Economics · Lesson 3

Demand: law, determinants, shifts & elasticity

JAMBWAECNECO

What the syllabus asks

JAMB: Theory of demand: meaning and determinants, schedules and curves, change in quantity demanded vs change in demand; types of demand; elasticity of demand (price, income, cross): types, measurement, determinants and importance to consumers, producers and government

WAEC: Demand: meaning, law of demand, demand schedule and curve, individual and market demand, determinants, change in quantity demanded vs change in demand, types of demand (joint, composite, derived, competitive), exceptions; elasticity of demand: price, income and cross; determinants and importance

NECO: Demand: meaning, law of demand, demand schedule and curve, individual and market demand, determinants, change in quantity demanded vs change in demand, types of demand (joint, composite, derived, competitive), exceptions; elasticity of demand: price, income and cross; determinants and importance

What you will learn

Define demand and effective demand.
State and explain the law of demand using a schedule and a curve.
Derive a market demand schedule from individual schedules.
Distinguish between a change in quantity demanded and a change in demand.
Explain the determinants and types of demand and the exceptions to the law.
Calculate and interpret price, income and cross elasticity of demand, and state their uses.

Key points

Demand: quantity consumers are willing and able to buy at various prices in a given period.
Law of demand: price and quantity demanded are inversely related, ceteris paribus.
Market demand = horizontal sum of individual demands.
Determinants: own price, income, related prices, tastes, population, expectations, policy, season.
Own-price change: movement along (extension/contraction); other factors: shift (increase/decrease).
Types: joint, competitive, derived, composite.
Exceptions: Giffen, Veblen, expectations, ignorance, fear of scarcity.
PED = %ΔQd ÷ %ΔP; elastic >1, inelastic <1, unitary =1; TR test.
YED +normal/−inferior; XED +substitutes/−complements.
Uses: pricing, taxation, devaluation, price discrimination, farm incomes.

Start here: Meaning of demand

Every day in markets across Nigeria, buyers react to prices. When tomatoes are cheap in the dry-season glut, housewives buy baskets; when they become expensive in the rainy season, they buy a few. Economics studies this pattern under the heading demand.

Demand is the quantity of a good or service that consumers are willing and able to buy at various prices, at a given time (per day, week or month), other things being equal.

Three points in the definition matter:

Willing and able: wanting a car is not demand unless you can pay. A desire backed by the ability to pay is called effective demand. Economists only count effective demand.
At various prices: demand is a whole relationship between price and quantity, not one number.
Per period: "10 loaves" means nothing without a time: 10 loaves a week is very different from 10 a year.

Worked example 3.1

Tunde wants a new laptop costing ₦600,000 but has only ₦150,000. Is this demand?

He is willing but not able to pay.
So it is a mere want, not effective demand.

No; it is not effective demand.

⚠️ Common mistake: defining demand as "the desire for a good". Always include "willing and able to buy" and "at a given price and time".

Try it yourself. Name the two parts of effective demand.

Show solution

Desire (willingness) and ability to pay.

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Practice questions

1. Demand in economics refers to the quantity of a good that consumers are

willing and able to buy at various prices in a given period
willing to buy whatever the price
able to produce
wishing to own

Show answer

A: willing and able to buy at various prices in a given period
Demand needs both willingness and ability to pay.

2. The law of demand states that, other things being equal,

the higher the price, the higher the quantity demanded
price does not affect quantity
demand always rises over time
the higher the price, the lower the quantity demanded

Show answer

D: the higher the price, the lower the quantity demanded
Price and quantity demanded are inversely related.

3. A fall in the price of a good itself causes

a leftward shift of the demand curve
no change in quantity
an extension (movement down) along the demand curve
a rightward shift of the demand curve

Show answer

C: an extension (movement down) along the demand curve
Own-price changes cause movements along the curve.

4. A rise in consumers' income will shift the demand curve for a normal good

to the vertical axis
to the right
to the left
along itself

Show answer

B: to the right
Higher income raises demand for normal goods.

5. Demand for cars and petrol is an example of

joint (complementary) demand
competitive demand
derived demand
composite demand

Show answer

A: joint (complementary) demand
They are used together.

Key words

Demand: Quantity consumers are willing and able to buy at various prices in a given period.
Effective demand: Desire backed by the ability to pay.
Demand schedule: A table showing quantities demanded at various prices.
Demand curve: A graph of the demand schedule; normally slopes down from left to right.
Market demand: The sum of all individual demands at each price.
Ceteris paribus: Other things being equal.
Normal good: A good whose demand rises when income rises.
Inferior good: A good whose demand falls when income rises.
Giffen good: An inferior staple whose demand may rise when its price rises.
Veblen good: A prestige good bought more when dearer.
Joint demand: Goods demanded together, e.g. car and petrol.
Competitive demand: Demand for substitutes, e.g. Coke and Pepsi type drinks.

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