Jamb Economics Tutorials
Welcome to the first series of this Jamb economics tutorial. In this Jamb economics tutorial, we will dealing thoroughly with THE THEORY OF DEMAND.
This jamb economics tutorial will be very helpful as it will expose you on the concept of THE THEORY OF DEMAND.
Grab your writing material (Biro and jotter). Also, make sure you get a glass of chilled fruit drink or water to refresh yourself as we start up with this Jamb economics tutorial series on THE THEORY OF DEMAND.
In this Jamb Economics Tutorial S01 series one we will achieve the following objectives:
- The theory of demand
- What is demand?
- What is effective demand.
- Laws of demand
- Demand Schedule
- Demand curve
THE THEORY OF DEMAND
The word “demand” is an interesting topic which has so many aspect and practical applications. Theory of demand is the principle or law that correlates the demand for a product with the price of the product. In the open market where entry and exit is free, the law of demand is the basis for price determination.
Many a time, we have often heard people say there is a huge demand for a particular product in the market but what does this exactly mean? This simply means that people are ready to purchase such product at a particular price and at a particular period of time.
The principle of demand theory relates to the correlation between consumer demand for goods and services and their prices. Demand theory is one of the core theories of microeconomics. It aims to answer basic question about how badly people want things, and how demand is impacted by income levels and satisfaction (utility).
WHAT IS DEMAND?
For any productive activities like manufacturing, extracting, constructive activities to be birth, there must be a demand behind their productive motive. Therefore, demand in economics is the ability and willingness to buy a specific quantity of goods or services at a particular period of time. You can think of demand as your willingness to go out and buy a certain product.
WHAT IS EFFECTIVE DEMAND?
Effective demand is defined as a desire backed-up by ability and willingness to pay for specific quantities of a commodity at alternative prices and within a period of time. For example, if poschools has the money to purchase a brand new car and is able to pay for it, then he has the effective demand for the car. But if myschools on the other hand desires to have a motorcycle and he does not have money and therefore unwilling to pay for it, he merely wants or needs the motorcycle and has no effective demand for it.
LAWS OF DEMAND
The first law of demand states that all things being equal(ceteris paribus), the higher the price, the lower the quantity of goods that will be demanded; or the lower the price, the higher the quantity of goods that will be demanded. This relation tells us that demand and price are inversely related, this means that when the price of a product increase, the demand for the same product will fall.
Mathematically, it is represented as . let “p” be price and “Q” be quantity demanded, it simply means that when the price of a commodity like beans, for instance is high in the market, very few quantity of that goods will be demanded by the consumer and vice versa.
Now, we recall that the law stressed the fact that all things must be equal before the law can be valid. This means that the law will hold under the following assumptions:
- That there will be no change in taste and preference of the consumer.
- The consumer income will not change else the law will not hold.
- The quality of the product remains unchanged.
- There is no close substitute of the product for that period.
- The habit of the consumer remains unchanged.
The law of demand has a wide application even in the world’s economy today. Since a consumer will definitely purchase less of a commodity with a higher price than a commodity with a lower price.
The demand schedule is a table showing the relationship between prices and the quantity of that commodity demanded. The demand schedule can be graphed as a continuous demand curve on a chart where the Y-axis represents price and the X-axis represents quantity demanded. There are two types of demand schedule they are: the individual demand schedule and the market demand schedule.
The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time. In a typical representation, the price will appear on the left vertical axis, the quantity demanded on the horizontal axis. The demand curve will move downward from the left to the right- as the price of a given commodity increases, the quantity demanded decreases.
The demand curve is also a visual representation of how many units of a good or service will be bought at each price. It plots the relationship between quantity and price that’s been calculated on the demand schedule.
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