2003 - JAMB Economics Past Questions and Answers - page 1

When two variables are positively related, it means that as one variable increases, the other variable also increases. This relationship is represented graphically by an upward-sloping curve or line.

Here's the breakdown:

• Inferior Good: An inferior good is a good for which demand decreases as consumer income increases, and vice-versa.
• Decreased Real Income: If real income decreases, consumers have less money to spend.
• Impact on Demand: For an inferior good, a decrease in income leads to an increase in demand. This is because consumers, with less income, will switch to cheaper alternatives (inferior goods). An increase in demand is represented graphically by an outward shift of the demand curve.
• Options Analysis:
  • A lower equilibrium price: is not a direct result of change in income.
  • a change in quantity demanded: this would be a movement along the demand curve, not a shift of

To determine the elasticity of demand, we need to calculate the price elasticity of demand (PED). The formula for PED is:

PED = (% Change in Quantity Demanded) / (% Change in Price)

1. Calculate the Percentage Change in Quantity Demanded:

   • Change in Quantity Demanded = 190 - 200 = -10
   • Average Quantity Demanded = (200 + 190) / 2 = 195
   • % Change in Quantity Demanded = (-10 / 195) * 100 = -5.13%

2. Calculate the Percentage Change in Price:

   • Change in Price = 8 - 5 = 3

In a planned economy, the government makes most of the decisions about what to produce, how to produce it, and for whom to produce. This involves public ownership and control of the means of production.

A sharply downward-sloping demand curve indicates that the firm has significant market power. This means that the firm can influence the price of its product.

• Monopolists face the entire market demand curve, which is typically downward sloping. They have considerable control over price.
• Monopolistic competitors have some control over price, but their demand curves are typically more elastic (less steep) than a monopolist's.
• Perfect competitors face a perfectly elastic (horizontal) demand curve and have no control over price.
• Oligopolists can have some influence over price, but the key characteristic here is the sharp downward slope.

Therefore, the firm is most likely a monopolist.