Green Bridge Learning Resource For The Theory Of Demand

Overview

In the field of Economics, understanding the concept of demand is fundamental as it forms the basis for analyzing consumer behavior and market dynamics. The theory of demand delves into the various factors that influence the quantity of a good or service that consumers are willing and able to purchase at different price levels. By the end of this course, you will be equipped with the knowledge and skills to identify these factors determining demand, interpret demand curves, differentiate between changes in quantity demanded and changes in demand, compare different types of demand, and relate the determinants to the elasticity of demand.

One of the key objectives of this course is to help you identify the factors that drive demand for goods and services. Demand is influenced by various determinants such as the price of the product, consumer income, the prices of related goods, consumer preferences, and future expectations. By analyzing these determinants, you will gain insights into consumer behavior and market trends.

When discussing demand, it is essential to understand the difference between a change in quantity demanded and a change in demand. A change in quantity demanded refers to a movement along the demand curve in response to a change in price, while a change in demand implies a shift in the entire demand curve due to factors other than price. By grasping this distinction, you will be able to accurately interpret demand fluctuations in different market scenarios.

Types of demand play a crucial role in shaping market dynamics. Composite demand, derived demand, and competitive demand are some of the various types that you will explore in this course. Understanding how these different types of demand interrelate will provide you with a comprehensive view of the complexities present in the market.

Elasticity of demand is another vital concept that you will delve into during this course. By examining the determinants, measurements, nature, and applications of demand elasticity, you will learn how changes in price, income, and cross elasticities affect consumer behavior and market outcomes. Calculating and interpreting elasticities will enable you to make informed decisions in real-life economic situations.

In conclusion, this course aims to equip you with the knowledge and tools necessary to analyze and interpret demand in various economic scenarios. By exploring the theory of demand in-depth, you will develop a profound understanding of consumer behavior, market dynamics, and the broader economic landscape.

Get ready to dive into the fascinating world of demand theory and explore the intricacies of consumer choices and market equilibrium!

Objectives

Relate The Determinants To The Nature Of Elasticity
Differentiate Between Change In Quantity Demanded And In Demand
Compare The Various Types Of Demand And Their Interrelationships
Identify The Factors Determining Demand
Interpret Elasticity Coefficients In Relation To Real Life Situations
Interpret Demand Curves From Demand Schedules
Compute Elasticities

Lesson Note

The theory of demand is a fundamental concept in economics that describes the relationship between the quantity of a good that consumers are willing and able to purchase and the price of that good. Understanding demand is crucial for businesses, policymakers, and consumers because it helps predict how changes in the market will affect the availability, price, and consumption of goods and services.

Lesson Evaluation

Congratulations on completing the lesson on The Theory Of Demand. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.

You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.

Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.

What are the determinants of demand? A. Price of the product and price of substitutes B. Income of the consumer and price of complements C. Tastes and preferences of consumers D. All of the above Answer: D. All of the above
What is the main difference between change in quantity demanded and change in demand? A. Change in quantity demanded is a shift of the entire demand curve, while change in demand is movement along the demand curve B. Change in demand is a shift of the entire demand curve, while change in quantity demanded is movement along the demand curve C. Change in quantity demanded is caused by factors other than price, while change in demand is solely due to price changes D. Change in demand only occurs in perfectly competitive markets Answer: B. Change in demand is a shift of the entire demand curve, while change in quantity demanded is movement along the demand curve
What is the meaning of a demand schedule? A. It is a table that shows the relationship between the price of a good and the quantity demanded B. It is a graph representing the relationship between income and demand C. It is a list of substitutes for a particular product D. It shows the change in quantity demanded based on changes in demand Answer: A. It is a table that shows the relationship between the price of a good and the quantity demanded
Which of the following is NOT a type of demand? A. Competitive demand B. Composite demand C. Derived demand D. Aggregate demand Answer: D. Aggregate demand
What does elasticity of demand measure? A. The responsiveness of quantity demanded to changes in price B. The total amount spent on a good C. The percentage change in income D. The change in consumer preferences Answer: A. The responsiveness of quantity demanded to changes in price

Recommended Books

	Principles of Economics Subtitle Understanding Demand and Elasticity Publisher McGraw-Hill Education Year 2018 ISBN 978-1260091941
	Economics: Principles, Problems, and Policies Subtitle Demand Analysis and Applications Publisher Cengage Learning Year 2019 ISBN 978-1305281570

Past Questions

Wondering what past questions for this topic looks like? Here are a number of questions about The Theory Of Demand from previous years

WAEC SSCE - Economics - 2022 (Click to take full assessment)

Question 1 Report

(a) What is a demand schedule?
(b)Explain each of the following terms:
→effective demand
→composite demand
→derived demand
(ci) Using appropriate diagrams, explain how a change in the price of a commodity would influence the demand of its:
substitute
(ii) Using appropriate diagrams, explain how a change in the price of a commodity would influence the demand of its:
complement

Answer

(a) A demand schedule is a table or chart that shows the quantity of a good or service that consumers are willing and able to purchase at different price levels, while other factors remain constant. It represents the relationship between price and quantity demanded, demonstrating the amount of a product consumers are willing to buy at various price points.

(b) Here are explanations for each of the terms mentioned:

Effective demand: Effective demand refers to the desire and ability of consumers to purchase a product or service at a given price level. It takes into account both the willingness and the financial capability of individuals to buy goods or services. Effective demand considers the affordability aspect in addition to the desire to purchase.
Composite demand: Composite demand occurs when a good or resource has multiple uses or serves different purposes. In other words, a product or resource is in demand for various reasons or by different industries or consumers. The demand for the good or resource is influenced by multiple factors and markets, making it a composite demand.
Derived demand: Derived demand refers to the demand for a good or service that arises as a result of the demand for another related good or service. It occurs when the demand for one product is dependent on the demand for another product that it is used to produce or complement. The demand for derived goods is derived from the demand for the final product or the primary goods it supports.

(ci) A change in the price of a commodity can influence the demand for its substitute. Let's consider the scenario of coffee and tea as substitutes. If the price of coffee increases, it becomes relatively more expensive compared to tea. As a result, consumers may switch their preference from coffee to tea due to the lower price. This change in price creates an incentive for consumers to substitute one product (coffee) with its alternative (tea), leading to an increase in the demand for tea.

To illustrate this on a demand diagram, we would see a shift in the demand curve for tea to the right. The new equilibrium quantity of tea would increase, indicating higher demand, while the equilibrium quantity of coffee would decrease.

(ii) A change in the price of a commodity can influence the demand for its complement. Let's take the example of cars and gasoline as complements. If the price of cars decreases, it becomes more affordable for consumers, leading to an increase in car purchases. As a result, the demand for gasoline, which is necessary to fuel and operate the cars, would also increase.

On a demand diagram, we would observe a rightward shift in the demand curve for gasoline, indicating an increase in demand. The equilibrium quantity of gasoline would rise as consumers require more fuel to meet the increased demand for cars.

In both cases, the change in the price of a commodity influences the demand for its substitute or complement due to the relationship and interdependence between the products.

Answer Details

(b) Here are explanations for each of the terms mentioned:

Effective demand: Effective demand refers to the desire and ability of consumers to purchase a product or service at a given price level. It takes into account both the willingness and the financial capability of individuals to buy goods or services. Effective demand considers the affordability aspect in addition to the desire to purchase.
Composite demand: Composite demand occurs when a good or resource has multiple uses or serves different purposes. In other words, a product or resource is in demand for various reasons or by different industries or consumers. The demand for the good or resource is influenced by multiple factors and markets, making it a composite demand.
Derived demand: Derived demand refers to the demand for a good or service that arises as a result of the demand for another related good or service. It occurs when the demand for one product is dependent on the demand for another product that it is used to produce or complement. The demand for derived goods is derived from the demand for the final product or the primary goods it supports.

In both cases, the change in the price of a commodity influences the demand for its substitute or complement due to the relationship and interdependence between the products.

View Answer

JAMB UTME - Economics - 2019 (Click to take full assessment)

Question 1 Report

Consider the diagram below which shows a demand curve (d).

Total expenditure on a commodity is represented by the area TUVW. Consumer's surplus is represented by__________

The area VWX

The area XTUV

XW/XT

TU/UV

View Answer