CHANGE IN DEMAND AND CHANGE IN QUANTITY DEMANDED

CHANGE IN DEMAND

A change in demand occurs when at the same price different quantities off good are
bought.

This is shown by a shift of the demand curve.

A change in quantity demanded occurs when at different prices different quantities are
bought.

This is shown by a movement along the same demand curve. The cause of the changes in
the quantity demanded is due to changes in the price of the commodity under
consideration. The quantity of a commodity demanded changes with price. More is
purchased at a lower price than at a higher price.

A change in the quantity demanded is of two parts:

1. INCREASE IN QUANTITY DEMANDED: There an increase in quantity demanded

provided the quantity purchased increases as a result of a decrease in the price of the
commodity. From the diagr
2. am below, a decrease in the price of the commodity from N50 to N2o brought about
an increase in the quantity purchased from 30 to 45 units.

Price (N)
 0 Quantity demanded (kg)
Quantity demanded (kg) An increase in Demanded
An increase in quantity Demanded

3. DECREASE IN QUANTITY DEMANDED

There is a decrease in quantity demanded/ purchased if there is a rise or increase in price
of the commodity as shown in the diagram below

Price (N)
D2 D1

D
40 P (N)

10 D2 D1

0 20 50 (kg) 0 Q1(20) Q2 (50) (Kg)

Quantity demanded Quantity Demanded

A DECREASE IN QUANTITY DEMANDED A DECREASE IN DEMAND
PRODUCTION POSSIBILITY CURVE (PPC)

MEANING: The Production Possibility Curve (PPC), also known as the Production
Possibility Boundary (PPB), refers to a diagram or graph showing the possible
combinations of two commodities that can be produced given a particular amount of
resources and level of technology in an economy, within a given period of time. In
other words, it is a graph or a curve showing the possible combinations of different
commodities that can be produced in a given economy, given the prevailing level of
technology, if all the available productive resources are efficiently utilized. In other
words, PPC is a graphical illustration of all the possible combinations of two or more
types of commodities which a society can produce, using a given quantity of resources.
The idea behind the production possibility curve is that in order to produce a particular
commodity, the production of another be commodity has to be sacrificed.
NOTE: The PPC has a downward slope from left to right, indicating that there is an
opportunity cost of producing more of one type of commodity. The cost is, however,

measured in terms of quantity forgone of the other types of commodities. For

example, let us consider the production the possibility curve for the production of
cattle and motor vehicles in South Africa as shown in the table below

PRODUCTION POSSIBILITY TABLE FOR THE PRODUCTION OF CATTLE AND MOTOR

VEHICLE BY NIGERIA

Possible combination Heads of Cattle No of Vehicles

A 200 0
B 170 30
C 100 70
D 80 130
E 40 150
F 0 180

The table above shows the alternatives open to South Africa to substitute the
production of cattle for vehicle on a monthly basis, assuming a given state of
technology and a given total or quantity of resources. There exist extreme cases of A
and F, where respectively, no vehicle is produced at all in order to produce a maximum
of 200 cattle, and no cattle were produced at all in order to produce a maximum of
180 motor vehicles. If more motor vehicles are to be produced, more resources for the
production of cattle have to be given up or forgone. For example, in order to produce
130 motor vehicles rather 70, that is, more from C to D in than 70,

In the table above, (100 - 80) = 20 heads of cattle have to be given up or transferred.

The PPC illustrated in Table above can be demonstrated with the aid of a graph as
shown below
INTERPRETATION OR POINTS TO NOTE FROM THEGRAPH

1. Points A to F on the graph indicate efficient use of resources.

2. At points O and P (outside the curve), production is not feasible. Production at
these points is not feasible due to the limited resources and technology.
3. At points K and L (inside the curve), production is feasible; it represents where
resources are not efficiently used.
4. The downward slope of the PPC indicates that there is an opportunity cost of
producing more of one type of commodity and less of the other due to limited
resources and technical know- how.

RIBLATIONSIIP BETWBEN PRODUCTION POSSIBLITY CURVE AND OPPORTUNITY COST

Opportunity cost by definition is an expression of cost in terms of forgone alternatives.

It is the
satisfaction of of one's want at the expense of another want. It refers to the wants
that are left unsatisfied in order to satisfy another more pressing need. The production
possibility curve (PPC) is directly connected with the o e opportunity cost. The PPC
involves sacrifice in the production of one commodity in order that another one can be
produced. Once more resources are allocated to the production of a commodity, less
resources would be allocated to the production of others (because resources are
scarce). The downward slope of the PPC illustrates that there is an opportunity cost
involved in the production of more of a commodity. This cost is measured in terms of
quantity of another commodity forgone or sacrificed.

CONCEPTS OF TOTAL, AVERAGE AND MARGINAL PRODLCTIVITY

Total Product (TP): Definition: Total product is defined as the total quantity of
commodities produced at a particular time as a result of the combination of all the
factors of production.

Total product is expressed mathematically as: TP APx Labour

EXAMPLE:

If 30 men were employed in a farm and they produce an average of 15 tones of

cassava per person, calculate the total product.

SOLUTION

TP = AP X Labour

TP =15 tones x 30

= 450 tones

(a) Average Product (AP) :

Definition: Average product(AP) is defined as the output per unit of the variable
factor (labour or capital) employed. This is obtained by dividing the total output
by the number of labour or capital employed.
AP = Total product (output)
No. of labour (of capital) employed.
If 3000 tonnes of cassava were harvested by 60 men in a farm on daily basis,
calculate the average output
 Solution
AP = Total Output
No. of Labour ( men)
= 3,000
60
= 50 tonnes / person

MARGINAL PRODUCT (MP)

The Marginal product (MP) MAY BE DEFINED AS the ADDITION TO TOTAL
OUTPUT BROUGHT AS A RESULTS OF THE EMPLOYMENT OF AN ADDITIONAL
UNIT OF A VARIABLE FACTOR. Mp CAN BE EXPRESSED MATHEMATICALLY AS:

MP = Change in TP
Changes in variable factor
Example: if b3080 tonnes of cassava were harvested from the same farm which
previously produced 3000 tonnes of cassava by a minimum of 60 men as a result
of the employment of an additional man to the 60 men, calculate the marginal
product

SOLUTION

MP = Change in TP
Changes in variable factor

Mp = (3,080 – 3000)

61 - 60

= 80/1

Mp = 80 tonnes.

ASSIGNMENT

Essentials of Economics page 238, No. 3