Waec 2025 Economics questions and answers

EXAM: WAEC 2025

SUBJECT: Economics

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COMPLETE 2025 WAEC ECONOMIC ANSWERS

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THEORY ANSWERS

SECTION A:

Answer only one (1) Question from this section

Section A consist of Question 1 & 2 only (Pick any one)

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(1a)

Equilibrium output = Q₀

Equilibrium price = P₁

(1b)

The AR (Average Revenue) curve represents the market demand curve because it shows the price consumers are willing to pay for each quantity.

(1c)

The firm operates in an imperfect market (monopoly or monopolistic competition).

*Reason:* The AR curve is downward-sloping and distinct from MR, indicating the firm has price-setting power.

(1d)

(i) Total Revenue (TR):

TR = Price × Quantity = P₁ × Q₀

TR = P₁ × Q₀

This is the area of the rectangle from the origin to Q₀ and up to P₁.

(ii) Total Cost (TC):

TC = Average Cost × Quantity = AC at Q₀ × Q₀

This is the area under the AC curve at Q₀, multiplied by output Q₀.

(iii) Profit = TR – TC = shaded area between P₁ and AC at Q₀

(1e)

The profit indicates the firm has market power. Without competition or regulation, such profits can persist and may lead to market inefficiency.

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(2a)

Terms of Trade Formula = (Price Index of Exports/Price Index of Imports) × 100

2020:

Terms of Trade = (180/150) × 100 = 120%

2021:

Terms of Trade = (160/200) × 100 = 80%

(2bi)

Favourable: 2020

Reason: The terms of trade in 2020 is 120%, which is greater than 100%. This means Country X can obtain more imports for a given quantity of exports, indicating an economic advantage.

(2bii)

Unfavourable: 2021

Reason: The terms of trade in 2021 is 80%, which is less than 100%. This means Country X needs to export more to obtain the same quantity of imports, indicating a disadvantageous trade position

(2c)

(i) Primary Products vs Manufactured Goods: If Country X exports primary products while importing manufactured goods, the terms of trade are generally determined against primary producers and in favour of industrial countries.

(ii) Backward Technology/Low Productivity: Countries with backward technology have relatively low productivity, leading to higher costs of production and a disadvantageous bargaining position in international trade

(2d)

Current Account Balance = Balance of Trade + Balance of Invisible Trade

$812,500 = $4,062,500 + Balance of Invisible Trade

Balance of Invisible Trade = $812,500 - $4,062,500

Balance of Invisible Trade = -$3,250,000

Explanation: The balance of invisible trade represents the difference between exports and imports of services (invisibles). If the balance of invisible trade is $812,500, this indicates a surplus in service transactions, meaning the country exports more services than it imports.

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*SECTION B:*

Answer three (3) Questions from this section

Number 3 - 8 questions

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3(a) Distinguish between complementary goods and substitute goods.

[4 marks]

Complementary goods are goods that are used together to satisfy a want. An increase in the demand for one leads to an increase in the demand for the other.

Example: Car and petrol, bread and butter.

Substitute goods are goods that can replace each other in consumption. An increase in the price of one leads to an increase in the demand for the other.

Example: Tea and coffee, butter and margarine.

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3(b) Explain (with diagram) how a decrease in supply of meat, other things being equal, will affect equilibrium price and quantity.

[8 marks]

A decrease in supply shifts the supply curve leftward.

At the original price, there is excess demand.

To restore equilibrium, the price rises and quantity falls.

📉 Effect:

Price increases

Quantity decreases

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(4a)

Minimum price control, also known as a price floor, is a government-imposed lowest legal price below which a specified good or service cannot be sold or bought. It is set above the equilibrium price to protect producers, especially agricultural producers, from income fluctuations caused by factors such as poor harvests.

(4b)

(i) To Protect Farmers’ Income: Minimum prices ensure that farmers receive a guaranteed price for their produce, preventing income loss during bumper harvests when market prices might fall sharply.

(ii) To Prevent Distress Sales: By setting a minimum price, farmers are discouraged from selling their produce at very low prices due to urgent need for cash, thus avoiding exploitation by buyers.

(iii) To Stabilize Agricultural Markets: Minimum prices help reduce price volatility and encourage farmers to invest in production by providing price certainty before the sowing season.

(4c)

(i) Surplus Production: Setting a minimum price above equilibrium can lead to excess supply as farmers produce more, but demand decreases at the higher price, causing unsold surpluses.

(ii) Government Burden of Procurement: To maintain the minimum price, the government often has to buy the surplus produce, which can be costly and require large storage facilities.

(iii) Market Distortions and Inefficiencies: Minimum prices can distort natural market forces, potentially leading to wastage, reduced incentives for efficiency, and sometimes black markets if the controls are not well managed.

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(5a)

Production costs refer to all the expenses a firm incurs in the process of producing goods or services. These include payments for raw materials, labor, machinery, rent, utilities, and other inputs necessary for production.

(5b)

Real cost includes the total effort, sacrifice, and resources used in production, including opportunity costs while explicit cost refers to the actual financial payments made during production, such as wages and rent.

(5c)

Fixed Input refers to inputs in production whose quantity does not change with the level of output in the short run. For example, the size of a factory or the number of machines remains constant regardless of how much is produced WHILE variable Input refers to inputs whose quantity varies directly with the level of output. For instance, raw materials and labor hired on an hourly basis increase as production increases.

(5d)

(i) Fixed Cost:

These are costs that do not change with the level of output. Whether production is high or low, fixed costs like rent and salaries remain constant.

(ii) Variable Cost:

These are costs that vary directly with output. As production increases, expenses like raw materials and electricity also rise.

(iii) Total Cost:

This is the sum of fixed and variable costs. It represents the overall expense incurred in producing a given level of output.

(iv) Marginal Cost:

This is the additional cost of producing one more unit of output. It helps firms decide whether increasing production is profitable.

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(6a)

A monopoly is a market structure where there is only one producer or seller of a particular good or service, with no close substitutes.

(6b)

(i) High Barriers to Entry: Significant obstacles such as large capital requirements, control over essential resources, or government regulations prevent other firms from entering the market.

(ii) Legal Monopoly or Government Grant: The government may grant exclusive rights to a firm through patents, copyrights, or licenses, giving it sole control over production and sales.

(iii) Control of Key Resources: When a firm owns or controls a resource essential for production, it can prevent others from competing, thus establishing a monopoly.

(6c)

DIAGRAM

From this graph, the monopolist is at equilibrium, where his marginal cost (MC) is equal to marginal Revenue (MR). At the point of equilibrium, the quantity produced is OQ while the price is OP. At that point he is able to cover both the AC and MC. The super -normal profit can now be determined thus: Total Revenue = OPOQ

Total Cost = OCOQ

Profit = TR - TC = OPOQ - OCOQ

Quantity =PCSE or the shaded portion

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(7a)

(PICK ANY THREE)

(i) Treasury Bills

(ii) Commercial Papers

(iii) Certificates of Deposit

(iv) Repurchase Agreements (Repos)

(v) Bankers’ Acceptances

(vi) Call Money

(7bi)

Money Market: A manufacturer will seek short-term funds from the money market to meet immediate or temporary financial needs such as purchasing raw materials, paying workers’ salaries, or financing daily operations.

Example: A manufacturer facing a cash flow gap before receiving payment from customers may use a treasury bill or commercial paper for short-term financing.

(7bii)

Capital Market: A manufacturer will seek long-term funds from the capital market to finance major projects such as expansion, purchase of machinery, construction of a new factory, or acquisition of fixed assets.

Example: A manufacturer may issue bonds or shares to raise funds for building a new production plant.

(7c)

(PICK ANY THREE)

(i) Provision of long-term loans: Development banks provide long-term financing to sectors like agriculture, industry, and infrastructure.

(ii) Promotion of industrial development: They support the establishment and growth of industries, especially in underdeveloped areas.

(iii) Financing capital projects: They fund major projects such as power plants, roads, and housing, which may not attract private investment.

(iv) Technical and managerial assistance: Development banks offer advisory services and training to entrepreneurs.

(v) Support for small and medium enterprises (SMEs): They provide credit and support to small businesses that struggle to get loans from commercial banks.

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(8a)

A regressive system of taxation is one in which the tax rate decreases as the taxpayer's income increases. This means that lower-income earners pay a higher percentage of their income in taxes compared to higher-income earners. It places a greater burden on the poor than the rich.

(8bi)

Economy: This principle emphasizes that the cost of collecting a tax should be low relative to the revenue generated. The tax system should not require excessive administrative expenses or burden the taxpayers unnecessarily.

(8bii)

Certainty: This principle means that taxpayers should know exactly how much tax they are expected to pay, when to pay it, and how to pay it. The rules should be clear, consistent, and not arbitrary to avoid confusion and abuse.

(8biii)

Equity: Equity means fairness in taxation. It implies that individuals should pay taxes based on their ability to pay. The rich should contribute more than the poor (vertical equity), and those in similar financial situations should pay similar taxes (horizontal equity).

(8c)

(PICK ANY THREE)

(i) To raise revenue for government expenditure.

(ii) To redistribute income and reduce inequality.

(iii) To control inflation by reducing disposable income.

(iv) To protect local industries (e.g., through import duties).

(v) To discourage the consumption of harmful goods (e.g., tobacco, alcohol).

(vi) To influence investment decisions.

(vii) To fund infrastructure and public services.

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