All questions of The Theory of Demand for JAMB Exam

Determinants of Demand

Determinants of demand are factors that influence the demand for a particular product or service. These determinants help in understanding the various factors that affect consumer behavior and their willingness to purchase a product. There are several determinants of demand, including income of consumers, price of the product, consumer preferences, and cost of production. However, the cost of production is not considered a determinant of demand.

Explanation

The cost of production refers to the expenses incurred by a producer in the process of manufacturing a product or providing a service. It includes the cost of raw materials, labor, machinery, utilities, and other expenses. While the cost of production is an important consideration for producers, it does not directly influence consumer demand.

Consumer Demand

Consumer demand is determined by various factors that affect their willingness and ability to purchase a particular product or service. These factors include:

1. Income of consumers: The income of consumers plays a significant role in determining their purchasing power. Higher income levels generally lead to increased demand for goods and services.

2. Price of the product: The price of a product or service is one of the most important determinants of demand. Generally, as the price of a product decreases, the quantity demanded increases. This is known as the law of demand.

3. Consumer preferences: Consumer preferences refer to the tastes, preferences, and choices of consumers. Different consumers have different preferences, which influence their demand for specific products.

4. Other factors: There are several other factors that can influence consumer demand, such as the availability of substitute products, changes in population demographics, changes in consumer expectations, and advertising and marketing efforts.

The Cost of Production

The cost of production, while important for producers, does not directly affect consumer demand. Consumers are generally concerned with the price they have to pay for a product, rather than the cost of production. Even if the cost of production increases, it does not necessarily mean that the price of the product will increase. Producers may absorb some of the increased costs or find ways to increase efficiency and reduce production costs without passing them on to consumers.

Conclusion

In summary, the cost of production is not considered a determinant of demand because it does not directly influence consumer behavior and their willingness to purchase a product. Factors such as income, price, and consumer preferences have a more direct impact on consumer demand.

Understanding Price Elasticity of Demand
Price elasticity of demand (PED) measures how sensitive the quantity demanded of a good is to a change in its price. Several factors influence PED, but advertising and promotion are generally not among them. Here's why:
Factors Influencing Price Elasticity of Demand
- Availability of Substitutes: The more substitutes available for a product, the more elastic its demand. Consumers can easily switch to other goods if the price rises.
- Necessity of the Good: Necessities tend to have inelastic demand because consumers will purchase them regardless of price changes. For example, essential medications have low elasticity.
- Time Period Under Consideration: Demand elasticity can vary over time. In the short term, demand may be inelastic, but consumers can adjust their habits in the long term, making demand more elastic.
Why Advertising and Promotion Do Not Influence PED
- Nature of Advertising: While advertising can raise awareness and potentially increase demand, it does not directly affect the sensitivity of that demand to price changes.
- Consumer Loyalty: Effective advertising may create brand loyalty, but this loyalty does not change the fundamental relationship between price and quantity demanded.
- Focus on Price Dynamics: PED is determined by how consumers react to price changes, not how they perceive the product through marketing efforts.
In conclusion, while advertising and promotion play a role in shaping consumer preferences, they do not alter the intrinsic elasticity of demand for a good, making option 'D' the correct choice.