ConceptConceptDocsDocuments

CAIE A-Level Economics 1.5.4 Position Within a PPC

Practise interpreting points inside, on and outside a PPC as inefficient, efficient or currently unattainable and explaining movements caused by unemployment or better resource…

Syllabus
2026–2028
Course
Economics 9708
Level
AS

Exam points

  • classify a point on the curve as productively efficient and one beyond it as currently unattainable
  • link a point inside the curve to unemployment, idle resources or productive inefficiency
  • explain why moving from inside to the curve can raise both outputs without opportunity cost

1.5.4—Position within a PPC question 1

[Maximum number: 2]

Nigeria has about half of West Africa's population with approximately 202 million people and one of the largest populations of young people in the world. With an abundance of natural resources, it is Africa's biggest oil exporter, and has the largest natural gas reserves on the continent.

Nigeria is highly vulnerable to the global economic disruption caused by the COVID-19 pandemic, particularly due to the steep decline in oil prices. Nationally, 40%40 \% of Nigerians live in poverty, while another 25%25 \% are vulnerable and could fall into poverty due to the pandemic.

Oil accounts for 80%80 \% of Nigeria's export revenues, a dominant position that it has occupied since the 1970s. Many people believe that Nigeria needs to move further away from its dependence on oil and natural gas. Initial attempts at diversification have produced limited gains as the policies have been aimed mainly at the domestic market to create jobs and to improve living standards. There needs to be a focus on export-orientated manufacturing that should boost economic growth as it has done in countries such as Malaysia and Indonesia.

Based on the experience of these countries, more open trade and competition policies would help to diversify the economy, especially as the African Continental Free Trade Area (ACFTA) takes effect. Nigeria needs to create at least five million new jobs each year to employ its growing population of young people.

Table 1.1 Nigeria: key economic indicators

Table 1.1 Nigeria: key economic indicators

Source : Global economy.com

Nigeria's economy entered a recession in 2020 due to fall in crude oil prices caused by falling global demand and measures to fight the spread of COVID-19. Inflation rose in 2020 due mainly to higher food prices, the removal of fuel subsidies and an increase in the price of electricity. The budget deficit also worsened in 2020 because the COVID-19 pandemic caused higher government spending and lower tax revenues, adding to the national debt.

Nigeria's national debt is sustainable at 25%25 \% of GDP, but interest payments are high, accounting for about 50%50 \% of government spending. Nigeria's government could improve its finances by reforming domestic tax collection. Non-oil tax revenue is equivalent to just 4%4 \% of GDP. An increase in the rate of value-added tax (VAT) from 5\% to 7.5\% in 2020 resulted in less revenue than forecast because of the recession. A wider tax base could help the budget, but this will require significant reform to reduce both tax evasion and a large informal economy.

Sources: Adapted from: World Bank in Nigeria Nov 2020
and: IMF News, African Department, February 2020
and: African Development Bank Group: Nigeria Economic outlook, 2021

Using a production possibility curve (PPC) diagram, demonstrate the impact of the rising level of unemployment on the Nigerian economy.

All question bank results loaded