The law of demand states that, all other things being equal (ceteris paribus), as the price of a good rises, the quantity demanded falls, and vice versa. This gives the demand curve a downward slope from left to right.

Price
  |
  |  *
  |    *
  |      *
  |        *
  |__________*_______ Quantity
           (D slopes downward)

There are two reasons for the downward slope: the substitution effect (a good becomes relatively more expensive so consumers switch to substitutes) and the income effect (a price rise reduces real income, so less is bought).

The law of supply states that, ceteris paribus, as the price of a good rises, the quantity supplied rises. The supply curve therefore slopes upward from left to right.

Factors that shift the supply curve:

Equilibrium is the point where the demand curve and supply curve intersect — where quantity demanded equals quantity supplied. There is no tendency to change.

PED measures how responsive quantity demanded is to a change in price.

• Expenditure method: GDP = C + I + G + (X − M) — add up all spending on final goods and services. C = household consumption, I = investment, G = government spending, X = exports, M = imports.
• Income method: Add up all incomes earned in production — wages, rent, interest, profit.
• Output method: Add up the value added at each stage of production in all industries.

In the basic two-sector model, households provide factors of production (land, labour, capital, enterprise) to firms, which pay factor incomes (rent, wages, interest, profit). Firms produce goods and services sold to households, who pay with their income. Money flows continuously — this is the circular flow.

In the full model, injections add to the flow and withdrawals (leakages) remove money from the flow:

The multiplier (k) measures by how much national income increases for every unit increase in injections.

• Commodity money — money made of valuable material (e.g. gold coins, cowries)
• Fiat money — money declared legal tender by government (modern notes and coins)
• Near money — assets quickly convertible to cash, e.g. treasury bills, short-term bonds, savings accounts
• Credit money — cheques, debit cards, bank transfers

Liquidity preference refers to the desire to hold wealth in money form rather than other assets. Keynes identified three motives: transactions motive, precautionary motive, and speculative motive.

• Banker to the government — holds government accounts, manages national debt
• Banker to commercial banks — holds reserves, clears cheques between banks
• Lender of last resort — lends to commercial banks in financial difficulty
• Issues currency — sole authority to print and circulate the naira
• Manages foreign exchange reserves — stabilises the naira exchange rate
• Implements monetary policy — controls money supply and interest rates
• Supervises and regulates financial institutions

Commercial banks create credit (money) through fractional reserve banking. They hold only a fraction of deposits as reserves and lend out the rest. Each loan creates a new deposit in another bank, which lends again — the credit multiplier process.

Fiscal policy is the use of government spending and taxation to influence the economy.

Developed by David Ricardo, the theory of comparative advantage states that countries should specialise in producing goods in which they have the lowest opportunity cost compared to other countries — even if one country can produce everything more efficiently (absolute advantage), both countries benefit from specialisation and trade.

The balance of payments (BOP) is a record of all financial transactions between a country and the rest of the world over a period.

The Consumer Price Index (CPI) measures changes in average price levels by tracking a basket of goods typically bought by households.

In the short run, at least one factor of production is fixed (usually capital). In the long run, all factors are variable.

The law of diminishing (marginal) returns applies in the short run: as more variable inputs (e.g. labour) are added to a fixed input (e.g. land), eventually the additional output from each extra unit of labour will decrease.

Economies of scale — average costs fall as output increases in the long run (e.g. bulk buying, specialisation). Diseconomies of scale — average costs rise when a firm grows too large (communication problems, management difficulties).

You've now covered all major WAEC and JAMB Economics topics. Try the past questions first to see how WAEC/JAMB phrase their questions, then take the 60-question timed CBT practice to get your full score breakdown.