The IJMB 2025 Economics Paper I Questions and Answers are now available for the IJMBE Examination for the 2024/2025 Academic Session.
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IJMB Economics Paper I Questions and Answers
The questions and answers for the 2024/2025 IJMB Economics sessions are now available for complimentary access below.
Number One
(1i)
Equilibrium Wage and Number of Workers Employed
At equilibrium: Qs = Qd
3(W – 50) = 2(650 – W)
3W – 150 = 1300 – 2W
3W + 2W = 1300 + 150
5W = 1450
W = 1450/5
W = ₦290
Substituting W = 290 into either Qs or Qd:
Qs = 3(290 – 50)
Qs = 3(240)
Qs = 720
Qd = 2(650 – 290)
Qd = 2(360)
Qd = 720
Equilibrium wage = ₦290
Equilibrium number of workers = 720
(1ii)
Total Wage Bill:
Wage × Number of workers
= 290 × 720
= ₦208,800
(1iii)
Excess Supply at Minimum Wage of ₦350:
Qs = 3(350 – 50)
Qs = 3(300)
Qs = 900
Qd = 2(650 – 350)
Qd = 2(300)
Qd = 600
Excess supply = Qs – Qd
Excess supply = 900 – 600
Excess supply = 300 workers
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Number Two
(2)
(i) Large Number of Buyers and Sellers: A perfectly competitive market assumes that there are a very large number of independent buyers and sellers. Each participant is so small in relation to the total market that no single buyer or seller can influence the price of the product. This means individual sellers must accept the prevailing market price; they are price takers. The influence of any one participant is negligible, and competition ensures that no monopolistic or dominant power exists.
(ii) Homogeneous Products: All the firms in a perfectly competitive market produce and sell identical or homogeneous products. There is no differentiation in terms of quality, design, packaging, or branding. This makes it impossible for buyers to prefer one seller over another based on the nature of the product. As a result, the only factor influencing buying decisions is the price. Because all products are perfect substitutes, a rise in price by one firm would lead buyers to switch to other sellers instantly.
(iii) Perfect Knowledge of the Market: Both buyers and sellers are assumed to have complete and accurate information about prices, product quality, and market conditions. This means buyers know where to find the cheapest goods and sellers know where to sell at the highest possible price. Due to this perfect knowledge, no participant can exploit others through misinformation or secrecy, and prices quickly adjust to reflect changes in supply and demand. The transparency of information contributes to the uniformity of prices throughout the market.
(iv) Free Entry and Exit of Firms: In a perfectly competitive market, there are no barriers to entry or exit. Any firm that wishes to enter the industry can do so freely without facing legal, technological, or financial restrictions. Similarly, firms that are unable to make profit can leave the market without penalty. This freedom ensures that abnormal profits in the short run will attract new firms, increasing supply and driving prices down, while losses will force some firms out, reducing supply and raising prices until normal profit is restored.
(v) Perfect Mobility of Factors of Production: Resources such as labor and capital can move freely from one firm or industry to another. This means if one firm offers better wages or returns, workers and capital will relocate to that firm. There are no geographical, skill-related, or legal restrictions hindering the movement of factors. This assumption guarantees that resources are allocated efficiently across the economy and that equilibrium is maintained in all parts of the market.
(vi) No Government Intervention: In a perfectly competitive market, it is assumed that there is no interference from the government in the form of taxes, subsidies, price controls, or regulations. Prices are determined solely by the interaction of demand and supply forces. The absence of government intervention ensures that the market operates freely, and equilibrium is achieved naturally through the self-regulating mechanism of the market.
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Number Three
(3a)
(i) What to Produce: Every economic system faces the fundamental problem of deciding which goods and services should be produced and in what quantities. This issue arises because resources are limited, but human wants are unlimited. Societies must determine whether to allocate more resources to producing consumer goods such as food, clothing, and shelter, or capital goods like machines and tools. Additionally, decisions must be made about whether to focus on essential goods like medicine or luxury items like jewelry, and whether to invest in civilian goods or military hardware. This problem reflects the need to prioritize production based on the needs and values of society.
(ii) How to Produce: After deciding what to produce, the next issue is determining how the goods and services should be produced. This involves choosing the appropriate production techniques, whether to use labor-intensive methods which rely more on human effort, or capital-intensive methods which use more machines and equipment. The decision is influenced by factors such as the availability of resources, the cost of production, and the level of technology in the economy. For example, a country with abundant labor but limited capital might favor labor-intensive techniques, while a technologically advanced country with limited labor may prefer capital-intensive methods.
(iii) For Whom to Produce: This problem addresses the distribution of goods and services among the members of society. Since goods are not unlimited, the economic system must decide who gets what portion of the total output. This involves determining how income and wealth are distributed, which affects access to goods and services. A society may choose to distribute based on need as in socialist economies, ability to pay as in capitalist economies, or a mix of both. This problem is crucial in ensuring social equity and fairness in the use of limited resources.
(iv) Efficient Use of Resources: Every economic system must ensure that its scarce resources are utilized most efficiently. This means producing the maximum possible output with the available inputs and minimizing waste. Inefficiency results in underutilization or misallocation of resources, leading to lower productivity and economic stagnation. Therefore, economies must develop mechanisms, such as competitive markets or planning bodies, to ensure that resources are directed to their most productive uses.
(v) Full Employment of Resources: Another key problem is how to achieve full employment of all the resources, especially labor. Unemployment and underemployment represent a waste of productive potential and lead to lower national output and income. An economic system must create opportunities and conditions that promote job creation and optimal use of all available resources, including natural, human, and capital resources.
(vi) Economic Growth and Development: An economy must continuously strive for growth and improvement in the standard of living of its citizens. This means increasing the output of goods and services over time through investment in capital, technological innovation, and education. Economic development also includes improving infrastructure, healthcare, education, and reducing poverty and inequality. A system that fails to grow becomes stagnant and cannot meet the expanding needs and aspirations of its population.
(3b)
(i) What to Produce: In a traditional economy, the question of what to produce is answered based on customs, culture, and historical practices. Communities tend to produce goods that their ancestors have always produced, such as farming, fishing, herding, or craftwork. There is little room for change or innovation because people follow age-old methods passed down through generations. The focus is on producing for subsistence, just enough to meet the basic needs of the family or community.
(ii) How to Produce: The method of production in a traditional economy is determined by ancestral practices. People use simple tools, manual labor, and traditional techniques rather than modern technology or machines. Production methods are not chosen based on efficiency or cost-effectiveness but on what has been proven to work through time. This often results in low productivity but ensures stability and continuity within the society.
(iii) For Whom to Produce: Goods and services in a traditional economy are typically produced for direct consumption within the family or community, not for profit or trade in large markets. Distribution is based on social roles, customs, age, gender, and family structure. For example, food harvested by a family is shared according to need, status, or kinship ties. Everyone gets a share according to their place in the social order, and the concept of personal wealth or surplus is often absent.
(iv) Efficient Use of Resources: While traditional economies may not use resources efficiently by modern economic standards, they do achieve a form of sustainable use. Because of their deep respect for nature and longstanding customs, traditional societies tend to avoid overexploitation of resources. They use what is available in moderation, often guided by taboos, spiritual beliefs, and communal regulations that help preserve the environment for future generations.
(v) Full Employment of Resources: Traditional economies usually involve every able member of the society in productive activities, such as farming, fishing, or craft-making. There is little to no formal unemployment because work is a communal duty, and everyone has a role. Children learn skills early, and elders contribute with wisdom or light tasks. Labor is not sold in a market; rather, it is a shared responsibility among members of the group.
(vi) Economic Growth and Development: Economic growth in a traditional economy is slow or nearly static because of resistance to change and a focus on tradition over innovation. However, development is measured in terms of social cohesion, cultural preservation, and sustainability rather than material advancement. While these economies may lack infrastructure and modern services, they often prioritize social harmony and the well-being of the group over individual wealth or expansion.
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Number Four
(4a)
(i) Labour is Human, Others are Non-Human: Labour refers to the physical and mental effort provided by human beings in the process of production. Unlike land, capital, or entrepreneurship, labour involves people with feelings, needs, and emotions. This human aspect makes labour unique because it cannot be owned, stored, or transferred like other factors. The productivity and motivation of labour depend on human conditions such as health, training, and morale.
(ii) Labour cannot be separated from the Labourer: Labour is inseparable from the person providing it. While land can be sold or leased and machines can be hired out, labour is tied to the individual. A person cannot sell their ability to work without being physically present. This makes the supply of labour different because it depends on the willingness and ability of individuals to offer their services under certain conditions.
(iii) Labour Has Limited Mobility: Compared to capital and land, labour is less mobile, especially geographically. While capital can easily be moved to new locations or industries, the labour movement is often restricted by factors such as language barriers, family ties, cost of relocation, and legal limitations. Occupational mobility is also limited, as it requires retraining or reskilling to switch jobs or industries.
(iv) Labour cannot be stored or saved: Labour is perishable in nature. If a worker does not offer their services today, the opportunity to work for that day is lost forever. Unlike capital goods, which can be stored for future use, unused labour time cannot be recovered. This means labour supply is time-sensitive, making it critical for employers to efficiently plan and use the available workforce.
(4b)
(i) Differences in Abilities and Talents: People are naturally endowed with different physical strengths, mental capacities, skills, and interests. Some individuals are better at manual work, while others excel in intellectual or artistic tasks. Division of labour allows individuals to focus on tasks that match their natural abilities, increasing efficiency and output. By specializing in what they do best, workers contribute more effectively to overall production.
(ii) Limited Knowledge and Training: No single person can master all fields of knowledge or perform all tasks efficiently. As societies and technologies advance, the complexity of work increases, making it impossible for one individual to handle all aspects of production. Division of labour helps solve this by allowing individuals to specialize in a specific task, gain expertise, and improve through continuous practice and training.
(iii) Time and Energy Constraints: Human beings have limited time and energy each day. Trying to do everything alone leads to exhaustion, inefficiency, and reduced productivity. Division of labour ensures that work is shared among many individuals, reducing fatigue and allowing faster and more efficient production. It also makes better use of each person’s time by eliminating the need to switch between multiple tasks.
(iv) Necessity for Cooperation in Society: Human life is interdependent by nature. No individual can produce everything they need, food, clothing, shelter, tools, and services. Division of labour creates a system where people depend on one another, fostering cooperation and mutual benefit. For example, a farmer produces food, a tailor makes clothes, and a carpenter builds homes, each depending on the other’s contribution for survival and comfort.
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Number Five
(5a)
(i) Scarcity of Resources: The primary reason the problem of making choices arises in economics is that resources are scarce. Resources such as land, labour, capital, and raw materials are limited in supply, while human wants are unlimited. This mismatch forces individuals, firms, and governments to make decisions on how best to allocate the available resources to meet the most pressing needs, leaving some wants unsatisfied.
(ii) Unlimited Human Wants: Human beings always desire more goods and services to improve their standard of living. As one want is satisfied, new ones emerge. This never-ending nature of human wants means that it is impossible to satisfy all of them with the available resources, which creates the need to choose between competing alternatives.
(iii) Alternative Uses of Resources: Resources are not only limited but also have multiple uses. For example, land can be used for farming, housing, or industrial purposes. Labour can be used in various sectors like education, manufacturing, or services. Because each resource can be used in different ways, decisions must be made about which use will provide the most benefit. This necessity to decide among competing uses of the same resource brings about the problem of choice.
(iv) Opportunity Cost: Every economic choice involves an opportunity cost, which is the value of the next best alternative that is forgone. Because one cannot have everything, choosing one option means giving up another. For example, if a government chooses to spend on building roads, it may have to give up building hospitals. Understanding and evaluating opportunity costs is a key part of making economic choices.
(v) Need for Prioritization: Since not all wants can be fulfilled at once, individuals and societies must set priorities. This involves ranking wants based on urgency, importance, or potential benefit. For instance, food and shelter are usually prioritized over luxury items. This process of prioritizing needs and allocating resources accordingly is central to the problem of choice in economics.
(5b)
(i) Foundation of Economic Study: Scarcity is the core concept that gives rise to the study of economics. It highlights the gap between limited resources and unlimited human wants. Because resources such as land, labour, and capital are insufficient to satisfy every desire, economics exists as a discipline to analyze how individuals and societies make allocation decisions.
(ii) Necessitates Choice and Opportunity Cost: Scarcity forces individuals, firms, and governments to make choices. Since it is impossible to produce or consume everything desired, decisions must be made about what to produce, how to produce, and for whom to produce. These choices come with opportunity costs, which economists study to understand trade-offs and improve decision-making.
(iii) Determines Resource Allocation: Scarcity influences how resources are distributed among competing needs. In economic analysis, scarcity prompts the development of systems like pricing, rationing, or government planning to decide how goods and services should be allocated to different users most efficiently.
(iv) Drives Economic Behavior and Prioritization: Economic agents, such as consumers, producers, and governments, must prioritize their goals and activities due to scarcity. Consumers, for instance, decide how to spend limited income; producers determine how to use limited inputs; and governments set budgets to manage limited public funds. Scarcity guides all these actions and becomes central in evaluating economic behavior.
(v) Encourages Innovation and Efficiency: The pressure of scarcity motivates individuals and firms to seek better ways of using limited resources. This leads to technological advancement, improved production methods, and better use of time and materials. Economists analyze how scarcity drives innovation and shapes the evolution of industries and economies.
(5c)
(i) To Explain Economic Relationships: Economic laws help to describe and explain the relationship between different economic variables such as demand and price, supply and cost, income and consumption. These laws provide a logical and consistent framework for understanding how the economy works.
(ii) To Predict Future Economic Behavior: Economic laws enable economists, businesses, and governments to predict future outcomes based on current or past trends. For example, the law of demand can help forecast how consumers will respond to a change in the price of a good.
(iii) To Guide Economic Decision-Making: Economic laws serve as tools for making rational choices. Individuals, firms, and governments use these laws to make informed decisions about resource allocation, production, pricing, and investment based on expected outcomes.
(iv) To Formulate Economic Policies: Governments rely on economic laws when designing fiscal, monetary, and trade policies. These laws help policymakers understand how the economy is likely to react to changes in taxes, interest rates, subsidies, and other policy measures.
(v) To Promote Efficient Use of Resources: By understanding how resources behave under different conditions through economic laws, societies can strive for more efficient allocation and utilization of scarce resources, leading to increased productivity and reduced waste.
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Number Six
(6a)
(i) Availability of Close Substitutes: The presence of close substitutes is a major determinant of price elasticity of demand. When there are many substitutes available for a product, its demand tends to be more elastic. This is because consumers can easily switch to an alternative if the price of the product increases. For example, if the price of butter rises and margarine is a close substitute, many consumers will shift to margarine, making the demand for butter more responsive (elastic) to price changes. Conversely, if a product has few or no substitutes, like electricity or water supply, its demand is more inelastic.
(ii) Nature of the Good (Necessity or Luxury): The type of good whether it is a necessity or a luxury strongly influences its price elasticity. Necessities such as food, water, or medicine generally have inelastic demand because people cannot do without them, even if prices rise. On the other hand, luxuries like vacations, designer clothes, or expensive electronics tend to have more elastic demand. This is because consumers can choose to delay or forego the purchase if prices become too high.
(iii) Proportion of Income Spent on the Good: Goods that consume a large proportion of a consumer’s income usually have more elastic demand. A rise in the price of such goods significantly affects the consumer’s budget, leading them to reduce quantity demanded. For instance, if the price of cars increases, consumers may decide to delay purchase or look for cheaper alternatives. In contrast, items that take up only a small portion of income, like pencils or toothpaste, tend to have inelastic demand because the price change has little impact on overall spending.
(iv) Time Period Considered: The time period under consideration affects the elasticity of demand. In the short run, demand is usually more inelastic because consumers need time to adjust their habits or find substitutes. Over the long run, demand becomes more elastic as consumers have more time to find alternatives or adapt to price changes. For example, if fuel prices rise, consumers cannot immediately change their mode of transport. But over time, they may switch to more fuel-efficient vehicles or public transport, increasing elasticity.
(v) Habitual Consumption and Addictiveness: Goods that are habitually consumed or addictive, such as cigarettes, alcohol, or coffee, tend to have inelastic demand. Consumers continue to buy them even when prices increase because of psychological or physiological dependency. The stronger the habit or addiction, the less responsive consumers are to price changes, leading to highly inelastic demand for such goods.
(6b)
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COMPLETED.
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