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9708/21 Paper 2
Data Response and Essay
May/June 2020
1 hour 30 minute
Section A
Answer this question
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The recent increase in global oil prices has had a very large positive effect on the
country’s balance of trade and has also improved the country’s terms of trade
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It has used the
private sector to become the most productive and dynamic part of Nigeria’s economy
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” His company’s success shows what
private enterprise can achieve in a mixed economy especially if it is provided with the
right incentives by the government
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Start-up initiatives have been
encouraged and the need to be innovative has been increasingly recognised, leading to
the development of new goods, services and markets
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A ‘free trade zone’ on the edge of Lagos has been established where private sector
firms pay no business taxes to the government and there are now numerous start-up
enterprises that are thriving
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The
zone is located next to a deep sea port and has good road connections with both the
rest of Nigeria and other countries in the region
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In 2016 the output of Lagos was valued at US$136 billion
while Nigeria’s total national output was valued at US$405 billion
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In terms of an improved infrastructure and a supportive economic
environment, the government has given firms a greater opportunity to thrive
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[1]
In 2016, the output of Lagos was valued at US$136 billion while Nigeria’s total national
output was valued at US$405 billion
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58024%
1(b) Distinguish between a country’s balance of trade and its terms of trade
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The terms of trade refer to the average prices of a country's exports relative to the
average prices of its imports
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The balance of trade is concerned with the quantity and monetary value of goods
and services traded between countries
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In contrast, the terms of trade focus on the average prices of exports and imports
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An
improvement or deterioration in terms of trade indicates whether a country is receiving
more or less value for its exports concerning the cost of its imports
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[4]
The factor enterprise serves dual functions within an economy
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This organizational role is
crucial in facilitating the efficient use of resources
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The factor enterprise has been pivotal in driving the successful economic
transformation of Lagos
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Entrepreneurship plays a key role, actively encouraged through start-up initiatives,
resulting in a resilient and adaptable modern economy
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The city's
prominence in creative industries, such as music, fashion, film, and technology, not only
significantly contributes to the local economy but also positions Lagos as a cultural and
economic powerhouse in Africa
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[2]
Free Trade Zones (FTZ) can be considered a supply-side policy because they
primarily focus on improving the production capacity and efficiency of the economy,
which aligns with the goals of supply-side policy
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These start-up enterprises would help to
increase output and contribute to the Nigerian economy
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[4]
The measures to reduce protection through policies such as ‘free trade zones’ can
encourage specialisation and the development of comparative advantage in Nigeria
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In these zones, private
sector firms are provided with favourable conditions such as tax exemptions, reduced
bureaucracy, and improved efficiency
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For instance, in Lagos, the

establishment of a free trade zone next to a deep-sea port facilitates trade, making it
advantageous for businesses to specialize in activities related to international
commerce, logistics, and port services
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The favourable conditions within these zones
attract diverse start-up enterprises, fostering competition and innovation
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Through this diversification and innovation, the city and its free
trade zone develop unique capabilities, leading to the emergence of comparative
advantages
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1(e) Discuss whether government intervention to encourage private sector firms,
in a mixed economy such as Nigeria, is always likely to be successful
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The provision of the right incentives, as
highlighted in the case of Lagos, can stimulate economic progress
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Additionally, infrastructure development and a supportive
economic environment, as mentioned by the former governor of the Nigerian central
bank, showcase the positive impact of government intervention
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Private enterprise, particularly in Lagos, has
demonstrated its potential to drive economic transformation and become the most
productive part of the national economy
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The dynamism and innovation of the
private sector, especially in a mixed economy, contribute to the overall success of
government initiatives
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A

symbiotic relationship between a proactive government and a vibrant private sector is
essential for sustained economic growth and development
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[8]
The production possibility curve (PPC) shows the maximum level of output of each of
the two goods that can be produced with the available quantity and quality of resources,
using a given state of technology
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If the firm uses all its resources for the production of
cars, then it’ll be able to produce 1000 cars and no televisions
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Between these two extreme points, the firm can choose to produce any combination of
the two goods as represented by points A and B while maximising the total output
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However, it cannot do so because the point D
is outside the curve
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This indicates the scarcity of resources
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The points on the curve maximise the output
which means it has used the available resources efficiently
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Moving from one point to another on the PPC curve indicates opportunity cost
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This opportunity cost is
represented in the diagram by the movement from point A to point B
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[12]
The view that the only goods a government should produce are public goods is rooted
in economic theory and the rationale that certain goods and services exhibit
characteristics of non-excludability and non-rivalry, making them best suited for
government provision
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Public goods are characterized by non-excludability and non-rivalry, meaning that
individuals cannot be excluded from their benefits, and one person's consumption does
not diminish another's
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The
government is often the most efficient provider of public goods, as private markets may
fail to produce them due to the free-rider issue
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If a country invests in national
defence, all citizens benefit from the protection, irrespective of w

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