2012 - JAMB Economics Past Questions and Answers - page 2

The cost elasticity of supply is not a standard economic concept. The question likely intends to ask about the price elasticity of supply. This measures the responsiveness of the quantity supplied of a good or service to a change in its price.

• Price Elasticity of Supply: This is a measure of how much the quantity supplied of a good or service changes in response to a change in its price.
• Cost of Production: Related to supply but not directly measured by elasticity.
• Profit, Productivity, and National Income are not what elasticity of supply measures.
• Price index is not relevant to supply elasticity.

The invisible hand, a concept introduced by Adam Smith, suggests that individuals, by pursuing their own self-interests in a free market, unintentionally benefit society as a whole.

• A. Consumers: While consumers benefit from the invisible hand through lower prices and a wider variety of goods, the primary focus is on the overall societal benefit.
• B. Society: This is the most accurate answer. The invisible hand leads to the efficient allocation of resources and increased overall welfare for society.
• C. Government: The invisible hand operates with minimal government intervention.
• D. Producers: Producers benefit, but the ultimate goal is to benefit society.

When the price is fixed above the equilibrium, the following will occur:

• Quantity supplied increases: Suppliers are incentivized to produce more because the price is higher than the market-clearing price.
• Quantity demanded decreases: Consumers will buy less because the price is higher than the market-clearing price.
• This creates a surplus (excess supply) in the market.

The price system plays a crucial role in allocating resources efficiently within an economy. It does this through the following:

• Signaling: Prices act as signals to both producers and consumers. High prices often indicate scarcity or high demand, prompting producers to increase production and consumers to conserve. Conversely, low prices suggest abundance or low demand.
• Incentives: The price system provides incentives. Producers are motivated to produce goods and services that fetch higher prices, reflecting consumer preferences and societal needs.
• Allocation: Resources are guided to their most productive uses, as producers are driven to allocate resources where they can generate the highest returns.

In the long run, all factors of production are variable. Economies of scale refer to the cost advantages that enterprises obtain due to expansion.

• Economies of scale occur when the average cost of production decreases as the scale of production increases.
• Increasing returns to scale is when a proportional increase in all inputs leads to a more than proportional increase in output. This concept is closely related to economies of scale.
• Decreasing returns to scale is when a proportional increase in all inputs leads to a less than proportional increase in output.
• Diminishing returns is a concept that applies in the short run when at least one factor of production is fixed. It describes the situation where adding more of a variable input to a fixed input results in smaller increases in output.

Therefore

The long-run average cost curve (LRAC) is an envelope of all the short-run average cost curves (SRAC). It touches the SRAC curves at the points where the firm is operating at its most efficient scale for a given level of output. The LRAC touches the SRAC at the minimum point of only one of the short-run cost curves.

Decreasing returns to scale occurs when a firm increases all inputs by a certain percentage, and the output increases by a smaller percentage. In the long run, all factors of production are variable. If doubling inputs leads to less than double the output, then the firm is experiencing decreasing returns to scale.

Patents and copyrights grant exclusive rights to inventors and creators, allowing them to control the production and sale of their creations. This exclusivity effectively restricts other firms from entering the market, as they cannot legally produce or sell the same products or services.

A discriminatory monopoly involves charging different prices to different groups of consumers. This practice is viable when the monopolist can segment its market and when the price elasticity of demand differs across those segments. Therefore, the key characteristic is different elasticities in different markets.