SECOND TERM SCHEME OF WORK FOR ECONOMICS, SS2

WEEKS TOPICS/CONTENTS
WEEK ONE Review of last term’s work, Resumption test and Copying of second term
scheme of work
WEEK TWO Elementary treatment of Utility theory.
i. Concept of utility: Average, Marginal and Total utility.
ii. The law of Diminishing Marginal Utility.
iii. Utility maximization and derivation of demand curve from the utility theory.
WEEK THREE Price determination.
i. Determination of equilibrium price and quantity
ii. Effects of changes in demand and supply on equilibrium price and
quantity
iii. Types of demand and supply. Eg, Joint demand, Joint supply, etc.
iv. Concept of Elasticity and application
v. Simple application of price theory. Eg, Minimum and maximum price
legislation.
WEEK FOUR Market structures
i. Concepts and types of markets
ii. Review of cost and revenue curves
WEEK FIVE Price and quantity determination under perfect competition, monopoly,
duopoly and oligopoly
WEEK SIX Industries in Nigeria
i. Definition of industrial concepts, plant, factory, firm, industry and
industrial estate
ii. location and localization of industry in Nigeria
WEEK SEVEN MID-TERM TEST AND MID TERM BREAK
WEEK EIGHT Agriculture
i. Problems of agriculture
ii. Agricultural policies in Nigeria
iii. Marketing of agricultural commodities
iv. Prospects of agriculture in Nigeria
WEEK NINE Elementary treatment of fiscal policy:
i. Meanings of fiscal policy of public finance and objectives of public
finance, revenue allocation (including resource control)
ii. Sources of government revenue
iii. Direct and indirect taxation: Effects and incidence of taxation, structure
and effects of public expenditure on government budgets
WEEK TEN Balanced and unbalanced budget
i. Meaning of balanced and unbalanced budget, reasons for balanced and
unbalanced budget
ii. Meaning of surplus and deficit budget, ways of financing deficit budgets
and their effects (Example debt relief, debt buy back)
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WEEK ELEVEN REVISION

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WEEK 12-14 EXAMINATION/PROCESSING OF RESULTS/CLOSING

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 WEEK TWO: ELEMENTARY TREATMENT OF UTILITY THEORY

SPECIFIC OBJECTIVES
At the end of this week two topic, the students should be able to:
1. Define utility
2. List and explain the three types of utility with close examples
3. Solve total utility, average utility and marginal utility
4. Explain utility maximisation
5. State the law of diminishing marginal utility
6. Define indifference curve and draw its curve
7. Define indifference map and draw its curve

MAIN CONTENT

UTILITY

Utility is a term used to denote the amount of satisfaction derived from consuming a commodity
at a particular time. The utility of rice and beans is the amount of satisfaction derived from
consuming them. If a commodity has the power to satisfy human wants, we say that such
commodity possesses utility.

Types of utility

• Form utility
• Time utility
• Place utility
Form utility

This tells us about how the change in the form or structure of a commodity through
manufacturing process would increase its utility or satisfaction. Example, a change in the form of
raw chicken to a fried one increases consumers’ utility, consumers’ utility can as well be
increased if a raw egg is fried or cooked, etc.

Time utility

The utility of a commodity can be increased by preserving it for future use. For example, a
farmer stored part of his rice so that in the future when rice becomes scarce, he could sell it to
satisfy people’s wants. Consumers can preserve or store shawer shawp, Banana, Plantain, etc in
order to ripe and give him maximum satisfaction, etc.

Place utility
2

This involves changing the situation of a commodity in a geographical space. A commodity can
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be moved or transported from a place it has little utility to a place or region where its utility is

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 higher. Examples, Kola nut can be transported from the Yoruba land where its utility is little to
Igbo land where its utility is higher, transporting Bible from Borno State to Anambra State is
also another example, etc

The Concept of Total, Average and Marginal Utility

Total utility

This refers to the total amount of satisfaction derived by a consumer from all the goods and
services he consumes at a particular time.

Average utility

This is the amount of satisfaction derived by a consumer per unit of a commodity consumed.
Average utility is gotten by dividing total utility by the number of units of the commodity
consumed.

Marginal utility

This refers to the additional satisfaction derived by consuming an extra unit of a commodity. The
sum of all the marginal utilities of a commodity is equal to the total utility for the commodity.

NOTE: Total, average and marginal utility are theoretical concepts. The amount of satisfaction
derived from a commodity cannot be measured in precise terms. It is however assumed to be
measurable in units called “Utils”

Utility Maximisation

A consumer would want to achieve the greatest satisfaction from the limited resources he has. He
can maximize total utility by reducing his expenditure on certain commodities whose increased
consumption yield low satisfaction and increase expenditure on others which give him a higher
level of satisfaction. The household or consumer known as utility-maximizing agent will allocate
expenditures between commodities in such a way that the satisfaction derived from the last unit
of money spent on each item is equal.

A consumer is said to be in equilibrium or maximises his/her utility when the underlisted

condition is attained:

Mux = Muy = Muz

Px Py Pz , Where Mux, Muy, and Muz imply marginal utility of commodity x,
marginal utility of commodity y, and marginal utility of commodity z respectively; while Px, Py,
and Pz imply price of commodity x, price of commodity y and price of commodity z
respectively.
This implies that a consumer’s utility is maximized when the marginal utility per amount on a
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product is equal to the marginal utility per amount spent on any other products.
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 In the case of one commodity, a consumer will maximise his utility when the marginal utility
(MU) of that commodity equals the price of the commodity. That is, Mux = Px.

Utility schedule

Bottles of Hero taken Total utility Marginal utility Average utility

1st bottle 10 --- 10
2nd bottle 16 6 8
3rd bottle 21 5 7
th
4 bottle 24 3 6
th
5 bottle 26 2 5.2
th
6 bottle 27 1 4.5
th
7 bottle 27 0 3.9
In the table or schedule above, although the total utility increased up to the sixth bottle of Hero,
marginal utility continued to fall as additional bottles are taken. When the seventh bottle was
taken, and no additional satisfaction was derived, here, is the point of “Satiety”

The law of Diminishing Marginal Utility

The law states that the amount of satisfaction an individual derives from additional units of a
commodity decreases as his consumption of that commodity increases. Example, an individual
who is thirsty will consume the first bottle of Hero with high utility, but as he consumes
additional bottles, his/her utility tends to decrease.

He continues to consume more and more until the point of “satiety” is reached. At this point,
marginal utility is zero. Here the consumer is perfectly satisfied (i.e., no additional satisfaction is
derived).

Importance of the law of Diminishing Marginal Utility

Diminishing Marginal Utility is the basis of the law of demand. The 1st law of demand states that more of
Marginal utility a commodity will be bought at a lower
price than at a higher price. The
demand curve can therefore be derived
from the utility theory (or utility
function). It is one of the theories which
explains why the demand curve slopes
downwards. The consumer equates the
price paid for each additional unit of a
commodity with the value of the
additional satisfaction he hopes to
derive from it.
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No of bottle of Hero taken

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Criticisms of law of diminishing marginal utility

• It is not always true that the marginal utility decreases with increased consumption of a
commodity. The critics argue that it should not be regarded as a universal law because
there are certain commodities whose utility increases with increased supply to individual.
Example, the more money one has, the more one wants to accumulate.
• The assumption that all commodities are divisible into small units is unrealistic. The
supply of indivisible commodities such as house, car, etc cannot be increased or
decreased in tiny amounts, but in whole units.
• The assumption that people weigh the marginal utility to be derived from any commodity
before purchasing it is not true due to, influence of habit or impulse, people do not always
weigh the marginal utility of commodities before purchasing them.
• As the law would want us to believe, diminishing marginal utility does not start operating
as soon as consumption is increased.

Indifference curves

In indifference curve theory, we assume that a household or consumer consumes a combination

of two commodities only. The indifference curve is interested in investigating the different
combinations or bundles of two commodities which will leave the total utility of a consumer
unchanged. Example, using a consumer that consumes milk and honey. The indifference theory
is interested in finding out the quantity of honey which must be given up by this consumer to
compensate for his increased consumption of milk. That is, by how much the consumption of
honey be reduced so as to leave total utility unchanged when more milk is consumed.

Combinations of Honey & Milk that give equal satisfaction to a consumer

COMBINATIONS HONEY (BOTTLE) MILK (TINS)

A 8 54
B 10 45
C 13 35
D 15 32
E 20 24
F 25 20
G 30 16

If all these combinations are plotted on a graph, the resulting curve is called an indifference
curve. It is a diagrammatic or graphical illustration of the different combination of two
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commodities which will leave total utility of a consumer unchanged.

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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Qty of Honey demanded per month

Qty of Milk demanded per month

Indifference map

If several indifference curves are plotted on the same graph for the various combinations which
give the different levels of total utility, the resulting diagram is called an indifference map. The
farther the indifference curve is from the point of origin, the higher the level of satisfaction
derived from the various combinations on the curve, and from various combinations on the
curve, and vice versa.

FIG. 3

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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 EVALUATION QUESTIONS

At the end of this topic, the students should be evaluated with the following questions:

1. Define utility
2. List and explain the three types of utility with close examples
3. Solve total utility, average utility and marginal utility using utility schedule
4. Explain utility maximisation
5. State the law of Diminishing Marginal Utility
6. Define indifference curve and explain its curve
7. Define indifference map and explain its curves

ASSIGNMENT/HOME WORK

1. Make your own utility schedule and solve for the total utility, average utility and marginal
utility
2. Apart from the examples given above, find out other close examples of the three types of
utility
3. Using statements and mathematical formula, when is utility maximized?
4. Draw your own indifference curve and find out the point where every consumer would want to
operate

REFERENCES/FURTHER READING
Ande, C.E. (2017). Essential Economics for Senior Secondary Schools. Lagos, Tonad Publishers
Limited.
Anyanwuocha, R.A.I. (2013). Foundations of Economics for Senior Secondary Schools. Onitsha,
Africana First Publishers

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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 WEEK THREE: PRICE DETERMINATION

SPECIFIC OBJECTIVES
At the end of this week three topic, the students should be able to:
1. State how price is determined under perfect competition
2. Demonstrate with curves the effects of changes in demand on equilibrium price and
quantity.
3. Demonstrate with curves the effects of changes in supply on equilibrium price and
quantity.
4. Explain how prices are determined under conditions of imperfect competition.
5. Define Maximum and Minimum Price Control.
6. Explain the effects of price legislation
7. Define subsidy and explain its effects
8. Explain various types of demand with close examples
9. Explain various types of supply with close examples
10. Define Elasticity of demand.
11. Explain the three major types of Elasticity of demand with calculations therein
12. Explain the different degrees of Elasticity of demand with curves therein

MAIN CONTENT

DETERMINATION OF PRICES UNDER PERFECT COMPETITION

In a perfectly competitive market or what is sometimes referred to as a free market economy,

prices are determined by the interaction of the forces of demand and supply. The determination
of prices by the interaction of the forces of demand and supply is known as the “price
mechanism” or “price system”

From the law of demand and supply, the higher the price, the lower the quantity demanded, and
the higher the quantity supplied and vice versa.

Equilibrium Price

This is the price at which the quantity demanded equals the quantity supplied. In a free market
economy, the equilibrium price is the market price for the commodity. The equilibrium market
price is the price at which the quantity of the commodity which buyers are willing and able to
buy equals the quantity of that commodity which sellers are willing and able to offer for sale.

Above the equilibrium price, more of the commodity will be supplied by sellers than is
demanded by the consumers. There will be an excess supply. Below the equilibrium price, more
will be demanded by consumers than is supplied by the sellers or producers. There will be excess
demand.
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Equilibrium price can be illustrated by using demand and supply schedules.

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Market demand and supply schedules for milk

Price per can of milk Quantity demanded per week Quantity supplied per week
70k 100 340
60k 140 300
50k 180 260
40k 220 220
30k 260 180
20k 300 140
10k 340 100
In the table above, the equilibrium price is 40k. At the price of 40k per can of milk, 220 cans are
both demanded and supplied. Above 40k, there is excess supply because more cans of milk will
be supplied than demanded. Below 40k there will be excess demand because more cans of milk
are demanded than are supplied. The demand and supply schedules can be illustrated graphically
to show the equilibrium price.
70k Prices Fig 4

60k D Excess supply S

50k

40k Equilibrium point

30k

20k

10k Excess demand

100 200 300 400 500 600 700 Quantity

EFFECTS OF CHANGES IN DEMAND AND SUPPLY ON EQUILIBRIUM PRICE AND QUANTITY

Changes in demand and supply lead to price changes. Once there is any change in either demand
or supply, the initial equilibrium will be disrupted and a new equilibrium will be created.

Effects of changes in demand on equilibrium price and quantity

• Increase in demand
Prices D0 D1 Fig 5

P1

P0

S D1
9

D0
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O Q0 Q1 QUANTITIES

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 If the demand for a commodity increases while supply remains constant, there will be an excess
of demand over supply. This will lead to an increase in the equilibrium price of the commodity
as well as an increase in the equilibrium quantity.

In fig 5, there is a shift in the demand curve to the right because of the increase in demand. The
demand curve shifted from D0D0 to D1 D1 and the price increased from OP0 to OPI. The new
equilibrium position is at the price OP1 and quantity OQ1

• Decrease in Demand

A decrease in demand while supply remains constant will lead to an excess of supply over
demand. This will bring about a decrease in the equilibrium price and quantity of the commodity.

Price D1
S
D2
P1 Fig 6

P2
D1
S D2 Quantity
Q2 Q1
In fig 6, with a decrease in demand, the demand curve shifted to the left from D1D1 to D2D2, and
price decreased from OP1 to OP2. The new equilibrium position is at the price OP2 and quantity
OQ2.

Effects of changes in supply on equilibrium price and quantity

• Increase in Supply
If supply increases while demand remains constant, there will be an excess of supply over
demand. This will bring about a decrease in the equilibrium price of the commodity and an
increase in the equilibrium quantity.
Price
S0
D Fig7
P0 S1

P1
10

S0
S1 D
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Quantity
Q0 Q1
SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 In fig 7, an increase in supply made the supply curve shifts to the right from S0S0 to S1S1, and the
price fell from OP0 to OP1. Here, the new equilibrium position is at the price OP1 and quantity
OQ1

• Decrease in Supply

Pric
S1
e D Fig 8
P1 S0

p0
O S1
S0 D
qo Quantit
q1
q Yesyyy
A decrease in supply without any change in demand willyyyyyy lead to an excess of demand over
supply and so an equilibrium price will increase, but the equilibrium quantity will decrease.
yyyess
In fig 8, the supply curve shifted to the left from S0S0 to S1S1 the price increased from OP0 to
OP1. The new equilibrium position is at the price OP1 and quantity Oq1.

Note: The fifth law of demand and supply states that an increase in supply of a commodity will
cause the equilibrium price to fall and the quantity demanded to increase. While a decrease in
supply will cause the equilibrium price to rise but the quantity demanded to fall (if both supply
and demand increase or decrease at the same rate, the price will remain constant).

OTHER METHODS OF DETERMINING PRICES

However, under conditions of imperfect competition, prices are determined by other methods
such as:

• Higgling or Haggling

This is the determination of prices by bargaining between buyers and sellers. Bargaining takes
place where there is no ruling market price. For sale to take place here, the seller’s minimum
price must be below the buyer’s maximum price. This is being done at Eke Awka.

• Sales by Auction

Here, the seller offers the commodity for sale and asks buyer to bid for it. The buyers compete
against one another. The commodity finally goes to the highest bidder. Sales by auction are used
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in bazaar sales, and in the sale of some public property.

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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 • Tender

This is an application in writing to purchase or sell a commodity. There is a tender for purchase
and a tender for supply. In a tender for purchase, there is only one seller and a number of
prospective buyers. The seller could advertise the sale of his commodities and request for
tenders.

In a tender for supply, there is only one buyer and a number of sellers. The buyer would ask the
sellers of a commodity to make tenders for supply. They apply in writing, quoting prices at
which they will supply the commodity. Many government contracts are awarded by tender for
supply.

• Price control and price fixing

This takes a number of forms;

✓ Trade Unions sometimes fix the prices of goods which they produce.
✓ Offers at market prices: Sometimes, sellers may make offers at fixed prices by marking
their goods.
✓ Price control occurs when the government or its agencies fix the price of essential goods.
✓ Maximum prices are fixed in order to protect buyers while Minimum price are fixed in
order to protect producers.

MINIMUM AND MAXIMUM PRICE LEGISLATION

Sometimes, government regulates the price by the use of price legislation and control. This can
come inform of the following price control measures:

• Maximum price control

• Minimum price control

Maximum Price Control

Maximum price control is a measure taken by the government to fix the highest [maximum]
price at which essential commodities will be sold. The prices are fixed in order to protect buyers
[consumers] from the exploitative attitudes of the sellers [producers]. It is used to control
inflation.
Minimum Price Control
This is a policy measure which sets the least [minimum] price at which commodities are to be
sold. This is usually done to protect the producers. Sometimes, government passes laws
regulating wages by fixing minimum wage rate to protect employees [workers]. In Nigeria, the
new minimum wage is #33,000.
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• N:B - Maximum prices fixed at commodities are mostly often below equilibrium market
prices while minimum prices fixed on commodities are most often above equilibrium
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market prices.
SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Effect of Price Legislation
The fixing of maximum or minimum prices on commodities has the following effects.

• Fixing prices is most often at variance with the equilibrium price. If it is below
equilibrium price, there will be excess demand, but if above equilibrium price, there will
be excess supply
• If price is above equilibrium price, other problem will occur such as inflation, a waste of
product resulting from low demand and excess supply; buyers will look for cheaper
alternative commodities.
• If price is fixed below equilibrium price other problems will arise such as high rate of
hoarding, black market, producers’ fall in income, fall in output.

SUBSIDY
Subsidy is an incentive given to producers either in cash or kind to boast production by reducing
the costs of production. Farmers could be given fertilizer, improved seeds, etc at cheaper prices.

Effects of Subsidy

• It brings about reduction in prices

• It increases demand for commodities
• It boasts outputs
• It is an incentive for producers to favour friends or relatives.

TYPES OF DEMAND AND SUPPLY

Demand

The following are the four types of demand:

• Complementary demand
• Competitive demand
• Derived demand or circuitous demand
• Composite demand

Complementary (Joint) Demand: Joint demand occurs when two or more commodities are
required together to satisfy a particular want. An increase in demand for one of the commodities
will lead to an increase in demand for the others and vice versa. Examples, tea and sugar, car and
fuel, cigarette and lighter, etc

Competitive Demand: This type of demand occurs with the commodities that have close
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substitutes. An increase in the price of commodity A will lead to an increase in demand for the
other commodity B (its substitute). Examples, Foreign rice and local rice, Indomie and Tummy-
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tummy, etc.
SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Derived Demand: There is a derived demand for a commodity, if it is not required for direct
satisfaction but for the production of another commodity which can give direct satisfaction. They
are demanded because of the demand for what they can help to produce. Examples, the demand
for all factors of production is derived, Flour is demanded to make bread, sand is demanded for
molding block.

Composite Demand: This occurs for commodities which are required for several purposes. The
demand for commodities that can be used to satisfy more than one purposes. Examples, wood is
demanded for many purposes such as building, firewood, furniture, etc; Groundnut oil is used for
making soap, cooking, etc.

Supply
The following are the types of supply:

• Joint (Complementary) supply

• Competitive supply
• Composite supply

Joint Supply: Joint supply occurs when two or more commodities are inevitably produced
together from the same source. In the process of producing one commodity, the other
commodities are automatically produced. Examples, Palm oil and palm kernel; Livestock and
organic manure; Cotton and cotton seed, etc. An increase in the supply of one will lead to an
increase in the supply of the other and vice versa.

Competitive Supply: A commodity which has alternative uses has a competitive supply. An
increase in supply of one of its uses can reduce its supply for other uses and vice versa.
Examples, Land is used for farming and building; Groundnut can be used for cooking and
manufacturing of soap, etc.

Composite Supply: Composite supply occurs when two or more commodities that satisfy the
same wants are supplied. Examples, the need for light could be met by using electricity, candles,
gas, etc; The need for noodles could be met by using Tummy-tummy, Indomie, Dangote, etc.

ELASTICITY OF DEMAND
Elasticity of demand measures the degree of responsiveness of the quantity demanded of a
commodity to changes in the price of the commodity, income of the consumer or to changes in
the prices of other commodities. It measures the extent to which the quantity of a commodity
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demanded by a consumer changes as a result of a change in the price of the commodity, a change
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 in the income or a change in the price of another commodity. We therefore have three types of
elasticity of demand.

• Price Elasticity of demand

• Income Elasticity of demand
• Cross Elasticity of demand

Price Elasticity of Demand: It is the degree of responsiveness of the quantity demanded of a

commodity to change in the price of that commodity. Price elasticity is also called “Elasticity of
demand”. It is mathematically measured as follows:

The coefficient of the price elasticity of demand (E.D) = Percentage change in quantity demanded (% Δ in Qd)
Percentage change in price (% Δ in P)

Where; % = Percentage, Δ = Change, Qd = Quantity demanded, P = Price.

Income Elasticity of Demand: It can be defined as the degree of responsiveness of demand to

changes in the income of consumers. Income elasticity of demand is negative for inferior goods
and positive for normal goods. Inferior goods are goods whose demand decreases as consumer’s
income increases and vice versa. Normal goods are goods whose demand increases and
consumer’s income increases and vice versa. It is mathematically calculated as follows:

The coefficient of income elasticity of demand (I.D) = Percentage change in quantity demanded (% Δ in Qd)
Percentage change in Income (% Δ in I)
Where, I = Income

Cross Elasticity of Demand: It can be defined as the degree of responsiveness of the quantity
demanded of commodity A to change in price of commodity B. It measures the relationship
between change in price and change in quantity demanded of complementary (joint) goods and
competitive [substitute] goods. Cross elasticity of demand is negative for complementary goods
but positive for close substitute or competitive goods.

Different Degrees of Elasticity of Demand

• Elastic Demand
• Inelastic Demand
• Unitary or Unity elastic demand
• Perfectly elastic demand or Infinitely elastic demand
• Perfectly inelastic demand or Zero elastic demand

Elastic Demand: Demand is said to elastic if a small change in price leads to a greater change in
quantity demanded of the good. Example, when a 5% change in price brings about greater than
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5% change in the quantity demanded, demand is said to be elastic. Mathematically, demand is

said to be elastic if the coefficient of the elasticity of the demand is greater than 1.
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Elastic demand can be graphically illustrated as follows:

p2 Elastic demand

p1 D

0 Q2 Q1 Qd

Inelastic Demand: Demand is said to be inelastic if a larger change in price leads to a lesser
change in quantity demanded of the good or commodity. Example, when a 5% change in price
brings about less than 5% change in the quantity demanded, demand is said to be inelastic.
Mathematically, demand is said to be inelastic if the coefficient of the elasticity of demand is less
than 1.

Graphically, it can be illustrated as follows:

P S

p2 Inelastic Demand

p1 D

Q2 Q1 Qs

Unitary Elastic Demand: Demand is said to be unitary when a change in price equals change in
the quantity of the goods demanded. Example, when a 5% change in price brings about the same
5% change in quantity demanded, demand is unitary or unity. Mathematically, demand is said to
be unitary if the coefficient of the elasticity of demand is equal to 1. It can be illustrated with the
graph below:
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 P

P2

P1

0 Q2 Q1 Qd

Perfectly Elastic Demand or Infinitely Elastic Demand: Demand is said to be perfectly elastic
when a change in price brings about an infinite change in the quantity of goods demanded. In
other words, a slight increase in price can make consumers to stop buying the commodity, while
a slight decrease in price can make consumers to purchase all the commodities. Commodities
that can exhibit this type of demand are commodities with close substitutes such as foreign rice
and local rice, Indomie and Tummy-tummy, etc. Demand is mathematically said to be perfectly
elastic if the coefficient of the elasticity of demand is equal to infinity. See the graph below:

Price

P D

Qd

Perfectly Inelastic Demand or Zero Elastic Demand: Demand is said to be perfectly inelastic
if a change in price brings about no effect (change) in the quantity demanded. In order words, the
same quantity of commodity is demanded irrespective of changes in price. Commodities that can
exhibit this type of demand are commodities without close substitutes such as salt, etc.
Mathematically, demand is said to be perfectly inelastic if the elasticity coefficient is equal to
zero(0). See the graph below:
Price D
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Measurement of Elasticity of Demand

Price Elasticity of Demand. Examples;

Question 1: If the price and the quantity demanded of beans in 2020 are #3000 and 2 bags of
beans respectively. In 2021, it is #2000 and 4 bags respectively.

Questions

(a) Calculate the coefficient of the price elasticity of demand

(b) Is the demand elastic or inelastic
(c) How do you know this?
(d) What is the economic implication of the answer?
(e) As an economist, what will be the best policy option?
Solutions

(a) Coefficient of the price elasticity of demand = Percentage change in quantity demanded (% Δ in Qd)
Percentage change in price (% Δ in P)
Where; % = Percentage, Δ = Change, Qd = Quantity demanded, P = Price.
Percentage change in quantity demanded = New quantity minus Original quantity(Q1-Q0) X 100
Original Quantity (Q0) 1
Original quantity = 2
New quantity = 4
Change(Δ) in Qd = 4 - 2 = 2
% Change(Δ) in Qd = 4 - 2 X 100
2 1
2/2 X 100 =100%
Therefore, Percentage change in Price = New Price minus Original Price(P1-P0) X 100
Original Price (P0) 1
Original Price = 3000
New Price = 2000
Change(Δ) in Price = 2000 - 3000 = 1000
% Change(Δ) in Price = 2000-3000 X 100
3000 1
1000/3000 X 100 =33.3%
Therefore, Coefficient of price elasticity = (% Δ in Qd) = 100/33.3 = 3
(% Δ in P)
(b) The demand is elastic
(c) Because the coefficient of price elasticity is greater than 1
(d) Since the demand is elastic, it implies that if the price of the commodity is increased by a
certain percentage, the demand will fall by a greater percentage and the seller will lose, but if the
price is decreased by a certain percentage, the demand will rise by a greater percentage. Thus,
the seller will gain.
18

(e) As an economist, the best policy option is to decrease the price of commodity.
Page

NOTE 1: The following will be your answers if the answers to the questions:

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 (a) Is equal to 1
(b)The demand is unitary or unity
(c) Because the coefficient is equal to 1
(d) Since the demand is unitary it implies that if the price of the commodity is increased by a
certain percentage, the demand will decrease by the same percentage. Thus, it will have no effect
on the seller’s revenue. On the other hand, if price is reduced by a certain percentage, the
demand will increase by the same percentage. Thus, it will still have no effect on the seller’s
revenue.
(e) As an economist, the best policy is to leave the price unchanged

NOTE 2: The following will be your answers if the answers to the questions:
(a) Is less than 1
(b) The demand is inelastic
(c) Because the coefficient is less 1
(d) Since the demand is inelastic, it implies that if the price is increased by a certain percentage,
the demand will fall by a smaller percentage. Thus, the seller will gain; but if the price is
decreased by a certain percentage, the demand will rise [increase] by a smaller percentage. Thus,
the seller will lose.
(e) As an economist, the best policy option is to increase price of the commodity.

NOTE 3: The following will be your answers if the answers to the questions:
(a) Is equal to infinity
(b) The demand is infinitely or perfectly elastic
(c) Because the coefficient is infinity
(d) Since the demand is perfectly elastic, it implies that if the price is increased by a certain
percentage, consumers will stop buying the commodity. Thus, the seller will lose; But if the price
is reduced by a certain percentage, the consumers will respond by purchasing all the
commodities available. Thus, the seller will gain.
(e) As an economist, the best policy option is to decrease the price of the commodity.

NOTE 4: The following will be your answers if the answers to the questions:

(a) Is equal to zero[0]

(b) The demand is perfectly inelastic
(c) Because the coefficient is equal to zero[0]
(d) Since the demand is perfectly inelastic, it implies that the same quantity will be demanded
whether the price is increased or decreased. Thus, the seller will be better off increasing the
price.
19

(e) As an economist, the best policy option is to increase the price of the commodity.
Page

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Income Elasticity of Demand. Examples,

If Mr John’s salary increased from #40,000 to # 50,000 as a result of his promotion. He is able to
purchase 2 bags of cassava instead of 5 bags he used to purchase.

Questions:

(a) Calculate the coefficient of his income elasticity of demand?

(b) Is the demand elastic or inelastic and why?
(c)What kind of good is cassava to Mr. John?

Solutions
(a) Coefficient of the Income elasticity of demand= Percentage change in quantity demanded (% Δ in Qd)
Percentage change in Income (% Δ in I)
Where; % = Percentage, Δ = Change, Qd = Quantity demanded, I = Income.
⸫ Percentage change in quantity demanded = New quantity minus Original quantity(Q1-Q0) X 100
Original Quantity (Q0) 1
Original quantity = 5
New quantity = 2
Change(Δ) in Qd = 2 -5 = 3
% Change(Δ) in Qd = 2-5 X 100
5 1
3/5 X 100 = 60%
While, Percentage change in Income = New Income minus Original Income(I1-I0) X 100
Original Income (I0) 1
Original Income = 40,000
New Income = 50,000
Change(Δ) in Income = 50,000 - 40,000 = 10,000
% Change(Δ) in Income = 50,000 - 40,000 X 100
40,000 1
10,000/40,000 X 100 =25%
Therefore, Coefficient of Income elasticity = (% Δ in Qd) = 60/25 = 2.4 Ans
(% Δ in I)
(b) The demand is elastic because the coefficient is greater than 1

(c) The kind of good cassava is to Mr. John is inferior good because as his income increased, his
demand for cassava falls. Indicating, negative relationship between his income and his demand
for the good.

NOTE: If the relationship between his income and his demand for a commodity is positive, the
answer becomes normal good.

Cross Elasticity of Demand. Examples,

20

If the price of local rice increased from #10,000 to #50,000 and because of that Mr John
Page

increased his purchase of foreign rice from 10 bags to 12bags.

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Questions:

(a) Calculate the Cross elasticity of demand

(b) What type of demand relationship does local rice and foreign rice have?
(c) Is the demand for rice elastic or inelastic. Give reasons?
Solutions
(a) Coefficient of the Cross elasticity of demand = Percentage change in Qd of good A (% Δ in Qd A)
Percentage change in the price of good B (% Δ in P B)
Where; % = Percentage, Δ = Change, Qd = Quantity demanded, P = Price.
⸫Percentage change in the Qd of good A = New quantity minus Original quantity(Q1-Q0) X 100
Original Quantity (Q0) 1
Original quantity = 10
New quantity = 12
Change(Δ) in Qd = 12 -10 = 2
% Change(Δ) in Qd = 12 -10 X 100
10 1
2/10 X 100 = 20%
Therefore, Percentage change in Price = New Price minus Original Price(P1-P0) X 100
Original Price (P0) 1
Original Price = 10,000
New Price = 15,000
Change(Δ) in Price = 15,000 -10,000 = 5,000
% Change(Δ) in Price = 15,000 – 10,000 X 100
10,000 1
5,000/10,000 X 100 = 50%
⸫ Therefore, Coefficient of Cross elasticity = (% Δ in Qd of good A) = 20/50 = 0.4 Ans
(% Δ in Price of good B)
(b) Foreign and local rice are close substitutes and so, they have a competitive demand.
(c) The demand for foreign rice is inelastic because the coefficient is less than 1.

NOTE: In the answer to question ‘b’ above, foreign rice and local rice have competitive demand
because there is a positive relationship between the price of local rice and quantity demanded of
foreign rice. If there exists a negative relationship between price of good ‘A’ and the quantity
demanded of good ‘B’, then we can conclude that the two commodities have complementary
demand.

Factors Affecting Elasticity of Demand

• The income of the consumer

• Nature of the commodity
• One’s habit
21

• Whether the commodity have close substitutes or not.

• Time factor
Page

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Importance of the Concept of Elasticity of Demand

• It helps the producer or seller to know when to increase or decrease price.

• It helps the monopolist to increase the price of his commodity that has inelastic demand.
• It helps the government to determine imposition of tax.

EVALUATION QUESTIONS

At the end of this topic, the students should be evaluated with the following questions:

1. State how price is determined under perfect competition

2. Demonstrate with curves the effects of changes in demand on equilibrium price and
quantity.
3. Demonstrate with curves the effects of changes in supply on equilibrium price and
quantity.
4. Explain how prices are determined under conditions of imperfect competition.
5. Define Maximum and Minimum price control.
6. Explain the effects of price legislation
7. Define subsidy and explain its effects
8. Explain various types of demand with close examples
9. Explain various types of supply with close examples
10. Define elasticity of demand.
11. Explain the three major types of elasticity of demand with calculations therein
12. Explain the different degrees of elasticity of demand with curves therein

ASSIGNMENT/HOME WORK

1. Draw your own curves and demonstrate the effects of changes in demand on equilibrium price
and quantity.
2. Draw your own curves and demonstrate the effects of changes in supply on equilibrium price
and quantity.
3. Use the table below to answer the following questions:
YEARS PRICES GOODS
2020 #18,000 I Bag of rice
2021 #10,000 2 bags of rice
(a) Calculate the coefficient of the price elasticity of demand
(b) Is the demand elastic or inelastic?
(c) How do you know this?
(d) What is the economic implication of the answer?
(e) As an economist, what will be the best policy option?
22
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 4. Assuming in the year 2020, your school enrolled 500 students at #50,000 school fees, but this
year 2021, the school fees increased to #90,000 and the students enrolment fell from 500
students to 200 students.
(a) Calculate the coefficient of the school fees elasticity of the demand for your school
(b) Is the students’demand for your school elastic or inelastic?
(c) How do you know this?
(d) What is the economic implication of the answer?
(e) As an economist, what will be the best policy option for the management of the school?
5. Use the table below to answer the following questions:
YEARS INCOMES GOODS
2020 #80,000 10 tubers of yam
2021 #100,000 15 tubers of yam
(a) Calculate the coefficient of the income elasticity of demand
(b) Is the demand elastic or inelastic
(c) How do you know this?
(d) In this case, what type of good is yam?
6. Use the table below to answer the following questions:
Years Price of Indomie Qty Demanded of Indomie Qty Demanded of Tummy-Tummy
2020 #2,500 Per bag 20 bags of Indomie 10 bags of Tummy-tummy
2021 #3,000 Per bag 10 bags of Indomie 20 bags of Tummy-tummy
(a) Calculate the coefficient of the cross elasticity of demand
(b) Is the demand elastic or inelastic and why?
(c) In this case, Indomie and Tummy-tummy displayed what type of demand (What can you
conclude about Indomie and Tummy-tummy)?

REFERENCES/FURTHER READING
Ande, C.E. (2017). Essential Economics for Senior Secondary Schools. Lagos, Tonad Publishers
Limited.
Anyanwuocha, R.A.I. (2013). Foundations of Economics for Senior Secondary Schools. Onitsha,
Africana First Publishers

23
Page

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 WEEK FOUR: MARKET STRUCTURE

SPECIFIC OBJECTIVES
At the end of this week four topic, the students should be able to:
1. Define market
2. List and explain markets based on the types of commodities bought and sold
3. List and explain markets based on the channels of distribution
4. List and explain types of market according to prices
5. Define Perfect market, observing its features
6. Define Imperfect market, observing its features
7. Explain Monopoly with close examples
8. Explain Monopolistic competition with close examples
9. Explain Oligopoly with close examples
10. Explain Duopoly with close examples
11. Explain the Accountant and Economists view of cost
12. Define cost
13. Calculate fixed cost, variable cost, total cost, average cost, marginal cost, etc using a cost
schedule
14. Define revenue
15. Calculate total revenue, average revenue, marginal revenue, etc using a revenue schedule
16. Distinguish between short-run and long-run

MAIN CONTENT

MARKET STRUCTURE

In Economics, “Market” has a wider meaning than a market place. It is defined as any
arrangement, system or organization whereby buyers and sellers of goods and services are
brought into contact with one another for the purpose of transacting business. They could be in
contact by using different types of communication systems – Telephone, letter, etc.

TYPES OF MARKETS

Market could be classified on the basis of types of commodities bought and sold, or on the basis
of the channel of movement of finished products from producers to consumers, or on the basis of
prices.

Markets Based on the Types of Commodities Bought and Sold

They include;
24

• Consumer goods market: Made up of buyers and sellers of consumer goods.

Page

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 • Labour market: Market where wages and other conditions for employment are
determined.
• Capital market and money market: Capital market is a financial market which deals in
long-term loan, while money market deals in short-term loan.
• Stock exchange market: It consists of buyers and sellers of second-hand securities. i.e,
buyers and sellers of old stocks and shares.
• Foreign exchange market: Here, foreign currencies are bought and sold.

Market Based on the Channels of Distribution

Market based on the channel of distribution could be divided into:

• Wholesale market: Market that deals in wholesale of commodities. That is, selling
commodities in bulk to the retailers.
• Retail market: Market that deals in the retail of commodities. That is, selling
commodities in smaller quantities to the consumers.

Type of Market according to Prices

In relation to price determination, markets could be classified as Perfect and Imperfect markets.

Perfect Market

A Perfect market can be defined as a market in which buyers or sellers cannot influence the
prices of goods and services. Perfect market or Perfect competition exists if the following
features or conditions are present;

• Homogeneous commodity: The commodities bought and sold must be identical and
homogeneous.
• There is a large number of buyers and sellers: None can influence or control the
prices.
• All the buyers and sellers must have perfect knowledge of market transactions: All
buyers and sellers must be aware of the ruling market prices.
• There must be free entry and exit of buyers and sellers: Producers are free to enter
and leave the market anytime and the buyers should also be free to buy from any seller of
their choices.
• There must be no preferential treatment.
• There are no transport costs in incurred.
• The goods must be portable.
• All firms must have identical cost structures.
25

• Common price: Commodities in the market bear the same price tag throughout the
market
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Profit Maximisation in a Perfectly Competitive Firm

Profit is maximized for a perfectly competitive firm when;

• The Marginal Revenue (MR) is equal to the Marginal Cost (MC)

• The Marginal Cost (MC) curve cuts the Marginal Revenue (MR) from below and the
Marginal Cost is rising

Imperfect Markets

In the real world, a perfect market does not exist in its pure form. The same applies to a
monopoly which shall be treated later. The rule is imperfect markets or imperfect competition.
Both perfect competition and monopoly are theoretical concepts.

Types of Imperfect Markets

Monopoly

It is a market structure where there is only a single seller or producer of goods or services. The
good or service has no close substitutes. In reality, pure monopoly does not exist.

Features of Monopoly

• There is only one seller and many buyers of goods.

• The monopolist has the ability to control either price or output. But he cannot control
both price and output at the same time.
• There is no free entry.
• There is imperfect knowledge of market transactions.
• The cost structure is unique.
• He/she has transport cost.
• There is no common price

Types/Causes of Monopoly

• Natural monopoly: Nature does not distribute its resources evenly over the earth. As a
result, some areas have natural resources which are not found in other areas. Example,
Nigeria is a monopolist as far as the production of coal and crude petroleum is concerned
in West Africa.
• Social or government monopoly: This occurs when government decided to establish a
public corporation or other enterprises to be a single seller or producer of a particular
26

good or service. Example, NEPA.

Page

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 • Legal monopoly: This is the type of monopoly created by law. Examples are “patent
right” and “copyright” which the government grants to an individual or a firm in order to
protect it and give an incentive to inventions. Patent right may be given to someone who
invented a particular machine. This patent right lasts for a number of years to prevent
other people from manufacturing same within the period in question. A copyright is given
to writers and musicians.
• Voluntary monopoly: This occurs when firms willingly merge or combine. There are
two types of combinations or mergers.
✓ Vertical combination and
✓ Horizontal combination

Vertical Combination: This occurs when all the firms at different stages of the production
process, beginning from the obtaining of raw materials and ending with manufacturing of
finished product, are brought under one management. Example, N.T.C now controls a large
supply of tobacco, processing, manufacturing and distribution of cigarettes.

Horizontal Combination: This occurs when several firms of the same kind, at the same stage of
production are brought together in an agreement or come under one management. This could be
grouped into: Trust and Cartel

Trust: A trust is created when rival firms become completely fused so as to form a company
under one management. Example, Imperial Chemical Industries (ICI) is a combination of many
drug manufacturing firms.

Cartel: A cartel is an agreement between two or more producers in the same line of trade to
regulate production and sales in order to achieve a monopolist end. The members still retain their
identities and are under different managements. Example, OPEC (Organization of Petroleum
Exporting Countries).
Monopolistic Competition
This is a market situation where there is a large number of buyers and sellers who engage in
goods that are similar but not identical. The two well-known examples of monopolistic
competition in Nigeria are:

• The large furniture factories and

• The different beer breweries.

There are many producers in these two industries that market differentiated goods and have
different brand names for their goods.
Characteristics/Features of Monopolistic Competition

•
27

There are many sellers.

• There are free entry and exit.
Page

• The products are similar but not homogeneous.

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Oligopoly
This is a market structure where there are few firms of an industry that produce similar and
identical goods. The closest example in Nigeria is the transport industry – ABC Mass Transit,
Peace Mass Transit, ENTRACO, etc.
Duopoly
This is a market situation where there are only two firms that are producing similar and identical
goods. This is a form of Oligopoly where only two firms compete.

REVIEW OF COST AND REVENUE

The Economists’ and Accountants’ View of Cost
The Economists view cost in terms of alternatives sacrificed in order to obtain a commodity, or
alternatives forgone in order to satisfy a particular want. That is, the opportunity cost of pursuing
a particular line of action. The accountants look at cost from a different perspective. They see it
in terms of Money cost. That is, the amount of money spent on commodity.
Example
If N1000 is spent on purchasing a pair of Sandal, the Accountant will look at the cost in
monetary terms (i.e N1000), while the Economist will look at it in terms of other commodities
which could not be bought as a result of purchasing the pair of Sandal plus the actual amount
spent on the sandal.

Types of Cost
Fixed Cost (FC): They are the costs that remain constants no matter the level of output
produced. Such costs include money spent on rent, fixed machinery, interest on loans,
depreciation charges, e.t.c. This type of cost is sometimes referred to as overhead costs or
unavoidable costs.
Variable Cost (VC): This type of cost changes with the scale of production. They are sometimes
called direct costs.
Total Costs (TC): It is the overall expenditures involved in producing a given quantity of a
commodity. Total Cost = Variable cost (VC) + Fixed cost (FC).
Average Costs (AC): This is the cost of producing each unit of the commodity (i.e the unit cost
of production). AC = Total Cost (TC)
Total Product (TP)
Marginal Cost (MC): This is the additional cost incurred by producing an additional unit of a
commodity. It is also known as “Incremental cost”.
The Cost Schedule of a Firm
TOTAL PRODUCT FIXED COST VARIABLE COST TOTAL AVERAGE COST MARGINAL COST
OR OUTPUT (TP)
(FC) (VC) COST (TC) (AC) (MC)
1 ₦20 ₦5 ₦25 ₦25 -
28

2 20 10 30 15 ₦5
3 20 15 35 11.67 5
Page

4 20 16 36 9 1
SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
5 20 20 40 8 4
6 20 30 50 0.33 10
7 20 42 62 8.86 12

From the 4th row in the above table,

VC = TC - FC = 36 – 20 = 16
FC = TC - VC = 36 – 16 = 20
AC = 𝑇𝐶⁄ = 36/4 = 9
𝑇𝑃
𝑇𝐶
MC = , where = changes, 36-35 = 1
𝑇𝑃
4-3

REVENUE
Revenue refers to the income derived by a producer or firm from business activities. Revenue
could further to broken into:
Total Revenue (T.R): This refers to the total income which a firm derives from the sale of its
products. It is found by multiplying the total quantity sold by the price of the commodity.
Example: If the total of 200 units of a commodity are sold at the price of N2 each. Total Revenue
is 2 x 200 = N400.
Average Revenue (AV): This is the price per a unit of the commodity. Derived by dividing the
total revenue by the total units of the commodity sold. Example: If the Total revenue is N100 and
10 units are sold, Average Revenue becomes Total Revenue = ₦100 = ₦10
Total Product 10
Marginal Revenue (MR): This is an additional income earned by selling an extra unit of a
commodity. Example: If the total revenue derived from 20 units of a commodity is N100 and the
sale of an additional unit makes the total revenue of N15, the Marginal Revenue is N15.

Revenue Schedule of a Firm

Price (P) N No of Qty (Q) Total Revenue(TR) N Avenue Revenue (AR) N Marginal Revenue (MR) N
10 20 200 10 -
20 40 800 20 30
40 60 2400 40 80
60 80 4800 60 120
Using the second row,
TR = Q x P = 40 x 20 = 800 Ans
𝑇𝑅 800 𝑄𝑥𝑃 40 𝑥 20
AR = = = 20 OR QxP= = 20 Ans.
𝑄 40 𝑄 40
Δ TR 800−200 600
MR = = = = 30 Ans.
Δ𝑄 40−20 20
29
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 The Concept of Short Run and Long Run
Short run: This is the period of time in which it is impossible for a producer or firm to vary the
quantity of some inputs.
Long run: This is the period of time which is long enough for a firm to vary the units of all
factors of production as required.
EVALUATION QUESTIONS

At the end of this topic, the students should be evaluated with the following questions:
1. Define market
2. List and explain markets based on the types of commodities bought and sold
3. List and explain markets based on the channels of distribution
4. List and explain types of market according to prices
5. Define Perfect market, observing its features
6. Define Imperfect market, observing its features
7. Explain Monopoly with close examples
8. Explain Monopolistic competition with close examples
9. Explain Oligopoly with close examples
10. Explain Duopoly with close examples
11. Explain the Accountant and Economists view of cost
12. Define cost
13. Calculate fixed cost, variable cost, total cost, average cost, marginal cost, etc using a cost
schedule
14. Define revenue
15. Calculate total revenue, average revenue, marginal revenue, etc using a revenue schedule
16. Distinguish between short-run and long-run
ASSIGNMENT/HOME WORK
1. Think and find out other examples of perfect competition, monopoly, oligopoly and duopoly
2. If perfect competition does not exist in real world situation, why then do we study Perfect
competition?
3. Populate the revenue schedule below:
Price (P) N No of Qty (Q) Total Revenue(TR) N Avenue Revenue (AR) N Marginal Revenue (MR) N
20 40 x 20 -
40 80 1600 y 20
80 120 4800 80 z
120 160 9600 120 120

REFERENCES/FURTHER READING
Ande, C.E. (2017). Essential Economics for Senior Secondary Schools. Lagos, Tonad Publishers
30

Limited.
Anyanwuocha, R.A.I. (2013). Foundations of Economics for Senior Secondary Schools. Onitsha,
Page

Africana First Publishers

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 WEEK FIVE: PRICE AND QUANTITY DETERMINATION UNDER PERFECT
COMPETITION, MONOPOLY, DUOPOLY AND OLIGOPOLY

SPECIFIC OBJECTIVES
At the end of this week five topic, the students should be able to:
1. Explain Price determination under Perfect competition
2. Explain quantity determination under Perfect competition
3. Analyse the short-run and long-run positions of a Perfect competitor
4. Explain the point at which the profit is maximized under perfect competition
5. Explain Price determination under Monopoly
6. Explain quantity determination under Monopoly
7. Analyse the short-run and long-run positions of a Monopolist
8. Explain normal profit and abnormal profit

MAIN CONTENT

PRICE AND QUANTITY DETERMINATION UNDER PERFECT COMPETITION

Price Determination under Perfect Competition

The perfect competition has a horizontal price line. The demand curve is perfectly elastic. Under
perfect competition, no one firm or producer can influence the price of a commodity. The price is
fixed for each firm; They sell at the same price.

Quantity Determination under Perfect Competition

The perfect competitor produces the most profitable output where his marginal cost equals
marginal revenue, that is, MC = MR. Production beyond this point will lead to the marginal
cost (MC) becoming higher than the marginal revenue (MR), bringing about a decrease in profit.

THE SHORT RUN AND LONG RUN POSITION OF A PERFECT COMPETITOR

The Short Run Position of a Perfect Competitor

31
Page

Fig 9: Abnormal profits in the short run.

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 A normal profit is that profit that is just enough to keep firm in an industry. It is earned when
AR=P=AC.

Abnormal profit is that profit that is more than enough to keep firm in an industry. It is earned
when AR=P>AC

Short-run is a time period when at least one input or factor, such as the plant size cannot be
changed, while Long-run is a period long enough to vary or change all inputs or factors of
production.

In fig 9, it is possible for firm to make abnormal profit at PXZY. Here, price (P) or average
revenue (AR) is higher than the average cost (AC) of production.

However, the short-run abnormal profit of perfect competitosr will attract more firms into the
industry and when such is done; output will increase resulting in the decrease in price, revenue
and profit. This process will lead us to the long-run where the abnormal profits will be wiped
out. See the long-run in Fig 10 below.

. The Long Run Position of a Perfect Competitor

Price FIG 10 MC AC

P P = AR = MR = D

Q Quantity

Fig 10: Long-run equilibrium position of a perfect competitor.

In the long-run, the firm is in equilibrium and makes normal profits at the point where
MC=MR=AC=AR=D=P. Note: Profit is maximized when MC = MR. That is, the firm makes
the maximum profit at the point where MC = MR
32
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 PRICE AND QUANTITY DETERMINATION UNDER MONOPOLY

Price Determination under Monopoly

A monopolist has power to control either price or output, but not both price and output at the
same time. That is, the monopolist can fix the price of his goods, but the quantity he will sell
cannot be determined by him at the same time. If he fixes the price, it is the demand for his
goods that will determine the quantity sold. To a large extent therefore, demand limits monopoly
power.

In fixing prices on his goods, the monopolist will consider the elasticity of demand for his
commodity. If the demand for his commodity is inelastic, he will charge higher prices, but if the
demand is elastic, he will charge lower prices in order to earn higher revenues and profits.

Quantity Determination under Monopoly

During the period of low demand or (recession), the monopolist can restrict output in order to
maintain a high price, but during periods of high demand (boom) he increases the quantity sold
in order to make high profit. Note: He maximizes his profit where MC=MR.

SHORT-RUN AND LONG-RUN POSITIONS OF A MONOPOLIST

The monopolist faces a downward-slopping demand curve. He can therefore make abnormal
profits both in the short-run and in the long-run by either increasing or decreasing his supply.

In Fig 11 below, the rectangle PYRS represents the abnormal profits of the monopolist both in
the long-run and short-run.

Price FIG 11 MC AC

P S

Y R

AR = D

MR

Q Quantity
33
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Fig 11: Short-run and Long-run positions of a monopolist.

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 EVALUATION QUESTIONS

At the end of this topic, the students should be evaluated with the following questions:

1. Explain Price determination under Perfect competition

2. Explain quantity determination under Perfect competition
3. Analyse the short-run and long-run positions of a Perfect competitor
4. Explain the point at which the profit is maximized under perfect competition
5. Explain Price determination under Monopoly
6. Explain quantity determination under Monopoly
7. Analyse the short-run and long-run positions of a Monopolist
8. Explain normal profit and abnormal profits observing their mathematical formulas.

ASSIGNMENT/HOME WORK

1. Find out other examples of the market structures explained above

2. Use curves to explain the short-run and the long-run positions of an Oligopolist
3. Use curves to explain the short-run and the long-run positions of a Duopolist.

REFERENCES/FURTHER READING
Ande, C.E. (2017). Essential Economics for Senior Secondary Schools. Lagos, Tonad Publishers
Limited.
Anyanwuocha, R.A.I. (2013). Foundations of Economics for Senior Secondary Schools. Onitsha,
Africana First Publishers

34
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 WEEK SIX: INDUSTRIES IN NIGERIA

SPECIFIC OBJECTIVES
At the end of this week six topic, the students should be able to:
1. Define plant
2. Define firm
3. Define industry
4. Distinguish between firm and industry
5. Define location of industry
6. Define localisation of industry
7. Define agglomeration of industry
8. Explain the factors affecting location and localization of industry
9. Explain the external economies of scale or advantages of localisation of industries.
10. Explain the external diseconomies of scale or disadvantages of localisation of industries.
11. Explain internal economies of large-scale production.
12. Explain internal diseconomies of large-scale production.
MAIN CONTENT

DEFINITIONS OF INDUSTRIAL CONCEPTS

The Plant: This is the same as the factory. It consists of the tools, equipment, machines and
buildings of a business concern. It is a business establishment or the actual place where
production is organized. Example; the Benue Cement factory, etc.

Industrial Estate: Industrial estate is a large piece of land where there are factories and
businesses. In industrial estate, many factories or companies are found and these factories engage
in different businesses. Example, Ikeja Industrial Estate.

Firm: A firm is an independently administered business unit carrying out production,

construction, or distribution activities under one or administration or management. It is a unit of
ownership and control and may consist of one or more plants. Sometimes, the firm may coincide
with a plant if there is only one factory. Example; MTN, GLO, UBA, Union Bank, etc.

Industry: An industry is a group of firms producing broadly similar commodities or offering

similar services. Example; Banking industry, Telecommunication industry, Transport industry,
Noodle industry, etc.

The Difference Between Firms and Industries

• A firm is a subset of an industry.

• Firms for simplicity sake can be referred to as the specific names of each of the
companies, while industries can be referred to as general name of the companies as a
whole. Examples; The table below shows various industries and the firms that make up
35

the industries.
Page

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Telecommunication Industry Transport Industry Banking Industry Noodle Industry
MTN ABC Transport Ltd First Bank Indomie
GLO Peace Mass Transit Skye Bank Dangote
AIRTEL ENTRACO Union Bank Tummy-Tummy
ETISALAT The Young Shall Grow Fidelity Bank Golden Penny
STARCOM, etc TRACAS, etc Zenith Bank, etc Jolly-Jolly

Internal Economies of Scale: These are advantages of large-scale production which a business
firm can achieve on its own by increasing the size of its output.

Internal Diseconomies of Scale: These are the disadvantages of large-scale production.

External Economies of Scale: These are the advantages that accrue to firms or the whole
industries as a result of their inter-dependence.

External Diseconomies of Scale: These are the disadvantages encountered by the firms or the
whole industry as a result of their inter-dependence.

Location of Industry: It refers to the siting of an industry in a particular place or the site where
the industry is situated. Example: Okonkwo Nnaemeka Junction is the location of Rice mill
industry in Omor.

Localisation of Industry: It refers to the concentration of many firms of an industry in a

particular place. Such firms produce similar products or services. Example, many banks could be
located in the same area like as it is done at Regina Caelis’ Junction, Awka because all of them
render the same services. At Upper Iweka, Onitsha, many transport firms that perform the same
services such as Peace Mass Transit, The Young Shall Grow Motors, TRACAS, etc are located
there.

Agglomeration of Industries: It refers to the concentration of many industries at a particular

place. Example, Atani road in Onitsha could be regarded as an example of agglomeration of
industries in the sense that it has been a site for different industries.

Factors that affect both Location and Localisation of Industry

• Nearness to source of raw materials.

• Nearness to market
• Nearness to source of labour supply
• Nearness to power and source of power and water supply
• Availability of good transport and communication system
• Government policy
• Favorable natural conditions
36

External Economies of Scale or advantages of Localisation of Industries

Page

• Easy access of the required labour force

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 • The emergence of subsidiary firms which produce raw materials for the main industry
• Firms use as inputs the by-products of other firms located in the same area
• It leads to division of labour and specialization
• It improves infrastructural facilities

External Diseconomies of Scale or Disadvantages of Localisation of Industries

• Structural Unemployment: Unemployment that arises as a result of changes in the
production pattern due to fall in demand.
• Problem of congestion and over crowding
• Problem of environmental pollution
• Target for enemy attack
• Excessive competition may lead to high prices of input or raw materials

Internal Economies of Large-scale Production

• Marketing economies: Large firms have many advantages over small firms in the
buying of inputs and the selling of finished goods.
• Financial economies: The large-scale production has many advantages over the small
firm in raising finance for expansion.
• Administrative or managerial economies: It can buy the best managerial ability in the
labour market.
• Technical economies: Large firms have advantages over the small firms in the use of
factors of production.
• Economies in research and development.

Internal Diseconomies of Large-scale Production

• There is slow response to changes

• Motivation may be lacking in the firm
• There may be less personal relationship between the management and employees
• The large firm suffers from bureaucracy or redtapism
• Difficulty in management and a rise in administrative cost
• It could lead to over production

INDUSTRIALISATION IN NIGERIA AND WEST AFRICA

Industrialisation can be simply defined as the process of transforming and economy based on
extractive activities into an economy based on manufacturing. It can also be defined as the
37

process by which an economy based on agriculture, fishing, lumbering, mining, etc is

transformed into an economy based on industries.
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Strategies of Industrialisation

The following are the strategies adopted by the Nigerian government in order to achieve
industrialization:

Import-Substitution Strategies: These are strategies or deliberate attempts to encourage the

growth of industries from within an economy such that goods and services that were previously
imported will now be produced locally.

Export-Substitution Strategies: These are deliberate government policies aimed at encouraging

the production of commodities for export.

Small-scale and large-scale development strategies: Small-scale and large-scale industries

could be established to spur growth in the industrial sector of the economy. The small-scale
industries are established in rural areas to discourage rural-urban migration.

Roles of Industrialisation in Economic Development of a Nation

Industrialization promotes economic development of nations in the following ways:

• It creates employment opportunities

• It controls inflation due to mass production of goods and services
• It attracts infrastructural development
• It attracts technological development
• It spurs economic diversification
• It helps to conserve foreign exchange
• It improves the standard of living of the citizens
• It stimulates and drives other sectors

Problems of Industrialisation in Nigeria and West Africa

Below are the factors that hinder industrial growth and development in Nigeria and west Africa
in general:

• Poor management
• Political instability
• Inadequate entrepreneurs
• Poor quality of labour force (availability of workers without the needed skills)
• Shortage of raw materials
• High degree of foreign dependency
• Bad government policies
38

• Inadequate capital
Page

• Competition with numerous foreign goods

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Ways Government Can Encourage Industrialisation in Nigeria

In the past, federal government of Nigeria adopted the following ways or methods to enhance
industrialization in Nigeria:

• Establishment of higher institutions

• Relaxation of some industrial laws
• Granting tax concessions to pioneer industrials
• Development of infrastructural facilities
• Protection of infant industries
• Relaxation of import control
• Enhancement of industrial loans
• Initiation of industrial loans
• Improvement in agriculture

EVALUATION QUESTIONS

At the end of this topic, the students should be evaluated with the following questions:

1. Define plant
2. Define firm
3. Define industrial Estate
4. Define industry
5. Distinguish between firm and industry
6. Define location of industry
7. Define localisation of industry
8. Define agglomeration of industry
9. Explain the factors affecting location and localization of industry
10. Explain the external economies of scale or advantages of localisation of industries.
11. Explain the external diseconomies of scale or disadvantages of localisation of industries.
12. Explain internal economies of large-scale production.
13. Explain internal diseconomies of large-scale production.
ASSIGNMENT/HOME WORK

1. Find out other differences between firms and industries

2. Find out other areas or communities that can serve as good examples of localization and
agglomeration of industry

REFERENCES/FURTHER READING
Ande, C.E. (2017). Essential Economics for Senior Secondary Schools. Lagos, Tonad Publishers
Limited.
Anyanwuocha, R.A.I. (2013). Foundations of Economics for Senior Secondary Schools. Onitsha,
39

Africana First Publishers

Page

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 WEEK EIGHT: AGRICULTURE

SPECIFIC OBJECTIVES
At the end of this week eight topic, the students should be able to:
1. Define agriculture
2. Explain problems of agriculture
3. Identify agricultural policies in Nigeria
4. Explain how agricultural commodities are being marketed in Nigeria
5. Discuss the prospect for agriculture in Nigeria

MAIN CONTENT

AGRICULTURE

Agriculture can be defined as the cultivation of crops and rearing of animals for the benefits of
man.

Problems of Agriculture

The following are the problems of agriculture in Nigeria are:

• Inadequate land tenure system: Communal ownership of land discourages long-term

improvement on land and the use of land as security for loan.
• Small size of farms: This discourages the use of machines and large-scale production.
• Use of simple traditional instruments and inadequate use of inputs: The use of hoe,
cutlass, etc. becomes a problem in an attempt to increase production.
• Climatic problems diminishing soil fertility: Adverse climatic conditions and the
continuous decline in the fertility of land is a problem.
• Illiteracy and existence of conservative farmers.
• Persistent pest attack.
• Poor transportation facilities.
• Lack of storage facilities.
• Inadequate research and extension services.
• Inadequate supply of capital.

Solutions to the Problems of Low Agricultural Productivity in Nigeria

The following are a good number of solutions that can solve the above problems of agriculture in
Nigeria:

•
40

Amendment of land use decree

• Provision of farm inputs
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• Provision of modern implement

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 • Provision of improved seedlings and fertilizers.
• Farmers should be educated
• Provision of drugs and pesticides
• Construction of good roads
• Provision of storage and processing facilities
• Research and development (provision of research findings)
• Establishment of agricultural banks
• Provision of basic amenities
• Provision of irrigation facilities

Agricultural Policies in Nigeria

The following are a number of strategies or programmes of actions designed by the government
to achieve agricultural objectives.

• Agricultural campaigns such as Operation Feed the Nation, Green Revolution, Operation
back to land.
• The education of farmers and making agriculture a core subject in the curriculum of
primary and secondary schools.
• The establishment of rural and agricultural banks to provide credit to the farmers.
• The provision of agricultural inputs at subsidized rates.
• Effective water control through irrigation and provision of adequate drainages.
• The establishment of state farms and farm settlements.

Marketing of Agricultural Commodities

In general, the marketing systems for agricultural commodities in Nigeria can be classified into
the following:

• The traditional marketing system for food crops which are mainly consumed locally.
• The marketing board/commodity board system for cash crops and food crops.

The Traditional Marketing System for Food Crops

This is basically under three arrangements.

• The presence of a long chain of distribution.
• Direct selling of food to consumers by farmers.
• Traditional arrangements between the states, predominantly in the North-South and
South-North directions.
41
Page

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 The Marketing of Crops by Marketing Board/Commodity Boards
The marketing boards which was later replaced with commodity board in 1976 is a government
trading agent, set up by the government and given the authority to buy and sell certain
agricultural produce such as; cocoa, groundnut, palm produce, cotton etc.
Prospects for Agriculture in Nigeria

The following are the prospects or developments indicating that agriculture could stage a
comeback.

• The world oil glut and the need for a broad-based economy. That is, the decline in the oil
demands.
• Continuous decline in the foreign exchange earnings.
• The rapid population growth.
• The desire for self-sufficiency.

Economic Activities Capable of Improving Effective Distribution and Marketing of

Commodities in Nigeria

• Construction of roads
• Provision of storage facilities
• Market expansion
• Encouragement of cooperative societies
• Improvement in communication system

EVALUATION QUESTIONS

At the end of this topic, the students should be evaluated with the following questions:

1. Define agriculture
2. Explain problems of agriculture
3. Identify agricultural policies in Nigeria
4. Explain how agricultural commodities are being marketed in Nigeria
5. Discuss the prospect for agriculture in Nigeria
ASSIGNMENT/HOME WORK

1. Agriculture is the back bone of a nation, discuss?

2. Do u think that agriculture could stage a come-back in Nigeria?
REFERENCES/FURTHER READING
Ande, C.E. (2017). Essential Economics for Senior Secondary Schools. Lagos, Tonad Publishers
Limited.
42

Anyanwuocha, R.A.I. (2013). Foundations of Economics for Senior Secondary Schools. Onitsha,
Africana First Publishers.
Page

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 WEEK NINE: ELEMENTARY TREATMENT OF FISCAL POLICY

SPECIFIC OBJECTIVES
At the end of this week nine topic, the students should be able to:
1. Define public finance
2. Distinguish between physical policy and fiscal policy
3. State the objectives of public finance
4. Identify the sources of government revenues
5. Define tax
6. List and explain the two types of tax with examples
7. Explain the three systems of taxation with examples
8. Explain the principles or canons of good tax system

MAIN CONTENT

FISCAL POLICY

Public finance is an aspect of economics that deals with government revenues and expenditures.
Fiscal policy involves the use of government income and expenditure instruments to regulate the
economy. The fiscal policy instruments are the use of taxation and the government spending
or expenditure. Example; to control recession, government can reduce personal income tax or
increase in government spending or expenditure.

Objectives of Public Finance

The following are the objectives or aims of public finance.

• General administration of a country.

• Servicing of the national debt.
• Economic security and progress.
• Economic development.
• Defense and national security.
• Social welfare and security: The social welfare services are unemployment benefits, old
age allowances and pensions, NPOWER scheme, etc; while the social infrastructural
facilities (amenities) include health facilities, education facilities, public housing, water
supply, recreational centers, etc.

Note: Fiscal policy is different from physical policy. Physical policy involves the use of law to
regulate the economy, such as; wage-freeze, foreign exchange control, quotas and rationing. On
the other hand, Fiscal policy involves the use of government income and expenditure policies or
43

instruments to regulate the economy.

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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 GOVERNMENT REVENUES

Government or Public revenue may be defined as the total income that accrues to all levels of
administration or governments. (local, state and federal) from various sources.

Types (Classification) of Public Revenue

Government revenue can be categorised into;

• Capital revenue (receipts)

• Recurrent revenue(receipts)

Capital revenue (receipts): Capital revenue which is also called irregular or extraordinary
sources of revenue is used for meeting expenditure on heavy capital projects. Examples, grants,
loans, transfers from recurrent revenues.

Recurrent revenue (receipts): This is a regular source of revenue in which income is received
on a regular or yearly basis. Examples, taxation, fees, licenses, fines and interests.

Sources of Government Revenues

The following are the sources through which government derive its incomes or revenues:

1. Taxes
2. Fees, licenses and fines
3. Interest, dividends, profits and earning from government investments
4. Borrowing involving domestic and foreign loans by the government.
5. Royalties and rent: Royalties are paid by the mining sector of the economy. Rent is paid
on government land and building.
6. Grants, aids and gifts from individuals and institutions at home and from foreign
governments and international organizations.

Revenue Allocation in Nigeria

Revenue allocation refers to the sharing of the nation’s wealth between the component parts of
the nation. That is, between the federal, state and local governments. Revenue Mobilisation,
Allocation and Fiscal Commission (RMAFC) is responsible for reviewing from time to time the
revenue allocation formula and principles in operation to ensure conformity with changing
realities. Revenue allocation is grouped into two major parts. These are;

• Vertical revenue allocation and

• Horizontal revenue allocation
44

Vertical Revenue Allocation: These refers to the sharing of revenue accruing to the federal
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accounts among the three tiers of governments (federal, state and local governments).

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Horizontal Revenue Allocation: These refers to the sharing of revenue accruing to the
federation among the units (departments) within a given level of government.

The factors and principles considered while sharing revenues accruing to the federation accounts
are population size, land mass, derivation, ecological problems, etc. It requires a revenue
allocation formula. The formula approved through an executive order by the former President,
Olusegun Obasanjo in 2004 looks like this;

• Federal Government’s shares = 52.68% (In-built into the proportion of the federal
government are: Ecological fund = 1.50%, Solid Mineral Fund = 1.75%, National
Reserve Fund = 1.50%, Agricultural development Fund = 1.75%, and 13% derivation
accrues to all oil producing states).
• 36 State Governments’ shares = 26.72%
• 774 Local Governments’ shares = 20.60%

GOVERNMENT (PUBLIC) EXPENDITURE

Government expenditure refers to total expenses incurred by public authorities at all levels of
administration in a country.

Types (Classification) of Public (Government) Expenditure

Government expenditure can be categorised into;

• Capital expenditure
• Recurrent expenditure

Capital expenditure: These are expenses on projects which are permanent in nature. They
include money spent by government on building roads, schools, bridges, hospitals, industries and
other permanent investments.

Recurrent expenditure: These are expenses which are repeated on regular or yearly basis. They
are not permanent in nature. They include money spent on salaries, electricity bills and
maintenance of infrastructures.

TAXATION

Tax is a compulsory payment levied by the government or its agencies on individuals, firms or
goods and services for the purpose of meeting its financial obligations.
45

Classification or Types of Tax

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Taxes can be divided into two main groups;

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 • Direct and
• Indirect taxes

Direct taxes

They are taxes levied on the incomes of individuals and firms and on their properties. Such
income includes wages, salaries, profits, interests, etc. The burden (incidence) of direct taxes
falls directly on the payers. Direct taxes are:

✓ Personal income tax: This is a tax levied on the income of an individual.

✓ Company tax: This is tax on the net profits of companies.
✓ Poll tax: This is a flat rate tax usually imposed on those with low income.
✓ Capital tax: This is a tax on property or on capital assets such as land, cars, personal
houses, etc.
✓ Capital gains tax: A tax levied on the gains or profits derived from the sale of land and
capital assets.
✓ Expenditure tax: Tax levied on the part of person’s income which is usually spent.

Systems of Direct Taxes

The following are the systems of direct taxes:

• Progressive tax
• Regressive tax
• Proportional tax

Progressive Tax: This is a form of tax in which the rate of tax increases as the income, stock of
wealth, or value of the property to be taxied increases. Those with higher incomes pay higher
than those with low incomes. Pay As You Earn (PAYE) is a good example of progressive tax.
The tax burden increases with increasing income levels. Example: If Mr. Chinonso earns
#500.00 a month and pays 10% of his income as tax while Mrs. Calista earns #200.00 a month
and pays 2% as tax. This is progressive.

TAX RATE Graphical Illustration of Progressive Tax

46

O INCOME
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Regressive Tax: A regressive form of taxation takes a smaller percentage (or proportion) of
income or stock of wealth as tax, as income or wealth increases. As the income or stock of
wealth of the tax payer increases the rate of tax decreases. The burden of the tax falls heavily on
the lower income groups. A Poll tax (flat rates) and indirect taxes in which people are meant to
pay the same amount as tax irrespective of income are all regressive. If Mr. A earns #100 and
pays #5.00 as tax while Mr. B earns #1000 and pays #20.00 as tax, this is regressive because Mr.
A pays a tax of 5% while Mr. B pays a tax rate of 2%.

TAX RATE Graphical Illustration of Regressive Tax

O INCOME

Proportional Tax: In this system, the payers pay the same percentage or proportion of their
incomes or wealth as tax. The tax rate is the same irrespective of the level of income or wealth.
A good example of proportional tax is the company income tax where companies are required to
pay a certain percentage of their profits as tax. A tax rate of 10% could be fixed, where Mr. X
earns #500 and will pay #50.00 as tax and Mr. Z earns #200.00 and will pay #20.00 as tax.

TAX RATE Graphical Illustration of Proportional Tax

O INCOME

Indirect Taxes

Indirect taxes are taxes levied on goods and services. The producers or sellers bear the initial
burden of tax before shifting them to the final consumers. Examples of indirect taxes are:

• Custom duties: Custom duties are of two types;

47

✓ Import duties: Import duties are taxes imposed or levied on goods brought into a
country from another country. That is, taxes levied on imported goods. They are
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also called tariffs.

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 ✓ Export duties: These are taxes levied on goods sent out (or exported) to other
countries.
• Excise duties: These are taxes on locally manufactured goods.
• Sale taxes: These are taxes levied on the sale of commodities.
• Purchase taxes: Taxes levied on certain consumer items such as cars, radios, television
sets, cosmetics, etc.

Classification of Indirect Taxes

Indirect tax could be ad valorem tax or specific tax

Ad valorem tax: This is a tax levied on commodities in accordance with their respective values
and at specified percentages. Example: If a 10% rate of tax is imposed on a commodity worth
#1000, the tax payable is 10/100 ×1000/1 = #100.00.

Specific tax: This is a fixed tax sum imposed or levied or charged per unit of a commodity
irrespective of its value. Example, a fixed rate of #10.00 could be imposed on every ton of
cement produced within the country or imported.

The Principles or Canons of a Good Tax System

In the book “The Wealth of Nations” written by Adam Smith in 1776, he sets out the four canons
or principles of good tax system. These are equality, economy, certainty and convenience. Above
all, a good tax system has the following qualities, principles or canons.

• Equality or ability (equity and fairness): This means that the tax should be levied on
each person according to his ability to pay.
• Economy: A good tax system should make tax collection economical. The cost of
collecting tax should be relatively small compared to the total revenue derived from the
tax.
• Certainty: A tax payer should be fully aware of the rate of tax he is to pay and should
also know when he should pay the tax.
• Convenience: This means that the time the tax is due and the method of paying tax
should be convenient to the tax payers.
• Flexibility: The tax system should not be rigid. It should be easily changed to adapt to
the changing circumstances in the economy.
• Neutrality: The tax system adopted should not affect people`s willingness to purchase
commodities.
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 MATHEMATICAL APPROACHES TO TAXATION

Let us define the following concepts(terms) before the mathematical calculations:

• Tax base: This refers to the items or objects to be taxed. That is, the taxable objects or
items. Examples are personal income, import and export, company profits, properties and
goods for sale
• Tax rate: This refers to the percentage or the proportion of the tax base that is to be paid
as tax. Example, a tax rate of 10% of income. TAX RATE = Tax payment x 100
Tax Base 1
• Disposable Income: This is the remaining income after deducting taxes or total income
less taxation. Disposable Income = Income – Taxation (Tax base – Tax paid)

Worked Examples

The table below displays the tax payments of two income earners in the years 2020 and 2021.
Use the table to answer the following questions:

Tax Payers (Income Earners) Income (Tax) Base Tax Payment (Year 2020) Tax Payment (Year 2021)
Mr Moses #100,000 2800 #1600
Mrs Angela #150,000 3000 #2600
QUESTIONS:
(A) Calculate the percentage rate of taxation paid by;
a(i) Mr Moses in the years 2020 and 2021
a(ii) Mrs Angela in the years 2020 and 2021
(B) (i) Identify the systems of taxation depicted in the year 2020
b(ii) Identify the systems of taxation depicted in the year 2021
b(iii) Which of the income earners has the least burden in the year 2020
b(iv) Which of the income earners has the least burden in the year 2021
b(v) If the government increases its rate of taxation to 20% flat rate, how much revenue will be
generated from the payers?
b(vi) At 20% flat rate of taxation, calculate the disposable income of Mr Moses and Mrs Angela
SOLUTIONS
A(i) *Moses tax rate in the year 2020 = Tax Payment x 100
Tax Base 1
2800/100,000 x 100/1 = 2.8%
*Moses tax rate in the year 2021 = Tax Payment x 100
Tax Base 1
1600/100,000 x 100/1 = 1.6%
49

A(ii) *Mrs Angela’s tax rate in the year 2020 = Tax Payment x 100
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Tax Base 1

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 3000/150,000 x 100/1 = 2%
*Mrs Angela’s tax rate in the year 2021 = Tax Payment x 100
Tax Base 1
2600/150,000 x 100/1 = 1.7%

B(i) The system of taxation depicted in the year 2020 is regressive because Mr Moses earned
100,000 and paid 2.8% in 2020, while Mrs Angela earned 150,000 and paid only 2%.
B(ii) The system of taxation depicted in the year 2021 is progressive because Mr Moses earned
100,000 and paid 1.6% in 2021, while Mrs Angela earned 150,000 and paid 1.7%.
B(iii) The income earner with the least burden in the year 2020 is Mrs Angela
B(iv) The income earner with the least burden in the year 2021 is Mr Moses
B(v) If the government increases its rate of taxation to 20% flat rate, the revenue that will be
generated from all the tax payers =
For Moses; 20/100 x 100,000/1 = #20,000
For Mrs Angela; 20/100 x 150,000/1 = #30,000

Thus, the revenue that will be generated from all the tax payers = 20,000 + 30,000 = #50,000
OR
20% of the total income
20 x (100,000 + 150,000) = 20 x 100,000 + 150,000 = 5,000,000 = #50,000 ans
100 1 100 1 100

B(vi) Disposable income = Income – Taxation or Tax base – Tax paid.

*At 20% flat rate of taxation, the disposable income of Mr Moses = #100,000 – 20,000 =
#80,000.
*At 20% flat rate of taxation, the disposable income of Mrs Angela = #150,000 – 30,000 =
#120,000
EVALUATION QUESTIONS

At the end of this topic, the students should be evaluated with the following questions:

1. Define public finance

2. Distinguish between physical policy and fiscal policy
3. State the objectives of public finance
4. Identify the sources of government revenues
5. Itemize the revenue allocation sharing formula in Nigeria.
6. Define tax
7. List and explain the two types of tax with examples
8. Explain the three systems of taxation with examples
50

9. Explain the principles or canons of good tax system

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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 ASSIGNMENT/HOME WORK

1. Why is tax a compulsory payment?

2. Using Nigeria as a good case study, analyse how fiscal and physical policy can be used to fix
Nigerian economy.
3. Between fiscal and physical policies, which one can be effective in Nigerian economy?
4. The table below displays the tax payments of two income earners in the years 1999 and 2000.
Use the table to answer the following questions:

Tax Payers (Income Earners) Income (Tax) Base Tax Payment (Year 1999) Tax Payment (Year 2000)
Mrs Juliana #50,000 800 #600
Mrs Rita #80,000 1000 #200
QUESTIONS:
(A) Calculate the percentage rate of taxation paid by;
a(i) Mrs Juliana in the years 1999 and 2000
a(ii) Mrs Rita in the years 1999 and 2000
(B) (i) Identify the systems of taxation depicted in the year 1999
b(ii) Identify the systems of taxation depicted in the year 2000
b(iii) Which of the income earners has the least burden in the year 1999
(iv) Which of the income earners has the least burden in the year 2000
(v) If the government increases its rate of taxation to 10% flat rate, how much revenue will be
generated from the tax payers?
(vi) At 10% flat rate of taxation, calculate the disposable income of Mrs Juliana and Mrs Rita

REFERENCES/FURTHER READING
Ande, C.E. (2017). Essential Economics for Senior Secondary Schools. Lagos, Tonad Publishers
Limited.
Anyanwuocha, R.A.I. (2013). Foundations of Economics for Senior Secondary Schools. Onitsha,
Africana First Publishers.

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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 WEEK TEN: THE BUDGET

SPECIFIC OBJECTIVES
At the end of this week ten topic, the students should be able to:
1. Define budget
2. Explain two types of budget
3. Itemize and explain the types of unbalanced budget
4. Explain the uses of surplus budget
5. Explain the effects of budget surplus
6. Explain the uses of deficit budget
7. Explain the effects of budget deficit
8. Explain the roles of budget in a modern economy

MAIN CONTENT

THE BUDGET

The budget is a financial statement made by the government which spells out the estimated
government revenues and proposed expenditures for the coming financial year. In Nigeria,
financial or fiscal year starts on 1st January and ends on 31st December. The president prepares
the budget with the help of the ministry of finance or ministry of economic planning and budget
which has to be approved by the National Assembly.

Two Types of Budget

There are two types of budget. They are;

• Balanced budget and

• Unbalanced budget.

Balanced Budget: This occurs when the revenue receipts are exactly equal to the cost payment
during the budget period. Or when the estimated revenues are exactly equal to the estimated
expenditures.

Unbalanced Budget: This refers to the situations whereby the revenue receipts exceed the cost
payments or the reverse is the case (when the estimated expenditures exceed the estimated
revenues. Thus, the unbalanced budget is further divided into;

• Surplus budget and

• Deficit budget
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 Budget Surplus or Surplus Budget: There is a budget surplus if the proposed government
expenditure is less than the estimated government revenue during a fiscal or financial year. 1986
budget in Nigeria was a budget surplus.

Uses of Budget Surplus

• It is use to reduce aggregate spending (demand) thereby reducing inflation.

• It is sometimes used in order to meet one of the conditionalities of the world financial
institutions like IMF, World Bank, etc for lending money, to enable the borrowing
country to revitalize its economy.
Effects of Budget Surplus

• A budget surplus will lead to an increase in government financial reserves but there may
be increased unemployment as a result of decrease in total investment.

Budget Deficit or Deficit Budget: Budget deficit occurs if the estimated government revenues
are less than the proposed expenditures for a given fiscal year. Budget deficit is also known as
national debts. National or public debts refer to debts a country owes to her citizens or other
countries or organisations such as IMF and World Bank. Debts which a country owes to her
citizens are known as internal debts while Debts which a country owes to foreign governments
and organisations are known as external debts. Debt servicing refers to the payment of interest
on loans taken by the government and the payment of the capital sum at a future date. Debt
management refers to a situation whereby the government structures the countries debts which
are denominated in foreign currencies with the fundamental aim of reducing the total external
debt shocks. Budget deficit can be financed through the following:

• The use of parts of government former reserves.

• Government may borrow money.
• Sometimes, central bank will print more money.

Uses of a Budget Deficit

• It is used to increase aggregate expenditure or demand and reduce unemployment.

• Used to finance a national emergency such as war.
• Used to finance huge capital project.
• Used to remedy deflation or recession or depression.

Effects of Budget Deficit

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• It helps to increase the level of employment.

•
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It could bring about inflation due to too much money in circulation.

SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI
 NOTE: 2021 budget in Nigeria which is regarded as the Budget of Economic Recovery and
Resilience shows the proposed aggregate revenue of #7.89 trillion and expenditure of #13.08
trillion, resulting in 5.02 trillion fiscal deficits.

The Roles of Budget in Modern Economy

• It is used as means of raising revenue.

• It is used to remedy depression, deflation and recession.
• It is used to control inflation.
• It is used as tools for economic planning.
• It is a means of enhancing public welfare and reducing income inequality in the country.
• It is used as a means of remedying balance of payment problems.

EVALUATION QUESTIONS

At the end of this topic, the students should be evaluated with the following questions:

1. Define budget
2. Explain two types of budget
3. Itemize and explain the types of unbalanced budget
4. Explain the uses of surplus budget
5. Explain the effects of budget surplus
6. Explain the uses of deficit budget
7. Explain the effects of budget deficit
8. Explain the roles of budget in a modern economy

ASSIGNMENT/HOME WORK

1. Trace the Nigerian budgets from 1960 to 2021 and find out the years of surplus budgets and
the years of deficit budgets
2. Why do countries design a deficit budget?
3. Why do countries design a surplus budget?

REFERENCES/FURTHER READING
Ande, C.E. (2017). Essential Economics for Senior Secondary Schools. Lagos, Tonad Publishers
Limited.
Anyanwuocha, R.A.I. (2013). Foundations of Economics for Senior Secondary Schools. Onitsha,
Africana First Publishers
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SECOND TERM LESSON NOTE FOR SS 2 ECONOMICS; SUBJECT TEACHER: CHIGBOGU, PAUL UDOJI