First term notes 2020 econs ss2 1

PRINCETON COLLEGE
9/33, OLATUNDE ONIMOLE STREET, SURULERE-
LAGOS
LESSON NOTES FOR FIRST TERM 2019/2020
SCHOOL YEAR
SUBJECT: ECONOMICS
CLASS: GRADE 11
WRITTEN BY
Mr. E.P. IDEM

Economics SS2 (FirstTerm Scheme of work)
Weeks Topics Sub-Topics
1 Basic tools for economic
analysis
• Formation of grouped frequency•
measurement for mean, median & mode
for grouped data
2 Measures of dispersion • Measuring range of grouped data•
calculation of mean deviation• variance &
standard deviation
3 Economic Systems •Conceptof scarcity• what, how, and for
whom to produce• the market economic
system• planned economies• mixed
economic system
4 Production Possibility
Curve (PPC)
•Meaning & assumptions of the PPC•
graphical illustrations• key economic
terms• shifts in the PPC• law of variable
proportion
5 Price control and
legislation
• Meaning & types of price control•
objectives of price control• the effects of
price control• regulated markets• factors
that determine price under regulated
markets
6 Public sector finance •Public expenditure• financing public
expenditure• tax systems• types of direct
and indirect tax• balancing the budget
7 Economic indicators
(price level and changes)
•What are economic indicators?• concept
of inflation• types of inflation• how to
measure inflation• causes of inflation• the
costs oreffects of inflation• deflation
(Employment)
•Employment trends• unemployment rate•
causes and types of unemployment• the
costs ofunemployment
(output and growth)
•measuring output• measuring growth•
how to achieve growth• the benefits and
costs ofeconomic growth• growth cycles
10 Review of IGCSE past
questions papers
11 Examination

ECONOMICSSS2 (WK 1)
TOPIC:BASIC TOOLS FOR ECONOMICS ANALYSIS: - Measures of
central tendency: mean, median, Mode (using grouped data)
SPECIFIC OBJECTIVES
By the end of the lesson, students should be able to:
1. Do simple calculations on grouped frequency,
2. Define class interval and class size, and
3. Calculate median scores for grouped and ungrouped data.
PERIOD 1
FORMATION OF GROUPED FREQUENCY
Frequency may be defined as the number of times a particular item appears on a
set or series. In other words it implies the rate of recurrence. Frequency
distribution refers to the arrangement of data or information in tabular form to
reflect their frequencies. Foran ungrouped data, we calculate the mean using
the formula Σx/n = Ẍ (arithmetic mean)
Σ = the total sum
X = series of figures in a given data
Σx = the summation of the values of series of figures in a given data
η = number of figures or elements
MEAN FOR GROUPED DATA
We already know how to find the mean from a frequency table. Finding the
mean for grouped or continuous data is very similar. The grouped frequency
table shows the number of CDs bought by a class of children in the past
year.
Number of CDs Frequency
0-4 10
5-9 12
10-14 6
15-19 2
>19 0
We know that 10 children have bought either 0, 1, 2, 3 or 4
CDs, but we do not know exactly how many each child bought. If we

assumed that each child bought 4 CDs, it is likely that our estimate of the
mean would be too big. If we assumed that each child bought 0 CDs, it is
likely that our estimate would be too small. It therefore seems sensible to use
the mid-point of the group and assume that each child bought 2.
Finding the mid-points of the other groups, we get:
Number of CDs Frequency (f) Midpoints, x Fx
0-4 10 2 20
5-9 12 7 84
10-14 6 12 72
15-19 2 17 34
>19 0 - 0
The mean is: ΣFx/ Σf
20 + 84 + 72 + 34 = 210 = 7
10 + 12 + 6 + 2 30
Remember: This is only an estimate of the mean.
EVALUATION
(1)Distinguish between frequency and frequency distribution.
(2)Calculate the arithmetic mean for the following set of data:
12, 14, 16, 22, 26, 34, 48, 28 and 30
(3)Find the mean for the grouped data below:
Number of gala bought Frequency
0-2 12
3-5 14
6-8 8
9-11 4
>11 0
PERIOD 2 & 3 (MEDIAN FOR GROUPED DATA)
(i) Median = (N + 1) th, where N is an odd number
2

(ii) Median = Nth, where N is an even number
2
Example
Table 1.1: Cumulative frequency for age distribution of SS 2 students
Ages(yrs) 6 8 10 11 12 13 14
No. of students
(frequency)
5 10 3 8 7 10 8
Cumulative frequency 5 15 18 26 33 43 51
The total or summation of students is 51 as indicated by the terminal (last)
cumulative frequency. Since it is an odd number (51) the median age will be
(N+1)th member.
2
Median age: = (51+1)th = 52 = 26th member
2 2
The 26th falls within the cumulative under the age 11yrs as shown in the table.
The median age is thus 11yr.
EVALUATION
(1)Calculate the median scorefor the rate presented below. Take note that
Marks 12 18 24 30 36 40 48
Frequency 6 1 10 8 12 3 4

this is a grouped data.
PERIOD 4
MODE FOR GROUPED DATA
For finding the mode of grouped data, first of all we have to determine the
modal class. The class interval whose frequency is maximum is called the
modal class. The mode lies in between this class. Then the mode is calculated
by the following
OR
Example:
Find the mode of following data
5-10 10-15 15-20 20-25 25-30
3 5 7 2 4
Solution:
Here frequency of class interval 15 - 20 is maximum.

So, it is the modal class
Now
l = the lower limit of modal class = 15
f1 = frequency of modal class = 7
fo = frequency of class preceding the modal class = 5
f2 = frequency of class succeeding the modal class = 2
h = size of class intervals = 5
So, Mode = 15 + [(7 - 5) / (2 x 7 - 5 - 2)] x 5
Mode = 15 + [2 / (14 - 7)] x 5
Mode = 15 + (2 / 7) x 5
Mode = 15 + (10 / 7)
Mode = 15 + 1.42
Mode = 16.42
EVALUATION
1. Define the following concepts
(a) Class interval.
(b) Upper limits and lower limits.
(c) Class size
2. State the formula for calculating mode of grouped data.
3.Find the mode in the data given below:
3-7 7-11 11-15 15-19 19-23
4 6 8 3 5
APTITUDE/OBJECTIVE TEST
1. Calculate the mean for the following set of data:
10, 12, 12, 14, 16, 17, 18, 18, 18, and 20.
2. Find the median in the series:
8, 7, 9, 5, 5, 4, 10, 3, 7, and 11.

3. The table gives information about some economic indicators in a
number of countries.
Inflation
%
Interest rates
%
Unemployment
%
Country W 1.4 3.4 10.2
Country X 3.7 8.7 12.3
Country Y 3.6 7.3 14.2
Country Z 2.1 6.0 7.7
What may be concludedfrom this information?
(A) countries with higher inflation have higher interest rates
(B) countries with higher interest rates have lower inflation
(C) the country with the lowest inflation had the highest
unemployment
(D) the country with the lowest unemployment had the highest
inflation.
4. If the labour force of a country is 2.5million and 2 million are
employed, what is the unemployment rate? (A) 0.2% (B) 20% (C)
200% (D) 250%
5. Find the median in the table given below
Ages 10 11 12 13 14
Frequency 4 8 7 5 3
Cumulative
Frequency
4 12 19 24 27

ECONOMICSSS2 (WK 2)
TOPIC:MEASURES OF DISPERSION
(RANGE, VARIANCE, MEAN DEVIATION, AND STANDARD
DEVIATION)
SPECIFIC OBJECTIVES
1. Explain the various measures of dispersion e.g. Range, Mean deviation,
Standard deviation, etc,
2. Do simple calculations on them, and
3. Outline the steps in calculating variance and standard deviation.
PERIOD 1
MEASURES OF DISPERSIONDEFINED
These are measures used to find out the extent to which data tend to spread
about a fixed point, usually the mean.
(i) RANGE: This is the difference between the largest and the smallest
measurements or numbers in a set of data.
Example 1
The scores of10 students in an Economics test were 22, 34, 41, 27, 38, 46, 29,
25, 33, and 48. What is the range?
solution
First of all arrange in ascending order i.e. 22, 25, 27, 29, 33, 34, 38, 41, 46, and
48. The largest number is 48, The smallest number is 22
Therefore range= 48 – 22= 26.
RANGE FROM GROUPED DATA
For a grouped data, the range is gotten by following this simple step.
Example 2
scores 11 - 15 16 -20 21 - 25 26 -30 31 -35
Freq. 7 8 5 3 12

Find the range of the scores in the table above.
Solution
The largest (maximum) score= 35
The smallest (minimum) score= 11
The range = 35 – 11 =24
Example 3
Find the range in the data below.
Age(yrs) 1-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40
Number of
patients
9 25 32 20 16 12 4 2
As before, we take the highest and lowest observations from the years given.
Solution
The highest (maximum) years = 40
The lowest (minimum) years = 1
The range = 40 – 1 = 39
EVALUATION (WAEC 1988)
(1)Age Distribution Table
Determine the range of the years in the distribution.
3 - 15 16 - 35 36 - 60 61 -87
10,000 3,000 5,000 2,000

PERIOD 2 & 3
(ii) MEAN DEVIATION: This is the average of all the deviation of values
from the arithmetic mean, ignoring negative signs. That is the average of all the
sum of the difference between each value in the data and the mean of the group.
_ _ _ _ _
It is given by MD =∑ [x - x ] or [x1 - x]+[x2 - x]+[x3 - x]+ ...[xn - x]
N N
Where: _
X = The arithmetic mean
x = The variable
N = The number of items in the distribution
∑ = The sum of
Example 3
Find the mean deviation of the following set of numbers: 2, 3, 4, 5, 6, and 4.
Solution
The first step is to find the arithmetic mean by applying the formula
For finding mean _ = ∑X = 2 + 3 + 4 + 5 + 6 + 4 = 24 = 4
X n 6 6
The next step is to calculate the mean deviation applying the formula above
MD = [2 - 4]+[3 - 4]+[4 - 4]+[5 - 4]+[6 - 4]+[4 - 4]
6
= [- 2]+[- 1]+[0]+[1]+[2]+[0]
6
Remember to ignore negative signs
= 2 + 1 + 0 + 1 + 2 + 0 = 6 = 1
6 6

(iii) VARIANCE AND STANDARD DEVIATION: Variance simply
implies the square of the mean deviation of the observations. While the standard
deviation is the square root of the mean square deviation of variance.
Symbolically, Variance (σ) = ∑[ x - Ẍ] ²
N
Standard Deviation (σ) = √ ͞ ∑ (X - Ẍ) ²
N
Example 4
Calculate the variance and the standard deviation for the following data:
3, 4, 4, 5, 6, 8.
Solution
The first step is to calculate the arithmetic mean
Ẍ = ∑x
N
Ẍ = 3 +4 +4 +5 +6 +8 = 30 = 5
6 6
The next step is to calculate the deviations
[ 3 – 5 ][ 4 – 5 ][ 4 – 5 ][ 5 – 5 ][ 6 – 5 ][ 8 – 5 ]
[- 2][- 1][- 1][ 0 ][ 1 ][ 3 ] =2, 1, 1, 0, 1, 3
The next step is to find the squares of these deviations:
( 2 ) ²( 1 ) ²( 1 ) ²( 0 ) ²( 1 ) ²( 3 ) ² = 4, 1, 1, 0, 1, 9
Now add up these squares = 4 + 1 + 1 + 0 + 1 + 9 = 16
Lastly, find the arithmetic mean of the sum of the squares = 16/6 = 2.7
Therefore, the variance = 2.7
Standard deviation is the square root of the variance

Therefore standard deviation (σ) = √ ͞ variance = √ ͞ 2.7 =1.6
EVALUATION
(1)Find the mean deviation of the following series:
5, 6, 7, 8 and 7.
(2) Determine the mean deviation for the set of data below:
3, 5, 7, 9, 8, 6 and 4.
PERIOD 4
Example 5
The table below gives the distribution of 60 students in Princeton College.
Age (yrs) 6-8 9-11 12-14 15-17 18-20
Number of
students
6 18 20 12 4
Ẍ ∑x = 750 = 12.5
Age Class mark
(x)
Freq. (f) fx (x - Ẍ ) (x - Ẍ ) ² f(x - Ẍ ) ²
6 – 8 7 6 42 5.5 30.25 181.5
9 – 11 10 18 180 2.5 6.25 112.5
12 – 14 13 20 260 0.5 0.25 5
15 – 17 16 12 192 3.5 12.25 147
18 -20 19 4 76 6.5 42.25 169
∑ F =60 ∑
fx=750
= 615

∑f 60
Variance (σ) = ∑f (x - Ẍ) ² = 615 = 10.25
∑f 60
Standard deviation = √ ͞ ∑f (x - Ẍ) ² = √ ͞ 10.25 = 3.2
∑f
CLASS WORK
Calculate the variance and standard deviation for the following series:
4, 5, 6, 6, 7, 8, 9
ASSIGNMENT
The table below shows the distribution of C.A scores for SS2 Students.
Scores Number of Students
12 – 14 8
15 – 17 10
18 – 20 18
21 – 23 14
24 – 26 6
Calculate the variance and standard deviation.
APTITUDE/OBJECTIVE TEST
1. .Find the range in the data given below:
3-7yrs 7-11yrs 11-15yrs 15-19yrs 19-23yrs
4 6 8 3 5
2. Find the mean deviation of the following set of numbers: 3, 4, 5, 6 ,7,
and 5.
3. Calculate the variance and the standard deviation for the following
data: 4, 5, 5, 6, 7, 9.
4. Calculate the mean for the following set of data:
10, 12, 12, 14, 16, 17, 18, 18, 18, and 20.

5. Find the median in the series:
8, 7, 9, 5, 5, 4, 10, 3, 7, and 11
6. The table gives information about some economic indicators in a
number of countries.
Inflation
%
Interest rates
%
Unemployment
%
Country W 1.4 3.4 10.2
Country X 3.7 8.7 12.3
Country Y 3.6 7.3 14.2
Country Z 2.1 6.0 7.7
What may be concludedfrom this information?
(A) countries with higher inflation have higher interest rates
(B) countries with higher interest rates have lower inflation
(C) the country with the lowest inflation had the highest
unemployment
(D) the country with the lowest unemployment had the highest
inflation.

ECONOMICSSS2 (WK 3)
TOPIC:ECONOMIC SYSTEMS
SPECIFIC OBJECTIVES
1. Define economic system
2. Describe how an economy determines what, how, and for whom to
produce
3. Define market economic system and state its features
4. Distinguish between planned and mixed economies
MEANING OF ECONOMICSYSTEM
An economic system refers to the way in which the resources in an economy are
allocated to producegoods and services, and the manner in which these goods
and services are distributed for consumption. In other words, it implies the way
production, distribution and consumption of goods and services are organized in
an economy.
WHAT DOES ECONOMYMEAN?
An economy refers to any area where people and firms produce, trade and
consume goods and services. This can vary in size- from your local town to
your country, or the world itself. Hence, there are local economies, national
economies, regional economies and global economies.
ECONOMIC QUESTIONS AND RESOURCEALLOCATION
1. What to produce
2. How to produce
3. For whom to produce

Resource allocation:the way in which economies decide what goods and
services to provide, how to producethem and for whom to producethem for.
These questions- what to produce, how to produce, and for whom to produce
for- are termed ‘the basic economic questions’. In short, resource allocation is
the way in which economies solve the three basic economics questions.
TYPES OF ECONOMIC SYSTEMS
(A) The MarketEconomic System:(Also known as capitalism or free
market economy). Here, all decisions are made by private individuals;
that is, there is no government intervention or involvement in resource
allocation. (There are virtually no economies in the world that follow
this-there are government controleverywhere, though U.S.A does come
close).
Features:
1. All resources are owned and allocated by private individuals. No
government Control exists.
2. Profit is the main-motive
3. Prices of goods and services are determined by the forces of demand
and supply. This is called price mechanism.
4. What to produceis determined by the level of demand for the product.
5. How to produceis solved by using the cheapestyetefficient
combination of resources– capital or labour- in order to maximise
profits.
6. For whom to produceis solved by producing to people who are
willing and able to pay for goods at a high price.
Advantages:
1. A wide variety of quality goods and services will be produced as
different firms will compete to satisfy consumer wants and make
profits.
2. Freedomregarding what you buy, sell or trade in.
3. High efficiencywill exist. Since producers want to maximise profits,
they will use resources very efficiently (producing more with less
resources).
4. People have incentive to work hard, innovate and make discoveries
so as to maximize profits.
5. Absence of government control implies no taxes on goods produced
or income received. Hence consumers can buy more and producers
can producemore

Disadvantages:
1. It may lead to high income inequality in the economy i.e. wide gap
between the rich and the poor.
2. The poor, elderly and handicapped may not be adequately catered for
in the economy because firms will only produce for consumers who
can pay.
3. Unemployment may arise due to low demand, layoffs, & closures.
4. The prices of social goods and services e.g. water, health,
education, may be very high because firms providing them are
focusedon profits and not welfare like the government does.
5. Exploitation of consumers by monopolists and other large firms in
an attempt to maximize profits.
(B) Planned Economic System: (Also known as socialism or command
economy). Here, all decisions are made by the government. They
decide what to produce, how to produceand for whom to produce.
Example: North Korea.
Features:
1. All resources are ownedand allocatedby the govt. They also fix the
prices.
2. The main motive is ensuring socialwelfare in the economy.
3. They produce goods that will be most beneficialto the socialwelfare
of the economy.
4. Decisions concerning allocation, prices of goods and services, and
wages are done by planning agencies on behalf of the government.
5. Goodswill be produced for all people- mainly those with poor
incomes. Rich people may demand for luxury goods, which the govt.
might not be interested in producing.
6. Incomes are more evenly distributed. Very few people exist with low
incomes.
Advantages:
1. As it’s a welfare-motive economy, it will produce necessities
(food/water/clothes), public goods and merit goods.
2. Negative externalities (such as pollution) will be controlledand
reduced.
3. Prices are kept low, so it’s affordable for everyone.
4. Low unemployment can exist as the govt. aims at full employment.
5. There are fewer casesofstrikes, layoffs, closures, and resentment
among people.

Disadvantages:
1. There is no consumer sovereignty as the govt. decides what to
produce.
2. Lack of profit motive may lead to firms being inefficient.
3. Shortages ofessentialgoods and services may arise due to
rationing by the government.
4. High level of corruption may lead to wastage of resources uneven
infrastructural development.
(C) Mixed Economic System: Here, boththe market and planned
economyco-exist. In other words, there is joint ownership and decision
making by both private individuals and the government. Examples
include almost all countries in the world (India, UK, Brazil, Nigeria etc).
This is because it overrides all the disadvantages of both the market and
planned economies.
Features:
1. Both the public and the private sectorexists.
2. The government provide essentialgoods and services e.g. roads,
electricity, military etc, while private firms provide non-essential
goods e.g. toiletries, beverages, shoes, etc.
3. Prices are determined by the interplay of demand and supply but
the government can influence price through subsidies and taxes.
4. The government can influence location of industries and the
allocation of resources/ funds to various economic sectors.
Advantages:
1. The govt. can provide public goods, necessities and merit goods. The
private businesses can provide most-demanded goods (luxury goods,
superior goods). Thus, everyone is provided for.
2. The govt. will keep externalities, monopolies, harmful goods etc. in
control.
3. The govt. can provide jobs in the public sector(so there is better job
security).
4. The govt. can also provide financial help to collapsing private
businesses, so jobs are kept secure.
5. The govt. sets up agencies/laws to ensure that consumers are not
exploited by firms’ e.g. standard organizations and consumer protection
laws.
Disadvantages:
1. Govt. taxes will be imposed, which will raise prices and also reduce
work incentive.

2. Govt. laws and regulations can increase production costs and reduce
production or may cause some firms to shut down.
3. Public sector enterprises will still be inefficient and will producelow
quality goods and services.
4. The government may dominate the economy and increase their control
on economic Activities.
EVALUATION
1. What do you understand by economic system?
2. Describe how an economy determines what, how, and for whom to
produce
3. Explain three advantages of a market economic system.
4. Differentiate between planned and mixed economies.

ECONOMICSSS2 (WK 4)
TOPIC:PRODUCTIONPOSSIBILITY CURVE
SPECIFIC OBJECTIVES
1. Define and draw the ProductionPossibility Curve
2. State the assumptions of the PPC
3. Identify and explain key economic terms relating to the PPC
4. Explain the law of variable proportion
CONCEPTOF PRODUCTION
In our previous class, production was defined as the creation of goods and
services to satisfy human wants. The process ofproductionentails the
transformation of raw materials into finished goods. Usually this process
involves the use of productive resources known as factors of production which
includes land, labour, capital and entrepreneur.
DEFINITION OF PRODUCTIONPOSSIBILITYCURVE
The productionpossibility curve is a curve which shows the various
combinations of two goods that an economy can producewith given resources
and technology. A production possibility curve (PPC) represents the boundary
or frontier of the economy's productioncapabilities; hence it is also called a
production possibilities frontier (PPF). As a frontier, it is the maximum
production possiblegiven existing (fixed) resources and technology. Producing
on the curve means resources are fully employed, while producing inside the
curve means that some resources are unemployed or idle. The law of increasing
opportunity costis what gives the curve its distinctive convex shape.
ASSUMPTIONS OF THE PPC
1. The society produces only two goods.

2. The society or economy has fixed/limited resources availability i.e. the
amount of land, labour, capital and entrepreneur is fixed.
3. The economy has fixed level of technology.
4. Resources are used in a technically efficient manner i.e. there are no
wastage of resources.
GRAPHICAL ILLUSTRATION
As indicated on the chart above, points A, B and C represent the points at which
production of Good A and Good B is most efficient. Point X demonstrates the
point at which resources are not being used efficiently in the productionof both
goods;point Y demonstrates an output that is not attainable with the given
inputs. That is to say, the available resources are not adequate to producethat
level of output.
EVALUATION
1. Define the production possibility curve.
2. State three assumptions of the PPC.
3. Explain how the conceptof opportunity costis used in the PPC.
PERIOD 2 & 3

Key Economic Concepts ofthe PPC
The productionpossibilities curve is commonly used to illustrate basic
economic concepts, including full employment, unemployment, opportunity
cost, economic growth, and investment.
 Opportunity Cost: This is indicated by the negative slope of the
production possibilities curve (or frontier). As more of good A are
produced, fewer of good B will be produced. This reduction in the
production of good B is the opportunity costof good A production.
 Full Employment: This is indicated by producing on the production
possibilities curve. The curve indicates the maximum production of good
A and B obtained with existing technology, given that all available
resources are engaged in production.
 Unemployment: This is indicated by producing inside the production
possibilities curve i.e. point X. If some available resources are not
engaged in production, then the economy is not achieving maximum
production.
 Economic Growth: This is indicated by an outward shift of the
production possibilities curve, which is achieved by relaxing the
assumptions of fixed resources and technology or by increasing the
quantity or quality of resources. With economic growth more of both
goods, A and B, can be produced.
 Investment: This is indicated by a trade-off between the production
of good A and that of good B. The society may decide to invest on
producing more of good A; this investment option will result to lesser of
good B production.
SHIFTS IN THE PPC

WHAT CAUSES SHIFTS (OUTWARDS OR INWARDS)
1. Technological innovations- outwards shift
2. Increase in resources & investment- outward shift
3. Improvement in education & labour skills- outward shift
4. Economic growth- outward shift
5. Economic recession- inward shift
6. Natural disasters- inward shift
LAW OF VARIABLE PROPORTION
This law states that “as the quantity of one variable input in a production
process is increased, with quantities of other inputs remaining fixed,
marginal physical product firstly increases, then after reaching a maximum,
starts decreasing and finally becomes negative.”
ASSUMPTIONS OF THE LAW
1. Land is considered as the fixed factor of production.
2. Labour is assumed as a variable factor of production.
3. All workers involved in production are equally efficient.
4. There is short-run in the economy during which fixed factors of
production cannot be changed.
CONCEPTS OF TOTAL, AVERAGE & MARGINAL
PRODUCTIVITY
(A) TOTAL PRODUCT: The total product or output refers to the total
amount of goods that is produced by a firm at a given period of time.
The firm combines inputs- land, labour, capital and raw materials to
produce a certain quantity of goods/output.
(B) AVERAGE PRODUCT: The average product may be defined as the
output produced per unit of variable input employed when fixed inputs
are held constant. It can also be regarded as the output produced per
worker in the production process. It is derived by dividing the total
output by the number of workers (labour input) employed in production.
(C) MARGINAL PRODUCT: This is the output produced by an additional
unit of a given input. For instance, the marginal product of labour is the
change in total product that results from a change in the unit of labour
employed. It is derived by dividing the change in total product by the
change in labour input.
EVALUATION
1. State the key economic concepts of the PPC.
2. Explain the law of variable proportion.
3. Define average and marginal product.

TABULAR ILLUSTRATION
Fixed
factor
(land)
Variable
factor
(Labour)
Totaloutput
(kg)
Average
output
(kg)
Marginal
output(kg)
1 1 8 8 8
1 2 20 10 12
1 3 40 13.3 20
1 4 50 12.5 10
1 5 50 10 0
1 6 45 7.5 -5
From the table above, the fixed factor (land) is 1 unit at all stages, showing that
it does not increase. The variable factor (labour) at the first stage is 1 unit, and
then increased to 2, 3, 4, and so on. When one personis employed, total output
or productis 8 units. When the number of persons employed increased to 2,
total output increased to 20 units, and so on. The average output or productis
derived by dividing the total output by the units of labour; while the marginal
output is the extra output realized when one more unit of labour is employed to
work. In other words, it is the change in total output divided by the change in
labour unit. According to the law, as more labour is employed, there comes a
point where it will become less productive and therefore there will be eventually
be a decreasing marginal and then average output. This is because if land is
fixed, extra workers will eventually get in their way as they attempt to increase
production e.g. instead of working, workers will be discussing or arguing which
affects production.

GRAPHICAL ILLUSTRATION
In the first stage, total product, marginal productand average productare rising
rapidly. The second stage witnesses a fall of average productand marginal
product. In this stage, marginal productfalls to zero and total productincreased
at a slow rate till it got to its peak. In the third stage, both total productand
average productis falling, while marginal productis negative.
CLASS ACTIVITY
1. With appropriate diagram, explain the three stages of productionin the
law of variable proportion.
2. Draw a typical productionpossibility curve and explain how the concept
of opportunity costis relevant in the curve.
OBJECTIVE TEST
1. The PPC in economics refers to (A) production power curve (B)
production position curve (C) production possibility content (D)
production possibility curve.
2. Which of the following is NOT an assumption of the PPC (A) the
society produces only two goods (B) the society or economy has
fixed resources (C) there is no private ownership of resources (D)
the economy has fixed level of technology?

3. Any point outside the PPC shows that (A) some resources are idle
(B) the economy cannot producethat output due to limited
resources (C) the economy has experienced growth (D) there is
high inflation.
4. All points inside the PPC indicate that (A) there is full employment
of resources (B) some resources are old (C) some resources are left
idle (D) home trade has improved.
5. The output produced by an additional unit of a given input is
known as (A) average output (B) marginal output (C) total output
(D) fixed output.

ECONOMICSSS2 (WK 5)
TOPIC:PRICE CONTROLAND LEGISLATION
SPECIFIC OBJECTIVES
1. Define and describe price control,
2. Illustrate price ceilings and floors on graph,
3. Analyze the effects of price ceilings and floors in terms of
surpluses and shortages,
4. Explain the effects of minimum wage law on unemployment.
PERIOD 1
PRICE CONTROL
Price controls are governmental restrictions on the prices that can be
charged for goods and services in a market. It can also be defined as
measures taken by the government to control the prices of goods and
services charged by producers and sellers. The reason behind
implementing such controls is the desire to maintain affordability of
staple foods and goods, to prevent price increases during shortages, and
to slow inflation, or, alternatively, to insure a minimum income/wage for
labour.
TYPES OF PRICE CONTROL
1. A PRICE CEILING: This is a maximum price that may be charged
for a good or service set below the market equilibrium price. This
implies that no produceror seller is allowed to sell above that
stipulated price. Price ceilings are usually set by law and limit the
seller pricing system to ensure fair and reasonable business practices.
However, setting the price below the equilibrium market price will
lead to an excess of demand over the supply of the good. This results
to scarcity of that particular good.

2. A PRICE FLOOR:This is a minimum legal price that may be
charged for a good or service set above the market equilibrium price.
It stipulates the minimum price that can be charged for a good or
service. This means that no one should sell below that stipulated price.
Price floor is usually applied in fixing the wage of labour, where a
minimum wage is set and no employer is allowed to pay below the
fixed wage rate. When price is fixed above the equilibrium level, there
will be excess of supply over demand, leading to surplus of the good
in the market.
OBJECTIVESOF PRICE CONTROL
1. Minimum prices or price floors are used to give producers a higher
income. They are used to increase the income of farmers,
producers and labour in the production process.
2. Maximum prices are used to lower the final prices of goods and
services paid by consumers, thereby making goods affordable to
them.

3. To avoid or controlinflation.
4. To help low income earners, e.g. minimum wage earners.
5. Control the profits of companies, especially monopolists.
EVALUATION
1. What is a regulated market?
2. Briefly explain three factors that determine price in a regulated
market.
3. Define price control and state its objectives.
4. Explain two types of price control.
PERIOD 2 & 3
EFFECTSOF PRICE CONTROL
1. DISTORTIONS:Distortions are cases of unstable demand and supply.
Price ceilings will lead to excess of demand over supply. When demand
exceeds supply, it will cause shortages of the productin the market. This
leads to waiting lists as consumers will have to struggle to get the few
available goods in the market.
Price floors will cause excess of supply over demand. When supply
exceeds demand, there will be surplus of the goods in the market which
will lead to spoilage and wastage of resources. Apart from this, there will
be increase in losses of firms due to the low demand for their products.
2. HOARDING: In economics, hoarding is the practice of obtaining and
holding scarceresources, possibly so that they can be sold to customers
for profit. This practice is usually done by middlemen. Hoarding
behaviour may be a common responseto fear of a shortage of some good.
If the government fixes the price of a commodity below the equilibrium
level, the demand for that commodity will increase. This may cause some
sellers to hoard the productfrom the market to create artificial scarcity
and drive up the price of the good.
3. BLACK MARKET: A black market or underground economy is the
market in which goods or services are traded illegally. The key distinction
of a black market trade is that the transaction itself is illegal. The goods
or services may or may not themselves be illegal to own, or to trade
through other, legal channels. Because the transactions are illegal, the
market itself is forced to operate outside the formal economy, supported
by the established state power. Two common motives for operating in
black markets are to trade contraband, or to avoid taxes or price controls.
This implies that when a government fixes price too low for sellers to
gain substantial profit, the sellers may result to trading such goods in the
black market.

4. CONDITIONALSALES: Most times, when there is shortage of goods
in the market firms usually sell based on conditions which may not favour
a lot of consumers.
MEANING OF REGULATED MARKET
A regulated market means a market regulated by government appointed
agencies to control the forces of demand and supply and determine prices
to ensure that fair services are offered to customers. For example, service
provision such as petrol/gas, water, and electricity supply are often
monitored by the government to prevent monopoly and ensure
competition that will ultimately guarantee quality service at lower prices.
FACTORS THAT DETERMINE PRICEUNDER REGULATED
MARKET
1. Demand and supply: The pressure set by either demand or supply of a
good or service can influence the price to a large extent. When demand is
very high, the price will increase and vice versa. If the supply is too high,
the price will be low and vice versa.
2. Government action: The government can intervene by fixing prices at a
moderate rate that consumers are able to afford. This means that if the
price of a good is too high, the government can fix its price below the
equilibrium price.
3. Trade union action: Trade unions are association of business enterprises
and manufacturers set up to protect the interest of their members. The
trade union can unite to fix the prices of their products at a certain level.
EVALUATION
1. Explain three effects of price control.
2. Distinguish between hoarding and black market.
3. Explain the meaning of a regulated market.
4. State three factors that determine in a regulated market.
PERIOD 4
The Effect of Minimum Wage Laws on Unemployment
A minimum wage is the lowest daily or monthly remuneration that employers
may legally pay to workers. The government usually sets this limit (i.e.
minimum wage) and no employer in the country is allowed to pay below that
limit.
In the market for labour, a legal minimum wage is a price floor. The price in
the labour market is the wage rate. An effective price floor would be set above

the equilibrium price. This means that the supply of labour would be higher than
the demand for labour at that price (wage rate).
The result will be an excess or surplus labour force in the market. More people
would be willing and able to work at that wage rate than businesses would be
willing to hire at that wage rate.
The number of workers hired would be lower than the number of workers who
would have been hired at the equilibrium price in the absence of a minimum
wage law. Fewer people will be employed and more people will be classified
as unemployed. More people are out of work as a result. It is important to note
which groups of people will be affected by minimum wage laws. Minimum
wage laws increase the costof production. This means a decrease in the supply
of goods and services, resulting in higher prices and lower quantities available
for consumers.
Minimum wage laws do not just affect the wages of workers who work for
minimum wage. If employers are forced to pay higher wages to their least
productive and most inexperienced workers, they are also likely to raise the pay
for more productive workers. This will allow them to provide an incentive to
their workers to become more efficient. This also will mean higher production
costs and the resulting decrease in supply. This will magnify the amount of the
labour surplus, creating more unemployment.
Many small businesses and start-up companies are especially affected by
minimum wage laws. These are the kinds of businesses that are most likely to
depend on low labour costs in order to survive. One of the costs to society of
minimum wage laws is the amount of economic growth that does not occur
because of higher input prices preventing an increase in supply. Since small

businesses tend to be the largest sourceof new jobs, this creates a permanently
higher unemployment rate and a decrease in output.
EVALUATION
1. Define minimum wage.
2. Explain what happens when the minimum wage is set above the
equilibrium wage rate.
OBJECTIVE TEST
1. Measures taken by the government to control the prices of goods and
services charged by producers and sellers are regarded as (A) price
rationing (B) fixed prices (C) price control(D) legitimate price.
2. A maximum limit price a seller is allowed to charge for a productor
service is called (A) price floor (B) price limit (C) price mark (D)
price ceiling.
3. Usually, a price floor will lead to (A) excess demand for the goods (B)
excess supply of the goods (C)reduction in price of the good (D)
lower quality of the good.
4. Which of the following is NOT an objective of price controlpolicy
(A) controlof inflation (B) to help low income earners (C) to
encourage imports (D) controlprofit of firms?
5. The practice by middlemen to keep goods away from the market,
thereby creating artificial scarcity and higher prices is called (A)
inflation (B) hoarding (C) black market (D) quantity control.

ECONOMICSSS2 (WK 6)
TOPIC:PUBLIC SECTOR FINANCE
SPECIFIC OBJECTIVES
1. Define public expenditure
2. Describe how governments finance public expenditure
3. Explain tax systems and mention types of direct and indirect tax
4. Explain the meaning of balance budget
MEANING OF PUBLIC EXPENDITURE
Public expenditure may be defined as all the expenses of the public
authorities – federal, state and local governments – either in provision of
public goods and services or protecting the citizens. In other words,
public expenditure refers to all government expenditure to satisfy the
collective social wants of the people.
STRUCTURE OF PUBLIC EXPENDITURE
A. RECURRENTEXPENDITURE:These consist of all expenditure on
items that appears yearly on the budget of the government e.g. general
administration, defence forces, allocations to health and education,
maintenance of government machinery and infrastructures, salaries of
civil servants, social services, etc. They are known as current
consumption expenditure and are made for the day-to-day running of
the government. The items on which suchexpenditures are made are
meant to be consumed within a year.
B. CAPITAL EXPENDITURE: Thesecomprise all expenditure in the
form of capital investments that are not meant for current consumption
i.e. they do not appear yearly on the government’s budget e.g.
construction of roads and bridges, building of houses, schools,
hospitals, stadium, airport, etc. They are made for the purposeof
generating income to the government, and for promoting economic
growth and development. Both government revenue and expenditure
are outlined in a financial statement called ‘Budget’.
FINANCING OF PUBLIC EXPENDITURE
1. Revenue from payment of taxes, both direct and indirect taxes e.g.
VAT.
2. Revenue or Income from issuance of certificates, licenses etc.

3. Revenue from levies and fines imposed on businesses and stores.
4. Mining rights, royalties and oil prospectinglicense fees: Forinstance,
oil firms in Nigeria pay huge sums as license fees to commence oil
exploration.
5. Revenue from the sale of petroleum products.
6. By borrowing either within or outside the country: The government
borrows from commercial banks, insurance companies, capital markets
in the country, and they collect loans from The World Bank, IMF, Paris
Club, LondonClub, ICM, etc outside the country.
7. Grants or financial aid from friendly countries and international
organizations e.g. The United Nations Development Programme.
8. Income from the profits of public enterprises, parastatals and
investments both within and outside the country.
WHAT ARE TAXES?
Taxes are compulsory payment made to the government by people and
businesses in an economy.
Why do governments impose Taxes?
Taxes are incurred for several reasons:
1. Taxes are a major source of government revenue used to finance all
government expenses.
2. To promote equality in income between the poorand the rich. People
with higher incomes are taxed heavier that people with low incomes.
3. To discourage the consumption and production of demerit goods
(alcohol, tobacco).
4. To protect the environment. More tax can be imposed on firms and
products that create a lot of pollution and environmental damage.
5. Protecting infant industries: The government uses taxes to protect
infant industries against undue competition from their foreign
counterparts.
6. Controlling inflation: During periods of inflation, the government could
increase taxes in order to reduce the level of demand for goods.

TAX SYSTEMS
Progressive Taxes: A form of tax in which the tax rate increases as the level of
income rises. That is, people with higher incomes are taxed heavier than people
with low incomes.
Regressive Taxes:A form of tax whereby the tax rate reduces as the level of
income rises. That is, people with lower incomes are taxed heavier than people
with high incomes.
ProportionalTaxes: The proportionof income paid as tax is same whatever
the income.
TYPES OF TAX
Directtaxes: tax on individual or firm’s income or wealth. The burden of tax
payment falls directly on the person or individual responsible for paying it.
They include income taxes (on people’s income), corporation taxes (on a firm’s
profits), capital gain taxes (on property and other valuable assets), and
inheritance tax (on inheritance of valuable assets).
They are progressive in nature as the more the income, the more the tax levied.
Advantages:
 High revenue: as all people above a certain income level have to pay
income taxes, the revenue from this tax is very high.
 Can reduce inequalities in income and wealth: as they are progressive
in nature- heavier taxes on the rich than the poor-they help in reducing
the gap between the rich and the poor.
Disadvantages:
 Reduce work incentives: people may rather stay unemployed (and
receive govt. unemployment benefits) rather than be employed if it means
they would have to pay a high amount of tax. Thosealready employed
may not work productively, since any extra income they make, the more
tax they will have to pay.
 Reduce enterprise incentives: corporation taxes may de-motivate
entrepreneurs to set up new firms, as a good part of the profits they make
will have to be given as tax.
 Tax evasion: a lot of people find legal loopholes and escape having to
pay any tax. Thus tax revenue falls and the govt. has to use more
resources to catch those who evade the taxes.

Indirect Taxes:taxes on the goods and services sold (it is called indirect
because it indirectly takes money as tax from consumers’ incomes). Indirect
taxes are normally paid by producers, butthey will shift the tax burden onto
consumers by fixing higher prices. They include ad valorem taxes, sales taxes,
tariffs and customs duty (on imported goods and service) and excise duties (on
harmful goods suchas cigarettes and alcohol) all added to the price of a
product.
They are regressive taxes; even though all consumers pay the same tax, it will
take more proportionof income of the poor, thus falling heavily on them than
the rich.
Advantages:
 Cost-effective:the costof collecting indirect taxes are low compared to
direct taxes.
 Expanded tax-base:directs taxes are paid by those who make a good
income, but indirect taxes are paid by all people (young, old, unemployed
etc) who consume goods and services.
 Can achieve specific aims: for example, excise duty (tax on demerit
goods)can discourage the consumption of harmful goods;similarly,
higher and lower taxes on particular products caninfluence their
consumption.
 Flexible: indirect tax rates are easier to alter/change than direct tax rates.
Thus their effects are immediate in an economy.
Disadvantages:
 Inflationary: The prices of products will increase when indirect taxes are
added to it, causing inflation.
 Regressive:since all people pay the same amount of money, irrespective
of their income levels, the tax will fall heavily on the poorthan the rich as
it takes more proportion of their income.
 Tax evasion:high tariffs on imported goods or excise duty on demerit
goods can encourage illegal smuggling of the good.
BALANCING THE BUDGET
A public budget may be defined as a financial statement of estimated
revenue and planned expenditure for a fiscal period of usually one year.

TYPES OF BUDGET
A. SURPLUS BUDGET:This arises where the governments expected
revenue exceeds its expenditure. Sometimes Economists also refer to the
surplus budget as a balanced budget.
B. DEFICIT BUDGET:This occurs where the planned expenditure
exceeds the expected revenue. During a period of deficit budget, the
government spends more money than it received.
C. BALANCED BUDGET:This is a situation whereby the expected
revenue and the planned expenditure of the government are the same or
equal. This leads to complete circulation of income in the economy.
In order to achieve a surplus or balance in its budget, most governments
try to curtail or reduce their expenditure, while simultaneously exploring
other avenues where they can generate more income. Hence, economies
diversify into other sectors or areas where they can make more money to
carry out their activities.
EVALUATION
1. What is public expenditure?
2. Describe how governments finance public expenditure.
3. Explain two forms of tax systems.
4. Differentiate with examples between direct & indirect tax.
5. Explain the meaning of balance budget

ECONOMICSSS2 (WK 7)
TOPIC:ECONOMIC INDICATORS (Price level and changes)
SPECIFIC OBJECTIVES
1. Define inflation
2. State the causes or types of inflation
3. Explain the effects of inflation
4. Measure the rate of inflation
5. State the meaning of deflation
What is inflation?
Inflation is the generaland sustained rise in the level of prices of goods and
services in an economy. For example, the inflation rate in UK in 2010 was
4.7%. This means that the average price of goods and services sold in the UK
rose by 4.7% during that year.
Types of inflation/ How is inflation caused?
A. Demand-pull inflation: Inflation caused by an increase in aggregate
demand is called demand-pull inflation. This is also defined as the increase
in price due to aggregate demand exceeding aggregate supply. Demand
could rise due to higher incomes, lower taxes etc. The demand curve will
shift to the right, causing a rise in equilibrium price.
B. Cost-push inflation: Inflation caused by an increase in costof production
in the economy. The costof production could rise due to higher wage rate,
higher indirect taxes, higher costof raw materials, higher interest on capital
etc. The supply curve will shift to the left causing a contraction in demand
and a rise in price.
Many economists agree that a rise in money supply in contrastwith output is
the keyreasonfor inflation. If the GDP (total output) is not increasing as
much as the money supply, then there will be a higher demand which could
exceed supply leading to inflation.

The consequences (effects)ofinflation:
1. Lower purchasing power: when the price level rises, the same amount
of money will fetch you lesser number of goods and services. Thus,
inflation causes a fall in the purchasing powerof money.
2. Exports are less internationally competitive: if the prices of exports are
high, its competitiveness in international markets will fall as lower priced
foreign goods will rival it. Thus the demand for the country’s export
goods will fall.
3. High costof living: during inflation, the costof living in the economy
rises as you have to pay more for goods and services. This might cause
workers to demand higher wages, thereby increasing the costof
production
4. Fixed income groups and lenders lose:a person who has a fixed income
will lose as he cannot press for higher wages during inflation. Lenders
who lent money before inflation and receive the money back during
inflation will lose valuable purchasing power. The same amount of
money is now worth less (conversely, the people who borrowed gain
purchasing power).
How is inflation measured?
Inflation is measured using the consumerprice index (CPI) (or retail price
index (RPI)).
The consumer price index is calculated in this way:
A selection of goods and services normally purchased by a typical family or
household is identified. The prices of these ‘basketof goods and services’ will
then be monitored at a number of different retail outlets across the country. The
average price of the basket in the first year or ‘base year’ is given a value of
100.Theaverage changes in price of these goods and services over the year
is calculated. If it rises by an average of 25%, the new index is 125%*100=125.
If in the next year there is a further average increase of 10%, the price index is
110%*125= 137.5. The average inflation rate in the two years is thus 137.5-
100= 37.5%.

From the above illustration, the inflation rate in 2012 is 17.5%. That is, 117.5-
100.
Control of inflation
1. Monetarypolicy: This step is taken by the government through the
Central Bank to reduce the quantity of money in circulation. The Central
Bank can reduce interest rates or use appeal for commercial banks to
reduce lending.
2. Fiscalpolicy: Under this policy, the government takes the following
steps:Increase direct tax so as to reduce purchasing power; decrease
indirect tax to force prices down; decrease government spending so as to
reduce money in circulation.
3. Physicalmeasures:The different measures taken under this policy
include: improving agricultural productivity; granting subsidy to
industries; enhancing the distribution system; population control;
adequate storage facilities; price controlmeasures; consumer protection
measures, etc.
Deflation
Deflation is the generalfall or decline in the prices of goods and services in
an economy for a given period.

Causes ofdeflation:
1. Aggregate supply exceeding aggregate demand: a shift in the supply
curve to the right will cause a fall in the equilibrium price.
2. Labour productivity has risen: higher output will make for lower
average costs, which could reflect as lower prices.
3. Technologicaladvance has reduced costof production, pulling down
cost-pushinflation.
4. Demand has fallen in the economy: this could be due to a number of
reasons: higher direct taxes, lower money supply, higher interest rates etc.
Consequencesofdeflation:
 Lower prices could de-motivate producer and they may reduce
production, resulting in unemployment.
 As demand falls and prices fall, investors will be discouragedto invest,
thereby causing total output or GDP to decline.
 Deflation can cause recession:as demand and prices continue to fall,
firms are forced to close down which further worsens unemployment.
 Tax revenue for the government will fall: as firms shut down, revenue
from taxes also falls which might force the government to borrowmoney
to finance public expenditure
EVALUATION
1. Define inflation.
2. Explain two causes or types of inflation.
3. Explain three effects of inflation.
4. Briefly explain what is meant by consumer price index.
5. What is deflation

ECONOMICSSS2 (WK 8)
TOPIC:ECONOMIC INDICATORS (Employment)
SPECIFIC OBJECTIVES
1. Distinguish between employment and unemployment
2. Describe employment trends in developed and developing
economies
3. Measure the rate of unemployment
4. Explain the types of unemployment
5. Outline the cost of unemployment in an economy
Key terms
Labour force – the working population of an economy, i.e. all people of
working age who are willing and able to work.
Labour force participation rate – the percentage of the labour force who are
either working or looking for work.
Unemployment rate – the percentage of people in the labour force that are
without work and are thus unemployed.
Dependent population – people not in the labour force and thus depend on the
labour force to supply them goods and services to fulfil their needs and wants
(e.g. children and aged people)
All governments have a macroeconomic objective of maintaining a low
unemployment rate.
THE CAUSES OF UNEMPLOYMENT
1. Frictional unemployment: this occurs as a result of workers leaving one
job and spend time looking for a new one. This type of unemployment is
short-lived.
2. Seasonalunemployment: this occurs as a result of the demand for a
product being seasonal. For example, the demand for umbrellas will fall
in non-monsoon seasons, and so workers in umbrella manufacturing firms
will becomeunemployed over those seasons. However, this is not a
problem since these workers will work somewhere else over that period
and will have planned so.
3. Cyclicalunemployment: this occurs as a result of fall in aggregate
demand due to an economic recession. When demand falls, firms will cut

their productionand workers will lose their jobs. There will be a nation-
wide rise in unemployment.
4. Structural unemployment: this occurs due to the long-term change in
the structure of an economy. Forexample, the typewriter’s demand has
declined drastically as more efficient technology has been developed as
substitutes. As a result, typewriter manufacturing firms have shut down
and left many workers unemployed. Now these workers’ skills are no
longer wanted and they lack the skills required in the modern industry.
5. Technologicalunemployment: this has rose in recent times as industrial
robot, machinery and other technology have substituted for labour.
THE CONSEQUENCES OF UNEMPLOYMENT
1. High spending on unemployment benefits: People will need to rely on
government unemployment benefits to supportthemselves. These
benefits are provided from tax revenue. But due to unemployment,
revenue generated from tax will fall. This might mean that people
remaining in work will have to pay more of their income as tax, so that it
can be distributed as unemployment benefits to the unemployed.
2. Low spending on socialgoods:Public expenditure on other projects
such as schools, roads etc will have to be cut down to make way for
benefits. There is opportunity cost involved here.
3. Loss of skills: People will lose their working skills if they remain
unemployed for a long time and may find it even harder to find suitable
jobs.
4. The economy doesn’treach their maximum productive capacity, i.e.
they are economicallyinefficient on the PPC.
5. Negative growthrate: The economy will continue to experience a
decline in its growth rates or GDP.
IMPERFECTIONS IN THE LABOUR MARKET
The demand and supply conditions will determine the market wages for
different occupations. However, the market isn’t always perfect. Many factors
can disrupt the labour market outcomes and thus the efficient allocation of
resources. These imperfections also cause unemployment.
1. Powerfultrade unions may force up wages:Trade unions, in an attempt
to improve pay and working conditions of members, will force firms to
pay more wages by restricting the supply to an industry (when supply of
labour falls, wages will rise) or threatening to take industrial action (go

slow, overtime-ban, strikes). However, higher wages will encourage firms
to cut their labour force, increasing unemployment.
2. Unemployment benefits may reduce incentive to work: when the
government gives such a benefit, the unemployed will encourage people
to stay unemployed especially if they get more money through the benefit
than by actually working.
3. Lack of information: If those seeking jobs do not have reliable or
sufficient information about jobs available, then they will remain
unemployed for a long time.
4. Minimum wage legislation:in countries or occupations where wages are
very low the government will impose a minimum wage that is above the
equilibrium wage in an attempt to increase wages and improve living
standards. However, this can reduce the demand for labour and cause
employers to make their employees redundant, increasing unemployment.
5. Labour immobility: If workers aren’t able to travel from one place to
another to look for jobs or work (geographicalimmobility), due to
family commitments, costof travelling etc, then unemployment will rise.
When people cannot move from one occupation to another due to lack of
skills (occupationalimmobility), then unemployment will rise.
EVALUATION
1. Distinguish between employment and unemployment.
2. Describe employment trends in developed and developing
economies.
3. How is the rate of unemployment measured?
4. Mention and explain three types of unemployment.
5. Highlight four cost of unemployment in an economy.

ECONOMICSSS2 (WK 9)
TOPIC:ECONOMIC INDICATORS (Output and growth)
SPECIFIC OBJECTIVES
1. Mention various ways of measuring output and growth
2. State the causes of economic growth
3. State the benefits and costs of economic growth
4. Explain the growth cycle
Key terms in Output
Nationaloutput: This is the total value of goods and services that is produced
in an economy at a particular period.
Nationalincome: This refers to the total amount of income earned by all
factors of production (i.e. land, labour, capital & entrepreneur) in an economy at
a given period.
Nationalexpenditure: The national expenditure implies the total spending of
firms and individuals on goods, services and resources, in the country.
Hence, NationalOutput = NationalIncome = NationalExpenditure
GDP (Gross Domestic Product):the total market value of all final goods and
services created within an economy by its factors of productionin a given
period of time.
Nominal GDP:This is the total output that is evaluated at current market
prices. Therefore, nominal GDP will include all of the changes in market prices
that have occurred during the current year due to inflation or deflation.
RealGDP: Real GDP is GDP evaluated at the market prices of some base
year. Forexample, if 2012 were chosenas the base year, then real GDP for
2017 is calculated by taking the quantities of all goods and services purchased
in 2017 and multiplying them by their 2012 prices. Since real GDP takes into
account the real or true worth of total output, its value is usually lower than
nominal GDP.

Reasonswhy governments measure GDP
 Helps the government to determine how much they are producing
and how resourcesare being allocated. This will help in making
efficient economic decisions and policies and how they may affect the
resource allocation and production. For example, if the GDP shows that
production of consumer goods largely exceeds that of capital goods, it
may try to equalize this by imposing higher taxes on consumer goods or
by providing subsidies for capital goods manufacturers.
 It allows comparisons to be made of the living standards in one year
compared to that of the next. A higher GDP will show a higher living
standard.
 It allows comparisons to be made of living standards in different
countries or different areas of the same country.
Economic Growth
Economic growth can be defined as an increase in a country’s productive
capacity or an increase in real GDP of the economy over time. This indicates
that the economy has witnessed an increase in the amount of goods and services
produced. Ona PPC, an economic growth will be shown by an outward shift in
the frontier.
Causes ofeconomic growth
1. Discoveryof more natural resources:more resources mean more the
production capacity. The discovery of oil and gas reserves has enabled a
lot of economies to grow rapidly.
2. Investment in new capital and infrastructure: investment on new
machinery, buildings, technology has enabled firms and economies to
expand their production capacities. Investments in modern infrastructure
such as airports, roads, harbours etc also promoterapid growth.
3. Technicalprogress:New inventions, productionprocesses ortechniques
etc can increase the productivity of existing resources in industries and
help boosteconomic growth.
4. Increasing the amount and quality of human resources:A larger and
more productive workforce will increase GDP. More skilled,
knowledgeable and productive human resources thus help increase
economic growth
5. Reallocating resources:Moving resources from less-productive uses to
more-productive uses will improve economic growth.

The benefits of economic growth:
1. Greater availability of goods and services to satisfy consumer wants and
needs.
2. Increased employment opportunities and incomes.
3. Increased sales, profits and business opportunities.
4. Low and stable inflation, if growth in output matched growth in demand.
5. Increased tax revenue for government (as incomes and spending rise) that
can be invested in better public goods and services.
6. improved living standards and economic welfare
The drawbacks ofeconomic growth:
1. Technical progress (i.e. machines) may replace employees and cause a
rise in unemployment.
2. Scarceresources are used up rapidly when production rises. Natural
resources may get depleted over time.
3. Increasing production can increase negative externalities such as
pollution, deforestation, health problems etc.
4. Inflation can rise if growth in demand exceeds growth in output
Governments aim for sustainable economic growth which refers to a rate of
growth which can be maintained without creating other significant economic
problems, especially for future generations.
The Growth/ Economic Cycle
Although most governments seek to achieve a long-term stable economic
growth, in reality, it is not so. There are several phases through which an
economy passes:
Growth is the phase where the economy is growing. Output, income,
employment are all growing as firms enjoy high sales and profits and new
businesses enter the markets.

Boomrefers to the highest point of economic growth. Aggregate demand, sales
and profits peak and as a result demand-pull inflation rises. Interest rates may
be raised by the government to control inflation. A high inflation and interest
rate will reduce consumer confidence and in turn their spending. Higher cost
and fall in demand will cause business reduce production and workers, which
leads to unemployment.
Recessionis the phase where there is negativeeconomicgrowth, that is real
GDP is falling. This usually happens after there is rapid economic growth. The
fall in consumer spending caused by high inflation during the boomperiod will
cause this downturn. Sales and profits of firms will decline. Firms will cut back
their productionand workers are made redundant. Unemployment starts to rise
and incomes fall.
Slump or depressionis the lowest point of recession where aggregate demand,
output, incomes and prices are at the lowest. Here, a lot of businesses will shut
down due to low sales and profits, thereby aggravating unemployment.
Recoveryis the phase after a slump where the GDP starts to increase and the
economy recovers. Business and consumer confidence starts to increase and
output and sales experience an increase. The economy starts to expand again
and is on its way to economic growth.
Measuring Living Standards
(A) GDP per head/capita:this measures the average income per person in an
economy. Since this takes into account the population, it provides a good
measure of the living standards of an economy.
RealGDP per capita = RealGDP per head / Population
However, it is a relatively poorindicator of welfare, because:
1. It takes no accountof what people can buy using their incomes. A
country with a high GDP per head may be no better off than a country
with a low GDP per head, if there are far fewer products to choosefrom.
2. Distribution of income is very unequal in reality, so the GDP per
head isn’t accurate. Some people might be very rich while others very
poor.
3. Real GDP per head excludes the unpaid work people do for charities
and voluntary organizations. Thus, it understates the total output.
(B) Human DevelopmentIndex (HDI): Used by the United Nations to
compare living standards across the globe, the HDI combines different
measures into one to give a HDI value from 0 to 1. These are:
1. Standard of living, measured by the average national incomes per
head adjusted for differences in exchange rate and prices in different

countries.
2. Education, measured by how many years on average, a person aged 25
will have spent on education and how many years a young child entering
schoolcan now be expected to spend in education in his entire life.
3. Access to healthcare and having a healthy lifestyle, measured by life
expectancy.
The problems with HDI:
1. It combines a set of separate indicators into one, so a country
with good literacy rates and living standards but poorlife expectancy
can have a low HDI.
2. It doesn’t considerother factors suchas environmental quality,
political freedom, crime rates etc.
EVALUATION
1. Mention & explain two ways of measuring output and growth.
5. Highlight three causes of economic growth.
6. List three benefits and costs of economic growth.
7. Explain the growth cycle.

ECONOMICS SS2 (WK 10) CAMBRIDGE ASSESSMENT

First term notes 2020 econs ss2 1

First term notes 2020 econs ss2 1

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