of eating chocolate may exceed social benefit (1)

due to external costs (1)

example e.g. cost on health service / may reduce need for government spending on healthcare (1)

overconsumption of chocolate (1)

move market closer to where social benefit equals social cost (1)

increase welfare (1). May raise health of the population / eating chocolate may be unhealthy (1)

raise labour productivity (1). There may be information failure (1)

some chocolate is a demerit good (1). Award up to 4 marks for logical reasons why it should not, which may include: Poor may not be able to afford chocolate (1)

regressive measure (1). Not everyone overweight / some may consume chocolate in quantities that are not harmful (1)

may cause demand to switch to other high sugar products / discriminate against other high sugar products (1). It will encourage supply to extend (1)

a surplus may develop (1). There may be an illegal market in chocolate (1). There may be a cost to the government (1)

it may have to pay to monitor that the price is being charged (1)

lower tax revenue from chocolate (1)

may be an increase in unemployment (1). 6 A minimum price diagram without explanation can get a maximum of 2 marks. These marks may be the equivalent of a combination of two of higher price, demand extending, supply extending or a surplus being created. Guidance Demand may be inelastic (1)

resulting in a relatively small fall in demand / chocolate may be addictive (1). It depends on how high the minimum price is (1)

may have no effect if set below the market equilibrium (1).