Concept of Inflation in Economics

len Alfred Ajibola - 18th October, 2020 @ 03:54 PM

Topics in Economics

Types of capital market: Primary market and secondary market Capital market explained with its functions Basic tools for economic analysis: Graphs explained with its characteristics and importance Basic tools for economic analysis: Tables explained with its characteristics and importance Factors affecting population in economics Advantages of Inflation Disadvantages of Inflation Concept of Inflation in Economics Scheme of work for Economics, SS1, First Term Scheme of work for Economics, SS1, Second Term Scheme of Work for Economics, SS1, Third Term Functions of the Wholesaler Advantages and Disadvantages of the Wholesaler Wholesale Market: Who is a Wholesaler? Characteristics of the Wholesaler Retail Market: Who is a Retailer and Examples of Retailers Market: Types of Market What is a Market in Economics? Elasticity of supply explained with its types Supply Elasticity: Elasticity of Supply explained

Academic Questions in Economics

Please click here to see all Questions and Answers

_____ is defined as a gradual and sustained rise in price level of goods and services in relation to their availability.

  • A. Basis Point Rate

  • B. Hike Rate

  • C. Elastic Supply

  • D. Elasticity of Price

  • E. Price Inflation

  • F. Aggregate Supply

The wholesalers can bring about an economy of scale.

  • A. True

  • B. False

Which of the following statement isn't a characteristics of the wholesaler?

  • A. They may have to operate in specific areas or regions accorded them by the producer

  • B. They are often popular in the line of goods they supply

  • C. They are not risk bearers

  • D. They have good storage facilities

  • E. They often pay for goods supplied by the manufacturers in advance

  • F. They usually have business agents or brokers

The wholesalers act as the middlemen in supply chain.

  • A. True

  • B. False

Large retailers who buy directly from manufacturers are termed as _____.

  • A. Wholesale Retailers

  • B. Certified Retailers

  • C. Codified Retailers

  • D. Commodity Retailers

  • E. Manufacturers Retailer

  • F. Conspicuous Retailers

_____ is a market whereby the sellers buy goods in lesser quantities from the wholesalers and sells in bits to the final consumers.

  • A. Commodity

  • B. Retail

  • C. Wholesale

  • D. Labour

  • E. Common

  • F. General

Which of the following is not a financial market?

  • A. Money Market

  • B. Bond Market

  • C. Foreign Exchange Market

  • D. Virtual Market

  • E. Capital Market

  • F. Stock Exchange Market

A _____ market provides a platform whereby job seekers link up with employers in an attempt to be hired.

  • A. Wholesale market

  • B. Bond market

  • C. Physical market

  • D. Virtual market

  • E. Factor Market

  • F. Labor Market

Inflation in Economics:

Inflation, sometimes called price inflation is an important factor that will affect the citizens and residents of a nation either directly or indirectly. Interestingly, certain people gain from the events of inflation while others suffer from it.

You can read on the concept of citizens and residents here.

In economics, inflation (or price inflation) is defined as a gradual and sustained rise in price level of goods and services in relation to their availability, which will inturn lead to a decrease in the purchasing power of a nation's currency.

In order to simplify the above definition, let's consider an instance using the nation Nigeria as our point of reference.

You can read on the Nigerian National Symbols here.

Back in the days (let's say 1970), the Nigerian Naira (one naira) had a higher value than the American Dollar (one dollar). Infact, during that time, it was considered to be equivalent to the British Pound (one pound). Now, fast forward to October 2020, four hundred and sixty five naira (₦465) is equivalent to one dollar ($1) in the Nigerian black market. Using the parallel market as an instance, ₦385 becomes equivalent to $1.

Please read on black market, its advantages and disadvantages here.

From the above instance, if Nigeria import phones from America at one dollar each (in 1970), such phone will sell at a price lower than one naira. This is true because the Nigerian Naira at that time had a greater value than the American Dollar; and as such, ₦1 naira will purchase 2 phones since it's equivalent to $2 (as at 1970). To simply put it, the importer exchanges ₦1 for $2 in order to buy phones from America.

You can read more on foreign trade here.

On the contrary, the above instance of a phone which sells at price lesser than ₦1 in 1970 will now sell at a minimum of ₦385 in October, 2020. This becomes a fact because the Nigeria naira has lost its value to an extent that $1 is now equivalent to ₦385 in the parallel market.

The loss of monetary value is exactly what inflation does to the purchasing power of a nation's currency, and the citizens ultimately suffers from this, especially if such country focuses more on the importation of products and services.

Please read on balance of trade and balance of payments here.

From the above explanations, Nigeria used to be a better country in 1970. During that time, the cost of living was quite low and the citizens could easily afford the basic amenities of life. As at now, the reverse is the case and corruption (birthing inflation) is its root.

Please read on your responsibilities, duties and obligations as a citizen here.

If you are a teenage student reading this article, kindly ask your parents or an elderly person about the cost of living during their days and in comparison to now (as at October 2020). Their answer should give you a perfect clue to what inflation does to a nation.

Note: Inflation isn't always a bad thing.

In another instance, a brand new car in Nigeria may cost about N2,000 back in the days; but fast forward to now, an equivalent car will cost over ₦1,000,000. Understand that the increase in the price of a car isn't due to the scarcity of cars; rather it was caused by the decreased value of the Nigerian Naira as a result of inflation.

Please read on elasticity of supply here.

Once again, it is important to state that inflation reflects a reduction in the purchasing power (or value) per unit of money.

At the time of writing this article, inflation had made 10 Kobo, 50 Kobo, 1 Naira and even 5 Naira valueless in Nigeria.

According to economists, when too much money circulates in an economy,  high rate of inflation (hyperinflation) results. To this end, we could also have low to moderate rates of inflation and such are believed to be caused by fluctuations in the demands of goods and services (or changes in the quantity of goods supplied and services rendered) during the periods of scarcity.

Please read on the concept of demand here.

In general, inflation becomes imminent when the economic growth of a nation occurs at a slower rate while a corresponding increase in money (within the economy) occurs at a rapid rate. In summary, inflation is generally seen in country that imports more and produces less.

You can read more on production here.

Note: Inflation can affect a nation both positively and negatively.

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Amazing facts in Economics

Notable points in Economics

A unitary elasticity of supply is seen when a change in price brings about a corresponding and proportional change in the quantity of goods or services supplied.

The graph below shows a unit elasticity of supply:
Unit Elastic Supply Curve - Len Academy

Below is an instance of a unitary elasticity of supply:

  • If a 100% increase in the price of wheat translates into a 100% increase in the production and supply of wheat, then the supply elasticity is said to be unitary elastic and its value is equal to 1.

Unitary elasticity is always equal to 1, that is: Es = 1

The supply curve runs diagonally and will pass through the center.

Supply elasticity is defined as the rate at which an increase in price of goods translates into its increased production and availability in the market. Supply elasticity is also termed as price elasticity of supply.

Consider the statements below:

  • If a 100% increase in the price of rice translates into a 100% increase in the production and supply of rice, the supply elasticity is said to be unitary elastic and its value is equal to 1.

  • If a 100% increase in the price of rice translates into a 50% increase in the production and supply (quantity) of rice, the supply elasticity is said to be inelastic and its value will be greater than zero and less than 1. In this case, the exact value is 0.5: (value of change in the quantity of rice divided by value of change in price of rice = 50/100 = 0.5).

  • Please read on supply elasticity here

The individual demand schedule is a table that shows the demand of a commodity that an individual (consumer) purchased at various prices, and at a particular time.

The table below shows an individual demand schedule:

Price in Naira (of a tuber of yam)

Quantity demanded (per week)











The market demand schedule is also referred to as an aggregate demand schedule, total demand schedule or composite demand schedule.

This is a table that shows the different commodities purchased by all the consumers or customers in the market.

The market demand schedule is the summation of the individual demand schedules, showing the demand of different customers for a commodity at a particular price. It is shown in the table below:

Unit price of commodity (Naira)

Quantity demanded by consumer A (QA)

Quantity demanded by consumer A (QB)

Market demand (QA +  QB)






















From the above table, notice that when the unit price of the commodity was 50 Naira, consumer A demanded 20 quantities while consumer B demanded 15 quantities.

Please read more on demand schedule here.

Below are definitions of demand from the perspective of some notable professors:

The demand for goods is a schedule of the amounts that buyers would be willing to purchase at all possible prices at any one instant of a time.

Professor Mayers

Demand is the various quantities of goods that would be purchased per time period at different prices in a given market.

Professor Hibdon

The demand for anything, at a given price is the amount of it which will be bought per unit of time at the price.

Professor Benham

Generally, demand is defined as the willingness of a person, buyer or consumer to buy a specific quantity of goods or service at a given price and time.

From the above definitions, we can infer that the definition of demand is referenced to three major factors. These are:

  1. Quantity of Goods Demanded

  2. Price

  3. Time

Please read more on the concept of demand here.