SUBJECT: ECONOMICS

CLASS: SS3
SCHEME OF WORK
Week Topic
1. Revision.
2. Economic Lesson from Tigers, Japan, Europe and
America
3. Human Capital Development
4. International Trade
5. Balance of payments (B.O.P.)
6. Economic growth and development and Economic
development planning
7. MID-TERM BREAK.
8. International Economic Organization
9. Current Economic Plan: MDGs, NEEDS, Vision
2020&Economic development challenges
10. Economic reform program
11. Externalities
12. Revision
13. Examination

WEEK 1--Revision
WEEK 2
SUBJECT: ECONOMICS
CLASS: SS3
TOPIC: ECONOMIC LESSONS FROM ASIAN TIGERS,
JAPAN, EUROPE AND AMERICA
CONTENT: 1. ECONOMIC LESSONS FROM ASIAN
TIGERS
2. ECONOMIC LESSONS FROM JAPAN
3. ECONOMIC LESSONS FROM EUROPE

Sup-Topic 1: Economic Lesson from Asia Tigers

Economic History of the Asian Tigers

The four Asian Tigers - Hong Kong, Singapore, South

Korea and Taiwan consistently maintained high levels
of economic growth since the 1960s, fueled by exports
and rapid industrialization, which enabled these
economies to join the ranks of the world's richest nations.
Hong Kong and Singapore are among the biggest
financial centers worldwide, while South Korea and
Taiwan are important hubs of global manufacturing in
automobile/electronic components and information
technology, respectively.
Common characteristics of the four Asian tigers
include:
(i) They focus on exports,
(ii) They have educated populace
(iii) They have high savings rates
FACTORS THAT ACCOUNT FOR THE RAPID
DEVELOPMENT OF TIGER ECONOMIES
(i) High public and private saving rates: Savings were
high in both the public and the private sectors. The
incentive to save was very high and this enabled
capital to be accumulated for massive investments
in the high income generating sectors.
(ii) High life expectancy: This is made possible by
adequate care of the people by government and this
leads to high productivity.
(iii) Highly developed capital and money markets : They
pursued stringent credit policies and state-imposed
below-market interest rates for loans to specific
export-led industries.
(iv) High level of information technology development :
Their highly developed and breakthrough in
information technology boost their external trade
and increased foreign exchange earnings which are
used for further investment.
(v) Purposeful, honest and articulate leadership: Their
leaders were in their office to serve the interest of
people and ensure that people enjoyed the good
things of life.
(vi) Export-based industrial policies: They effectively
pursue industrial policies which supported massive
 exports to the rich industrialized nations of Europe
and America.
(vii)Heavy government investment in education and
human capital development: This helped them to
develop highly skilled manpower required to turn
the economy around within a very short time.
(viii) Quality and standardization: Emphasis was
placed on production of high quality standardized
goods that would compete at the global level.
Experts on Standardization and quality assurance
were brought in from Japan, US and UK.
(ix) Culture and Religious beliefs- The religious beliefs
of Singapore, hard work, innovativeness coupled
with their culture of openness and harsh
punishments for criminal offences led to a
corruption free economy.
(x) Outward oriented strategies/policies- Their more
rapid growth can be associated with much greater
openness. This was achieved by removing all
restrictions on imports and giving freedom to the
export sector.
(xi) Slow growth rates of population- This played a
great role in reducing family sizes (dependency
ratios), creation of an educated labour force,
accumulation of household and government
savings, rise in wages and impressive growth of
investments in manufacturing technology
 (xii)Effective and stringent public policies. This
consisted of credible macro-economic policies that
kept inflation low, interest rates low, fiscal policies
that focused on raising saving rates and investment
rates, as well as policies that enhanced the
development of infrastructure.
(xiii) Knowledge- driven economy- The Asian Tiger
governments committed to improving research and
development. The industries became knowledge
driven industries and e.g. in Singapore gradually 2
out of 3 jobs were for knowledgeable and skilled
workers in manufacturing sector and 3 out of 4 of
the export services sector.

Lessons for the Nigerian Economy

i. Focus on exports: Whereas other developing
countries use import substitution strategies for
economic development, the Asian tigers focused on
export-oriented industrial development to richer
countries. Domestic production was discouraged
through government policies such as high tariffs also
trading the surplus with the richer countries.
ii. Human capital development – They developed
specialized skills for their personnel in order to
improve productivity through raising their
educational standards.
 iii. They had an abundance of cheap labour. This is
highly needed for economic development.
iv. Existence of an adequately developed financial
system: An adequately developed capital market
would ensure adequate mobilization of capital for
industrial and economic development.
v. Maintaining social and political stability together
with a stable macroeconomic environment,
vi. High tariffs on imports in the early days to
discourage import and encourage export.
vii. Leadership that is interested in the welfare of the
citizens would motivate labour to work hard, thereby
raising the level of productivity.
viii. High saving rate will increase the rate of capital
formation. This should be done by private institutions
and government instead of spending prestigious non-
productive project.
ix. Development of export industries and promotion of
certain basic industries that produce competitive
goods for the world market.
 Real GDP Growth in the Asian Tiger Economies, 1986-2000
(1886=100)
350

300

250

200 Hong Kong

Indonesia
150
Malaysia
Singapore
100
S. Korea
50 Thailand

0
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

JAPANESE MIRACLE AND LESSONS FROM

JAPAN
The period between 1953 and the early 1970s which
witnessed unprecedented growth rate in Japan is termed
by some people as “miracle period growth”. The Japanese
economy was devastated by the world war II and the
economic activities almost grounded to a halt. But by the
early 1970s, the Japanese industries had become
internationally competitive and the income gap between
the country and the United State of America was closed
considerably.
Factors that triggered off the Japanese miracle are:
1. Private sector led investment: The profit-motive
associated with private sector investment promoted
 large-scale investment, leading to economies of scale
in production.
2. High literacy rate and high education standards:
Japan is acclaimed to have the highest literacy rate,
and the nature of educational curriculum encouraged
discipline.
3. A well disciplined, relatively cheap, highly educated
and skilled work force, with reasonable wage
demands by labour unions.
4. Proper management of natural resources.
5. Promotion of exports through the development of
world-class, responsive export-oriented industries
which were provided with adequate incentives
6. Massive investments in infrastructure and in heavy
manufacturing industries.
7. Highly developed financial and marketing systems
8. Adaptation of foreign or imported technology
9. Massive research and development made them to
discover efficient production techniques.
10. High saving rate accompanied with high levels
of investment.

Economic Lessons from Europe

There are lessons to learn by developing countries
from Europe. These are:
1. Economic integration or co-operation:- This has
helped to limit wars which led to waste of
resources in the past. Co-operation in many areas
of development has created economies of scale
in production and increased the level of
investment.
2. Export-oriented economies:- They bought cheap
raw-materials from the developing countries
and produced manufactured goods in which
they have comparative advantage.
3. Massive investments in manufacturing
industries with reduced reliance on agriculture.
4. Massive investment in education and human
capital development.
5. Agrarian and industrial revolutions in Britain led
to discoveries and inventions which changed the
economic landscape of Europe.
6. A well developed financial sector: Europe has a
well developed financial sector with financial
institutions among the leading ones in the
 world. This makes for easy accumulation and
transfer of capital for investment

Evaluation:
1 (a) Explain the meaning of the ‘Japanese miracle’
(b) What lessons can your country learn from the
economic development of Japan?
2 What is meant by “Asian Tigers?” Examine the
development strategies adopted by these countries and
discuss the economic lessons your country can learn from
them.
3. Examine the development strategies of the countries of
Western Europe. What economic lessons can your
country learn from them?

WEEK 3
SUBJECT: ECONOMICS
CLASS: SS 3
TOPIC: HUMAN CAPITAL DEVELOPMENT
CONTENT: 1. Introduction to human capital development
2. Meaning and definition of human capital
development
Sub-Topic 1: Introduction to human capital
development

According to modern growth theory, the accumulation of

human capital is an important contributor to economic
growth. Numerous cross-country studies extensively
explore whether educational attainment can contribute
significantly to the production of overall output in an
economy. Although macro studies have produced
inconsistent and controversial results (Pritchett 1996),
several micro studies that look into the same problem
have shown a consistently positive relationship between
the education of the workforce and their labor
productivity and earnings. General finding is that
individuals with more education tend to have better
employment opportunities, greater earnings, and
produce more output than those who are less educated.
These findings provide a strong rationale for
governments and households to invest substantial
portions of their resources on education, with the
expectation that higher benefits will accrue over time.

Sub-Topic 2: Meaning and definition of human capital

development
Human capital is the total stock or value of competencies,
skills, knowledge, social and personality attributes, including
creativity, embodied in the ability to perform labour in order
to produce economic value.

Factors Affecting the Efficiency of Human Capital

1. Increased level of education: Provision of higher and
specialized education increases the efficiency of human
capital.
2. On-the job training: Provision of formal and informal
training programmes while employed, increase the skill
of the workers and enhance the efficiency of human
capital
3. Improved health condition: Provision of better health
facilities improve the health of the providers of labour,
thereby enhancing their efficiency.
4. Standard of living: An increase in the standard of living
increases the efficiency of human capital.

Brain Drain and its effect on Nigeria Economy

Brain drain is the large scale emigration, over a
comparatively short period, of a large number of highly
skilled intellectuals and technical labour to more favourable
geographic, economic and professional environment. E.g.
large scale movement of Nigerians health-care professionals
to India, America and other high income countries. It is also
referred to as “capital flight”.
Reasons for Human Capital Flight
i. Poor social environment in the source countries: The
fewer life opportunities, political and social instability,
economic depression and health risk cause the
movement of labour in large scale from less developed
countries to those countries with better opportunities.
ii. Better social environment in host countries: Owing to
rich opportunities for profitable employment, political
stability, better living conditions, developed economy,
intellectual freedom, etc, there is large scale movement
of labour to these countries.
iii. Individual reasons: These include family influence such
as presence of overseas relatives, personal preference
and ambition for an improved career.

Effects Brain Drain on Nigeria Economy

i. Loss of professional skills and talents: The nation is
denied the services and expertise they would otherwise
have provided in various areas of the economy such as
institutions of higher learning, health institutions,
 industries, etc, leading to low level of production and
development.
ii. Capital waste: The resources used in training them,
either in the forms of scholarships, loans, etc. are lost to
the advanced countries which may have contributed
little.
iii. Increased level of poverty: This is due to general low
level of productivity arising from scarcity of highly
productive labour.
iv. Decrease in wealth creation, employment and tax
revenue: More entrepreneurs taking their investments
abroad contribute to the high rate of unemployment
and decreased wealth creation within the country, with
a consequent reduction of tax revenue.
v. Encourages Individuals to acquire greater education and
skills: They do this in order to meet the demands of the
advanced countries that are in demand of their services.

Effects of Brain Drain on Destination Country

i. Higher labour skills are available for services and
production in other sectors of the destination country
ii. There is influx of illegal aliens who wish to take
advantage of the greater opportunities available

How to Arrest Brain Drain

1. Committed and selfless leadership with a mission and
vision: Highly skilled labour will stay in the country if
they discover that leaders are committed and are
making genuine efforts at development.
2. Provision of adequate working and living conditions:
These would encourage highly skilled labour to remain in
the country to contribute their quotas.
3. Value re-orientation: Nigerians should be taught to
believe that our collective hopes and aspirations can be
met within the country.
4. Setting up a national commission to handle the issue of
brain-drain: This body would help to formulate policies
and proper solutions to the challenges of brain-drain.

EVALUATION:
1. What is human capital development?
2. List five factors that affect the efficiency of human
capital
3. How can brain drain be arrested?
WEEK 4
TOPIC INTERNATIONAL TRADE
CONTENT: (1) Meaning of International Trade and
Domestic Trade
Differences between Domestic and
International Trade
(2) Reasons for International Trade
Theory of comparative costs and its
shortcomings
(3) Globalization- Meaning, features, challenges
and
opportunities to the Nigerian Economy
Sub Topic 1 Domestic Trade and International Trade
Domestic or Internal Trade or Home Trade involve the
exchange of goods and services among the residents of
country. It includes all trading/selling and buying
activities of all types within a particular country e.g.
Nigeria.
International trade or External trade or foreign trade
involves the exchange of goods and services between
two or more countries. It is trade among nation. E.g.
between Nigeria and other countries. People firms,
government and agencies exchange goods and services
across international boundaries.
International trade can be:
1. Bilateral-trade involving exchange of goods and
services among two countries. Each country
balances its payments and receipt with each other.
2. Multilateral-trade in which a country exchanges
goods and services with many other countries.
Similarities between International trade and internal
trade
1. Both trades involve the use of money as a medium
of exchange.
2. Both have to do with some degree of specialization
between the trading partners which is the basis of
exchange.
3. Both trades involves the buying and selling of goods
and services.
4. Both trades arise from inequitable distribution of
natural endowments and production resources.
5. Both trades involve the activities of middle men.
Differences between International Trade and
Internal (domestic) Trade
 1. While International trade takes place across national
boundaries, internal trade takes place within the
borders of a country.
2. Internal trade uses local or national currency
whereas different currencies are used in foreign
trade.
3. There is no restriction for home trade while foreign
trade can be restricted by import/export duties,
tariffs, embargoed
4. International trade is a foreign exchange earner
while home trade only generates internal revenue.
5. Factors of production are freely mobile in home
trade, but there are restrictions for such in
international trade. e.g. labour mobility is subject to
immigration laws among countries.
6. Barriers of distance, transport costs are greater in
foreign trade than in home trade.
7. The problems of foreign exchange and balance of
payments are peculiar to foreign trade while internal
trade has no such problems.

Sub Topic 2
REASONS/ BASIS FOR INTERNATIONAL TRADE
International trade arose from the international
specialization and division of labour. These have to be for
the following reasons:
1. Uneven distribution or endowment in natural
resources of nations such as minerals. For instance,
Nigeria has coal and crude oil; Ghana is endowed with
bauxite while Canada is enriched with nickel.
2. Differences in climate and soil which gives rise to the
cultivation of different crops.
3. Differences in capital stock which determines the
quantity and variety of goods and services each country
will be able to produce.
4. Differences in labour skills: There are variations in the
volume and quality of labour for productive activities.
5. Differences in technology: Countries advanced in
technology can produce more industrial goods than
others. E.g. Japan is good in electronic goods; Germany is
good in Mercedez Benz cars, Switzerland in watches and
China in a variety of items.
6. International trade takes place because no country has
attained self sufficiency. For instance Nigeria imports
cars, radio, watches etc from Japan while Japan gets
Nigeria’s petroleum. The desire to satisfy wants each
country cannot produce calls for exchange across
countries.
7. The need to create a wider market for a nation’s goods
and services is another reason for international trade.
8. International trade is also based on the premises that
the cost of production of a commodity differs from one
country to another. So a country will choose to import a
good if it is cheaper to do so than to produce it.
9. International trade is also engaged in because of the
desire of nations to improve the standard of living of
their citizens.
Barriers to International Trade
There are problems besetting trade among nations.
These includes
1)Differences in currency
2)Natural barriers of distance, seas, deserts, etc
3)Differences in language
4)Trade restrictions by some nations
5)Long and sometimes difficult processing of
documents for foreign trade
6)Hindrance from political ideologies of different
countries
7)Differences in units of weights and measures
Advantages or Merits of International Trade
1. It is a source of revenue for nations.
2. It leads to increase in total world output of goods and
services.
3. It provides a wider market for goods.
4. It enhances better standard of living in many nations.
5. It promotes interdependence among nations which is
a prospect for world peace and international
goodwill.
6. It provides employment opportunities for exporters
and importers.
7. It leads to a more efficient allocation of world
productive resources.
8. It promotes specialization, division of labour and
efficiency in production.
9. It enhances world economic growth and social
progress.
10. It leads to increased foreign investments in West
African nations.
11. It puts in check private monopoly power as
importation of goods makes room for competition.

Disadvantages∨Demerits of International Trade

Inspite of its numerous advantages, there are some
shortcomings of international trade. These are:
1. It may lead to overdependence on other countries
2. It negatively affects the growth of infant industries
3. It negatively impacts on the cultural and moral values
of a country and leads to decadence in social norms
(e.g. indecent and immoral fashions imports into
Nigeria)
4. It can reduce the efforts of a nation towards attaining
self-sufficiency.
5. It can generate unemployment as high importation
may reduce the level of production of domestic
industries.
6. Unrestricted foreign trade may lead to balance of
payment deficit i.e when import is higher than
import.
7. It makes less developed countries become dumping
grounds for all kinds of goods including dangerous
and harmful ones such as arms and ammunitions and
alcohols.

EVALUATION:
1. What is international trade?
 2. Give 5 reasons why developing countries engage in
international trade?

The principle of comparative cost Advantages

The law or theory or principle of comparative cost
advantage propounded by David Ricardo in 19th Century,
states that a country will be better off, if it specializes in
the production of commodities in which it has the greatest
comparative cost advantage over others and exchange
them for commodities in which it has comparative cost
disadvantage. This law is based on the premises of the
law of opportunity cost.
A country is said to have comparative advantage over
others in the production of a commodity in which it has
the lowest opportunity cost than others. The real cost of
production in terms of the alternative goods forgone is
used in comparison with that of other nations.
The principle operates on some basic assumptions that:
i. There are only two trading countries
ii. Only two items are produced
iii. There is free flow and mobility of factors of
production
 iv. There is no balance of trade between the two
countries
v. There is no transport cost
vi. Technology and costs are constant
vii. Labour is the only factor of production
Based on these assumptions, the principle can be
illustrated in three stages as follows:

Stage1. Production situation of Nigeria and

Thailand with no specialization and no trade.
Country Units of Output Opportunity
labour Rice Cost
Cocoa
(in bags)
Nigeria 10 10 15 bags of
150 Cocoa or 1
bag of rice
Thailand 10 100 5 bags of
20 rice or 1
bag of
Cocoa
Total 110
Output 170
  Nigeria- will forgo 15 bags of Cocoa to produce 1
bag of rice or forgo 1 bag of rice to produce 15 bags
of Cocoa.
 Thailand- will forgo 5 bags of rice to produce 1 bag
of cocoa or forgo 1 bag of cocoa to produce 5 bags of
rice.
From the above, we can deduce that Nigeria has a
comparative advantage in the production of cocoa while
Thailand has comparative advantage to produce rice.
Stage II. With Specialization
Country Units of Output
labour Rice
Cocoa
(in bags)
Nigeria 10 ---
300
Thailand 10 200
---
Total 200
Output 300

Stage III. With Trade

Country Quantity of
Consumption
Rice
Cocoa
 (in bags)
Nigeria 90 210
Thailand 110 90
Total 200 300
Output

From the tables,

i. The total production of the countries increased with
specialization i.e Rice from the initial 110 bags to
200 bags and Cocoa from 170 bags to 300 bags.
ii. The trading countries now enjoy improved or
higher standard of living because they have more
commodities than they could produce before trade.
iii. The trade enhanced more efficient allocation of
productive resources i.e. labour.
EVALUATION
 Explain the concept of comparative cost advantage in
International trade.

 What are it’s contributions to trade among nations?

WEEKEND ASSIGNMENT
Objective Test:
1. International trade could be bilateral or (a)Mono-
lateral (b)multilateral
(c) Horizontal (d) vertical (e) circular
2. International Trade depends on the concept
specialization (b) technology
(c) electricity (d) endowments (e) integration
4. Home trade in Nigeria cannot be practiced between
(a)North and South (b)Kaduna and Abuja (c)Abuja and
Ghana (d) Lagos and Badagry (e) All of the above
5. The following are the assumptions of the principle of
comparative advantage except
(a) Only two countries (b)no transport costs (c)only two
items are produced (d)constant costs (e)factors of
production are varied.
Essay Test
1. Outlined the major exports of Nigeria ans state the
contributions they make to her economic
development.
2. What are the obstacles to international trade
3. In tabular form, highlight the differences between
internal and international trade
 4. Enumerate 5 reasons for international trade
5. State 5 barriers to international trade
PRE- READING ASSIGNMENT
Read fundamentals of Economics by RAI
Anyanwuocha, pages 286-288.

WEEKEND ACTIVITY
Read fundamentals of Economics by RAI
Anyanwuocha, pages 265-271
REFERENCE TEXTS
(1) Essential Economics by Cole Esan Ande Book
3TONAD PUBLISHERS
(2) Fundamentals of Economics by R.A.I.
Anyanwuocha; AFRICANA FIRST PUBLISHERS
PLC

WEEK 5
SUBJECT: ECONOMICS
CLASS: SS 3
TOPIC: BALANCE OF PAYMENT
CONTENT:
i. Role of money in international trade
 ii. Definition of Balance of payment
iii. Favorable and unfavorable balance of payment
iv. Methods of correcting balance of payment problems

Sup-Topic 1: ROLE OF MONEY IN INTERNATIONAL

TRADE
International trade is trade between two or more countries.
Foreign trade is made possible as a result of international
specialization. Money plays prominent roles in international
trade.

Roles of Money in International Trade

1. It is a medium of exchange of commodities in international
trade: - The exchange of goods and services among the
residents and governments of various countries across
international boundaries is done by money
2. In international trade, trade credits are sometimes given and
payments are made later.
3. Surplus foreign exchange from international trade is kept as
reserves in the form of gold or international currency such as
dollar.
4. It serves as unit of account because balance of trade and
payment accounts are recorded in monetary terms.
5. At the international level, money can be used for making
transfer payment like giving aids to poor countries.
 6. It facilitates economic development: Foreign capital and
skills are being imported , thereby helping the development
of developing countries.
TERMS OF TRADE
A term of trade is the rate at which a country’s exports exchange
for its import. Simply put, terms of trade are the price ratio
between export and import. It is measured mathematically using
this formula below:
Terms of trade = index of export price x 100
Index of import price 1

BALANCE OF TRADE
Balance of trade shows the difference between the values of a
country’s visible exports and imports over a given period of time.
It is known as balance of payment on current account. Balance of
trade is described as favorable when receipts from exports are
more than payments from imports. On the other hands, it is
unfavorable when payments on imports are more than export
receipt. Nigeria visible exports are cotton, cocoa and imports are
electronics, cars etc.
Sub topic 2: Definition of Balance of payment
This is statement showing the monetary value of all transactions
between a country and the rest of the world during a given
period. It is a record of all payments to and receipts from foreign
countries during a particular period of time usually a year.
Balance of payment can be favorable or unfavorable. If the total
receipts are more than total payments, the BOP is favourable. On
the other hand, if the total payments are more than total receipts,
then it is unfavorable. It is made up of the current account, capital
account and monetary movement account.

COMPONENTS OF BALANCE OF PAYMENT

CURRENT ACCOUNT: - This account shows the total of a
country receipts and payments on visible and invisible trades.
(a) The visible Trade Account (Balance of Trade): It
includes visible items like cocoa, palm oil.
(b) Invisible Trade Account): It covers services such as
transportation, insurance and banking. Other things
included are travel expenditure (tourism), income from
investments such as interests, profits and dividends,
private gifts, government services, and other services.

CAPITAL ACCOUNT: It comprises short and long term capital

movement. Capital account shows changes in the volume of a
country’s foreign assets and liabilities through capital movement
and investments. The capital account of balance of payment
includes inward and outward foreign securities. It involves the
actual flow of money from one county to another. The balance of
payment on capital account is the difference between receipts and
payments on capital expenditure with the rest of the world. It
consists of loans and investment.
MONETARY MOVEMENTS OR GOLD MOVEMENTS
ACCOUNT: It shows a country balances in its current and
capital accounts. This is the balancing account. Official
settlement account shows how surplus or deficit in current
account and capital account are finally settled.

BALANCE OF PAYMENT EQUILIBRUM

Balance of payment is in equilibrium when total receipts are
equal to total payments. A country is experiencing equilibrium in
its balance of payment when total inflow is equal to total
outflow.

BALANCE OF PAYMENT DISEQUILIBRIUM

This occurs when a nation’s receipts do not equal its payments
i.e. total receipts on the capital and current are not equal to
payments within a year. Disequilibrium is either a surplus or
deficit. Deficit occurs when total payments of a country exceed
total receipts in a given year whereas a surplus occurs when total
receipts are greater than total payments in a given year.
(A) Balance of payment Surplus /Favorable: A country is
experiencing surplus in its balance of payment when total
 receipts (inflow) from a country’s export are greater than the
total payments (outflow) on imports of country in a given
year. Surplus= Receipt > Payment
EFFECTS OF BALANCE OF PAYMENT SURPLUS
1. Inflationary trend
2. Settlement of debt
3. Increase in inflow
4. Increase in foreign investment
(B)Balance of payment deficit/ Unfavourable: This is a situation
where the total payments on import is greater than the total
receipt of a country’s export in a given year or vice versa i.e.
the country’s receipts are less than its payments in a
particular year. The likely effects of deficit are accumulation
of foreign debts and reduction in investments abroad.
CAUSES OF BALANCE OF PAYMENT DEFICIT
1. Low level of technology
2. Low level of foreign direct investment
3. High debts service payment
4. Poor performance of non-oil sector
5. Low level of agricultural production
MEASURES TO CORRECT BALANCE OF
PAYMENT DEFICIT
 (1) Devaluation: Devaluation cheapens export and
make import expensive thereby improving the
balance of payment
(2) Reduction of import: The government can
restrict imports by the use of tariffs, quotas and
outright embargo on import.
(3) Export promotion measures: Government can
encourage the production of exportable goods in
large scale
(4) Borrowing from international financial
institution: - A country can borrow money from IMF
or other richer nations in order to correct her balance
of payment deficit.
(5) Foreign exchange control: This involves the
rationing of foreign exchange in order to reduce
balance of payment deficit.
(6) Promotion of import substitution industries:
This is done to replace the commodities that were
previously brought from foreign countries.
(7) Drawing from foreign reserves: Drawing on the
value of the country’s foreign reserves to pay the
creditors.
MEANS OF FINANCING BALANCE OF PAYMENT
DEFICITS
 (1) Counter trade: This is exchange of goods for
goods in international market.
(2) Running down external reserve
(3) Borrowing from international financial
institution
(4) Short term credit
(5) Grants and aids
(6) Increase of export of goods
EVALUATION:
(1) Explain the term balance of payment deficit
(2) Under what conditions will devaluation improve
a BOP of a country?
(3)What is balance of payments?
(4)State three components of balance of payment

Commercial policy in international trade

Commercial policy in international trade involves the use of
certain instrument either to protect the economy or to promote
external trade. These instruments of protection such as the use of
quotas, bans, etc
Tools or instruments of trade restriction are:
1. Import duties or tariff
2. Devaluation
3. Foreign exchange control
4. Embargo: an embargo is a ban on the importation of a
particular product, or on all imports from a particular country.
5. Import quota: a quota is a limit on the number of imports
allowed into a country each month or year
6. Import license
7. Excise duty reduction
8. Preferential duties
9. Import monopoly
10.Subsidies- these are grants paid to domestic producers to help
reduce their production costs and sell their products at lower
prices than imported products.

TARIFF OR RESTRICTION ON TRADE

Tariffs are taxes or duties imposed on import and export by
the government of a country. The idea behind tariff is to
restrict the volume of trade or improve the international term
of trade.
REASONS FOR THE IMPOSITION OF TARIFFS
1. To protect infant industries
2. Generation of revenue
3. To prevent dumping
4. To improve balance of payment deficit
5. To prevent importation of dangerous goods
 6. Retaliatory measures
7. Employment generation
8. Political motive
9. To promote self-sufficiency
10. To check consumption pattern
11. To protect strategic industries.

MEANING OF EXCHANGE RATE

Exchange rate is the rate at which countries exchange their
currencies or the rate at which a country decides to buy or sell
her currency in relation to other currencies of the world.

DEVALUATION
Devaluation can be defined as the reduction in the value of
the country’s currency in terms of other currencies of the
world. It can also be defined as the fall in exchange value of a
country’s currency in relation to the currency of other
countries.
Effects of devaluation on currency
1. Exports becomes cheaper
2. Import becomes expensive
3. Reduction in import
4. Increase in export
5. Balance of payment improvement
 6. Employment opportunities
7. Increase in numbers of industries.
Conditions in which devaluation can improve a country’s
balance of payment.
1. The elasticity of demand must be elastic
2. The country’s export must have elastic demand in other
country
3. Other countries must not devalue their own currencies.
4. There must be no increase in wages and other incomes.

Mathematical approach in currency devaluation and

exchange rate.
Example 1: Assuming that Nigeria is willing to buy or sell
cocoa at #400 per tone and the USA is willing to buy or sell at
$50, then the value of the two currencies can be fixed at #400
= $50, the ratio then will be #8=$1. The exchange rate is
therefore #8:$1.
Example 2:
Let us assume the initial exchange rate of the Naira and US
dollar is #1=$5
A Nigerian importer is to purchase 60 computer systems at a
cost of $40 each from the USA
Total amount required to purchase the computer system is 60
x $40= $2400
Since the exchange rate is #1 = $5, total amount of naira
required is:
2400 = #480 this means a Nigeria importer will
spend #480 to
5 import the 60 computer system to
Nigeria.
If Nigeria devalues her currency by 100%, the new exchange
rate will be #2 = $5, or #1 = $2.5

The amount of money a Nigeria importer will have to spend

$ 2400
will now be 2.5 = ₦960.00
₦960 would be required to import the same 60 computer
system
Example 3
In a year A, 80 naira exchange for a dollar and later in year B,
130 naira exchanged for a dollar through the forces of
demand and supply
(a) State the effect of the above on the value of the dollar
(b) How much naira would be needed to purchase 50,000
dollar worth of generator from U.S.A in year A
(c) How much in naira would be needed for the same
purpose in year B
 (d) (i)calculate the percentage change in the value of the
naira between year A and B
(ii) From your calculation, state the effect on the value
of the naira
SOLUTION
(a) The value of the dollar appreciated
(b) In year A
#80 x $50,000 = 4,000,000
4,000,000 would be needed
(c) In year B,
#130 x$50,000 = #6,500,000
#6,500,000 would be needed
(d)(i) Percentage change in the value of naira
#130 - #80 x 100
#80
₦ 50 100
× =62.5 %
₦ 80 1

62.5%
(ii)The value of the naira has depreciated

ECONOMIC INTEGRATION IN WEST AFRICA

Economic integration can be defined as a form of international
co-operation among nations to foster their economic interests. It
is the deliberate act of government to pool their economic
resources together in order to achieve a greater efficiency in the
production of goods and services for the social and economic
welfare of their countries. Countries with common interests form
themselves into an organization whose major objectives are to
remove trade barriers and other obstacles that reduce the free
flow of goods and services. A good example of economic
integrations in Africa is Economic Community of West African
States (ECOWAS)
TYPES OF REGIONAL ECONOMIC INTEGRATION
1. Free trade area: this is a type of integration in which member
countries agree to remove all restriction to trade among them.
Tariffs ,quotas, bans etc are not imposed on goods coming
from or going to member nations
2. Common market: This is also known as Economic Community
in which there is a common internal and external tariff policy.
There is free mobility of labour and capital between member
States. Example is European Economic Community(EEC)
3. Economic Union: This type of integration which take the form
of total integration of the members’ countries. It is aimed at
harmonizing the social, economic, industrial, commercial and
technological policies of member States; it also involves the
 unification of monetary and fiscal policy of member nations.
Example is ECOWAS.
4. Custom union: this is an agreement among nations to eliminate
trade barriers such as tariffs, quota etc among member states
and to adopt common barriers to imports from non member
countries.
Characteristics of customs union
1. Tariffs are abolished
2. Each member country is given free hand to maintain its
custom duties tariff against non member s countries.
3. All track restriction are abolished
4. The members may agree on common custom duties and
tariffs against any non member country.
Benefits or advantages of Economic integration
1. Encourage large scale production resulting in an enlarged
market.
2. Promote efficiency.
3. Greater resources mobility is achieved.
4. Countries benefit from specialization
5. creation of job opportunity
6. Promote wide range of economic activities.
7. Stimulation of faster economic growth
8. Effective participation in world market
Problems or disadvantages of economic integration
 1. Fear and suspect ion of domination
2. Differences in economic and political ideology
3. Divided loyalty to former colonial masters
4. Physical and monetary differences
5. Inadequate infrastructural facilities
6. Absence of large and developed market.
7. Political instability
8. Reluctance to surrender economic independence
9. Inadequate capital
10.Language barrier.

EVALUATION:
Practice Questions.
The table below shows an extract from balance of payments for
country A. Use the table to answer the questions that follow:
Balance of payments Items
S/N Items of transaction Receipts($) Payments ($)
1 Merchandise (Visible 52,000.00 40,000.00
trade)
2 Shipping, other transport 40,000.00 8,000.00
and travel
3 Investment income 20,000.00 5,000.00
4 Other services 2,500.00 7,500.00
5 Unrequited transfers 22,800.00 7,000.00
6 Direct investment 50,000.00 26,000.00
 7 Other long – term capital 254,000.00 289,000.00
8 Short – term capital 221,000.00 238,000.00

Calculate the:
a) Balance of trade
b)Balance on current account
c) Balance on capital account
d)Balance of payment.

WEEKEND ACTIVITIES
Essay Test
(1) What is balance of payment?
(2) State three components of balance of payment
(3) Explain the term balance of payment deficit
(4) Under what conditions will devaluation improve a
BOP of a country?
REFERENCE
Amplified and simplified Economics for sss1, 2&3 by F. Longe

WEEK 6
SUBJECT: ECONOMICS
CLASS: SS 3
TOPIC: Economic growth and Development
CONTENT:
 (1) What is economic development
(2) Distinguish between economic growth and
development
(3) Characteristics of underdeveloped economy
(4) Factors which influence economic
development
(5) Problems of economic development in Nigeria
(6) Element of Development Planning
(7) Nigeria’s Personal Experience
(8) Importance of Economic Planning in National
Development.
SUBTOPIC 1: What is economic development?
Definition
Economic development may be defined as the process
whereby the level of national production i.e. national
income or per capita income increases over a period of
time. Economic development is not the same thing as
industrialization and national development. With
economic development, there are structural
transformations in the different sectors of the economy as
well as general improvements in various areas of
economic activity leading to increased economic welfare
of the citizens.
ECONOMIC GROWTH
Definition
Economic growth is the process by which national income
or output is increased. An economy is said to be growing
if there is a sustained increase in the actual output of
goods and services per head. Economic growth implies
more output per head as a result of more input and more
efficiency. Economic growth is a stepping stone to
economic development. Without economic growth it will
be difficult for a country to attain economic development.

EVALUATION
- Define economic development
- Define economic growth

Sub-topic:
Distinguish between economic growth and
development
1. There is a greater emphasis on the increase in
output and less emphasis on economic welfare in
the case of economic growth while economic
development laid more emphasis on
improvements in the general welfare as a result
of more equitable distribution of the increased
output of goods and services among individuals.
 2. Economic growth is mainly concerned with the
growth of income, while economic development
level as all spheres of economic activity and
emphases a more even distribution of facilities
between various areas.

3. Economic growth can take place under

conditions of mass unemployment while
economic development implies a reduction in the
level of unemployment.

4. There must be a meaningful increase in real

income before we can talk of economic growth,
whereas economic development can be achieved
by a fairer distribution of existing goods,
services and amenities, even if there is no
substantial increase in output.

5. Economic growth lays more emphasis on

meaningful increase in real income whereas
economic development pays more attention on a
fairer distribution of the real income
EVALUATION
1. Differentiate between economic growth and
economic development
SUBTOPIC 3:
Characteristics or features of under developed economy
(1) Low per capita income: - The low level of
income per head of the population is due to the
generally low level of productivity which results in
low national income or low gross domestic product.
(2) Use of crude technology: - The use of crude
technology give rises to low productivity. The extent
of industrialization is still limited. The use of modern
implements in agriculture such as tractors and
harvesters is limited.
(3) There is high level of unemployment and
underdevelopment: In underdeveloped countries
many factors of production are either idle or not fully
engaged in production. So many people are left
unemployed. The available job opportunities are
insufficient for all those who wish to work.
(4) High level of illiteracy: - The high level of
illiteracy is partly due to widespread poverty. Many
parents cannot afford the cost of education for
themselves or their children.
(5) Low standard of living: - There is low standard
of living in under developed economy. Ther is great
disparity in income levels among the population.
 There are few people who are very rich while the
masses are poor.

EVALUATION
1. List five features of an under developed economy
2. Explain the features listed above.

Sub-Topic 4:
Factors which Influence Economic Development
(1) Technological development: The level of
technology should be developed in order to increase
economic development.
(2) Encouragement of savings and investments:
Both individuals and firms should be encouraged to
invest and save in the economy. Capital or fund,
provision of some infrastructural facilities can
encourage savings and investments.
(3) Promotion of industrialization: There should be
concrete plan to promote rapid industrialization as
this form the bedrock for any economic development.
 (4) Provision of capital: The provision of capital
through the establishment of financial institutions.
Agricultural Development Bank could be encouraged
to make loans to investors.
(5) Political stability: Political stability will lead to
the direction of efforts towards projects which will
help to stimulate economic development.
(6) Infrastructural facilities: Provision of economic
and social infrastructural facilities such as electricity,
transportation network and water supply.

EVALUATION:
(i) What are the ways to encourage economic
development
(ii) Explain them.

Sub-Topic: 5
Problems of economic development in Nigeria
(i) Lack of industrialization leads to low
economic development of any nation
(ii) Inadequate capital base: There is inadequate
capital to execute the various development
projects which would lead to structural
transformations within the economy.
 (iii) Shortage of skilled and technologically trained
manpower: There is tendency for deficiency in
technical knowhow in many West African
countries. The relative scarcity of indigenous
skilled labour is due to the high level of
illiteracy which exists.
(iv) Inadequate economic planning and
management: Most of the developing countries
do not have adequate development plan and
this hinders economic development. In some
cases, the full costs and implications of
economic projects have not been fully weighed
before they are embarked upon. At times,
projects are started only to be abandoned.
(v) Administrative bottlenecks: Certain
government policies tend to hinder economic
development projects in economically
unviable areas and delays in giving approval to
prospective businessmen for the establishment
of manufacturing industries.

Sub-Topic 6: Elements of Development Planning

Development planning is a deliberate effort of government in
formulating economic policies on the equitable allocation and
efficient utilization of resources to all sectors of the economy
towards achieving rapid economic growth and development. It
involves activities by government to influence, direct and control
over the long run the level and growth of a nation’s economy.
Sub-Topic 2: Nigeria’s Planning Experience
Pre-independence Development Planning
Development planning started with the Colonial era in Nigeria.
The first was the Ten-year development and Welfare Plan (1946
– 1955). This was followed by the second development plan
titled “The Economic Program of the Government and the
Federation of Nigeria, 1955 – 1960. The plans were broken into
five for each of the four regional governments, Southern
Cameroun and the Federal Territory. These plans were reviewed
in 1958 and extended to 1962 when the first National
Development Plan was launched.

Post-independence Development Plans

Development plans after Nigeria’s independence were four.
These are summarized in the table below.
Nigeria’s Development Plans
National Projected
Estimated Capital
Development Period Growth
Expenditure
Plan Rate
1962 – ****
First Plan 4.4%
1968
1970 –
Second Plan **** 6.6%
1974
Initially N30b
1975 –
Third Plan 1977 reviewed: 11%
1980
N43.3b
1981 –
Fourth Plan N82b 7%
1985

Sub-Topic 3: Importance of Economic Planning in National

Development
Importance / Objectives /Reasons for Economic Planning
1. To ensure the mobilization and allocation of physical
and human resources (i.e. equitable distribution to all the
sectors of the economy).
2. To promote sustained growth and accelerated
development.
3. To diversify a nation’s economy to many sectors.
4. To achieve economic self-sufficiency.
5. To increase the Gross National Product.
6. To increase per-capita-income hence, improve people’s
standard of living.
 7. To create more employment opportunities.
8. To reduce foreign control of the economy.
9. To stabilize prices and prevent inflation and deflation.
10. To bridge the gap between the rich and the poor.
11. To promote international trade in a way that will
enhance surplus balance of payment. This is possible
through increased production for exports and reduction of
imports.
12. To mobilize scarce resources for increased productivity.
13. To reduce rural – urban imbalances through projects
aimed at developing rural areas.
14. In all, development planning gives direction to the
economy as a whole.

EVALUATION;
Enumerate some factors which influence economic
development
WEEKEND ASSIGNMENT
Objectives Test
1. Economic growth is the_________________
 (a) Rate of increase in a country’s full employment
and real output
(b) Rate of increase in a nation’s total population
(c) Increase in the growth rate of a nation’s
population

(d) Rate of increase in inflation

(e) Growth in birth rate
2. Given the present state of the Nigerian economy,
which of the following measures will promote a more
rapid economic development
(a) Concentration on agricultural export
(b) Diversification of the economy
(c) Complete dependency on foreign loans
(d) Establishment of more colleges of technology
(e) Reliance on foreign trade.
3. All the following points are the causes of Nigeria’s
economic problems except
(a) Chronic balance of payments deficit
(b) Encouragement of exports
(c) Mounting debt service payments
(d) Uncontrolled foreign exchange utilization
(e) Double digit inflation
 4. One of the ways by which the government can speed
up economic development is through the ------------
(a) Increase in consumption pattern of the people
(b) Encouragement of savings, investment and
equitable distribution of income
(c) Increase in the rate of population growth so as to
ensure that the country has a large labour force
(d) Encouragement of importation of raw materials
to produce consumer goods
(e) Promotion of corruption in the system
5. One of the characteristics of an under developed
economy is ----
(a) Over population
(b) Under population
(c) High capacity utilization
(d) High literacy rate
(e) High level of investment
ESSAY TEST
(1) Why are West African countries said to be
under-developed
(2) Carefully distinguish between economic growth
and economic development
(3) Examine the problems which slow down the
pace of economic development in west African
 (4) What measures are presently taking to develop
the rural areas of your country
(5) Discuss the alternative explanation of economic
development
PRE-READING ASSIGNMENT
Read about the elements of developing planning
WEEKEND ACTIVITY
Explain the types of economic planning
REFERENCE TEXTS
(1) Essential Economics for SSS Book 3 by Cole
Esan Ande; Tonad Publishers ltd
(2) Fundamentals of Economics for SSCE by R.A.I.
Anyanwuocha; Africana First Publishers Plc

WEEK 7: MID-TERM BREAK ASSIGNMENT SHOULD

BE GIVEN

WEEK 8
SUBJECT: ECONOMICS
CLASS: SS 3
TOPIC: INTERNATIONAL ECONOMIC ORGANIZATION
CONTENT: 1. Historical development, Aims, Objectives and
roles of the organizations
2. ECOWAS, ECA, IMF, IBRD, ADB, OPEC,
WACH, UNCTAD, GATT
Sup-Topic 1: Economic Organization
Several international organizations exist to encourage trade,
economic co-operation and development among nations of the
world. Some of these organizations have almost all the
independent countries of the world as members. They include
International Monetary Fund (IMF), International Bank for
Reconstruction and Development (IBRD), African Development
Bank (ADB), European Economic Community (EEC),
Organization of Petroleum Exporting Countries (OPEC), United
Nations Conference on trade and Development (UNCTAD),
Economic Commission of Africa (ECA), West African Clearing
House (WACH), etc.
ECONOMIC COMMUNITY OF WEST AFRICAN STATES
(ECOWAS)
Formation: The economic community of West African States
(ECOWAS) was founded on 28th May 1975 in Lagos, Nigeria. It
comprised all the 16 independent nation of West Africa. Abuja is
the administrative headquarters of the community and Lome is
the fund headquarters. Nigeria under the leadership of general
Yakubu Gowon and Togo under President Eyadema initiated the
 formation of the sub-regional economic grouping. Nigeria,
Ghana, The Gambia, Serria Leone and Liberia and the English
speaking or Anglophone countries. Senegal, Guinea, Togo, Mali,
Benin Republic, Burkinafaso, Cote de I’voire, Mauritania, and
Nigeran Republic are French speaking or Francophone countries
while Cape Verde and Guinea Bissau are Busophone or
Portugese speaking countries.
AIMS AND OBJECTIVES OF ECOWAS
1. Co-operation and development: to promote co-operation in all
field of economic activities. E.g. energy, agriculture, etc.
2. Trade liberalization: to establish a common market with the aim
of liberalizing trade within the region
3. To ensure economic stability: they are also to increase and
maintain economic stability with the economic
4. To abolish trade barriers and restriction: one of the aim of
ECOWAS was to abolish trade barriers among the member
nations
5. To foster closer relation: this could be achieved by encouraging
free movement of citizens, goods and services
6. To increase production: it was formed with the hope of ensuring
faster regional industrialization to promote increased production
of goods.
7. Integration of both fiscal and monetary policies: it ensures fiscal
and monetary integration of West Africa states
8. Development of African continent: it is aimed at encouraging the
progress and development of the Africa continent
9. To raise the standard of living: it was designed to raise and
promote the standard of living of the people through co-operation
within the sub-regional
10. Establishment of common fund: this fund is for
compensation, co-operation and development between the sub-
regions.
11. Poverty reduction: to reduce poverty in West Africa by
working towards having viable economies.
ORGANS OF ECOWAS
1. The Authority of Heads of state and Governments
2. The council of Ministers
3. The executive Secretariat
4. The Tribunal of The Community
5. Technical and Specialized Commissions
ADVANTAGES TO BE DERIVED FROM ECOWAS
1. Wider market: The elimination of tariffs walls and other
restrictions to trade will allow an expansion of trade in the
sub-region, leading to wider market.
2. Improved Standard of Living: They will be able to import
goods and services at relatively low prices from member
countries instead of importing costlier goods from other
areas.
 3. A base for social and economic development: The amount of
capital available for development will be greater due to the
pooling of resources. This will lead to economic and social
transformation.
4. A reduction in unemployment: The increased employment
will be brought about by the free mobility of labour and
capital within the sub-region.
5. A higher level of output of goods and services: This will be
achieved through higher degree of specialization.
6. Effective bargaining power of member states: The member
countries will stand as one entity and be in the position to
have a more effective bargaining power in world trade.
7. Conservation of foreign exchange by eradicating smuggling
in the area.
8. It leads to increase in foreign investment: This is due to
wider market available, increased mobility of factors of
production, great prospects for political stability, etc.

INTERNATIONAL MONETARY FUND (IMF)

The IMF is one of the most well-known international economic
organizations. Its headquarters is in Washington DC, United
states of America. It was set up immediately after the Second
World War in 1944.
AIMS AND OBJECTIVES OF IMF
(1) To make all currencies freely convertible thereby
encouraging international trade
(2) To provide some means of assisting member nations
having temporary balance of payments difficulties
(3) To keep exchange rates of international trading nations
stable
(4) To provide stand-by credit facilities for nations in need of
assistance
(5) To promote international monetary co-operation

ADVANTAGES/ BENEFITS OF IMF TO WEST

AFRICA
1. Some West African countries have obtained from IMF to
solve their balance of payment problems.
2. Technical and financial advice has been given to West
African countries to overcome their economic problems.
3. It has helped many West African countries to obtain vital
statistics required for planning through conducting country
surveys.

THE INTERNATIONAL BANK OF RECONSTRUCTION

AND DEVELOPMENT
(THE WORLD BANK)
The International Bank for Reconstruction and Development
(IBRD) otherwise known as the World Bank was established
in 1944 with its headquarters in Washington D.C.
AIMS AND OBJECTIVES OF IBRD
(1) To provide private foreign investment for economic
development in less developed nations of the world
(2) To provide loans for the reconstruction of ruined
economies caused by the Second World War or natural
disasters such as floods, earthquakes, etc.
(3) To encourage infrastructure developments particularly
in less developed countries
(4) Promotion of foreign private investment by
guaranteeing such investment and by going into
partnership with the foreign investors.
(5) To provide technical assistance especially to the
developing countries that requires such assistance.

GENERAL AGREEMENT ON TARIFFS AND TRADE

(GATT)
In 1974, representatives from twenty-three countries signed a
general agreement in Geneva, with the aim of maintaining
trade by removing trade barriers among themselves. Since
that time, many countries have joined the agreement. The
following, among others are the primary aims of the
agreement
(1) To reduce or remove trade barriers between member
countries
(2) To improve the possible unfavorable situation in any
member country
(3) To promote international confidence in tariff policies
through consultation between member nations

PERFORMANCE OF THE AGREEMENT

The meetings of member countries are held yearly. Since its
inception, many tariffs have been reduced. In 1963, President
Kennedy agreed to reduce America’s tariffs. Other countries
have done so, particularly among the developed countries.
The most important criticism of GATT is that it has benefited
the wealthier members than the poor member nations. This is
because most tariff reductions have been for industrial goods
from the already industrialized countries, rather than for
primary products coming from the less industrialized
countries. As a result of this, most less developed countries
feel that they have more to gain in other organizations that
from GATT.
WEST AFRICAN CLEARING HOUSE (WACH)
A West African Clearing House was established on 14 March
1975 in Lagos on the signing of an agreement by Governors
of Central Banks of Gambia, Ghana, Liberia, Nigeria and
Sierra Leone, and ratified by their governments. The
agreement came into force after it was ratified by five West
African Central Banks. One of the primary aims of WACH is
to promote cooperation among the member countries,
particularly in the area of international monetary transactions.
It serves as a clearing house for the region. Twelve countries,
i.e. Benin, Burkina Faso (Upper Volta), Cote d’Ivoire,
Gambia, Ghana, Liberia, Mali, Niger, Nigeria, Senegal, Sierra
Leone and Togo are current members of the association.

UNITED NATIONS CONFERENCE ON TRADE AND

DEVELOPMENT (UNCTAD)
This association was established on 30 December 1964 as a
permanent organization of the General Assembly of the
U.N.O. by resolution 1995
The Aims and Objectives of UNCTAD
(1) Help structure traditional patterns of international trade
in order to enable developing countries play their part in
World commerce
(2) Increase trade, both with the industrialization countries
and among the developing countries.
(3) Promote international trade, especially with a view to
accelerating economic development
(4) Formulate principles and policies on international trade
and related problems of economic development

ECONOMIC COMMISSION FOR AFRICA (ECA)

The Economic Commission for Africa (ECA) was formed in
April, 1985 following the implementation of a resolution of
the United Nations. The organization has fifty two members,
Nigeria inclusive. While the ECA functions as a
subcommittee of the UNO, its main duty centers on economic
matters having to do with the continent of Africa.
The Objectives of ECA
(1) Promoting economic and social development in Africa
(2) Strengthening the economic relations of the African
countries whether among themselves or with other
countries
(3) Conducting studies on economic, technical and
development problems as they relate to the African
countries.

AFRICAN DEVELOPMENT BANK (ADB)

The African Development Bank (ADB) was established in
September in 1964 and it commenced operation in July 1966.
It was initially established with twenty three members and it
presently boasts of more and a very large membership. The
organization has its headquarters in Abidjan, Cote d’Ivoire
and its aims include:
(1) The promotion of investment in African countries
(2) The provision of assistance for development projects
and programmes in the member nations
(3) Embarking on activities that will improve the general
well-being of the people in African countries
(4) Enhancing the development of African continent in
general
The bank has been noticed to be placing special emphasis on
the development of social infrastructures, agriculture and
industry.
ORGANISATION OF PETROLEUM EXPORTING
COUNTRIES (OPEC)
The Organization of Petroleum Exporting Countries (OPEC)
was established in 1960 in Baghdad, the capital of Iraq by
five Arab countries which are Iraq, Saudi Arabia, Iran,
Kuwait and Venezuela. The organization now has more
members from almost all the continents and Nigeria joined it
in 1971.
OBJECTIVES OF OPEC
(1) Unifying the petroleum prices of the member nations
 (2) Working towards the stabilization of oil prices in the
international market
(3) Maintaining a steady income for the member countries

WEEK 9
SUBJECT: ECONOMICS
CLASS: SS 3
TOPIC: CURRENT ECONOMIC PLANS
CONTENT: 1. Meanings and objectives of NEEDS, MDGs
AND VISION 2020
1. Economic development challenges
Sub-topic 1: Meaning and Objectives of NEEDS,
MDGS and Vision 20:2020
Nigeria, like other developing nations, has faced several
development challenges. In an attempt to overcome such
challenges, Nigeria has over the years embarked on a
number of economic programmes and long term
development strategies. Among these are Millennium
Development Goals (MDGs), National Economic
Empowerment and Development Strategies (NEEDS),
and Vision 20:2020
Sub-topic 2: National Economic Empowerment and
Development Strategy (NEEDS)
NEEDS is a reform agenda instituted by the Nigerian
government in March 2004 as a working framework for
the reform of the Nigerian socio-political and economic
structure. It aims to promote macroeconomic stability
through transparent rule-based and sound fiscal, monetary
and foreign exchange policies, improve efficiency and
transparency in the public sector and promote private
sector investment through improvements in infrastructure,
privatization and financial sector reforms. While the
federal government operates under NEEDS, state
governments operate under SEEDS (State Economic
Empowerment and Development Strategy).
Objectives National Economic Empowerment and
Development Strategy (NEEDS)
(1) Wealth creation
(2) Employment generation
(3) Poverty reduction
(4) Value reorientation

MILLENIUM DEVELOPMENT GOALS (MDGs)

The Millennium Development Goals are a UN initiative.
The Millennium Development Goals (MDGs )
are the eight international development goals that were
established following the Millennium Summit of the
United Nations in 2000,following the adoption of the
United Nations Millennium Declaration . All 189 United
Nations member states at the time (there are
193currently), and at least 23 international organizations,
committed to help achieve the following Millennium
Development Goals by2015:
1. To eradicate extreme poverty and hunger
2. To achieve universal primary education
3. To promote gender equality
4. To reduce child mortality
5. To improve maternal health
6. To combat HIV/AIDS, malaria, and other diseases
7. To ensure environmental sustainability
8. To develop a global partnership for development

Each goal has specific targets, and dates for achieving

those targets. To accelerate progress, the G8 finance
ministers agreed in June 2005 to provide enough funds to
the World Bank, the International Monetary Fund (IMF)
and the African Development Bank (ADB) to cancel $40
to $55 billion in debt owed by members of the heavily
indebted poor countries (HIPC) to allow them to redirect
resources to programs for improving health and education
and for alleviating poverty.

Relevance of MDGs
1. They serve as guidelines for policy making. For
example, the Yaradua’s Seven-Point Agenda.
2. Targets to be achieved by government to reduce
poverty are set by MDGs.
3. MDGs programmes touch on the daily lives of all and
are meant for their benefit.
4. There are targets against 2015 for each of the eight
goals.

VISION: 20:2020
This is a long term economic transformation blue-print. A
ten year development plan, for restructuring Nigeria’s
economic growth to enable the country become one of the
world’s twenty (20) leading economies by 2020. It is to
be implemented by using series of medium-term plans.

Objectives of Vision 20:2020

The main objectives are to:
1)Eradicate extreme poverty
2)Enhance access to quality health-care
 3)Provide accessible and affordable housing
4)Build human capacity for national development
5)Improve gender equality and empower women
6)Foster a culture of recreation and entertainment for
enhanced productivity.

Sub-topic 3: ECONOMIC DEVELOPMENT

CHALLENGES
Economic development challenges refer to some problems
or challenges which the economy is experiencing that tends to
draw back the growth and development of the country. Example
of such economic development challenges are poverty, debt
burden and debt relief, HIV/AID eradication, power and energy
supply, resource and corruption.
Poverty

1. Poverty
Poverty is an abstract word which can be associated with many
things. It means a lack of material possessions belonging to a
person. It is typically measured in monetary term. It also equates
to a lack of some of the most basic and important material goods
such as shelter, clothing, gender equality, health facilities,
education, jobs and increases in diseases and sickness.

Effects of Poverty
1. High incidence of diseases
2. Low standard of living
3. Low level of productivity of the work force
4. High incidence of social vices
5. Inadequate level of education
6. Frequent social crises
7. Low life span

Agencies for Poverty Alleviation

Some agencies have been set up in order to eradicate poverty
in Nigeria, some of them are: The National Poverty
Eradication Programme (NAPEP), the National Poverty
Eradication Council, the National Directorate of Employment
(NDE), etc.
Methods of Poverty Alleviation and Eradication
1. Skill acquisition programmes: People are made to acquire
skills required to create wealth as self-employed or in wage-
employment, either as semi-skilled or skilled workers. E.g.
NAPEP youth empowerment scheme (YES) with its
Capacity Acquisition Programme (CAP) give short-term
 training to unskilled and unemployed youths while
Mandatory Attachment Programme (MAP) trains youths
who have completed their NYSC by attaching them to
construction firms, manufacturing and financial institutions.
2. Provision of Credit Facilities: Soft loans are provided to
those who have acquired skills in the Youth Empowerment
Programmes.
3. Direct loans: This could be given to farmers or other
producers at cheap interest rates to enable them expand
production.
4. Rural Infrastructural Development: Development of
infrastructures especially in rural areas helps to improve the
standard of living of the people. Provision of water,
electricity, good roads, etc would reduce the level of
poverty. Rural Infrastructures Development Scheme (RIDS)
5. Provision of Social Welfare Services: Welfare services will
touch directly on the lives of the less privileged would help
to reduce the level of poverty. The Social Welfare Services
Scheme (SOWESS) of NAPEP is in charge.
6. Reduction of youth restiveness and social vices: - Youth
restiveness and some social vices could be reduced by
engaging the youth in meaningful activities. Community
Skill Development Centres (CSDC) is set up to provide
skills in areas of youth restiveness.
 HIV/AIDS and the Economy
HIV means Human Immuno-deficiency Virus; a virus
that weakens the immune system, ultimately causing AIDS.
AIDS refers to Acquired Immune Deficiency Syndrome, a cluster
of medical conditions, often referred to as opportunistic
infections and cancers and for which, to date, there is no cure.

Challenges of HIV to Economic Development

1. It imposes suffering on individuals and their families: It
weakens the immune system of the victims and makes open
to any disease.
2. It has effect on efficiency of labour: It weakens the victims
and makes them to be less efficient in their work places.
3. It affects fundamental rights at work with respect to
discrimination and stigmatization: People try to avoid the
carrier of HIV/AIDS and this really affects them socially and
psychologically.
4. It reduces the supply of labour: Those who are victims
cannot fit in into their jobs because of its weakening effects
on them.
5. High cost of labour: Reduction in the number of labour force
as a result of this disease makes the labour cost to be very
high.
 6. High expenditure by government and medical research
organizations: Government spends so much on research to
curb the problem and to sustain those who are infected
already.

Evaluation
1(a). List the Millennium Development Goals.
(b) Examine the extent to which your country has achieved
these goals
2(a) List the main objectives of vision 20:2020
(b) To what extent have these objectives been attained?
3(a)What is meant by poverty?
(b) How has poverty affected the economic
development of your country?

WEEK 10
SUBJECT: ECONOMICS
CLASS: SS 3
TOPIC: ECONOMIC REFORM PROGRAM
CONTENT: 1. Consolidation of Financial Institutions
2. Privatization and Commercialization
3. EFCC and ICPC, NAFDAC, SON.
Sub-Topic 1: Privatization and Commercialization
Privatization: This can be defined as the deliberate policy and
action of government in transferring the ownership, control and
management of government owned enterprises to private
individuals. Privatization goes beyond restructuring and re-
organization of public sectors. It also deals with the wholly or
partly transferring of public enterprises to private sectors.
Objectives of Privatization: There are some reasons for
privatizing public enterprises in a country.
1. Free Market Economy: Privatization is meant to embark on
systematic conversion of public enterprises to private sectors to
permit free market economy.
2. Restructuring: Privatization restructures the public sectors in
a country in order to identify and also reduce the dominated
number of unproductive investments and firms in the public
sector.
3. Employment Opportunities: Like commercialization,
privatization creates employment opportunity and avenue for
acquiring new knowledge and technique in the production and
distribution of essential commodities in the country.
4. Elimination of Losses: the policy is to ensure constant making
of profit by private firms and eliminate losses in the economy.
5. Efficiency in the use of resources: the policy is implemented
to ensure efficiency in the use of resources by the economic
sectors.
COMMERCIALIZATION
Definition: Commercialization can be defined as a deliberate
action and policy of the government to make state or public
enterprises more efficient and profit oriented. In other words,
commercialization entails restructuring, re-organizing or re-
activating of public enterprises to make them more productive,
profit-oriented and self-sufficient without depending or relying
on government aids. Commercialization of public enterprises
can be in form of full commercialized business or partly
commercialized enterprises. These enterprises are re-organized
and re-structured public corporation that are expected to operate
in the same manner as private enterprises with the primary
motive of profit maximization without government support.
Objectives of Commercialization
1. Growth: One of the reasons for commercialization of public
enterprises is to ensure quick growth and expansion of business
enterprises that belong to the government.
2. Employment Opportunities: It is also to create employment
opportunities for the citizens as a result of business expansion
and profit generation.
3. Reduction of Embezzlement and Corruption:
commercialization of public enterprises was established to
reduce embezzlement, corruption and misappropriation of
public funds.
4. Funds Raising: Another objective of commercialization is
freedom of public corporations to raise funds and maintain
some business affairs without government interference.
5. Profit Making: commercialization enables public corporations
to be diverted from non-profit ventures to profit-making
enterprises.

Sub Topic 3 : EFCC and ICPC, NAFDAC, SON.

EFCC and ICPC
EFCC- ECONOMIC AND FINANCIAL CRIMES
COMMISSION
EFCC was established in 2003 as a law enforcement agency to
investigate cases of financial crimes. The commission
investigates people in all sectors who appear to be living above
their means.
Its main Objectives are:
i. To investigate financial crimes such as advance fee
fraud (419) and money laundering.
ii. To investigate people who appear to be living above
their means.
iii. To prosecute cases of financial crimes.
Achievement of EFCC
 i. Investigation of corruption cases: In September 2006, 31
of the 36 state governors were under investigation for
corruption.
ii. Prosecution and Conviction of High Profile corrupt
individuals in Nigeria.
Independent Corrupt Practices Commission and other
related Offences (ICPC)
ICPC is an agency inaugurated on 29th September 2000. It
was given the mandate to prohibit and prescribe
punishment for corrupt practices and other related
offences
Its Objectives are:
i. To receive and investigate reports of corruption and
in appropriate cases prosecute offenders.
ii. To examine, review and enforce the correction of
corruption prone systems and procedures of public
bodies, with a view to eliminating corruption in
public life.
iii. To eradicate and enlighten the public on and against
corruption and related offences with a view to
enlisting and fostering public support for the fight
against corruption.
iv. To examine documents, which include share
certificate, bank books and other accounting
documents
v. To search, arrest, seize and summon persons for
examination and information gathering on corruption
and related offences.
vi. Empowered to carry out any other functions as may
be prescribed by ICPC Act2000.
Achievements of ICPC
i. It receives petitions relating to corruption in the
public sector: - Within three years of existence,
942 petitions were received and by August 2003,
400 of the petitions were being investigated.
ii. It has prosecuted some prominent Nigerians.
These include Ghali Umar Na’Abba, former
speaker of the House of Representatives: Fabian
Osuji, former Minister of Education, and
Cornelius Adebayo, former Minister of
Communication and Transport.
iii. It has raised public awareness on corruption
through public enlightenment campaign: More
people are aware of the dangers posed by the
stealing of public money and are therefore
 willing to co-operate to report cases of
corruption.
iv. Anti-corruption units have been established in
Federal Ministries and parastatals, private and
public educational institutions, etc.

Standard Organization of Nigeria (SON)

The highest decision-making body of the SON is the
Nigerian Standards Council (NSC). Its main functions
are;
i. Advising the Federal Government on the national
policy on standards, standards specifications, quality
control and metrology.
ii. Determining the overall financial, operational and
administrative policy of the organization.
iii. Determining appointments, remuneration and other
conditions of service.
ROLES OF SON
i. To organize test and do everything necessary to
ensure compliance with standards designated and
approved by the council.
ii. To undertake investigations as necessary into the
quality of facilities, materials and products in
 Nigeria, and to establish a quality assurance system
including certification of factories, products and
laboratories.
iii. To ensure reference standards for calibration and
verification of measures and measuring instrument.
iv. To compile an inventory of products requiring
standardization
v. To compile Nigeria Industrial Standards.
The Statutory Functions of the SON are as follows:
i. To investigate the quality of facilities, materials and
products in Nigeria, and establish a quality assurance
system, including certification of factories, products
and laboratories.
ii. To ensure reference standards for calibration and
verification of measures and measuring instruments
iii. To compile an inventory of products requiring
standardization
iv. To foster interest in the recommendation and
maintenance of acceptable standards by industry and
the general public.
v. To develop methods for testing materials, supplies
and equipment, including items purchased for use by
 State and Federal departments and private
establishment
vi. To register and regulate standard marks and
specifications
vii. To undertake preparation and distribution of standard
samples
viii. To establish and maintain laboratories or other
institutions, as may be necessary for the performance
of its functions.
ix. To advise State and Federal departments of
Government on specific problems relating to
standards.
x. To sponsor appropriate national and international
conferences
xi. To undertake research as may be necessary for the
performance of its functions.
xii. To use research facilities, whether public or private,
according to terms and conditions agreed upon
between the organization and the institutions
concerned.
 NAFDAC: The National Agency for Food and Drug
Administration Commission
The National Agency for Food and Drug Administration
Commission (NAFDAC) was established by Decree No 15 of
1993 as amended. It is an agency of the Federal Ministry of
Health. It has the mandate to regulate and control quality
standards of foods, drugs, cosmetics, medical devices, chemicals,
detergents and packaged water imported or manufactured locally
and distributed in Nigeria.
Functions of NAFDAC: The agency is to among other things
do the following:
1. Regulate and control the manufacture, advertisement,
importation, exportation, sale and use of drugs, foods,
cosmetics, medical devices, chemicals, detergents and
packaged water.
2. Establish quality assurance system on production premises,
raw materials and packaging of the regulated products.
3. Give standard specifications and guidelines on the production,
importation, exportation, sale and distribution of the regulated
products.
4. Undertake the certification of production sites and the
registration of foods, drugs and other regulated products.
5. Take measures that will put in check the use of narcotic drugs,
psychotropic and other health impairing substances.
6. Establish and maintain relevant laboratories or other
institutions necessary for the performance of its functions in
strategic areas of Nigeria
7. Undertake measures to ensure that the use of narcotic drugs
and psychotropic substances are limited to medical and
scientific purposes
8. Sponsoring of relevant national and internal conferences as it
deems appropriate.
9. Liaise with relevant bodies and establishment within and
outside Nigeria in the performance of its functions
10. Complete standard specification, regulations and guidelines
for production, importation, exportation, sale and distribution
of food, drugs. Etc
11.Compile and publish relevant data resulting from the
performance of the functions of the Agency or from other
sources.
Achievements of NAFDAC
i. Six (6) zonal and thirty six (36) state offices have been
created and equipped for easier accessibility and for
carrying out its mandate.
ii. Organisation of workshops to enlighten various
stakeholders such as “pure water” manufacturers,
 National Union of Road Transport Workers, Patent and
Proprietary medicine dealers Association, etc.
iii. Holding meetings, in conjunction with the House
Committee on health, with Ambassadors of countries
identified as exporting fake drugs to Nigeria, in order to
stop the trend.
iv. Increasing the awareness of Nigerians and source of
import of drugs to the issue of sub-standard and fake
drugs to Nigeria, in order to stop the trend.
v. Achieving excellent results in the fight against fake drugs
to Nigeria. In order to stop the trend
vi. Launch of anti-counterfeiting technologies

EVALUATION
1. Define privatization.
2. Write the full names of EFCC, ICPC, NAFDAC, SON
3. Enumerate five products regulated by NAFDAC
WEEKEND ASSIGNMENT
1. What is commercialization?
2. Distinguish between privatization and commercialization.
3. State three objectives each of privatization and
commercialization.
4. Write short notes on the following: i. EFCC ii. ICPC iii.
NAFDAC iv. SON

WEEK 11---Revision
WEEK 12-- EXAMINATION

WEEK 3
MARKET STRUCTURES

Content
1. Concept and Types of Markets
2. Review of Cost and Revenue Cost
3. Price and Quantity Determination under Perfect
Competition, monopoly, duopoly and oligopoly

Sub-topic One: Concept and Types of Market

Concept of Market
In everyday speech, market refers to a fixed place where
people meet to buy and sell. But in relation to Economics,
market does not necessarily refer to a fixed place. It is
defined as any arrangement, system or organization
whereby buyers and sellers of goods and services are
brought into contact and can transact business with one
another. The means of contact could be through internet,
phone, letter or telegraphic system or a fixed place like
the regular marketplace.

Types of Market
Market could be classified based on the types of
commodities bought and sold (i.e. consumer goods
market, labour market and capital and money market), or
on the basis of channel of distribution (resale and
wholesale market), or the bases of prices.
Under this discussion, we shall look at the type of market
on the basis of prices.

Types of Market (On the Basis of Prices)

1. Perfect Competition/Market
2. Imperfect Competition/Market

1. Perfect Competition/Market
A perfect market is a market structure in which prices
are determined by the forces of demand and supply.
It is a market without government intervention. It
should be noted that in the real world a perfect
market does not exist in its pure form.

Features of a Perfect Market

a. Free entry and free exit of buyers and sellers
 b. Homogenous commodity so there will be no
room for consumer to prefer one to another
c. Uniformity of prices. Each single competitor
cannot influence price.
d. Large number of buyers and sellers
e. There are a large number of buyers and sellers
such that no single person can influence price.
f. Perfect knowledge of the market transactions
available to everyone.

Advantages of Perfect Competition

a. Since there are large numbers of buyers and
sellers, it becomes impossible for a single buyer
or seller to influence price. This helps to prevent
consumer exploitation
b. The freedom of entry and exit of
producers/sellers enhances competition and
results in production of high quality products
c. Normal profits are earned by firms in the long
run. Since there is no room to make abnormal
profits, this brings about efficient allocation of
resources.
d. Consumers benefit maximally since there is no
room to make abnormal profit

Disadvantages of Perfect Market

a. It leads to waste of resources. There is capacity
underutilization under perfect competition since
 each firm produces an insignificant proportion of
the total output and therefore may not enjoy
economies of scale.
b. Capacity under-utilization may lead to lying off
workers and unemployment of labour.

2. Imperfect Competition/Market
An imperfect market is a market in which the forces
of demand and supply are not allowed to operate
freely. There are different degrees of regulations of
the market forces. In practical terms, it is imperfect
competition that operates in most markets

Types of Imperfect Markets

a. Monopolistic competition
b. Oligopoly
c. Duopoly
d. Monopsony
e. Oligopoly
f. Monopoly

a. Monopolistic Competition
This is a market situation in which there are
many producers or sellers producing or selling
identical but non-homogenous commodity.
Goods arenon-homogenous because of the
branding of the commodity. Examples include
daily newspapers from different publishing
 houses, producers of several bottled non-
alcoholic drinks, etc.
b.Oligopoly
An Oligolistic market is one in which there are
few producers or sellers but many buyers. Large
capital requirement may limit the buyers.
Examples are network owners like MTN, Glo
Network, etc. Oligopoly is more competitive that
monopoly but it is less competitive than
monopolistic competition

c. Duopoly
This is a market in which there are only two
sellers or producers of a commodity but there are
many buyers.

d.Monopsony
A monopsony is market situation in which there
is a single buyer but there are many sellers.

e. Oligopsony
This is a market situation is which there are few
buyers and many sellers of a commodity.

f. Monopoly
Monopoly is a market situation in which a
producer is the only seller of a particular good
that has no close substitute. By implication, a
 monopolist can charge whatever price it wants
and consumers are left with no choice than to
purchase the product even at high prices.

Features of Imperfect Market

a. Heterogeneous commodity
b. There is only one or very few buyers and/or
sellers
c. There is an imperfect knowledge of market
d. There is no free entry into or exit from the
market
e. Preferential treatment exists since there is no
uniform prices

Sub-topic Two: Review of Cost and Revenue

Curves
Costs are expenses incurred during production. We shall
examine the following types of cost incurred during
process of production.
a. Total Cost
This is made up of total fixed cost and total variable
cost, i.e. TC = TFC + TVC, where TFC is total fixed
cost and TVC is total variable cost

b.Total Fixed Cost

 These are the costs that do not change with the level
of production. They remain constant whether the
firm is working at full capacity or not. Examples are
rent, purchase of equipment and machinery, top
management salary. These expenses are usually
fixed in the short run.
Mathematically, TFC = TC - TVC

c. Total Variable Cost:

These are expenses that vary as output increases or
decreases. Example of variable costs include money
spent on raw materials, wages, fuel, maintenance of
machinery and vehicle, etc

d.Average Cost or Average Total Costs

This is total cost divided by output. It is referred to as
unit cost of output. Average cost can be divided into
Average Fixed Cost (AFC) and Average Variable
Cost (AVC).
Mathematically, AC = TC /Q where Q is the level of
output

Or AC = AFC + AVC

e. Marginal Cost (MC)

This is the change in total cost as a result of a unit
change in output. Marginal cost is influenced by
variable cost but not fixed cost. Mathematically,
MC = Change in total cost Or: TCn -
TCn-1
Change in quantity

Concept of Revenue
We shall consider three revenue concepts
1. Total Revenue
This is the total amount of income a firm or
producer receives from the sale of its product.
Total revenue can be derived by multiplying
output by unit price

TR = QP, where Q is level of output and P is

price
2. Average Revenue
This is the total revenue divided by the number
of units sold. It is the price per unit. It is derived
thus:
AR = TR/Q where TR is total revenue and Q
is level of output.

3. Marginal Revenue
This is the increase in revenue resulting from one
unit increase in sales.
WEEK 4
MARKET STRUCTURES (contd.)

Content
1. Price and Quantity Determination under Perfect
Competition, monopoly, duopoly and oligopoly
2. Price discrimination, causes and control of
monopoly

Price and Quantity Determination under Perfect

Competition

Price Determination
Under perfect competition, price is determined by the
forces of demand and supply since no single firm can
dictate the price of its good. Firms in perfect competitive
market are price takers. Therefore firm’s individual
demand curve has a horizontal Price line. The demand
curve is perfectly elastic. This is illustrated in the
diagram below:
 Demand Curve facing a Perfect Competitor

Quantity Determination
Under perfect competition, profit is maximized at the
level of output where marginal cost equals marginal
revenue ( MC=MR ). However, it is possible for the firm to
make abnormal profit in the short run. Since the firm’s
marginal and average costs fall with increasing output, he
can sell at a price higher than the marginal cost of
production, thereby earning abnormal profit. This is
shown in the diagram below

Equilibrium Conditions under Perfect Competition (Short Run)

In the diagram above, while the MC and AC are falling,

the firm makes an abnormal profit of PMST. OPMQ is
the total revenue while OTSQ is the total cost of
production, hence the profit PMST.

However, in the long run, the abnormal profits of perfect

competition firms are wiped off. He is in equilibrium and
makes normal profit. Equilibrium is achieved when the
firm produces the level of output at which: MC = MR =
AC = AR = MR = D = P. The slope of MC must be
greater than the slope of MR at equilibrium (i.e. MC must
cut MR from below).

This is shown in the diagram below:

Equilibrium Conditions under Perfect Competition in the Long Run

Price and Quantity Determination under Monopoly
A monopoly has the power to determine either price or
output but not both at the same time.

Unlike an individual firm under perfect competition, who

faces a horizontal demand curve, a monopolist faces a
downward sloping average revenue or demand curve.
This means that the monopolist can sell more only by
reducing his price. His demand curve is price inelastic.

Monopoly Price Determination

Like the perfectly competitive firm, a monopolist will
maximize his profit by producing the quantity that equates
marginal cost with marginal revenue ( MC=MR ). This means
that the monopolist will continue to expand his output as
long as marginal cost does not exceed marginal revenue.
He can therefore make abnormal profits both in the short
run and in the long run. This is illustrated in the diagram
below:
In the diagram above, the monopolist maximizes his
profit at point of output where his marginal cost is equal
to marginal revenue but not to the point where marginal
cost is equal to price. Thus he makes abnormal or
supernormal profit by the excess of price (Pm) over
marginal cost. In the diagram, above, the monopolist
makes a supernormal profit of shaded area.
PRICE DISCRIMINATION
Sometimes, a monopolist can charge two or more
different prices for the same commodity. The process of
selling a particular commodity at different prices (in
different markets) is called price discrimination. Such
price discrimination may be possible and profitable under
certain conditions.
1. Market segmentation: If there are separate market or if
he is able to create different markets, it will be possible to
sell at different prices in the different markets. The ability
to create separate market is called differentiation or
segmentation. An example is the different markets
existing in different countries because of the use of tariffs.
2. Different price elasticities of demand in the different
markets: If there are different elasticities’ of demand, the
seller will sell at a higher price in the market with an
elastic demand. He may sell at a lower price in the market
with an inelastic demand. These lead to profit
maximization.
3. Little cost of separating the markets: If the cost of
separating the market is small, price discrimination
becomes possible. For example it cost N.E.P.A. little or
nothing to charge industrial
users. Users cannot easily change their industrial sites to
residences.
4. Ignorance on the part of consumers: If the consumer is
not aware of prices being paid by others (or the ruling
market price) it will be possible for the monopolist to
charge him a different price, which in most cases will be
higher.
5. High transportation costs: It becomes possible for the
monopolist to charge difference prices if transportation
costs are high. The consumer may find it uneconomical to
incur a high transport cost to go to another place to
purchase a commodity because of a little difference in
price and so he may buy at higher price even if he knows
that the monopolist is selling the same commodity at a
cheaper price somewhere else.

CAUSES OF MONOPOLY
1. Act of parliament: This is a legal instrument by
government conferring special monopoly of some
organizations to produce or supply certain goods or
services e.g. public corporations
2. Patent law: This law confers on a firm special privilege
to protect it new invention and it tends to scare away
other competitors
3. Level of technology: When a firm develops high level
of technology, which makes goods cheaper, this may
force other competitors out of production.
4. Effective advertising: The success of a firm in effective
advertising may force other competitors out of business
5. Protection of public interest: Deliberate effort to
protect public interest by government may confer certain
monopoly or some firms e.g. N.E.P.A.
6. Natural cause: Certain areas may enjoy the production
or supply of certain goods due to natural endowment e.g.
crude oil in Niger Delta
7. Merging of producers: The merging of producers will
make them stronger to be able to eliminate other
competitors in business.

Advantages of monopoly
1. Standardizations: - They produce quality and
standardized product
2. Centralized management: - They have centralized body
which determines the price or the output since they cannot
determine both price and output at the same time.
3. Economies of large scale production: - This serves as
advantage to the firm and the public.
4. Greater efficiency: - They make research in order to
produce at reduced cost so as to maximize their profit.
5. It avoids wastage: - People carry out researches which
may lead to the discovery of new product in order to
enjoy patent right
6. Better use of resources: -The type of wastages
experienced in a competitive market is greatly avoided.
7. Increase in supply: - Increase in production leads to
increase in the quantity of goods supplied to the market.
8. Greater opportunity to expand operations: - More
profit made by the firm makes them to expand their
production.
9. It avoids wastage: - The type of wastage experienced
under perfect competition is greatly avoided under
monopoly.
Disadvantages of monopoly
1. Danger of exploitation:- Monopoly can charge high
price to exploit consumers since they have control over
the price of their commodity.
2. It leads to hoarding: - They may hoard their products in
order to create artificial scarcity in a bid to charge high
price.
3. Decline in efficiency: - Since there is no competition,
there may not be efficiency in their operation
4. Overproduction and waste: - They may waste resources
especially if the firm is a public corporation.
5. Loss of freedom of choice: - Consumer cannot choose
and they cannot control the quality of the products. They
are forced to consume whatever is produced by
monopolist.

Control of monopoly
1. Provision of substitute products
2. Privatization
3. Stoppage of issuance of patent law
4. Discouraging merging of firms
5. Reduction of tariffs
CLASS: SS II
TOPIC: Elements of National Income Accounting
CONTENT:
(1) Meaning of National Income Concepts and
their uses
(2) Ways of measuring national income and their
limitations
(3) Uses and limitations of national income
estimates, trend and structure of national income
Sub-Topic 1: Meaning of National Income
Definition
National income is the monetary value of all the goods
and services produced within a country over a given
period of time, usually a year plus net income from
abroad. It also includes the income accruable to all
factors of production: land, labour capital and
entrepreneur. The national income is different from the
income of the government. The national income is the
value of all economic activities of the country for a
particular period of time while government income is the
revenue raised through taxation, borrowing, fees, etc.
The government also contributes to the National Income.
In conclusion, the national income of a country is the
summation of income received by the citizen of the
country whether the income is earned in the country or
earned in another countries minus the income generated in
the country but traceable to the foreigners.
National Income Concepts
The major concepts of National Income include
(1) Gross Domestic Product (GDP)
(2) Gross National Product (GNP)
(3) Net National Product (NNP)
(4) Personal income (PI)
(5) Disposable income
(6) Net Domestic Product (NDP)
(7) Income per capital
(1) Gross Domestic Product (GDP): - Gross
Domestic Product can be defined as the total money
value of all the goods and services produced in a
country at a particular period of time but excluding
net income from abroad. This GDP is used to
measure the rate of growth of the economy. In
 calculating GDP earnings of citizens and their
investments abroad are excluded.
(2) Gross National Product (GNP): - Gross
National Product is the total monetary value of goods
and services produced by an economy during a
specified period of time usually a year. It includes all
earnings of citizen of a given country and investment
income of citizen abroad. It excludes the investment
of foreigner from calculation of National Income
account and no allowance is made for depreciation.

Mathematically,
GNP = GDP + Net Income from abroad
GNP = GDP + X – M
Where: X is export
M is import
(3) Net National Product (NNP): It is the total
monetary value of all final goods and services,
produced by all the citizens of a country (home and
abroad) and income from their investments after
allowance has been made for depreciation.
Mathematically, NNP = GNP – Depreciation
(4) Personal Income: - Personal Income can be
defined as the income or amount of money received
by individuals or households over a given period of
time. Personal income includes wages to labour,
interest to capital, rent to land owner and profit
received by the entrepreneurs. If there is not tax
element in the total income, it can be represented by a
symbol (Y).
(5) Disposable Income: - Disposable Income may
be defined as the amount of money left for individual
 or household after deducting the tax element. It is
therefore refer to as Net Income.
Mathematically, Y – T
Where: Y = Income
T = Tax
(6) Net Domestic Product (NDP): - Net Domestic
Product can be defined as the total monetary value of
goods and services produced by all residents of a
country and earnings from their investment for both
citizens and foreigners within an economy after
deducting depreciation.
Mathematically, GDP – Depreciation.
(7) Income Per Capita: - This is the estimated
income of a country divided by the population of the
country. It represent a useful index or measuring the
standard of living of a citizens
Mathematically,
National Income for 1995
Per Capita Income=
Population for 1995

Uses of major National Income Concepts

The uses or importance of National Income concepts
are as follows:
(1) Economic Planning: - National Income
estimates are used for economic planning. The
estimate shows various contributions of all sectors of
the economy, and it also give details that helps
economic planner to get necessary information for
planning.
(2) Standard of Living: - National Income
estimates are used to measure the standard of living
through standardizes the income of the citizen. A
country with a poor standard of living would have a
capital poor per capita income and vice versa because
per capita income is an indication of the general well-
being of the citizen.
(3) Influences Foreign Investors: - It attracts
foreign investment to a country, based on the level of
its national income, as investors usually seek
countries with rich or fast growing markets.
(4) Capital formation: - the per capita income
would help to quantify the level of aid and assistance
a country needs. A country that has low per capita
income would have low capital formation.
(5) For future forecast: - the national income data
are used to forecast future rate of economic growth
and development.
(6) To compare the standard of living of one
nation with that of another: The income per head of
one country can be used to compare with the income
per head of another country. The country with the
higher income per head is said to have a higher
standard of living than a country with a lower income
per head, other things being equal.
(7) To aid allocation of resources in the economy:
- The national income covers the incomes of all
regions or states of a country. The government can,
therefore, know how to bring about equality in
income or resources distribution among the various
regions or states of the country.
(8) To aid redistribution of income: - An idea of
differences in incomes gained through the national
income estimates can help the government in its
fiscal policy ( i.e taxation) to redistribute incomes.
(9) Useful guide to investors: - The data gathered
on people’s expenditure, incomes and outputs will
 put investors in position to know whether it is worth
investing their capital in the country or not.
(10) Revenue allocation: - In a federal country like
Nigeria, national income data can provide information
for revenue allocation purposes.
EVALUATION
- define the concept of National Income
- what are the uses of national income estimation
Sub-Topic 2: Ways of Measuring National Income
There are three distinctive methods of measuring national
income
(1) Income method/approach
(2) Expenditure method/approach
(3) Output method/approach
(1) Income Method/Approach: - Income approach
may be expressed as summation of incomes received
by all the factors of production. The incomes to be
added include workers’ earnings in terms of wages
and salaries, profit from entrepreneur rents on land,
interest from capital etc. This summation of earning
 of these factors of production in a given year would
give the national income using income method. Note
that, whatever may be the income from prostitution
and smuggling or other illegal activities would not be
included in national income estimate. Transfer
payment and stock appreciation must be deducted in
order to avoid double counting.
(2) Expenditure Method/Approach: - This
approach can be defined as the measurement of the
total expenditure on currently produced final goods
and services by the three agents of government in the
economy, individual or household, firm and the
government – plus net export. Transfer payments are
excluded such as pensions paid to retired workers,
gift to beggars etc.
Formula for calculating national income using
expenditure approach
Y = C + I G + (X – M) + subsidies – Taxes –
Depreciation
Where:
Y = National Income
C = Consumption Expenditure
I = Investments Expenditure
G = Government Expenditure
X = Exports
M= Import
(3) Output or Product Method/Approach: - Output
Approach measures the total money value of all goods
and services produced by the various sectors of the
economy, particularly by the economic agents in a
given year. National income is measured by summation
of the value of the net contribution from the various
sectors of the economy. In order to avoid double
counting, income should be measured on value added
(output less cost of inputs).
Note that, value of exports must be subtracted from
import to get net export; this would be added to national
income.
Limitations of Output or Product Method/Approach
(1) The fluctuation is exchange rate affects. Some
economies adversely.
(2) National incomes do not reflect the standard of
living.
Worked example using expenditure approach.
The following is the trading account for Nigeria in the
year 1978 (in millions)
(a) Citizens private expenditure = N35m
(b) Government expenditure on goods and services
= N15.6m
(c) Various stocks at home = N11.8m
(d) Exports income from abroad = N13.5m
(e) Imports income paid abroad = N10.4m
(f) Taxes on expenditure = N7m
(g) Capital consumption = N5.8m
(h) General subsidies = N1.3m
From the information given above,
(1) Calculate the national income for Nigeria for the
year 1278
Solution
Expenditure Nm
(1) Citizens’ private expenditure
35
 (2) Government expenditure on goods and services
15.6
(3) Stocks at home 11.8
(4) Exports income 13.5
(5) General subsidies 77.2
1.3

Less
(1) Import’s income 10.4
(2) Taxes 7.0
(3) Capital consumption
5.8
National Income = N77.2m – N23.2m
= N54.0m

We can use alternative method with this formula.

Y = C + I + G + (X – M) + subsidies – Taxes –
Depreciation
Y = N35.0 + 11.8 + 15.6 + (13.5 – 10.4) + 1.3 – 7.0 – 5.8
= N54.0m
National Income = N54.0m

Calculation on Output Approach and Income

Approach
Worked Examples
The following data were extracted from industries x and y
in a country. Industry x operates a closed economy, while
y operates an open economy. Use the data in the table to
answer the question that follow:
Items Industry x ($m) Industry y ($m)
Sales 100 200
Raw- materials 30 50
Profits 2 70
Wages 40 80
Exports - 10
Depreciation 8 20
Imports - 3

(a) Calculate the gross national product (GNP) of the

country, using:
(i) Income approach (ii) Output approach
(b) Calculate the amount of depreciation charge in the
economy.
(c) Calculate the net national product of the country.
Solution:
(a) (i) Computation of GNP, using income approach

Industry x $m $m $m
Profit 2
Wages 40
Add back 8
depreciation( national
charge)
GDP 50

Industry y
Profit 70
Wages 80
Add back depreciation 20
GDP 170
Add net income from
abroad(NI)
Export 10
Imports 3
7
GROSS NATIONAL 227
PRODUCT (GNP)

Computation of GNP, using output(Net basis) approach

Sales $ $ $
Industry x 100
Industry y 200
300
Deduct intermediate input
(raw- materials)
Industry x 30
Industry y 50 -80
GDP 220
Add net income from
abroad
Exports 10
Imports 3 7
Gross National 227
Product/Income

(b) Computation of total amount of depreciation

Depreciation/ Capital allowance/ Capital consumption
Industry x 8
Industry y 20
Total amount of depreciation $28m
(c) Computation of the net national product (NNP)
NNP = GNP – Depreciation = 227 – 28 = 199
∴ NNP = $199m.

Problems of computing National Income

(1) Double Computing: - This involves calculating
the value of commodities twice or more. For instance
in our country, it is problematic differentiating capital
goods from consumer ones; they are therefore
counted twice which gives false national income.
Also in using the output approach, the cost of inputs
may sometimes be recorded in addition to the value
of finished products.
(2) Services not paid for: - There are some
problems created by the self-employed people. In our
society many of them do not keep proper book of
account and therefore it is very difficult to ascertain
what their incomes, expenditures and outputs are. For
example, cutting one’s own hair, giving free rides to
friends, the services rendered by children and
housewives, services rendered by voluntary
organizations such as the Red Cross, Boy Scouts etc.
(3) Inflation and Deflation: - The national income
figures can be over-or under-estimated as a result of
inflation or deflation. Inflation raises national income
figure, while deflation reduces it. The problem here is
how to arrive at accurate national income figure that
is not affected by either inflation or deflation.
(4) False data from inland Revenue: - False or
incorrect declaration of income by some businessmen
in order to pay less tax, high rate or tax evasion etc
are some of the reasons why data from inland
revenue should not be relied upon when calculating
national income.
 (5) Illegal transactions: - Some illegal transactions
like smuggling of drugs make computation of
national income very difficult.
EVALUATION
- Explain the methods of measuring the national
income of a country.
- State any three problems associated with measuring
national income (SSCE 1996)
Sub-Topic 3: Uses and limitations of national income
estimates, trend and structure of National income.
(1) Uses of National Income
The importance or reasons for measuring national
income include the following:
i. Economic planning: national income figures are
used for economic planning. A nation uses her
national income statistics on the contribution of
various sectors of the economy to national output on
both short and long term planning.
ii.To measure the standard of living: it measures the
level of prosperity or the general standard of living of
the people. The per capita income can be found by
 dividing the national income by the total population.
The figure is a rough indicator of the general well
being of the people in the country. If per capita
income is low ceteris paribus, the standard of living
will be low, vice versa.
iii. Redistribution of income: this helps the
governments to design policies towards redistributing
national income and the allocation of resources and
revenue among sectors within the nation.
iv. Influences foreign investors: apart from population
figures, national income estimates, give a rough idea
of the potential demand to a foreign investor. The
data gathered on peoples’ expenditure, income and
output will put investors in a position to know
whether it is worth investing their capital in the
country or not.
v. Basic of supply of technical aids to need countries:
national income can be used as the basis of supply of
technical aid and assistance to the needy nations.
Also international organizations tend to give more
technical assistance to poorer nations and this is
usually identified by comparing the per capita income
of nations.
Limitations of the usefulness of National Income
Statistics
(1)Depreciation: different methods are being adopted
by different companies to estimates the capital
consumption allowance. This affects the estimate of
action.
(2)The problem of double counting: the problem here
is only the value added is used. If final goods and
services are measured national income estimates will
overstate the estimates – without necessary
adjustments. This should be a serious setback to
national income.
(3)Inability to detect People’s suffering: the estimate
does not detect some of the societal hazards like
urban congestion, pollution etc.
(4)Not a good measure for standard of living: this is
as a result of errors associated with data collection.
Different countries have different priorities in terms
of expenditure on output. If more money is now spent
on defense and hosting international conferences,
rather than on such welfare services as health and
housing, the standard of living may not increase even
if the per capital income has increased.
 (5)There are differences in the structure of
production: in some countries there is a large
subsistence. Sector. In those countries, the level of
output more like to be grossly under estimated than
in a country with a market economy.
Structure and Trend of National Income
The components of Nigerian national income or GDP and
the changes in the contributions of the various sectors to
national output can be seen by looking at national income
figures for 2 periods.
Structure of National Output (Income) 1960
Sector Nm %
share
of
GDP
1 Agriculture (components) 1423.8 63.4
2 Mining and Quarrying 19.8 0.9
3 Manufacturing and crafts 80.6 3.6
4 Electricity and water 7.5 0.3
supply
5 Building and construction 67.4 3.0
6 Distribution 203.2 9.1
7 Transportation and 97.8 4.4
communications
8 Others (education, health, 344.5 15.3
general, government)
Total 2244.6

Structure of National Output (income) 1975

Sector Nm %
share
of
GDP
1 Agriculture (components) 3,372.7 23.4
2 Mining and Quarrying 6,552.3 45.5
3 Manufacturing and crafts 683.9 4.7
4 Electricity and water 58.7 0.4
supply
5 Building and construction 821.4 5.7
6 Distribution 971.2 6.7
7 Transportation and 325.0 2.3
communications
8 General Government 901.8 6.2
9 Education 376.4 2.6
10 Health 132.0 0.9
11 Other services 215.3 1.5
TOTAL 14,410.
7

From the tables above it is seen that the GDP of Nigeria

in 1960 was N2,244.6m while it is rose to 14,410.7m in
1975. The means a mean annual growth rate of about 34%
within the period. Also the per capita income also
increased from N43.5 in 1960 to N187.85 in 1975.
There was also an upward trend in the share of
manufacturing and construction activities during the
period. By the middle of 1970s increased revenue led to
increased construction activities. With this trend, the
share of the mining sector in the GDP is likely to decline
from the 1975 figures while agriculture and
manufacturing would show an upward trend over the
1975 figures.

EVALUATION
- What are the uses of national income account in
Nigeria SSCE.
- What are the limitations of national income estimate?
WEEKEND ASSIGNMENT
Objective Test
(1)Which of the following is not appropriate in
calculating national income figures (a) output method
(b) income method (c) expenditure method (d) value
added method (e) depreciation method
(2)Which of the following would increase the GNP of
an economy
(a) increased government expenditure on the salary of
civil servants
(b)An increase in the proportion of the productively
employed population.
(c) A decrease in the rate of unemployment
(d)A decrease in output per worker
(e) An increase in the population
(3)The difference between the Gross Domestic Product
(GDP) and the Gross National Product (GNP) is the
(a) Allowance for total depreciation
(b)Total interest payment
(c) Net income from abroad
(d)Total tax and interest payment
(e) Net internally generated income
(4)Net National Product (NNP) is equal to the
(a) Gross Domestic Product GDP less depreciation
(b)Gross National Product (GNP) less depreciation
(c) Gross Domestic Product (GDP) plus depreciation
(d)Gross National Product (GDP) plus depreciation
(e) Gross National Income plus taxation
(5)The national income of a country indicates that the
gross national income was N17,700m and gross
domestic product was N16,8000m represents. (a)
debt repayments (b) investments abroad (c) net
 savings (d) net income from abroad (e) capital
consumption
ESSAY QUESTIONS
(1)Define National Income
(2)What are the uses of National Income account to
Nigeria? (SSCE)
(3)What is per capita income and what limitations does
it have when it is used to compare the standard of
living between countries? (SSCE)
(4)Identify the likely problems that can be encountered
in the compilation of National Income Accountant in
Nigeria. (SSCE)
(5)Distinguish between Gross Domestic Product and
Gross National Product (GNP) SSCE.

PRE-READING ASSIGNMENT
Read about Money market institutions
WEEKEND ACTIVITY
1. Highlight the factors that determine a country’s
national income. SSCE
 2. Explain the various ways the national income of your
country can be measured.
REFERENCE TEXTS
(1)EXAM FOCUS ECONOMICS for SSCE by A.A.
Aderinto, S.A. Akande UNIVERSITY PRESS PLC
IBADAN.
(2)ESSENTIAL ECONOMICS FOR SSS Book 3 by
Cole Esan Ande TONADE PUBLISHERS
LIMITED.
WEEK 3
SUBJECT: ECONOMICS
CLASS: SS II
TOPIC: Types of financial Institutions and their
functions
CONTENT:
(1) Money Market institution and its function
(2) Capital Market institution and its function
(3) How the stock exchange operates, Secondary and
primary market

Sub-Topic 1: Meaning of Money Market Institution

Money Market: The market is a financial market for
trading in short term financial assets. It consists of
individuals (and organizations) who wish to lend out
money on a short term and those who wish to borrow. It is
therefore a market for short-term loans and investment.
Financial institutions which operate in the money market
include:
(1) Central Bank
(2) Commercial Bank
(3) Acceptance House
(4) Discount houses
(5) Hire-purchase companies
(6) Finance companies
Instruments used in the money market
(1) Treasury Bills
(2) Call money funds
(3) A bill of exchange
(4) Treasury certificate

FUNCTIONS OR ADVANTAGES OF THE MONEY

MARKET
(1) Provision of circulating capital for commerce
and industry
(2) Offering investment opportunities on a short-
term basis for people and organization to enable them
earn interest
(3) Provision of investment advice to customer
 (4) Provision of opportunity for the public to
participate in the management of the economy.
(5) Mobilization of savings for investment.
Sub-Topic 2: CAPITAL MARKET
This is a financial market for trading in long-term
financial assets. It is a market for long-term loans and
investments. It consists of people and organization who
wish to lend out money or to borrow on a long-term basis.
The capital market can be divided into primary market
and the secondary market. The primary market deals with
the buying and selling of new securities. It is dominated
by merchant banks.
The secondary market is the market that deals with the
buying and selling of old (second hand) securities. It is
dominated by the stock exchange.
Financial institutions which operate in the capital
market
(1) Development bank
(2) Insurance companies
(3) Investment banks
(4) Mortgage bank
(5) The stock exchange
 (6) Issuing houses
(7) Investment trust
(8) Finance corporations
(9) Savings banks
Instruments used in the capital market
(1) Shares
(2) Development stocks
(3) Government bonds
(4) Company bonds
Functions or advantages of capital market
(1) Provision of capital for permanent long-term
investments in industry and commerce
(2) Provision of long-term investment opportunities
for people and organization
(3)Provision of managerial, technical and financial
advice to investors
(4)It encourages the growth of merchant banking
(5)Provision of the opportunity for the public to
participate in the running of the economy.
(6)Provision of long term capital to investors both in
the public and private sectors.
Other agencies that can access capital market
 Second-Tier Securities Market:- It was established in
April 1985 to encourage small and medium-scale
enterprises to avail themselves of the resources of the
stock market by making listing requirements and
conditions less stringent for this category of enterprises.
The aim is to increase the volume of security in the
market.
Sub-Topic 3: The stock exchange market
The stock exchange market is a market which deals with
the buying and selling of long term financial asset
(securities) such as stock and shares e.g. The Nigerian
Stock Exchange (formerly the Lagos Stock Exchange)
was established in 1960.
DEALERS IN THE STOCK EXCHANGE
On the stock exchange, there are two main dealers: The
stock Brokers and The Jobbers.
The brokers deal directly with the public. They act as
their agents who buy and sell securities on their behalf
and offer them advice. They charge a commission for
their functions called brokerage.
The Jobber is the main dealer at the stock exchange. He
does not deal directly with the public but with brokers.
The broker requests the jobber for his price for a
particular security. He quotes two prices-a high price for
selling and a lower price for buying. His profit is known
as ‘the jobber turn’ i.e. the difference between his selling
and buying price
FUNCTIONS OF THE STOCK EXCHANGE
(1) Raising of long term capital investment
(2) Easy marketing of long term securities
(3) Protection of the public against fraud
(4) Offering investment opportunities
(5) It acts as a barometer for measuring the
economic performance
(6) Stabilization of prices of securities
EVALUATION:
(1) What is money market?
(2) List three financial institutions that operates that
in the money market
(3) State two functions of money market
(4)What is capital market?
(5)List five instruments that operate in the capital
market
(6)List three functions of capital market to the economy
of your country
 (7) What is stock exchange?
(8) Mention two dealers in stock market
(9) List five functions of stock exchange
WEEKEND ASSIGNMENT
1. Vividly discuss secondary and primary market
2. Differentiate between brokers and jobbers
3. List four functions of stock exchange market
Objective test
(1) financial system or market is a market where money and near
money instruments exchange hand between…………………
(a)buyer and seller (b) wholesaler and retailer (c) lenders and
borrowers (d) demand and supply.
(2) Financial markets are broadly divided into
……………………….(a) Money and Money market (b)
Capital and Capital market (c) Financial and capital market
(d) Money and capital market.
(3) Money market as to do with……………. (a) Long term loan
(b) short-term loans (c) Medium term loan (d) 1 to 5years
term loan
(4) Loans given in capital market are usually for ……………..
(a) less than two years (b)more than two years (c)less than or
equal to two years (d) minus two years.
(5) The followings are the benefits of capital market except (a)
Mobilization of savings for investment (b)Encourages the
growth of central banking(c)Provision of investment
advice(d)Provision of opportunity to the public to participate
in running of the economy.

PART B: ESSAY TEST

1. What is money market?
2. Enumerate five functions of money market.
3. What is capital market?
4. List five institutions that operate in capital market.
5. Mention five benefits of capital market.

PRE-READING ASSIGNMENT
Read about determinants of supply and demand for
money

READING ASSIGNMENT
Comprehensive Economics for SSS 1,2 & 3 pg 181-182
REFERENCE TEXTS
 1. Economics for SSS 2 by M.A. Shittu, O.S. Ajuwon,
O. Kehinde. MELROSE PUBLISHING LIMITED.
2. Comprehensive Economics for SSS 1,2 and 3 by
Johnson Ugoji Anyaele. A Johnson Publishers
Limited.

WEEK 4
SUBJECT: ECONOMICS
CLASS: SS II
TOPIC: Types of financial Institutions and their
functions
CONTENT:
1. Definition of a bank
2. Types of banks, definition and characteristics.
Definition of a Bank A bank is a commercial institution
which performs various financial activities, e.g. accepting
and handling of deposits of its customers. Bank is also a
place where money and other valuables like will,
jewellery, etc. are kept
TYPES OF BANKS
1. Commercial banks
2. Central bank
3. Merchant banks
4. Development banks
5. Savings bank
6. Mortgage bank
COMMERCIAL BANK
Commercial banks are financial institutions
which accept deposits and other valuables from the
public for safe keeping, with the sole aim of making
profit. They are owned by private individuals,
institutions or governments. Examples are; First
bank, Zenith bank, Wema bank, Access bank etc
CHARACTERISTICS OF COMMERCIAL
BANK
1. Commercial bank is a limited liability company
2. The motive of its establishment is profit making
3. They are members of the money market
4. Commercial banks are Incorporated
5. They accept deposit and other valuables.
FUNCTIONS OF COMMERCIAL BANKS
1. Acceptance of deposit: - Commercial banks accept
deposits from the members of the public on current,
fixed deposit and savings account.
2. Lending of money: - Commercial banks grant
advances to customers in the form of loans,
overdrafts, discounting of bills of exchange and
promising notes.
3. Agent of payment: - They make payments on behalf
of their clients and exercise agency services on behalf
of their client.
4. Safe keeping of valuables: - They safe-guard
customers’ important documents such as certificates,
jewels, bills, deeds and other valuables.
5. Discounting bill of exchange: - They help to discount
the bills for their customers before the maturity date.
They charge commission for this service.
6. Issuance of bank statement: - They help their
customers to print out their account statement on
demand.
7. Investment and stock exchange transaction: - They
transact business on stock exchange market.
8. Issuance of traveller’s cheque: - This type of cheques
enables their customers to have money in any country
they go. It is called international currency.
9. Foreign exchange transaction: - They act as agent of
the central bank in carrying out this function. The
foreign currency is made available to the residents of
the country by the commercial banks in accordance
with the Central Bank regulation
10. Provision of financial advice: - They offer
business advice to their customers who are important
as giving those loans and overdraft. They can advise
their customers on such matters as income tax, on
execution of the deceased properties etc,
11. Act as executor for their customers: - They act as
guarantor to their customers who are buying goods
on hire purchase and defer payment.
Types of Bank Accounts
1. Current account: is the type of bank account usually
operated by businessmen and organisations and is
 required if a customer wishes to make payments
through cheques.
2. Savings account: it is the most common form of bank
account. It is operated with the use of passbook.
3. Fixed deposit/ time account deposit: It is the type of
account that is usually operated by individuals and
organisations who have excess liquidity.

SAVINGS ACCOUNT CURRENT ACCOUNT

1. Customers are issued with passbook 1. Customers are issued with chequ
2. It attracts interest 2. No interest is given to customers
3. Only the holder can withdraw from 3. Other people issued with a chequ
the account withdraw from the account
4. Withdrawal is occasional if interest is 4. Withdrawal can be frequent.
to be given
CREDIT FACILITIES PROVIDED BY
COMMERCIAL BANKS LOANS: Through loan,
money is lent out to customers at an agreed rate of interest
for a specific period of time.
1. OVERDRAFT: Overdraft is a method of credit
facility in which a customer is allowed or permitted
to draw a cheque more than the amount of money in
his account.
Differences between loan and overdraft

LOAN OVERDRAFT
1. Collateral security is required 1. Collateral security m
2. It attracts lower rate of interest 2. It attracts higher rate
3. The money is repayment at a fixed 3. There is gradual ded
time customer’s account
4. A separate account called loan account 4. No separate account

Ways by which Commercial Banks Create Credit

or Money
Credit or money creation refers to the process
whereby commercial banks make it possible for more
deposits to be made through loans or overdraft. Bank
lending in form of loan or overdraft increases the
quantity of money in circulation, which in turn
increases the purchasing power of the people. This is
because the bank credits the amount borrowed
thereby creating new bank deposits. The total
purchasing power increases by the amount loaned
out. This is why it is said that bank lending creates
credit or money.
 There are two methods of calculating credit creation
of commercial bank. There are formula method and
table method.
Initial deposit
Formula Method: Cashreserve ratio .

Example, Mr. Dele deposited ₦1000,000 and the

reserve ratio was 5 %. Calculate the total money
created in the banking system.
Solution:
Initial Deposit
Cas reserveratio

Where initial deposit is ₦1000,000 and cash reserve

ratio is 5%
1000,000
1000000 5 1000,000 100 100,000,000
5 = 1
÷
100 = 1
×
5 = 5
100

= ₦20,000,000.

Second Method: - Using table method

Banks Initial Cash reserve Loanable

Deposit (₦) ratio (5%) (₦) fund (₦)
A 1,000,000 50,000 950,000
B 950,000 47,500 902,500
 C 902,500 45,125 857,375
D 857,375 42868.75 814,506. 25
E 814,506.25 40,725.31 773,780.94
Other 15,475,618. 773,780.94 14,701,837.86
banks 8
TOTAL 20,000,000 1,000,000 199,000,000
Therefore the total money created is ₦20,000,000.00.

LIMITATIONS TO CREDIT CREATION OF

COMMERCIAL BANKS.

The power of commercial banks to create money is not

infinite or limitless. In short, the ability of commercial
banks to create credit depends on the following:

i. The banking system is comprised of many banks.

ii. Money creation will not be possible if people do not
keep their money in the banks.
iii. The process will not be possible or work if people are
not willing to borrow.
 iv. The credit creation will be difficult if banks are not
willing to give loans and advances to the people.
v. The ability of banks to create money will reduce if
the legal reserve requirement is high.
vi. The ability of borrowers to present acceptable
collateral security to banks.
vii. Total amount of money in the circulation will affect
credit creation. The more the money in circulation,
the more the credit creation.
viii. The rate of interest charged by commercial banks on
loans granted to members of the public.

CENTRAL BANK
It is the highest financial institution in a country
which carries out the monetary policy of the
government. It is the sole authority in the banking
industry which acts as banker to the government and
the commercial banks. Central bank controls and
regulates the supply of money.
CHARACTERISTICS OF CENTRAL BANK
1. Central bank is not profit oriented
2. There is only one central bank in a country.
3. It is the highest financial institution
4. Central bank is established by the Act of Parliament.
5. It is owned by the government.
6. There is no transaction with private individuals.
FUNCTIONS OF THE CENTRAL BANKS
1. Banker to the government: - The CBN was
established by the federal government to monitor or
direct monetary affairs of the country. It keeps the
finances and all accounts of the government. Issuance
and control of currency: - CBN is the only authority
empowered to issue currency notes and coins that are
used as a medium of exchange in the country.
2. Banker’s bank: - CBN acts as bank to commercial
banks, merchant banks, development banks, discount
houses, microfinance banks and all other banks in
Nigeria. Each banks in Nigeria have a bank account
with CBN from where they settle debts between
themselves.
3. Lender of last resort: - CBN lends funds to banks in
financial difficulties. CBN is where other banks run
to borrow and to discount bill of exchange.
4. Foreign exchange transaction: - It is the
responsibility of CBN to promote stability in the rate
of exchange of naira vis-a-vis the foreign currencies
in the international trade.
5. Management of national debt: - It is responsible for
the management of domestic and external debts of
the federal government.
6. Maintenance of external reserves: - CBN is the watch
dog of external reserves on behalf of the federal
government. It also gives advice to the government
on what to do if the foreign reserves are falling.
7. Responsible for monetary policy: - The CBN
formulates and implements monetary policy with the
primary objectives of promoting price stability,
maintenance of balance of payments, etc.
8. It formulates of rules and regulations guiding the
banking industry
9. External business- IMF, World Bank
 How Central Bank Controls the Commercial
Banks.
The following instruments are used;
1. Open Market Operation (OMO)
2. Liquidity ratio or cash ratio
3. Bank rate
4. Special directives
5. Special deposit
6. Moral suasion
1. Open Market Operation (OMO): It is the
purchase or sale of government securities in the
open market to expand or restrict the volume of
money in circulation. The central bank applies this
policy with the aim of regulating the volume of
money in circulation. When there is too much
money in circulation, the central bank will sell
securities. But in order to expand the volume, it
buys securities.
2. Liquidity ratio or cash ratio: The commercial
banks are mandated by the government to keep a
special proportion, e.g. 25%, of their total deposit
 with the central bank in order to control the volume
of credit. The size can be expanded or contracted
depending on the economic condition of the nation.
3. Bank rate: Bank rate is the minimum rate of
interest charged by the central bank for discounting
bill of exchange. By lowering or raising the rate,
the central bank can control the activities of the
commercial banks. When the rate increases, loan to
the public (customers) reduces, while a fall in the
rate will encourage more loans.
4. Special directives: The central bank can issue
directives or specific instructions to the
commercial banks and other financial institutions
to restrict their lending or credit policy or on the
direction to which loaning should follow. They will
be told to direct their funds to sectors which are in
need of investment.
5. Special deposit: it is also an instrument of
monetary policy which is used to restrict lending.
The central bank can order the commercial banks
to have special deposits, usually a percentage of the
banks’ deposits, to be made with it. This is
intended to control credit and is often used during
 the period of inflation to reduce cash with banks.
The central bank will mandate the commercial
banks to keep special deposit over the statutory
requirement.
6. Moral suasion: the central bank can make an
appeal to the commercial banks to restrict or
expand the level of credit to the public. Moral
suasion is not based on the use of force but an
appeal to restrict or expand the lending policy.

Central Bank Commercial Banks

1. It does not accept deposit from the They accept deposits from the p
public
2. It formulates and executes monetary They do not formulate monetary
policies
3. Central bank is owned by the They are usually owned by the p
government government.
4. It is accountable to the federal They are accountable to the shar
government.
5. It manages the national debt They do not manage national de
6. It is responsible for issuing of currency They do not issue currency
7. Only one central bank exists in a Many commercial banks exist in
country
8. It is not set up to make profit They are set up to make profit
9. It serves as banker to the banks and They serve as bankers to individ
government institutions
10. It is established by an Act of They are established by incorpo
Parliament.

Development Banks
Development banks are specialised financial
institutions which provide long term credit or loan to
other enterprises for capital projects. They provide loans
for projects in the area of agriculture, commerce and
industry. Examples of development banks in Nigeria are
Nigeria Industrial Development Bank (N.I.D.B),
Nigerian Bank for commerce and Industry (N.B.C.I) and
Nigerian Agricultural and Co-operative Bank (N.A.C.B)
Functions of development banks
1. They provide funds form of equity to development
project.
2. Development Banks provides long term and medium-
term finance/loans for commerce, industry and
agriculture as well as general development projects
3. They raise bilateral and multilateral loans from
national agencies like United State Agency for
International Development (USAID) from
international donor agencies like the World Bank.
4. They provide promotional activities such as
identifying and properly articulating investment
proposals.
5. They facilitate the establishment of institutions and
enterprises which will fill specific gap in the financial
system.
6. They help to quicken the pace of economic
development.
7. They provide entrepreneurial skills to their clients in
project preparation and evaluation.
8. They provide managerial assistance to their clients in
project preparation and implementation
9. They provide their clients with technical skills and
advice at the preparatory and implementation stages
of projects.
Merchant Banks
Merchant banks are financial institutions which
perform specialised functions, such as acceptance of
bills of exchange, issuance of loans for foreign trade
transactions, issuance of new shares, and provision of
medium and long term loans. They are sometimes
referred to as acceptance houses. In the past,
merchant banks were merchants who specialised in
trade with particular parts of the world.
The first merchant bank in Nigeria was the Nigerian
Acceptance Limited (NAL) established in 1966.
There are many merchant banks in Nigeria today.
These include: ABC Merchant Bank, Merchant
Banking Corporation, Merchant Bank of Africa, First
City Merchant Bank, Intercontinental Merchant
Bank, Ivory Merchant Bank, etc
Functions of merchant banks
1. They discount bill of exchange
2. They give loans to foreign traders
3. They give valuable advice to companies
4. They underwrite shares
5. They provide long-term loan
6. Trust management
7. Management of merger bid
8. Loan syndication
9. Provision of corporate management services
10. Acceptance of large deposit
11. Equipment leasing

Mortgage Banks
Mortgage banks are financial institutions that
specialise in granting loans to individuals and
corporate bodies for building purposes. Such loans
are repaid by instalments and can be spread over
several years.
Mortgage banks accept deposit from the
investing public at a rate of interest and use the fund
to lend, at a higher rate of interest, to people who
wish to purchase their own houses.
Functions of mortgage banks
1. Acceptance of deposit
2. Provision of long term loans
3. Development of mortgage institutions
4. Give advice on housing matters
5. Provision of houses

Insurance Companies
Insurance companies are financial institutions
that are concerned with insurance. Insurance may be
defined as a contract between an insurer and an
insured, under which an insurer promises to
indemnify (compensate) the insured against loss,
which he may suffer in future, upon the payment of a
premium. It is a provision made by an individual or
an enterprise against the occurrence of some future
loss.
There are certain risks which can be insured
against. Examples include risks of fire, burglary or
theft, accident, loss of goods in transit, untimely
death, bodily injury to factory workers, etc
Functions of insurance companies
1. It facilitates international trade
2. It offers investment opportunities
3. It leads to risk reduction
4. Provision of security
5. Provides a means of savings
6. It serves as collateral security
7. Motivation of workers
 8. Provision for old age and disability.
LOCATION OF INDUSTRY

Definition: Location of industry may be

defined simply as the sitting or
establishing of a firm or industry in a
particular place.

Factors influencing the Location of

an Industry

a. Proximity to source of raw materials

b. Nearness to market

c.Availability of capital
d. Nearness to source of power

e. Availability of labour

f. Political stability

g. Favourable climate

h. Government policy
i. External economies of the location of
the place

Reasons for Government

Participation in the Location of
Industries in Nigeria
1. To raise the standard of living: This
is one of the reasons government
participates in the location of industries.
2. Provision of standard goods:
Industries so located are capable of
preventing standard goods, thereby
preventing the proliferation of low
quality goods.
3. Equitable spread of development
4. Provision of employment
opportunities: When industries are
located in an environment there will be
high demand for labour which will often
be supplied by the workers in that
community.
5. Political consideration: Government
can deliberately influence the sitting of
industry for political reasons.
6. Industries can be sited for the
purpose of curbing rural-urban
migration.
7. Industries are sited for economic
development of an area or
community.
8. Government do site industries for
strategic reasons.
LOCALIZATION OF INDUSTRIES
This can be defined as the deliberate
decision of the government to
concentrate firms or industries
producing similar products in an area.
Factors that influence localization
of industries
1. Industries are usually located in an area
where the industry can easily source her
raw materials especially when the
industries require heavy materials which
are often too bulky in transit.
2. Industries are located close to the
(major) market area mostly when the
final output is bulky or (and) fragile and
the cost and the risk of transporting to
the market area is high.
3. To foster collaboration among firms
through joint research and training
which an individual firm may not be able
to fund.
4. Industries can be concentrated in an
area where there is concentration of
lobour with a specific skill than others
areas.
5. Availability of technical economies can
influence the concentration of industries
can influence the location of industry
6. Availability of infrastructural facilities
e.g. electricity, good road network.

ADVANTAGES OF LOCALIZATION OF
INDUSTRIES
 Localization of industries should be
encouraged for the following reasons.
1. To encourage development

2. Generation of employment opportunity

3. Concentration of industries encourages

the raise of (other)subsidiary firms. That
the smaller firms that demand or supply
goods or raw materials to the mother
firms.
4. Creation of completion and prevention

of monopoly

5. The firms can easily benefit from the

presence of one another in different
ways, this is called external economies
of scale.
6. When industries are localised,
individual firms can easily provide social
amenities jointly in that area with little
or no support from the government.
7. Industrialisation encourages division of
labour and thus the use of machinery in
the process of production
Disadvantages of Localisation of
industries
The idea of concentrating industries in
an area may be discouraged for the
following reasons.
1. It causes environmental pollution
2. It result into imbalance development
3. It leads to congestion and high rate of
crime, its concomitant.
4. It may lead to rural-urban migration.
5. Industrial areas may make an area a
target to enemy’s attacks.
6. It may lead to over exploitation of
natural resources.
7. It exerts too much pressure on the
social amenities.

ROLE OF INDUSTRIALIZATION IN
ECONOMIC DEVELOPMENT
1. It increases the gross national product

(GNP) of a country
2. It increase employment opportunities

3. It stimulates other sectors of the

economy

4. It improves international trade and thus

trade balance.

5. It is a suitable choice in curbing

inflation through mass production of

goods at low cost.

6. It leads to technological development

7. It encourages diversification of the

revenue sources.
8. It encourages training and

development of skilled manpower which

turns out to specialization

9. It curbs excessive reliance on

importation thus preserves and

conserves foreign exchange.

INDUSTRIES IN NIGERIA II
STRATEGIES OF INDUSTRIALIZATION
The following are some of the strategies
of industrialization
1. Import-substitution strategy: The
import-substitution strategy involves
 deliberate attempt by government
aimed at encouraging the growth of
industries within the country which
locally produce goods and services
which are majorly imported
2. Export promotion strategy: This is a
deliberate effort of the government
geared at establishing industries for the
purpose of producing exportable goods.
Export promotion strategy encourages
the production of goods and services
with the main aim of exporting them.
3. Small scale and large scale
development strategy: Government
can also encourage the development
small and large scale industries with the
aim of developing the industrial sector
of the economy. The small scale
industries established in the rural areas
helps to prevent rural-urban migration
thus promoting rural economic
development.
Problems of Industrialization in
Nigerian
1. Inadequate power supply: industrial
activities demand regular uninterrupted
power which in most cases is a problem
to come-by in Nigeria.
2. Policy inconsistency: This creates a
major setback in industrial development
and economic development as a whole.
It occurs when different government
agents and administrations are
formulating policies that are counter-
productive and inconsistence.
3. Insufficient capital: Capital is dear
and almost inaccessible in most cases
as a result of its high (cost) interest rate
and other stiff terms and conditions.
4. Poor transport and communication
networks: Indutralisation require fast,
steady, reliable and affordable
transportation and communication
system which are very difficult to come-
by in Nigerian.
5. Lack/ inadequate skilled labour:
Industrial activities require highly skilled
industrial labours who have acquire
 specialized skills to carry-out certain
industrial tasks perfectly.
6. Shortage of raw materials: Large
scale production is limited by availability
of raw materials. Where raw materials
are limited industrial activities will be
hampered.
7. Lack of standardisation of
industrial goods: Industrial goods
manufactured in Nigeria are often of
lower standard and thus cannot
compete with the foreign products
therefore limiting the marketability of
Nigerian made goods.
8. Over Dependence On Foreign
Machines : Most of the technology and
machines used by local manufacturers
in Nigeria are imported from other
countries. And these machines are
usually very expensive and not localized
to suit Nigerian industrial production.
LINKS BETWEEN AGRICULTURE AND
INDUSTRIAL DEVELOPMENT
Agriculture is the backbone of Africa’s
economy. For 70 percent of the
population, it is the primary source of
livelihood and accounts for about 25
percent of the continent’s GDP.
However, Africa’s agricultural
productivity and yields are among the
lowest. The consensus is that Africa’s
agriculture is not performing well,
manufacturing remains one of the
lowest in terms of value added and
employment, and the services sector is
positioned to serve mainly the domestic
consumers. Undoubtedly, Africa needs
to transform its economic structure to
sustain growth. Agro-industry presents a
promising prospect. With the right
policies and enabling environment in
place, it has the potential to bring the
best of agricultural, manufacturing, and
services sectors.
Due to its backward and forward
linkages, it increases value addition
in GDP and elevates the continent
through the global value chain, creating
employment opportunities and
increasing incomes, strengthening
food security and improving
nutrition to promote a healthier and
productive workforce, and ultimately,
alleviate poverty.

Agro-industry is broadly defined as

post-harvest activities involving the
transformation, preservation and
preparation of agricultural
production for intermediary or final
consumption. It comprised of artisanal,
minimally processed and packaged
agricultural raw materials, the
processing of intermediate goods, and
the fabrication of final products derived
from agriculture. An extended definition
of agro-industry includes not only
agriculture related industries but also
distribution and trading activities. The
most important subsectors within the
agro-industry sector are food-processing
and beverages, accounting for more
than 50 percent of the total formal agro
processing sector in low-and middle-
income countries. Processing of meat,
 fish, fruits, vegetables and fats, bakery,
macaroni, chocolate, and other foods
also constitute a sizeable proportion of
the total value addition. Africa also has
vast potential in tobacco and textiles, as
well as leather products. Considering the
entire food system, including the
production of goods and commodities,
marketing, and retailing, which account
for more than 50 percent of the GDP of
developing countries, agro-industry
could play a vital role in the creation of
income and employment opportunities
in Africa.

NEEDS FOR AGROINDUSTRY/ AGRO-

ALLIED INDUSTRY
1. From the point of view of sustainable
economic growth, food security, and
poverty reduction, the contribution of
the agroindustry is paramount.
2. Studies show that due to their forward
and backward linkages, agro-industries
have higher multiplier effects in terms of
job creation and value addition.
3. Agro-industry stimulates businesses
well beyond the closest links with its
direct input suppliers and product
buyers. It has the potential to bolster a
range of ancillary services and
supporting activities in the secondary
and tertiary sectors.
4. Their impacts on rural off farm
activities, employment, and poverty
alleviation in general are, hence,
enormous, since most agricultural
products are bulky and perishable, many
agro-industries and small-scale agro-
processing enterprises must be located
close to sources of raw materials.
5. Demand for food has been increasing
due to population growth and increased
incomes. Such population expansion is
directly proportional to expansion in
demand for food, particularly processed
food. Unfortunately, Africa is still a net
food importer. Despite the increase in
volume of production and the vast
arable land that the continent is
endowed with, the agricultural sector is
yet to satisfy the increasing demand for
food.
 Interdependence between Agriculture
and Industry
There exist a strong interdependence
between agriculture and industry such
that it could be impossible for either of
them to exist without the other one. We
shall embark on the establishment of
the relationship between industry and
agriculture by discussing the following.
1. Market: The industrial sectors largely
depend on the agricultural sector for
raw materials while the agricultural
sectors also depend on the industry for
implements and machinery. This means
that both interdepend on one another
for market for their produce.
2. Input: The industrial sector produces
farm inputs (e.g. fertilizer, herbicide,
preservatives etc.) while the agricultural
sectors act as the sources of major raw
materials to the industry.
3. Standardized product: When
agricultural produce are of good and
high quality it also has a positive
reflection on the industrial outputs.
When the industries help to create
modified seedlings and hybrid animals
 this in turn results into a quality raw
materials for the industrial production
leading to standardized products from
the agricultural and the industrial
sectors.
4. Employment opportunity:
Employment in the industrial sectors
translates in to employment in the
agricultural sector too. When industry
enlarge their scale of production and
employs more labour, they tend to
require more raw materials which have
to be supplied by the agricultural
sectors thus increasing the employment
in the yagricultural sectors.

EXTERNALITIES
Externalities or spillover effects are costs or benefits
which arise from an activity but are not received by, do
not accrue to or are not taken account of by the person or
organization carrying out the activity. Externalities arise
in consumption or production of goods and services when
there is disequilibrium or divergence between the private
benefits and costs of an economic activity and thesocial
benefits and costs. They occur when the actions of
individuals, firms or the government have a positive or
negative effect on third parties or bystanders.
1. When social benefit > social cost=positive externalities
2. When social cost > social benefit=negative
externalities

Causes of Externalities
According to A. C. Pigou, externalities occurs as a result
of the divergence between private product and social
product. This divergence could be triggered by external
economies or external diseconomies.
Externalities = Social Costs – Social Benefits
Positive Externalities = Social Benefit > Social Cost
Negative Externalities = Social Cost > Social Benefit

Causes of Externalities
1. External Economies of Production: Localized firms
enjoying a fall in their average cost of production or
laboratory set up of a large firm leading to technological
spillovers.
2. External Diseconomies of Production: Effect of
pollution on health, clothes and household articles or
excessive mining by a firm in a localized industry leading
to increase in the average cost of production.
3. External Economies of Consumption: Installation of
TV by a household and the benefits to the neighbours.
Emulative effects of consumption – Dues being
hypothesis.
4. External Diseconomies of Consumption: Consumption
with negative effects on bystanders. A fashion dress
resulting in bandwagon effect and consequently leading to
followers discarding old wears. Dissatisfaction from the
jealous ones who cannot afford the dress.
5. Public Services: National defence, public safety –
Goods without exclusion principles.
How to Control Externalities and Correct Market
Failures
1. Social Control Measures: These are rules and
regulations which governments impose in order to control
externalities. They include age restrictions on the
purchase and consumption of certain goods or services;
laws designating locations where certain activities may or
may not be permissible, for example, laws restricting
where a person can smoke; outright ban in the case of
noise nuisance from parties or nationalization of firms in
terms of . These social control measures have the general
effects of reducing the consumption of certain goods and
services, changing the behaviour of people by raising
awareness about the negative effects of demerit goods and
increasing the awareness of the positive impacts of merit
goods.
2. Taxes and Subsidies: A tax is a sum of money paid to
the government by a producer for the production of goods
and services or by a consumer for the consumption of
goods and services. Taxes increase the costs of production
for the producer and the cost of consumption for the
consumer. A subsidy is an amount of money given by the
government to a producer to reduce the costs of
production or to a consumer to reduce the price of
consumption. Governments try to control externalities by
placing a tax on demerit goods. This has the effect of
reducing the supply of the good, leading to an increase in
the price of the good and a fall in the quantity demanded.
3. Advertising and Education: In some countries, it is a
legal requirement for advertisements to be made on
demerit goods to warn consumers of their negative effects
and raise awareness of the dangers of these goods.
Schools may also teach students about the negative side-
effects of the consumption and production of certain
goods and services. Informative advertising and education
can also explain to people the benefits of certain goods
and services. This in turn increases the demand for them
and produces external benefits for the society. Advertising
and education have the general effects of changing
behaviour and consumption patterns of individuals and
firms to increase the production and consumption of merit
goods and decrease the production and consumption of
demerit goods. They also attempt to bring about a cultural
change in the long term.
3. Public Goods: Indivisible nature of public goods and
the non-exclusive principle of firms can be resolved by
sharing the cost of public goods.
4. Internalization: Internalization or unitization of
externalities in production e.g. heavy duty/mining firms in
the oil sector should merge to reduce over drilling and
pumping to avert diseconomies of scale.
5. Property Rights and the Coase Theorem: Rights of
ownership should be defined and sanctions for every party
considered. Coase Theorem holds that externalities can be
corrected by the market if the two parties to the
externality – the one causing it and the one suffering from
it can bargain together with zero or minimal transaction
costs, they will produce an efficient use of resources.
Hence, as long as property rights are defined and there are
no transaction costs, both creators and victims of
externalities can internalize externalities by private
contracts to yield an efficient use of resources.