WASSCE Economics past questions and answers

A common market is the third stage of economic integration. It goes beyond a customs union (which has free trade among members plus a common external tariff) by also allowing the free movement of factors of production — labour, capital, and enterprise — across member countries' borders. ECOWAS (Economic Community of West African States), established in 1975, aims to create a common market among its 15 member states including Ghana, Nigeria, Senegal, and Cote d'Ivoire. The ECOWAS Trade Liberalisation Scheme (ETLS) eliminates tariffs on goods originating from member states, and the ECOWAS protocol on free movement of persons allows citizens to travel and reside in member states. The proposed common currency (the Eco) would advance integration towards an economic union.

The Lorenz Curve measures income inequality. The closer the curve is to the 45-° line of equality, the more equal the income distribution. Country A's Lorenz Curve is closer to the line of equality than Country B's, meaning Country A has a smaller Gini coefficient and more equal income distribution. Country B's curve bows further away, indicating greater inequality — a larger share of income is concentrated among a small percentage of the population.

The terms of trade (TOT) index is calculated as: TOT = (Export Price Index / Import Price Index) × 100. In Year 3: TOT = (106 / 120) × 100 = 88.3. Since this is below 100 (the base year value), it means Ghana's terms of trade have deteriorated — the price of its exports (cocoa, gold, oil) has risen more slowly than the price of its imports (machinery, vehicles, refined petroleum). Ghana must now export a larger volume of goods to pay for the same quantity of imports, which worsens the balance of payments and reduces the country's real purchasing power on the international market.

Comparative advantage is based on opportunity cost, not absolute output. Ghana's opportunity cost of 1 kg cocoa = 10/30 = 0.33 metres of textiles. Nigeria's opportunity cost of 1 kg cocoa = 16/20 = 0.80 metres of textiles. Ghana has a lower opportunity cost for cocoa (0.33 < 0.80), so Ghana should specialize in cocoa. Conversely, Ghana's opportunity cost of 1 m textiles = 30/10 = 3 kg cocoa, while Nigeria's = 20/16 = 1.25 kg cocoa. Nigeria has lower opportunity cost for textiles, so Nigeria should specialize in textiles.

The equilibrium interest rate is determined where the money supply curve (MS) intersects the money demand curve (MD) at point E. From the diagram, this equilibrium occurs at 12%. The money supply is shown as a vertical line because the central bank fixes the quantity of money in the economy.

A market economy (also called a free enterprise or capitalist economy) relies primarily on the price mechanism (forces of demand and supply) to allocate resources. Prices act as signals: when demand for a good rises, its price increases, attracting more producers. Consumers are sovereign -- they determine what is produced through their spending decisions. In contrast, a command economy uses central planning, while a mixed economy combines elements of both.

Macroeconomic equilibrium occurs where the aggregate demand (AD) curve intersects the aggregate supply (AS) curve at point E. From the diagram, this equilibrium gives a general price level of 120 and a real GDP of GHS 500 billion. At this point, the total quantity of goods and services demanded equals the total quantity supplied.

Total revenue (TR) is maximized at the output level where marginal revenue (MR) equals zero. This is because when MR > 0, each additional unit sold adds to total revenue (TR is still rising). When MR = 0, the last unit neither adds to nor subtracts from total revenue (TR is at its peak). Beyond this point, MR becomes negative and TR declines. At Q*, MR = 0, so this is the revenue-maximizing output for the monopolist. Note: profit maximization occurs where MR = MC, which is typically at a different output.