2002 - JAMB Economics Past Questions and Answers - page 5

As a country develops, its economy shifts from primarily agriculture-based to manufacturing and service-based. This transition leads to:

• Reduced need for agricultural labor: Technological advancements in farming (e.g., mechanization, improved seeds) increase productivity, requiring fewer workers.
• Movement to other sectors: Workers move to higher-paying jobs in manufacturing, services, and other industries.

Therefore, the percentage of the labor force engaged in agriculture decreases.

The marginal rate of substitution (MRS) of X for Y is the amount of Y that a consumer is willing to give up to obtain one more unit of X, while remaining at the same level of utility. It is calculated as the change in Y divided by the change in X, but it is a ratio, not a single value.

• At point S, the consumer has 4 units of Y and 3 units of X.
• At point T, the consumer has 3 units of Y and 8 units of X.

The movement from S to T involves giving up 1 unit of Y (4-3=1) and gaining 5 units of X (8-3=5).

Therefore, the MRS of X for Y is calculated as the change in Y (1) divided

Here's how to determine the opportunity cost from the production possibility frontiers (PPFs):

• Opportunity Cost Formula: Opportunity Cost of X = (Change in Y) / (Change in X), where X is the good whose opportunity cost we're calculating, and Y is the other good.

• Ghana:

  • Ghana can produce 20 units of cocoa or 5 units of cotton.
  • To find the opportunity cost of 1 unit of cotton, determine how much cocoa Ghana gives up.
  • Opportunity Cost of 1 Cotton (Ghana) = 20 cocoa / 5 cotton = 4 cocoa.
  • Alternatively, the question asks the opportunity cost of cotton in terms of cocoa. Therefore the correct calculation is:

A fall in the price of good P, while the price of good Q remains constant, will affect the consumer's purchasing power and the budget line. Here's the breakdown:

• Budget Line: The budget line represents all the combinations of two goods that a consumer can afford given their income and the prices of the goods.
• Price Change of P: When the price of good P falls, the consumer can now afford more of good P with the same amount of money. This effectively increases the consumer's purchasing power for good P.
• Impact on the Budget Line:
  • The point where the budget line intersects the P-axis (where only good P is purchased) will shift outwards (further from the origin). This is because the consumer can buy more of P.