Economics: Scarcity, Elasticity and Demand
Economics in JAMB tests basic scarcity and choice, demand and supply, elasticity, production, money and banking, public finance, and features of the Nigerian economy. Questions often reward precise definitions and simple calculations.
Core concepts
- Scarcity forces choice; the value of the next best alternative forgone is opportunity cost.
- A production possibility frontier shows efficiency: points inside are inefficient, points on the curve efficient, points outside unattainable.
- Demand is the quantity buyers are willing and able to buy at a price; supply is what sellers offer. Equilibrium is where the curves intersect.
Elasticity
- Price elasticity of demand (PED) = percentage change in quantity demanded ÷ percentage change in price; use the absolute value.
- PED greater than 1 is elastic, less than 1 inelastic, equal to 1 unitary.
- Determinants include availability of substitutes, necessity, share of income and time.
Worked example
A price rise from ₦10 to ₦12 is a 20% increase. Quantity demanded falls from 100 to 70, a 30% decrease. PED = 30 ÷ 20 = 1.5, so demand is elastic. Total revenue falls from ₦1,000 to ₦840, which is consistent with elastic demand.
Traps
- A change in price moves you along the demand curve; a change in income or tastes shifts the curve.
- For inferior goods, demand falls when income rises.
- Do not call the money paid for a good its opportunity cost; opportunity cost is the alternative forgone.
- Keep PED and price elasticity of supply separate.