a) Economics is described as the study of choice under conditions of scarcity because human wants are unlimited, but resources (such as land, labor, capital, and time) are limited and have alternative uses. In the Ghanaian banking context, this manifests in decisions like allocating limited capital reserves to high-yield loans versus low-risk government securities, as guided by the Bank of Ghana’s Capital Requirements Directive (CRD), ensuring banks optimize profitability while maintaining compliance and liquidity. Scarcity forces prioritization: for instance, during the 2017-2019 banking cleanup, banks had to choose between recapitalization efforts or facing closure, highlighting how scarce funds lead to critical economic choices for efficiency and survival.

b) Two forces that create economic friction are:

• Imperfect information: Market participants may lack complete knowledge, leading to inefficiencies, such as borrowers hiding risks from lenders in Ghana’s credit market, increasing non-performing loans as seen in cases like the collapse of UT Bank due to poor due diligence.
• Transaction costs: These include fees, time, and regulatory hurdles in exchanges, like the costs of compliance with BoG’s Anti-Money Laundering directives, which slow down banking operations and create barriers to smooth market adjustments.

c) “Wants” refer to the unlimited desires or needs of individuals for goods and services that provide satisfaction or utility, which exceed the available resources to fulfill them. In banking, wants drive demand for financial products; for example, Ghanaian consumers’ wants for digital banking services post-2022 DDEP have led to increased adoption of mobile money platforms like MTN MoMo, but scarce infrastructure limits full satisfaction, prompting banks like Ecobank Ghana to prioritize investments in fintech under the Payment Systems and Services Act, 2019 (Act 987).

d) When the price of a good falls, marginal utility remains unchanged in the short term because it is the additional satisfaction gained from consuming one more unit, which depends on the consumer’s preferences and the good’s inherent qualities, not directly on price. However, a lower price may encourage higher consumption, leading to diminishing marginal utility as more units are consumed. In practice, for Ghanaian banks, a fall in interest rates (price of borrowing) doesn’t alter the utility of loans but increases demand, as seen when BoG reduced policy rates in 2023-2024 to stimulate post-DDEP recovery, allowing firms to borrow more for expansion until saturation sets in.

e) Kofi can fetch water from a nearby stream without paying because water in this context is a free good with zero marginal utility cost at the point of collection—it is abundant relative to demand and requires no sacrifice of alternative resources beyond minimal effort. Marginal utility applies here as the additional unit of water provides utility without opportunity cost, unlike scarce goods. In Ghana’s rural banking, this parallels free public goods like air, but contrasts with banking services where even “free” accounts involve opportunity costs; for example, during the banking sector cleanup, banks like GCB offered no-fee basic accounts to attract deposits, but the utility diminishes if hidden costs like time arise.

f) Effective advertisement increases the perceived marginal utility of the commodity by highlighting benefits, shifting demand rightward and allowing producers to raise prices while maintaining sales volume. In Ghana, successful ads for products like FanYogo yogurt have boosted demand, leading to price hikes; similarly, in banking, Stanbic Bank’s campaigns for digital loans post-2020 Cyber Security Directive have enhanced perceived utility, enabling premium pricing on services amid rising demand.