HARMONIZED SCHEME OF WORK

SS 1 THIRD TERM

S/NO TOPICS CONTENT

1. Basic tools for economic 1. Simple linear equations
analysis ii. Measures of dispersions; range, mean
deviation, variance and standard deviation.
2. Concept of Demand i. Distinction between “change in demand
and change in quantity demanded”.
ii. Exceptional cases of demand
iii. Elasticity of demand; measurement of
elasticity of demand, importance of elasticity
3. Concept of Demand and i. Distinction between “ a change in supply
Supply II and change in quantity supplied"
ii. Measurement of elasticity of supply
iii. Determinants of equilibrium price and
quantity using functional relationship.

4. Public finance i. Definition of public finance

ii. Fiscal policy and objectives of government
revenue.
5. Taxation i. Meaning of Taxation, types of tax (direct
and indirect taxation).
ii. Principles and systems of taxation.
iii. Effects and incidences of taxation.
6. Inflation and Deflation i. Meaning, types, causes and control of
inflation and deflation.
7. Concept of productivity i. Production possibility curve

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 ii. Concept of total, average and marginal
productivity.
iii. Law of variable proportion/law of
diminishing returns.
8. Cost concepts i. Definition of cost, types of cost e.g.
variable, fixed, total, average e.t.c.
ii. Short-run and long run costs.
iii. Distinction between Economist’s and
Accountant’s view of cost.
9. Revenue concepts i. Definition of revenue, different revenue
concepts (total average and marginal).
ii. Revenue schedules and curves.
10. Revision
11. Examination

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WEEK ONE, LESSON ONE

SIMPLE LINEAR EQUATION

A linear equation is a straight line equation which implies that a change in a
variable (dependent variable) is proportional to the change in another
variable (independent variable) .
E.g: y=f(x) or Qd=f(P)…. A functional relationship which means that, y is a
function or depends on x and Qd quantity demanded depends on P price.
Generally, a simple linear equation takes the form of ;
Y=a+bx where ,
Y=dependent variable, a=intercept , b=gradients, x=independent variable,.
‘a and c’ are constant .
E.G ; If C=10+0.5Y, where C=consumption expenditure and Y=income .It
means that, when income become zero, yet #10 consumption expenditure
can be made .#10 is the intercept or autonomous while 0.5 is the gradients
which tells how much of the independent variable (income) will affect the
dependent variable (consumption)

MEASURE OF DISPERSION/VARIABILITY
The measures of dispersion measure the extent of deviation of data from the
center value, it also measures the degree of errors that occur in a distribution.
It is different from the measures of central tendency because the measures
of central tendency is only concerned with obtaining the average, middle or
center of a given set of observation. The measures of dispersion includes:
range, quartile, mean deviation, variance, standard deviation.
Range: The range refers to the differences between the highest (maximum)
and lowest (minimum) value of a set of observation of data. It is hardly used
as a measure of dispersion because , it is sensitive to extreme value
Example: calculate the range of the following ages:
8, 10, 7, 16, 24, 26, 17, 12, 6
Highest=26
Lowest=6
Range=26-6=20
Example 2

3
Find the range of the marks obtained by students in a government
examination
Marks 12 18 24 30 36 40 48

Frequency 6 1 10 8 12 3 4

Highest=48
Lowest=12
Range=48-12=36
Class work
Find the range of the following numbers
25, 9, 30, 85, 60, 72, 90.
The advantage of Range
 It is easy to calculate
 It is easy to understand
 It is useful for further statistical calculation
The disadvantage of range
 It is not a reliability measure of variability
 It does not take all values into consideration
 It depends only on the extreme values
QUARTILE: quartile refers to the distribution of a given data into four equal
parts, which includes:
i. First quartile: it is the quartile below an observation falls. It is also called
the lowest quartile.
ii. Second quartile Q2
iii. Third quartile Q3
iv. Fourth quartileQ4: or upper quartile, it is the value above which all
observation falls.
MEAN DEVIATION
Mean deviation refers to the sum of all the values of each deviation from the
arithmetic mean and then divided by the total observation. It is also denoted
with the sign M.D. formula below:
M.D. =∑/x-x/

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 Where, N= number of observation
X= variables
X= arithmetic mean
∑= sum of
Example: Find the mean deviation of the set of numbers below
1,2,4,5,8
Working
Step 1: First find the arithmetic mean
Mean=X= 1 + 2 + 4 + 5 + 8 = 20/ 5 = 4
5
Now find the deviations from the mean
M.D= /1-4/+/2-4/+/4-4/+/5-4/+/8-4/ 3+2+0+1+4 10
-----------------------------------= ----------------= -------= 2
5 5 5
Example 2;: Calculate the mean deviation of the following age of pupils in
Opeke Primary School
4, 5, 6, 8, 10, 3.
Solution. First find the mean
X = 4 + 5 + 6 + 8 + 10 + 3 = 36 =6
6 6
Mean deviation = [4 – 6] + [5 – 6] + [6 -6] + [8 – 6] + [10- 6]
+ [3 – 6] 6
= [-2] + [-1] + [0] + [2] + [4] + [-3] = 12 = 2.5
5 5
NOTE; The negative signs are ignored by taking the absolute values.
Exercise /activity 1.
Find the mean deviation of the following data
6, 4, 2, 5, 3, 8

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Example 3: Calculate the mean deviation of the data below from a biology
test of SS2 students

Marks 6 8 12 14 10

3 4 5 2 8
Frequency

Solution; First prepare frequency distribution table

Frequency distribution table
Marks(X) Freq( F ) Fx /x-X/ f/x-X/
6 3 18 6-9.9=3.9 11.7
8 4 32 8-9.9=1.9 7.6
10 8 80 10-9.9=0.1 0.8
12 5 60 12-9.9=2.1 10.5
14 2 28 14-9.9=4.1 8.2
∑f =22 ∑fx=218 ∑f/x-X/=38.8

Arithmetic mean= X = ∑fx = 218 = 9.9

∑f 22
Mean deviation= ∑f( x – x) =38.8 =1.76
∑f 22

WEEK ONE, LESSON TWO

VARIANCE AND STANDARD DEVIATION

The most important measure of dispersion is the standard deviation of a
frequency distribution.
Standard deviation: is the square root of the variance.
variance

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The variance is the square of average of the squared deviation for each
value in the distribution which is represented as

Symbolically, variance = S2 or 𝜎2 =
∑(x – X)2
N

OR Variance =∑f (x- X) 2

∑f

Where ∑ = summation
x = individual item or observation
X = Mean of distribution
N = Number of observation
=
Standard deviation ∑f(x – X)2
∑f
The above data is for is for ungroup data

For grouped data, it becomes:

S or 𝜎 = ∑f(x – X)2
∑f
Where ∑ = summation
x = individual item or observation
X = Mean of distribution
N = Number of observation
Example 1
Calculate the variance and standard deviation of the following distribution
4,5,7,10,2,6,2,4
Workings .First find the mean X = ∑x
(4+5+7+10+2+6+2+4)/8 n

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 X=40
8
X=5
To find the Variance, first take the deviation from the mean =/4-5/+/5-5/+/7-
5/+/10-5/+/2-5/+/6-5/+/2-5/+/4-5/ divided by 8.=
(-1)+(0)+(2)+(5)+(-3)+(1)+(-3)+(1)+(-1) divided by 8
Take the square of the deviation
(-1)2+(0)2+(2)2+(5)2+(-3)2+(1)2+(-3)2+(1)2+(-1)2 divided by 8
1+0+4+25+9+1+9+1 divided by 8
Variance= 50 divided by 8= 6.28

Standard deviation = ∑f (x- x) 2

∑f
Standard deviation is the square root of 6.28 = 2.51
Example 2:
Group data
Calculate the variance and standard deviation of the marks scored by
English students in an examination.
Marks 10 20 30 40 50 60
No.of 8 6 12 18 6 4
students

Solution
First prepare a table of value (frequency table).
Frequency distribution table
(x) marks Freq(f) Fx x-x /X-X/2 F/x-x/2
10 8 80 10- 561.69 4493.52
33.7=23.7
20 6 120 -13.7 187.69 1126.14
30 12 360 -3.7 13.69 164.28
40 18 720 6.3 39.69 714.42
50 6 300 16.3 265.69 1594.14
60 4 240 26.3 691.69 2766.76

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f= 54
∑fx=1820
∑f/x-x/2 =10859.26
Calculate the arithmetic mean
X =∑fx divided by ∑f= 1820 divided by 54= 33.7.

Variance= =∑f (x- X) 2

∑f =10859.26/54 = 201.10

Standard deviation= 201.10 = 14.18

Evaluation:
Calculate the variance and standard deviation of the table below in a
computer test
Marks 6 7 8 9 10 11 12
Frequency 4 5 8 11 6 2 4

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WEEK TWO, LESSON ONE

CONCEPT OF DEMAND
Recap the type of demand and the definition of demand and the factors
affecting demand.
DISTINCTION BETWEEN A “CHANGE IN DEMAND AND CHANGE IN
QUANTITY DEMANDED”.
There is a change in quantity demanded of a commodity when there is a
movement on the same demand curve from one point to another. The
change in the quantity demanded of a commodity is majorly affected or
caused by a change in price (increase or decrease) of the same commodity.
Therefore more is purchased at a lower price and less at a higher price.
A change in quantity demanded of a commodity are of two types,
namely:
A. Increase in the quantity demanded or expansion of demand: There is
an increase in quantity demanded of a commodity as a result of a decrease
in price of the commodity. This can be represented graphically as:
prices D

N8
A

N6
B

N5 C
D

0 100 200 400 Quantity (units)

Demand curve illustrating a change in the quantity demanded

From the graph a decrease in the price of the commodity from #8 to #6
brought about a movement from left to right on the quantity axis which
indicates an increase in the quantity purchased from 100 to 200 units.

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B. A decrease in quantity demanded or contraction of demand: There is
a decrease in the quantity demanded of a commodity purchased as a result
of an increase in price of the same commodity. This is represented
graphically as :

GRAPH
N8

N6

N5

0 100 200 400 Quantity (units)

From the graph an increase in price of the commodity from #5 to #6 resulted

in a movement from right to left on the quantity axis indicating a decrease in
the quantity purchased from 200 to 100 units

CHANGE IN DEMAND (SHIFT)

There is a change in demand when the demand curve shifts to an entirely
new position, leading to a new demand schedule and curve. Change in
demand is determined by other factors affecting demand apart from price of
the same commodity. e.g a change in income, taste, fashion and taxation.
A change in demand is also divided into two namely :
A. Increase in demand: There is an increase in demand when there is a
favourable change in other factors affecting demand which cause the
demand curve to shift to the right while the price of the same
commodity remain the same e.g. if the income of a consumer increase

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 he will have more money to spend which will in turn increase his
demand. . D
y

D1
D0

Price

N4

D1
D0 D
x
0
200 350
Quantity demanded

B. A decrease in demand: There is a decrease in demand when there is

an unfavourable change in the factors affecting demand which makes
the demand curve to shift to the left while the price of the same
commodity remain the same .Example, is an increase in income tax.
y D1
D0

N80

D1
D0

D
60 x
40
0

From the graph above, at the same price of N80, demand

decreased from 60 to 40 units.

EXCEPTIONAL OR ABNORMAL DEMAND CURVES

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 Exceptional demand curve is a demand curve which does not follow
the law of demand which states that, “the higher the price the lower the
quantity demanded and the lower the price the higher the quantity
demanded .

On such rare occasions, the quantity demanded of a commodity can

increases as the price increases and vice versa, giving rise to an
abnormal demand curve such as follow and others .

N3

N2

N1

0 30 40 50

Quantity Demanded

CAUSES OF ABNORMAL DEMAND

1. Future expectation: people tend to demand more of a commodity at a
higher prices if they expect that the price of such a commodity will rise
more in future. Factors such as rumours of wars, diseases and political
disturbances e.t.c, are some of the factors that may cause people to
expect future rise in prices.

2. Rare commodities: rare commodities such as gold etc. commands high

value, therefore people are often willing to buy more even at a high price to
own them.

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3. Inferior or giffen goods: These are goods whose demand curve varies
inversely with change in income, the demand increases with an increase in
income such as garri, fairly used clothes etc. Thus, a fall in price will not
increase the quantity demanded of such commodity .

4. Articles of ostentation: These are commodities which have prestigious

value, consumers uses them to show off and exhibit their wealth. For these
commodities the higher their prices, the more valuable people think they are
e.g. expensive lace and cars.

EVALUATION:
1. Explain the concept ‘change in demand and change in quantity
demanded’.
2. What are the causes of Exceptional demand curves?

WEEK TWO LESSON TWO

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ELASTICITY OF DEMAND
Elasticity of demand: measures the degree of responsiveness of demand to
a little change in price of the same commodity, income of the consumers or
the price of other commodities. It is the extent to which the quantity
demanded of a commodity changes as a result of changes in either the price
of the same commodity ,changes in consumers income or changes in price
of the other commodities. .
TYPES OF ELASTICITY OF DEMAND
The types are:
a) Price elasticity of demand
b) Income elasticity of demand and
c) Cross elasticity of demand

A) Price elasticity of demand

Refers to the degree or extent of responsiveness of demand to little changes
in prices of the same goods and services. That is, how demand reacts as a
result of changes in prices of goods and services. Demand reacts both
favourably and unfavourably to prices changes.
Types of price elasticity of demand
1) Elastic demand or fairly elastic demand: demand is said to be elastic if
small change in price brings about a greater change in quantity demanded.
Symbolically E= >1< infinity : the coefficient of elasticity is greater than one.

D E = >1< infinity

P1 D
P2

price

0 Q1 Q2

Quantity demanded

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Example if a 40% fall in price leads to a 60% increase in quantity demands
it means demand is elastic.

2) Inelastic demand: demand D is said to be inelastic when a greater change

in price brings about little change in the quantity demanded. The coefficient
of elasticity is E = > 0 < 1

E = >0< 1

3) Unitary elastic demand: demand is unitary when a change in price leads

to an equal change in quantity demanded i.e. if a 10% change in price leads
to a 10% change in quantity demanded it means demand is unitary or neutral
and coefficient is equal to one E =1
D

E=1
P1

P2

Price
D

0 Q1 Q2

Quantity Demanded

4) Perfectly elastic demand or infinity elastic demand or zero inelastic

demand: Demand is perfectly elastic when a slight change in price cause
the consumer to react sharply to changes in price. Consumers are willing to

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buy almost all the quantities of the commodity they need if its price falls
slightly. On the other hand, consumers refuse to demand for a particular
commodity if its price rises.

E = Infinity

P D

O Quantity demanded

5) Perfectly inelastic demand or zero elastic: demand is perfectly or

completely inelastic when a change in price (either rising or falling) has no
effect on the quantity demanded (demand remain unchanged) for a
commodity, the coefficient is equal to zero = 0, E = 0 e.g. commodity like salt

price E=0

D
0 Quantity demanded

MEASUREMENT OF ELASTICITY OF DEMAND

When elasticity is greater than 1 = elastic
When elasticity is less than 1 = inelastic
When elasticity is equal to 1 = unitary
When elasticity is equal to 0 = perfectly inelastic
When elasticity is equal to infinity = perfectly elastic

Formular for measuring elasticity of demand =

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Elasticity (ED) =
% %∆
=
% %∆

Where ∆ QD =quantity demanded, ∆p =change in price

Example 1
If at ₦8.00 per tuber twenty tuber of yam were demanded and when price
fell to ₦6.00 per tuber, thirty tubers were demanded calculate the elasticity
of demand
PRICE QUANTITY
₦8 20 TUBERS
₦6 30 TUBERS

SOLUTION
% %∆
=
% %∆

%∆Qd = 𝑥 = 50%

% P= 𝑥 = 25%

Price elasticity of demand = =2

ignore the negative sign and take absolute value.

demand is therefore elastic because it is greater than 1

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example 2 : The table represent the price and quantity demand of pen

PRICE ₦ Quantity demanded

9.00 1,050
10.00 1,000
11.00 950
1) Calculate the elasticity of demand when price rises from ₦10.00 to ₦11.00
2) state whether demand is elastic or inelastic.
WORKING
% Qd =(950-1000)/1000=-50/1000 =- 0.05×100==5%
% P =( ₦11-10)/10 = 1/10=0;1×100=10%

Pe = %AQD/%AP = 5%/10%
Pe =0.5
Demand is inelastic because elasticity is less than 1

MEASUREMENT OF INCOME ELASTICITY OF DEMAND

TYPES OF INCOME ELASTICITY OF DEMAND
1. Positive income elasticity of demand: this is a case in which an
increase in the consumer’s income leads to an increase in the quantity
of commodities demanded and vice versa This is in a case of normal
goods.
2. Negative income elasticity of demand: this is a type of elasticity in
which an increase in income of consumer leads to a decrease in the
quantity demanded of commodity and vice versa. This is in a case of
inferior goods.

Formular for calculating income elasticity of demand is,

%∆
=
%∆

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Example
The monthly income of a gardener was increased from ₦20 000 to ₦36 000
as a result, he reduced his purchase of garri from 120 to 96 units.
i. Calculate the co-efficient of income elasticity of demand.
ii. State if the demand is elastic or inelastic.
iii. What kind of good is garri to the consumer?
Solution
%∆𝑄𝑑
%∆𝐼
∆𝑄𝑑 = 96 − 120 = −24
%∆Qd=24/120 ×100=20%
∆I = ₦36 000 − ₦20 000 = ₦16 000
%∆=16 000/20000×100=80%
Income elasticity=20%/80%=0.25
ii. Demand is inelastic because it is less than one.
Iii. Garri is an inferior good as his income increases, he reduces the quantity
purchased.

CROSS ELASTICITY OF DEMAND.

Refers to the degree of responsiveness of demand for a commodity X to
changes in the price of another commodity Y. Cross elasticity of demand
applies mainly to goods that have close substitutes as well as
complementary goods. For example, demand for sunshine detergent will
increase if there is an increase in the price of Omo, likewise margarine and
butter.
Formula = %∆QdX = % change in quantity of commodity X
%∆pY % change in price of commodity Y
Example
Use the table below shows three commodity to answer the questions

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 Commodity Change in New price Commodity Change in New qty
price PRICE₦ quantity
Original demanded
(old) Original
PRICE₦ Qty
Butter 100 150 Margarine 250 400
Beef 25 40 Fish 1000 3000
Bread 15 20 Yam 150 200

Calculate the cross elasticity of demand for

i. Butter and margarine
ii. Beef and fish
iii. Bread and yam
Working
Let X= margarine and Y= Butter
∆QdX (margarine) =400-250= 150
%∆QdX = 150 ×100= 60%
250
∆PY= 150-100 = 50
%∆PY= 50 x 100= 50%
100
Cross elasticity of margarine and butter = 60% = 1.2
50%
Therefore, cross elasticity of demand is elastic because it is greater than
one.
Evaluation
Solve for number (ii) and (iii).

IMPORTANCE OF ELASTICITY OF DEMAND

1. The knowledge of elasticity of demand enables a producer or seller to
know how to increase his total revenue by raising the prices of his
goods depending on whether the demand for his goods is elastic or
inelastic.

21
 2. It also enables a producer to decide on what will be the maximum
output to produce to ensure maximum turnover and profit.
3. Knowledge of cross elasticity enables a producer to know the cross
elasticities between his goods and other substitute goods and then
determine future output if the prices of the other goods change.
4. Income elasticity also enables a producer to forecast future output
when incomes of consumers of his goods change.
5. The knowledge of elasticity of demand enables government to decide
the amount of taxes to impose on various goods and services. In order
to raise more revenue higher taxes should be imposed on goods that
have inelastic demand than those that have elastic demand.
EVALUATION
1. Distinguish between the following pairs of concepts:
(i) elastic demand and inelastic demand
(ii) income elasticity of demand and cross elasticity of demand
(iii) Using diagrams, explain how an increase in price will affect the total
revenue of a producer if demand for his product is: (i) Price elastic
(iii) price inelastic
WASSCE, 2019
2.Mention and explain any five factors that affect elasticity of demand

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WEEK THREE, LESSON ONE

MEASUREMENT OF PRICE ELASTICITY OF SUPPLY

FORMULA
Elasticity of supply =% change in quantity supplied
% change in price
OR
% QS
% P
EXAMPLE:
A producer producing beans increase the quantity offered for sale from
100kg to 150kg when the price increased from N30 to N40, calculate the
coefficient of elasticity of supply for beans
Working
ES=% change in quantity supplied
% change in price
QS=New quantity – old quantity x 100 = 150 – 100=50
Old quantity 100

% QS= 50 x 100 =50%

100 1
% P =40-30 x 100 = 33.3%
30

ES =50% = 1.5
33.3%
Therefore supply of beans is elastic because it is greater than one

PRICE DETERMINATION:
EQUILIBRIUM OF DEMAND AND SUPPLY
The equilibrium price is the price at which quantity demanded equates
quantity supplied. This is the third law of demand and supply
Simple schedule showing the quantity of goods demanded and
supplied:

Price (N) Quantity Demanded Quantity Supplied

6 100 700
5 200 600

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 4 300 500
3 400 400
2 500 300
1 600 200
50k 700 100
DEMAND AND SUPPLY CURVE
D S
Excess Supply

E
N3

S
D
N1

Excess Demand
c

From the graph at price 40 quantity demanded equals to the quantity

supplied, above the equilibrium price shows that the commodity that will be
supplied by the producer is higher than is demanded by the consumer, there
will therefore be an excess supply. While below the equilibrium price more
will be demanded by consumer than is supplied by the producers this will
lead to an excess demand which will lead to scarcity.

DEMAND AND SUPPLY FUNCTION

Example
The demand and supply function of a commodity is given respectively
as Qd = 40- 4p and Qs = 12p - 24. Where p is price, Qd = quantity demanded
and Qs =quantity supplied
a. Determine the equilibrium price and quantity

24
b. If the price of the commodity is fixed at N6.00 what will be the
magnitude of excess supply
Workings
A. Qd = 40-4p
Qs = 12p-24
At equilibrium Qd = Qs
Therefore 40-4p = 12p - 24
Collect like terms
40+24 = 12p+4p
64 = 16p
p=4
To determine equilibrium quantity substitute p into each equation
Qd = 40 – 4(4)
=40 – 16
Qd = 24
Qs = 12(4) – 24
=48 – 24
Qs = 24
B. to find excess supply substitute N6.00 for p in each equation
d = 40 – 4(6)
=40 – 24
Qd =16
Qs = 12(6) – 24
= 72 – 24
= 48
Excess supply = quantity demand – quantity supplied
= 48 – 16
= 32

WEEK 3 - LESSON 2

Example 2
The demand and supply equation for a commodity y are
represented by
Qd = 20 – 1 p & Qs = 18 – 1 p
6 8
Calculate the equilibrium price and quantity

Solution
At equilibrium Qd = Qs

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20 – 1 P = 18 – 1 P
6 8
Collect like terms
20 – 18 = - P + P
8 6
2=2P
48
48 x 2 = 2p
96 =2p
Divide both sides by 2
P = 48, substitute value of p into demand and supply function
Quantity demand
Qd = 20 – 1 P
6
= 20 – 1 (48)
6
= 20 – 8
= 12
Qs = quantity supplied
Qs = 18 – 1 (48)
8
= 18 – 6
= 12
Equilibrium quantity and supplied is 12

CLASS EXERCISE\ ASSIGNMENT

1. Given that demand and supply function of a commodity as Qd =
20 – 2p and Qs = 6p – 12
a. Determine the equilibrium price and quantity
b. If the price is fixed at N6.00 what is the magnitude of
excess supply?
2. Given Qd= 40 – 2p and Qs = 6p +24 calculate the equilibrium
price and quantity
3. Given the supply function p =1 (Qs + 10) when p = N10 what
4
is d supply

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WEEK FOUR: LESSON ONE

DEFINITION OF PUBLIC FINANCE

Public finance may be defined as that branch of economics which

deals with the financial activities of the government, it concerns with
revenue, expenditure, debt operations and their effects on the
economy i.e. individuals and corporate bodies.

OBJECTIVES AND FUNCTIONS OF PUBLIC FINANCE

I) For equitable distribution of income to the various sectors
II) Help the government to strategize efficient method of revenue
generation such as taxes, loans, grants and aids, money from
government investment, rates and rents, royalties, income from the
sale of refined and cru de petroleum products, e.t.c.
Iii) To help in achieving an improved balance of payment i.e. tariffs and
other fiscal policies are used in maintaining favourable balance of
payments of a country.
iv) It brings about price stability of goods and services thereby
preventing constant fluctuations and inflation and deflation that tends
to destabilize the economy of a country.
v) Provision of employment: provision of full employment opportunities
to citizens of a country is another aim of public finance.
vi) Satisfaction of need: Satisfaction of collective needs is another main
objective of public finance.
vii) Efficient allocation of resources: performs the functions of allocating
resources among public and private sectors.

FISCAL POLICY
Fiscal policy can be defined as the use of income and
expenditure instrument to regulate the economy. These fiscal
instruments are used as weapons of economic control to remedy
adverse economic conditions such as inflation, deflation, balance of
payment deficit, unemployment etc. the instrument includes: taxation,
public expenditure e.t.c.

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 OBJECTIVES OF FISCAL POLICY
1. Creation of employment
2. Industrial development
3. Revenue generation
4. Increased production
5. To control inflation
6. Economic development

GOVERNMENT OR PUBLIC REVENUE

This refers to the total income available to a country or an
economy at different levels of administration (local, state and federal
government).

TYPES OF PUBLIC REVENUE

 Capital revenue: these are revenue used to carry out
expenditure on projects that are permanent in nature and
require a high cost. e.g. loans, grants and transfers etc.
 Recurrent revenue: they are regular incomes obtained
on yearly, or monthly basis e.g. taxation licenses, fines
interest etc.

ASSIGNMENT

1. a) What is Public Debt?

b) Outline any three reasons why countries borrow
c) Outline any three effects of a huge national debt on the economy of
a country. WASSCE, 2019

28
WEEK FOUR, LESSON TWO

SOURCES OF GOVERNMENT REVENUE

1. Taxes: this includes direct and indirect tax, individual salaries
and cooperate bodies
2. Grants and aids: received from wealthy developed nations
3. License: e.g. driving license
4. Government saving: from surplus budgets
5. Rents and rates from government properties
6. Earnings from government investments
7. Fees, fines and royalties etc.

GOVERNMENT EXPENDITURE
This refers to the expenditure incurred by all level of gov’t
administration in the country

TYPES OF GOVERNMENT EXPENDITURE

 Capital expenditure: these are expenses of projects that
are permanent in nature e.g. building of roads, hospitals
and bridges etc.
 Recurrent expenditures: they are expenses that are
regular on daily ,weekly ,monthly etc basis e.g. electricity
bills

FACTORS CONTRIBUTING TO THE INCREASE IN

GOVERNMENT EXPENSES
1. Poverty
2. High population growth
3. Rise in national debts
4. Defense/ security expenses
5. Financing of democratic institutions
6. Expenses on war and insurgence attack

29
WEEK: FIVE LESSON ONE

TAXATION
TAXATION can be defined as the imposition of a compulsory levy by
the government on individuals salaries, firms or on goods and services
and corporate bodies for the purpose of generating revenue to provide
certain basic and public infrastructural facilities.
TAX: Tax is a compulsory levy imposed by the government or its
agency on individuals and corporate organization income and
properties.
Element of Tax
The two basic element of tax is the tax rate and tax base.
TAX BASE: The tax base refers to the item or object that is being taxed
e.g income, import goods ,export properties, companies profit etc.
TAX RATE: This refers to the percentage or the amount of money paid
as tax e.g 10% of personal income, 50% of the value of imports.

CLASSIFICATION OF TAXES
Tax is classified into Direct and Indirect tax.
DIRECT TAX: These are taxes levied directly on individual income,
firms profit and properties. The incidence of direct taxes falls on the
payers as they are aware of the payment of the tax.

TYPES OF DIRECT TAX

1) COMPANY TAX: this is the tax levied on the net profit of companies.
2) PERSONAL INCOME TAXES: they are levied on Individual
personal income usually on monthly or yearly bases, the family size of
the tax payer may be considered and it is based on the system of
P.A.Y.E (Pay As You Earn).

30
 3) CAPITAL OR PROPERTY TAX= these are taxes imposed on the
assets or properties of individuals e. g land.
4) EXPENDITURE TAX= this is levied on the spent part of income.

INDIRECT TAX: refers to taxes which are imposed or levied on goods

and services. The producers or sellers bears the initial burden of tax
before shifting them to the final consumers in the form of higher prices,
unlike direct tax, the tax payers under indirect are usually not aware of
the amount being paid for such tax. Examples of indirect taxes are
import duties, export duties, excise duties, sales tax, purchase tax and
value added tax (VAT). VAT is used to generate revenue for the
government.

PRINCIPLES OF A GOOD TAX SYSTEM.

1. Convenience: The method and time of tax payment should be
convenient to the tax payer e.g. end of month.
2. Equity or Fairness = this means that taxes are to be paid according
to individual income ability. In such a way that it does not inflict pains
on tax payer.
3. Economy= it implies that the method and cost of tax collection
should be cheaper in relation to the amount collected as tax.
4. Certainty= the tax payer should be aware of the particular amount
to pay as tax.
5. Impartiality:
6. Flexibility:
7. Simplicity
8. Revenue yielding
SYSTEM OF DIRECT TAXATION
1. Progressive tax: in this case, the rate of tax increases as income
increases, as this is based on income. Therefore, the burden of tax
increases as income increases e.g PAYE (pay as you earn), that is
high income earners pay more tax, than the low income earner.

31
 Progressive Tax curve

Tax rate
(%)

X
0
Tax payer’s income (N)

Regressive tax: in this case the tax rate decreases as the income of
the tax payer increases i.e. the higher the income the lower the tax.
The burden of tax rest heavily on low income earners, example poll
tax.

Regressive Tax
Tax
Rate
(%)

0 Tax Payer’s income (N)

2. Proportional tax: in this case, the tax rate is the same irrespective of
the level of income e.g10% of income i.e. every tax payer pays equal
proportion of his or her income. The tax rate is usually fixe.

32
 Tax
Rate Proportional Tax
(%)

0 Tax Payer’s income (N)

EVALUATION:
1. What is a tax?
2, Describe the following rates of taxation
a) Progressive tax (b) proportional tax (c) regressive tax
3. Explain the following principles of a good tax system
a) Equity (b) Convenience (c) Economy
WASSCE, 2018

WEEK FIVE LESSON TWO

INCIDENCE OF TAXATION
The incidence of taxation refers to the sharing of the final brunt or who bears
the burden of the taxation.
TYPES OF INCIDENCE OF TAX
1. Formal incidence: this refers to the initial effect of tax on the tax object
i.e. tax payer. For a direct tax the initial burden rest on the tax payer while
for an indirect tax the initial burden rests on the manufacturer.
2.Effective incidence; this refers to the point where the final burden rest for
a direct tax on the tax payer while for an indirect tax the final burden rest on
the final consumer.

33
 1. Incidence of indirect tax when demand is perfectly elastic: The
burden of the tax is borne by the producer in form of low prices of goods and
services, which if increased demand will fall.

S1
So
M o D
N
P

S1
S0

O
Q1

Quantity Demanded and Supplied

In the diagram OP, is the tax and since the demand for such
goods is perfectly elastic it implies that the producer bears the burden
and that is why the supply curve falls from OQ1 to OQ2 and the price
remains at OM. Any increase in the price above OM will drop the
demand to zero.
2. Incidence of tax when demand is perfectly inelastic: The
incidence of tax is shifted to the buyer in form of high prices of goods.
D
S1

I J S0
Price
K L

S1

S0

0
Q1
Quantity demanded/supplied

34
 The consumer bears the burden of tax of goods which are
perfectly inelastic. In the diagram above, increase in the price from OK
to OI has no effect on the demand i.e. still at OQ1 and supply is still
the same i.e. OQ1. JK is tax on the goods
3, Incidence of tax on moderately elastic and moderately inelastic
goods. If the demand is moderately elastic or moderately inelastic, the
burden of taxation will be shared between the producer (or the seller)
and the consumer. The more inelastic the demand for the commodity,
the more the burden of tax is shifted to the consumer. On the other
hand, the more elastic the demand for the commodity, the greater the
burden of taxation the producer (or seller) bears.

S2
D
G
P2 S1
Borne by the
consumer
P1

Borne by the producer

(or seller)
J D
I
S2

S1

O
Q
Quantity Demanded and Supplied

35
 Figure 3: Incidence of tax when demand is fairly elastic

S3
D
K
P2 S2
Borne by the
consumer
P1

Borne by the producer

(or seller)
J D
I
S3

S2

O
Q
Quantity Demanded and Supplied

Figure 4: Incidence of tax when demand is fairly inelastic

3. Incidence of tax when demand is unitary: If demand is unitary, the

tax burden is shared equally between the producer (or seller) and the
consumer. D S2

P R S1
2 Borne by
the
P S
1 Borne by
the
T producer D
V
S2
S1

Q
0
Quantity Demanded and Supplied
Figure 5: incidence of tax when demand is unitary

36
ASSIGNMENT
1.Explain the following concepts
a. Advalorem tax
b. Value added tax
c. Tax evasion
d. Tax avoidance
e. Tax farming
f. Tax rebate

37
WEEK SIX – LESSON ONE
MEANING
INFLATION
Inflation refers to the persistent rise in the general price level of goods
and services as a result of too much money chasing fewer goods .
TYPES OF INFLATION
1. Demand-pull inflation: This type of inflation arises as a result of an
excess demand over supply. When the demand for goods and services
increases considerably without a corresponding increase in their
supply, it will lead to price increase. The cause of demand pull inflation
includes population increase and salary increase, etc.
2. Cost-push inflation: This occurs as a result of an increase in the cost
of acquiring factors of production. This is as a result of a high wage
demand, capital and land, the producer passes the part of the higher
cost in form of higher price.
3. Hyper-inflation: (also known as galloping or run-away or sky rocket
inflation): This occurs when price level rises at a very sudden and rapid
rate leading to money losing its value.
4. Persistent or Creeping inflation: also known as chronic inflation. This
occurs when there is a slow and steady rise in the volume of money
and a fall in supply of goods and services.
CAUSES OF INFLATION
1. Increase in salaries and wages: This occurs when salaries and wages
increase without a corresponding increase in the supply of goods and
services. Excess money therefore chases fewer goods.
2. Population Increase: when there is a rapid population growth, this will
lead to an increase in demand and when there is no corresponding
increase in supply, it will lead to inflation.
3. War: this will increase price as a result of a reduction in production.
4. Excessive bank lending.
5. High cost of production.
6. Increase in demand.
7. Low productivity.
8. Budget deficit.
9. Hoarding.
10. Over –reliance on imported goods.
11. Industrial strike.

38
12. Inadequate storage facilities.

ECONOMIC EFFECT OF INFLATION

1. High profit
2. Reduction in the value of money
3. Fixed income earners will suffer
4. Fall in standard of living
5. Debtors will gain
6. Creditors will lose
7. Escalation of hunger
8. It discourages saving
9. It causes deficits in balance of payments
10. It discourages investment.
CONTROL OF INFLATION.
1. Effective price control system:
2. Use of fiscal measures: e.g. taxation, open market operation (OMO).
3. Use of contractionary monetary measures: e.g. increase in bank rate
i.e. this will discourage commercial banks from borrowing and lending
to people
4. The use of Open Market Operations: By selling securities to
commercial banks by the Central Bank, more money will be taken
away from commercial banks and reduce their lending ability.
5. Increase in production.
6. Industrialization: this will reduce reliance on imported goods.
7. Reduction in government expenditure or surplus budget.
8. Checking the activities of hoarders.
9. Increase in direct taxes: It will also go a long way in reducing the
volume of money in circulation.
EVALUATION
1. (a) Define Inflation
(b) Identify any three causes of (i) demand –pull inflation
(ii) cost – push inflation WASSCE, 2017

39
 WEEK SIX, LESSON TWO

MEANING
DEFLATION
Deflation refers to the persistent fall in the general price level of goods
and services as a result of a decrease in the volume of money in
circulation and high production.
CAUSES OF DEFLATION
 Increase in production without a corresponding increase in money
circulation can lead to deflation
 Increase in taxation: increase in taxation will lead to a reduction in the
amount of money in circulation thereby causing deflation
 Increase in bank rate: the high rate of lending discourages borrowing
and reduce total amount of money in circulation.
 Under population: This will decrease the volume of money in
circulation.
 Excessive price control: government may flood the market with goods
as a way of controlling prices without corresponding increase in the
volume of money in circulation.

THE EFFECT OF DEFLATION

1. Decline in profit
2. It result to unemployment
3. It discourages import
4. It encourages exportation
5. It encourages saving
6. Decline in profit
7. Money gains more value
8. Fixed income earners will gain.
HOW TO CONTROL DEFLATION
1. Deficit budget: increase in government expenditure, we have by
pumping more money into the economy thereby increasing the
volume of money in circulation.
2. Increase in wages: This will increase the purchasing power of the
people and at the same time increase the volume of money in
circulation.
3. Reduction in income tax: It will drain of money in circulation.

40
4. Reduction in Bank Rate: This will encourage commercial Banks and
other financial institutions to borrow more fund from Central Bank and
increase their lending rate to the public.
5. The use of Open Market Operation: The Central Bank uses this
method in increasing the volume of money in circulation by buying
securities from Commercial Bank thereby making more money
available to them.
6. Deflationary Gap: Deflationary gap measures the amount by which
aggregate expenditure or demand is below the full employment
national income.

ASSIGNMENT
1. What is deflation?
2. Outline any three positive effects of deflation.
3. Explain the ways by which inflation affects any three functions of
money. WASSCE 2015
4 Explain the following concepts
a. Reflation
b. Slumflation
c. Stagflation
d. Inflationary gap

41
WEEK SEVEN, LESSON ONE

CONCEPT OF PRODUCTIVITY
PRODUCTION POSSIBILITY CURVE
The production possibility curve (PPC) or production possibility boundaries
refers to a graphical illustration of the possible combination of output that can
be produced given the prevailing level of technology and full utilization of
resources.
The PPC is directly connected to the theory of opportunity cost because it
involves the sacrifice of one commodity for another as more resources are
allocated to the production of one commodity “A” less will be allocated to
another commodity “B”.
Possible Food crops Cash Crops
Combinations
A 3500 0
B 2800 600
C 2000 1000
D 1300 1500
E 7000 2000
F 0 2,800

A PPC
3,50
0 Z Non feasible
B
Food Crops

Waste of
(tones per month)

C Resources
2,80
0 D
x

E
2,00
G
0
F
600 1,000 1,500 2,800 2,800
Cash crops (tones per month)
42
 PPC
A

. Non-feasible region
Feasible Region

X
F
0

The graph above represents the production possibility curve. The horizontal
axis shows cash crop produced per month.

i) Points G and X inside the curve indicates that resource were not
efficiently utilized or there was widespread unemployment.
i) It could be seen that the PPC slopes downward. This indicates the
principles of opportunity cost.
iii) Point A to F on the graph indicates efficient use of resources
ii) Point X resources and G indicates waste of resources while point Z
indicates non-feasible region.

EVALUATION
1. What is production possibility curve?

43
2. Draw a production possibility curve and indicate any:
i) Point P

WEEK SEVEN - LESSON TWO

CONCEPT OF TOTAL, AVERAGE AND MARGINAL PRODUCTIVITY

1. Total Product (TP) : This refers to the total output of goods produced
from the combination of all factors of production during a specified
time .
Formula= Total Product = Average Product × Labour or output
Example:
If 45 men were employed in a rice milling company and they produced an
average of 12 bags of rice per person, calculate the total product .
Working :
TP=AP × labour
TP= 12 × 45
=540 bags
2. Average Product (AP): This refers to the output per unit of the variable
factors (labour or capital )
Formula = Average Product = Total product (output)
No. of labour (capital)
Example:
If 1500 bags of beans were harvested by 25 men in a farm daily, calculate
the average output.
Solution:
Average Product = Total Product =1500 = 60 bags
Labour 25
Marginal Product (MP) : This refers to the additional output produced as a
result of the employment of an additional unit of a variable factor .

44
MP= Change in Total Product
Change In variable factor (labour)
Example: If an initial quantity of 1500 bags of beans were produced and
quantity increases to 1550 as a result of an increase in the number of labour
from 25 to 35 calculate the marginal product .
MP = Change in Total Product
Change in labour
Change in TP=1550-1500 = 50
New - Old
Change in labour = 35 – 25 = 10
MP = Change in TP = 50 = 5
Change in labour 10

45
WEEK: EIGHT - LESSON ONE

TABULAR APPLICATION OF TOTAL PRODUCT, AVERAGE PRODUCT,

AND MARGINAL PRODUCT
Example: The table below relates to the application of manure to a fixed
area of land for the production of beans. Use it to answer the question below.
Tones of fertilizer Total product in bags Marginal product
application
0 1000 _
1 1100 100
2 1250 150
3 1500 250
4 _ 400
5 _ 250
6 _ 125
7 2350 _
8 2380 _
9 2330 _

A. What will be the total output of bean when no manure is applied to the
land .=1000
B. Calculate the total product after the application of the following quantity
of manure
i). 4 tones = 1500+400=1900bags
ii). 5 tones = 1900+250=2150bags
iii). 6 tones = 2150+125=2275bags

Calculate the Marginal Product after the application of:

i) 7tones=2350-2275=75bags
ii) 8tones =2380-2350=30bags.

46
iii) 9tonnes =2330-2380=50bags.
D. After what level of application does diminishing marginal return set in
=at the 4th application or tones.
ii. After what level of manure application will the total output decrease=
Total output decreases at 8 tones.

Example 2
Variable Fixed Total Average Marginal
unit of factor (land product(kg) product product
labour )
1 3 8 8
2 3 18 9 10
3 3 36 P 18
4 3 48 12 R
5 3 55 11 7
6 3 60 Q 5
7 3 60 8.6 S
8 3 56 7 T
a. Calculate the missing figure P Q R S T
I. For P= Total Product= Average Product X Labour
P = Total Product =36 =12
Labour 3
Q= Total Product = 60 =10
Labour 6
R = change in total product = 48- 36 12 = 12
Change in labour 4- 3 1
S = Change in total product = 60- 60 0 = 0
Change in labour 7-6 1

T = Change in total product = 56- 60 -4 = -4

Change in labour 8-7 1

47
WEEK EIGHT LESSON TWO

CONCEPT OF PRODUCTIVITY
LAW OF VARIABLE PROPORTION/LAW OF DIMINISHING RETURNS
This law applies to every production process that uses both the fixed
and variable factors of production.

The law of diminishing returns states that “as more and more variable
factors of production such as capital and labour are combined with the fixed
factor of production such as land production will increase up to a certain point
when decrease in total output will start as a result of continuous addition of
variable factors while the fixed factors remains constant.

For better understanding, lets consider in a farm setting where a piece

of land is used for agriculture, at the first stage continuous addition of workers
to the farm and particular type of crops (seeds) (variable factor) will results
in increase in output up to a certain point when decrease in output will set in
as a result of continuous increase in variable factors and land (fixed factor)
remaining the same or constant.

Stages of the Law of Diminishing Return

1. Increasing Return: This occurs when further addition of variable factor

such as capital, labour on a given fixed factor which brings a
proportionate increase in total product.

2, Constant Return: This occurs when further application of a variable

factor on a fixed factor bring about no change in the total product

3.Diminishing Return: This arises where a continuous application of a

variable factor on a given fixed factor leads to a decrease in total
product and

4. Negative Return occurs when a continuous application of a variable

factor to fixed factor leads to a negative marginal physical product.

48
WEEK NINE - LESSON ONE

COST CONCEPTS

DFINITION OF COST

Cost of Production is defined as what it takes in terms of human and

materials resources in producing a commodity. For goods and services to be
produced, all the four factors of production such as land, labour, capital and
entrepreneur have to be combined. All these various costs incurred in the
use of these factors of production in the production of goods and services
are generally called cost of production.

Cost of production may also be defined as the sum total of all the
payments to the factors of production used in the production of goods and
services.

Cost of production can also be related to all the rewards due to factors
of production which include rent for land, wages and salaries for labour,
interest for capital and profit for entrepreneur.

TYPES OF COST
1. Fixed Cost: These are costs of resources which do not vary with level of
output i.e. they do not change with the changing output that is no matter the
quantity of products produced with the product range, they remain the
same.They are also called unavoidable cost Examples are the cost of
machinery, land, plant and vehicles. It is calculated as FC = TC – VC or TFC
= AFC x Quantity produced.
Y

Fixed Cost
Cost

49

0
 X

2. Variable Cost: These are the costs of resources which vary with the level
of output both in the short run and long run, that is they change with the
quantity of goods and services produced. Examples are cost of raw
materials, labour etc which rise as the level of output increases.

Variable cost

Cost

Output

3. Total cost: This consist of all the amount of what it takes to produce any
commodity. Total cost of a firm is arrived at by adding the fixed and variable
costs. TC = FC + VC or TC = ATC X Q

TC

Variable cost

TFC
Cost Fixed cost

0 Output

4.Marginal cost also known as an incremental cost is an extra cost

incurred for producing an extra unit of goods and services. It is calculated

50
 by the formular MC =Changes in total cost/ changes in total output.
Graphically represented as ,
5. Average cost: This is the cost per unit of output i.e. the cost of a commodity
out of all the products produced by a firm. Average cost is arrived at by
dividing the total cost by the total number of output. Average cost can also
be called average total cost (ATC).
ATC or AC = TC = AFC + AVC
TQ

Cost per unit AC

X
Output

ii. SHORT RUN AND LONG RUN COSTS

The short run is a production planning period in which at least one
factor of production is fixed in supply. All factors of production cannot be
varied by the firm. Only variable factors such as labour, raw materials can be
varied while those that cannot be varied such as land building, heavy
machinery, plants, vehicle and top management salaries are called fixed
factors of production. In this period, the only way output can be increased is
by employing more units of the variable factors of production and the fixed
factors used more efficiently.
LONG RUN is a production planning period in which a firm can vary all
the factors or production to be in line with the level of demand. Here, all
factors and costs are variable. Hence, the short run and long run costs are

51
two different time periods for planning toward achieving productive and
efficient firms.

iii. DISTINCTION BETWEEN ECONOMIST’S AND ACCOUNTANT’S VIEW

OF COST
The economist views cost in terms of opportunity cost, that is the
forgone alternative, how an individual can sacrifice one thing in order to
obtain another. The money spent on a commodity is not what borders the
economist but the alternative commodity that is left unbought in order to
purchase that commodity.They view cost in terms of both explicit and implicit
cost.
Accountants views cost in terms of the amount of money spent in order
to have a commodity (in terms of money cost). Accountant views cost in
terms of actual payment made which is referred to in economics as
money cost.They view cost in terms of explicit cost only

EVALUATION
1. What is cost of production?
2. With the aid of a suitable table, explain the meaning of the following kinds
of cost: (a) Fixed cost (b) Variable cost (c) Total cost and (d) Average
cost.
3. Distinguish between opportunity cost and money cost.

52
WEEK NINE LESSON TWO
REVENUE CONCEPTS
DEFINITION OF REVENUE
The term revenue simply means the income earned by a firm from the
sale of its commodities. Government revenue comprises taxes and income
from other sources.
The concepts used under revenue are as follows:
1. Total Revenue (TR): This is the total amount of income earned from
the total quantity sold. It comprises total income that is earned or
generated from selling goods and services. Suppose Q Quantity or
numbers of units of a goods or service is sold at a price P per unit, total
revenue. It is calculated as: Total Revenue = Q X P.

2. Average Revenue (AR): Is the revenue earned per unit sold. It is

calculated by dividing the total revenue by the total number of units
sold.
AR = Total Revenue
No. of units sold

53
 Total revenue is related to average revenue. TR = AR X Q
AR = Total Revenue
Quantity
Total Revenue = Quantity x Price, this implies that
Price =Total Revenue
Quantity therefore AR = P.
3. Marginal Revenue (MR): This refers to increase in total revenue as a
result of selling one more unit of a product. It is calculated as follows:
MR = Changes in Total Revenue = TR
Changes in Quantity Q
Revenue Schedule of Salisu and Co
Unit Sold Total Revenue Average Marginal
TR (N) Revenue Revenue (N)
AR (N)
1 10 10 -
2 30 15 20
3 60 20 30
4 120 30 60
5 150 30 30
6 120 20 -30
7 80 12.86 -40

Note: Profit is the excess of revenue over cost of profit, else loss.

Profit = TR - TC
(AR X Q) - (TFC + TVC)
Price x Quantity - (ATC X Q)

54
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56