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THEORY
SOLUTIONS
*2023 WAEC GCE ECONOMICS*
*3a*
*Income elasticity* of demand is the relative change in demand of one good or service following a change in the consumer’s income WHILE *Cross elasticity* of demand is the relative change in the demand of one good or service following a change in a change in price of another good or service.
The formula for calculating income elasticity of demand is
the percentage change in quantity demanded divided by the percentage change in income
Formula to measure cross elasticity of demand: E= Percentage change in demand of commodity X/ Percentage change in price of commodity Y . Q.
*Number 3B*
1) Nature of commodity
2) Availability of substitutes
3) Number of uses
4) Complementary goods
5) Time period
6) Durability
7) Urgency of needs
8) Habits
9) Income of the consumer
*Number 5A*
*Capital-intensive*
'Capital' refers to the equipment, machinery, vehicles and so on that a business uses to make its product or service.
Capital-intensive processes are those that require a relatively high level of capital investment compared to the labour cost.
These processes are more likely to be highly automated and to be used to produce on a large scale.
Capital is a long-term investment for most businesses, and the costs of financing, maintaining and depreciating this equipment represents a substantial overhead.
In order to maximise efficiency, firms want their capital investment to be fully utilised
In a capital-intensive process, it can be costly and time-consuming to increase or decrease the scale of production.
*Labour Intensive*
'Labour' refers to the people required to carry out a process in a business.
Labour-intensive processes are those that require a relatively high level of labour compared to capital investment.
These processes are more likely to be used to produce individual or personalised products, or to produce on a small scale
The costs of labour are: wages and other benefits, recruitment, training and so on.
Some flexibility in capacity may be available by use of overtime and temporary staff, or by laying-off workers.
Long-term growth depends on being able to recruit sufficient suitable staff.
Labour intensive processes are more likely to be seen in Job production and in smaller-scale enterprises.
(6a)
Open market operation:- is an activity by a central bank to give (or take) liquidity in its currency to (or from) a bank or a group of banks.
(6b)
-Central Bank-
(i) A Central Bank devises new policies and rules which have to be followed by the other banks.
(ii) The Central Bank acts as a banker to several other banks and the government.
(iii) A Central Bank is owned by the public sector/ government.
-Commercial Bank-
(i) A Commercial Bank is the richest bank in the nation.
(ii) A Commercial Bank serves as a dealer to the citizens of the nation.
(iii) A Commercial Bank is owned by both the public and private sectors.
(6c)
(i) Financing Trade:-
The money market provides financing to local and international traders who are in urgent need of short-term funds. It provides a facility to discount bills of exchange, and this provides immediate financing to pay for goods and services.
(ii) Growth of Industries:-
The money market provides an easy avenue where businesses can obtain short-term loans to finance their working capital needs. Due to the large volume of transactions, businesses may experience cash shortages related to buying raw materials, paying employees, or meeting other short-term expenses.
(iii) Central Bank Policies:-
The central bank is responsible for guiding the monetary policy of a country and taking measures to ensure a healthy financial system. Through the money market, the central bank can perform its policy-making function efficiently.
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