Theory of Demand points and summaries for Jamb candidates

Jamb(UTME) Summaries/points on the Scientific Approach to Inductive and Deductive Methods, Positive and Normative Reasoning

Meaning of Demand

1. Demand is the quantity of a good or service that consumers are willing and able to buy at a given price.
2. Demand shows consumer interest in a product and reflects how much they want to buy.
3. It depends on factors like price, income, and consumer preferences.
4. When demand is high, consumers are willing to buy more of a product.
5. When demand is low, consumers buy less of a product, often due to high prices or lack of interest.
6. Demand is influenced by the willingness and ability of consumers to pay.
7. Economists study demand to understand market behavior and consumer needs.
8. Demand helps businesses decide on production levels and pricing strategies.
9. Demand varies from one product to another based on consumer preferences.
10. The concept of demand is central to understanding how markets operate.
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Determinants of Demand

11. Price of the product: Generally, as price rises, demand falls (inverse relationship).
12. Consumer income: Higher income can increase demand for goods, while lower income can reduce it.
13. Tastes and preferences: Demand increases if a product becomes trendy or desirable.
14. Prices of related goods: Substitute and complementary goods affect demand.
15. Substitute goods: If a substitute’s price drops, demand for the original good may fall.
16. Complementary goods: If a complement’s price rises, demand for the related good may fall.
17. Expectations of future prices: If consumers expect prices to rise, they may buy now, increasing demand.
18. Consumer expectations of future income: Expected higher income can increase demand.
19. Population size: Larger populations can lead to higher demand for goods.
20. Demographics: Age, lifestyle, and location of consumers can affect demand patterns.
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Demand Schedules

21. A demand schedule is a table showing the quantity of a good demanded at different price levels.
22. It organizes data, showing the relationship between price and quantity demanded.
23. Demand schedules help visualize how quantity demanded changes with price.
24. It usually lists prices in one column and quantities demanded in another.
25. A demand schedule helps economists understand consumer behavior at various prices.
26. It can be used by businesses to set prices that maximize sales.
27. Demand schedules are either individual (single consumer) or market (total for all consumers).
28. A market demand schedule shows the total demand for a product from all consumers.
29. Demand schedules make it easier to create demand curves.
30. They are useful for planning production based on expected demand at different prices.
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Characteristics of Demand Schedules

31. Demand schedules reflect the law of demand, showing an inverse relationship between price and quantity demanded.
32. As price decreases, the quantity demanded typically increases, and vice versa.
33. Demand schedules provide a clear picture of consumer preferences at various prices.
34. They help businesses predict how changes in price might impact sales volume.
35. Demand schedules can vary depending on season, trends, and economic conditions.
36. Demand schedules are helpful for comparing demand across different goods.
37. They are used to determine the optimal price point to maximize sales.
38. Demand schedules can show shifts in demand over time or across different regions.
39. They help businesses adjust supply according to expected demand at different prices.
40. Demand schedules can reveal insights about consumer sensitivity to price changes.
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Demand Curves

41. A demand curve is a graphical representation of the demand schedule.
42. It plots price on the vertical (Y) axis and quantity demanded on the horizontal (X) axis.
43. A typical demand curve slopes downward, reflecting the inverse relationship between price and quantity demanded.
44. The downward slope shows that as price decreases, quantity demanded increases.
45. Demand curves visually show how consumers react to price changes.
46. A shift in the demand curve means demand has increased or decreased at all prices.
47. Rightward shifts indicate increased demand at every price level (e.g., due to higher income).
48. Leftward shifts indicate decreased demand at every price level (e.g., due to lower income).
49. Demand curves are essential for understanding consumer behavior and setting prices.
50. Businesses use demand curves to anticipate sales and make pricing and production decisions.
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Jamb(UTME) Summaries/points on change in demand, change in quantity demanded, types of demand and their interrelationship

Change in Demand

1. Change in demand refers to a shift of the entire demand curve, meaning consumers want to buy more or less of a good at every price.
2. It occurs when factors other than price, like income or consumer preferences, change.
3. When demand increases, the demand curve shifts to the right.
4. When demand decreases, the demand curve shifts to the left.
5. Change in demand is influenced by factors like income, tastes, and prices of related goods.
6. A rise in consumer income can increase demand, shifting the curve right.
7. A decrease in income can lower demand, shifting the curve left.
8. If a product becomes trendy, demand might increase at every price.
9. Change in demand is not related to the product's price but to external factors affecting consumer interest.
10. For example, increased demand for eco-friendly products could result from a growing awareness of environmental issues.
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Causes of Change in Demand

11. Consumer preferences: A product's popularity increases demand.
12. Income levels: Higher income leads to more spending and higher demand.
13. Population changes: An increase in population boosts demand for goods and services.
14. Prices of substitute goods: If a substitute’s price rises, demand for the original good may increase.
15. Prices of complementary goods: If a complement’s price decreases, demand for the related good may increase.
16. Consumer expectations: If consumers expect future price hikes, current demand may rise.
17. Seasonal changes: Demand often shifts due to seasonal needs (e.g., demand for coats in winter).
18. Advertising and promotions: Successful advertising can increase demand across all prices.
19. Government policies: Tax cuts or subsidies can lead to increased demand.
20. Technological advancements: New features in a product can increase demand for that product.
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Change in Quantity Demanded

21. Change in quantity demanded refers to movement along the demand curve, caused only by a change in the product's price.
22. If the price decreases, the quantity demanded increases (moving down the curve).
23. If the price increases, the quantity demanded decreases (moving up the curve).
24. This change is due to the law of demand, which states that price and quantity demanded have an inverse relationship.
25. Change in quantity demanded is solely price-driven, unlike a change in demand.
26. Economists use this concept to understand consumer response to price changes.
27. For example, if movie ticket prices drop, people may attend more movies, showing an increase in quantity demanded.
28. A rise in gas prices could cause consumers to reduce their driving, showing a decrease in quantity demanded.
29. Change in quantity demanded is represented as movement along the same demand curve.
30. It does not shift the demand curve, as only price changes are involved.
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Types of Demand

31. Individual demand: The demand for a product by a single consumer.
32. Market demand: The total demand for a product from all consumers in a market.
33. Joint demand: Demand for two goods used together, like cars and gasoline.
34. Composite demand: Demand for a good that has multiple uses, like sugar (used for baking, candy, and soft drinks).
35. Derived demand: Demand for a product based on its use in producing another good, like demand for steel to make cars.
36. Price demand: Demand for a product based on its price, reflecting consumers' willingness to pay.
37. Income demand: Demand changes based on consumers' income levels.
38. Cross demand: Demand for a good in relation to the price changes of a related good, like substitutes or complements.
39. Elastic demand: Demand that is highly responsive to price changes (e.g., luxury goods).
40. Inelastic demand: Demand that shows little response to price changes (e.g., essential goods like medicine).
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Interrelationships between Change in Demand, Quantity Demanded, and Types of Demand

41. Change in demand affects all price levels, while change in quantity demanded responds only to price changes.
42. A change in demand shifts the entire curve, while a change in quantity demanded is movement along the curve.
43. Types of demand show how different factors, like income or substitutes, influence demand differently.
44. Elastic and inelastic demands show how sensitive demand is to price changes, affecting quantity demanded.
45. A strong advertising campaign can shift the demand curve, leading to a change in demand.
46. An increase in income could raise demand for luxury goods (elastic demand) more than necessities (inelastic demand).
47. Complementary goods exhibit joint demand, where demand for one product depends on the availability of another.
48. If a substitute's price rises, demand for the original product might increase, shifting its demand curve.
49. Derived demand links products, like demand for labor based on demand for the goods they help produce.
50. Understanding these concepts helps economists predict how various factors affect demand and guide businesses in pricing and marketing strategies.
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Jamb(UTME) summaries/points on types, nature and determinants of elasticity and their measurements, importance of elasticity of demand to consumers, producers and government

Types of Elasticity of Demand

1. Price Elasticity of Demand (PED) measures how much the quantity demanded changes in response to a change in price.
2. Income Elasticity of Demand (YED) measures how much demand changes in response to changes in consumer income.
3. Cross Elasticity of Demand (XED) measures how the demand for one good changes in response to the price change of another good.
4. Elastic Demand: Demand is elastic when a small change in price leads to a large change in quantity demanded.
5. Inelastic Demand: Demand is inelastic when a change in price has a small impact on the quantity demanded.
6. Unitary Elastic Demand: Demand is unitary elastic when a change in price leads to a proportional change in quantity demanded.
7. Perfectly Elastic Demand: Consumers will only buy at one price; any price increase results in zero demand.
8. Perfectly Inelastic Demand: Quantity demanded remains the same, regardless of price changes.
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Nature of Elasticity of Demand

9. Elasticity shows the sensitivity of consumers to price, income, and related goods.
10. High elasticity means consumers respond significantly to changes in price, income, or related goods.
11. Low elasticity means consumers do not respond much to these changes.
12. Elasticity helps explain consumer behavior in response to economic changes.
13. Different goods have different elasticities due to factors like necessity or luxury status.
14. Elasticity varies with time; for example, demand may become more elastic over the long run.
15. Elasticity is crucial for understanding how demand changes with external factors.
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Determinants of Elasticity of Demand

16. Availability of Substitutes: More substitutes make demand more elastic.
17. Necessity vs. Luxury: Necessities tend to have inelastic demand; luxuries have more elastic demand.
18. Proportion of Income: Expensive items that take up a large portion of income are more elastic.
19. Time Period: Over time, demand tends to become more elastic as consumers find alternatives.
20. Addictiveness: Addictive goods, like cigarettes, often have inelastic demand.
21. Brand Loyalty: High brand loyalty can make demand less elastic.
22. Market Definition: Narrowly defined markets (specific brands) tend to have more elastic demand than broadly defined markets (e.g., all food).
23. Durability: Durable goods tend to have more elastic demand since consumers can postpone purchases.
24. Necessity of Immediate Purchase: Goods needed immediately (e.g., medicines) often have inelastic demand.
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Measuring Elasticity

25. Elasticity is measured by the Elasticity Coefficient, calculated as the percentage change in quantity demanded divided by the percentage change in price, income, or the price of related goods.
26. A PED greater than 1 indicates elastic demand; less than 1 indicates inelastic demand.
27. A PED equal to 1 indicates unitary elasticity.
28. Elasticity can be calculated using the formula: Elasticity = % Change in Quantity Demanded / % Change in Price.
29. For income elasticity, YED = % Change in Quantity Demanded / % Change in Income.
30. For cross elasticity, XED = % Change in Quantity Demanded of Good A / % Change in Price of Good B.
31. Positive cross elasticity indicates substitute goods; negative cross elasticity indicates complementary goods.
32. Elasticity can be calculated using the midpoint (arc elasticity) formula for more accurate results over price ranges.
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Importance of Elasticity of Demand to Consumers

33. Elasticity affects consumers' purchasing power, as demand changes with price.
34. For inelastic goods, price increases impact consumers more as they must buy the good regardless.
35. Elastic goods allow consumers to switch to alternatives when prices increase.
36. Elasticity helps consumers make informed decisions on when to buy or wait.
37. Income elasticity helps consumers adjust spending according to income changes.
38. Understanding elasticity helps consumers anticipate price changes in essential vs. non-essential goods.
39. Consumers can choose to buy bulk or wait based on their knowledge of elastic and inelastic goods.
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Importance of Elasticity of Demand to Producers

40. Elasticity helps producers set optimal prices, maximizing revenue.
41. Producers can increase prices for inelastic goods without losing many customers.
42. For elastic goods, producers must keep prices competitive to maintain demand.
43. Elasticity helps producers assess the impact of price changes on total revenue.
44. Understanding cross elasticity aids businesses in pricing complementary and substitute products.
45. Elasticity helps producers respond to income changes and shifts in consumer preferences.
46. By knowing elasticity, producers can adjust production volume and manage inventory effectively.
47. Elasticity analysis aids producers in long-term planning for product development and pricing.
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Importance of Elasticity of Demand to Government

48. Elasticity helps the government predict the impact of taxes on goods like fuel and tobacco.
49. For inelastic goods, taxes generate revenue without drastically reducing demand.
50. Elasticity analysis aids policymakers in understanding consumer reactions to policy changes, such as subsidies or price controls.
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Jamb(UTME) summaries/points on computation of elasticities, interprete elasticity coefficient in relation to real life situations

Computation of Elasticities

1. Elasticity measures how responsive demand or supply is to changes in price, income, or related goods.
2. Price Elasticity of Demand (PED) is calculated as the percentage change in quantity demanded divided by the percentage change in price.
3. PED Formula: PED = (% Change in Quantity Demanded) / (% Change in Price).
4. If the price of a product rises from $10 to$12 (20%) and demand decreases from 100 units to 80 units (20%), PED = -20% / 20% = -1.
5. Income Elasticity of Demand (YED) is calculated as the percentage change in quantity demanded divided by the percentage change in income.
6. YED Formula: YED = (% Change in Quantity Demanded) / (% Change in Income).
7. For example, if income increases by 10% and the demand for luxury goods rises by 20%, then YED = 20% / 10% = 2, indicating demand rises with income.
8. Cross Elasticity of Demand (XED) measures how demand for one good responds to the price change of another related good.
9. XED Formula: XED = (% Change in Quantity Demanded of Good A) / (% Change in Price of Good B).
10. If the price of coffee rises by 10% and demand for tea increases by 5%, then XED = 5% / 10% = 0.5, indicating they are substitutes.
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Interpreting Elasticity Coefficients in Real-Life Situations

11. A PED greater than 1 (elastic) means demand changes significantly with price, like luxury items, where a small price increase can lead to a big drop in demand.
12. A PED less than 1 (inelastic) means demand changes very little with price; for example, essential items like salt or medicine are bought regardless of price.
13. Unitary elasticity (PED = 1) means a price change leads to a proportional change in quantity demanded, like a 10% price rise causing a 10% decrease in demand.
14. Perfectly inelastic demand (PED = 0) means quantity demanded remains constant regardless of price, as with life-saving drugs.
15. Perfectly elastic demand (PED = ∞) indicates that consumers will only buy at one price; any price increase results in zero demand, often seen in highly competitive markets.
16. A positive YED (YED > 0) shows that demand rises with income, typical for normal goods, like clothing and electronics.
17. A negative YED (YED < 0) shows that demand falls as income rises, as seen with inferior goods, like instant noodles, as consumers switch to higher-quality options.
18. A positive XED (XED > 0) means goods are substitutes, like tea and coffee; a price increase in one leads to increased demand for the other.
19. A negative XED (XED < 0) means goods are complements, like smartphones and apps; if smartphone prices drop, demand for apps rises.
20. Knowing these coefficients helps businesses and governments make decisions on pricing, production, taxes, and subsidies, as they can predict consumer responses in real-life markets.
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