2018 - WAEC Economics Past Questions and Answers - page 2

The reason is that there are two effects related to determining supply. The substitution effect states that a higher wage makes work more attractive than leisure. ... The income effect states that a higher wage means workers can achieve a target income by working fewer hours.

Backward bending supply curve is the normal case for most workers. Most economists agree that a worker's supply curve for labor slopes upward at lower wages and bends backward at higher wages. 

infinitely elastic supply, by definition, means that any decrease in the product price would immediately cause thesupply to shift to zero

The price a consumer is willing to pay for a good depends on his marginal utility, the marginal utility declines with each additional unit of consumption, according to the law of diminishing marginal utility. Therefore, the price is equal to the marginal utility

A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product, good, commodity, or service. 

A price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage--the minimum price that can be payed for labor.

For a price floor to be effective, it must be set above the equilibrium price.

Market equilibrium is a market state where the supply in the market is equal to the demand in the market. Theequilibrium price is the price of a good or service when the supply of it is equal to the demand for it in themarket.

In the long run, when all inputs under the control of the firm are variable, there is no fixed cost and thus no average fixed cost.  Instead long-run average cost is affected by increasing and decreasing returns to scale, which translates into economies of scale and diseconomies of scale.

Diminishing returns, also called law of diminishing returns or principle of diminishing marginal productivity, economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output.

In the classic example of the law, a farmer who owns a given acreage of land will find that a certain number of labourers will yield the maximum output per worker. If he should hire more workers, the combination of land and labour would be less efficient because the proportional increase in the overall output would be less than the expansion of the labour force.

A firm will choose to implement a shutdown of production when the revenue received from the sale of the goods or services produced cannot even cover the variable costs of production. In that situation, the firm will experience a higher loss when it produces, compared to not producing at all.

Technically, shutdown occurs if average revenue is below average variable cost at the profit-maximizing positive level of output. 

 The directors could not dictate the decisions in the company as the rights in decision making process also vest in the hands of shareholders.  Thus democracy is maintained well. 

joint stock company is a company whose stock is owned jointly by the shareholders.

In the event that a joint stock company declares bankruptcy, the company's shareholders may be entitled to a portion of the liquidated assets, depending on which shares they hold and how much liquid assets are left over.  baUponnkruptc, a fiyrm will be required to sell all of its assets and pay off all debts.