Advantages of Inflation

len Alfred Ajibola - 22nd October, 2020 @ 04:18 AM

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

Advantages of Inflation:

Inflation is not always a bad event. Infact, deflation (an opposite to inflation) can prove very harmful to a nation's economy.

Please read more on the concept of inflation here.

Although inflation is said to occur when there is a general increase in the price of goods and services, the pace at which this increase occur is what's of interest here.

If the price level increases slowly or moderately, then the effects of inflation can be advantageous, otherwise it becomes devastating if price increases in a rapid, sudden and unpredictable pattern.

Please read on the disadvantages of inflation here.

Below are some of the advantages of inflation in an economy:


  • Inflation is better off in comparison to deflation

Deflation is bad for an economy. It will surely lead to recession, depression and a lack of investment into such economy.

Conversely, inflation in required for the growth of an economy. Although not all economist are in support of a high inflation rate, a moderate and gradual inflation rate will eventually result into a standard living for both the citizens and residents alike.

You can read on the rights of citizens and attributes of residents here.

In 2013/2014, an instance of little economic growth occured in the Euro-zone countries as a result of a very low inflation rate; and this eventually led to an increased rate of unemployment.

Note: Had it been the Euro-zone aimed at a higher inflation rate, their economies wouldn't have suffered such increased unemployment rate.


  • Inflation brings about a corresponding change in the wages and salaries of workers

A moderate rate of inflation can have a positive effect on the wages and salaries of workers who are deserving. Interestingly, one of the reasons why salaries and wages are increased is due to an increase in the standard of living; and that's influenced by inflation.

As an instance, a person who had worked for over 10 years in an organization will likely not continue to earn the same amount as salary (even when he or she isn't promoted). This is true because the standard of living between the present time and '10 years ago' must have changed.

You can read on conflict management and ways to reduce conflict in any organization here.

Again, this change will be in the upwards direction if inflation had occur in the economy. For this reason, productive and dedicated workers will earn a pay rise while the unproductive ones may have their wages frozen with new workers occupying their position.

Note: The above process makes an organization attractive, thus indirectly creating more employment opportunities.

You can read on the advantages of division of labour here.


  • Inflation results into price adjustment

This is particularly important for countries that utilizes the same currency, for instance, the Euros which happens to be a currency used in the 'Euro-zone' countries.

At one point in time, the southern Euro-zone countries (Spain and Italy) had an uncompetitive economy which lead to account deficits for the citizens and residents alike. To worsen the situation, both countries utilize the Euros (a general currency for the Euro-zone countries) which can't be single-handedly devaluated.

In summary both countries had to cut the relative prices of goods and services in an attempt to regain competitiveness.

You can read on the advantages and disadvantages of cheques here.

Note: The process of cutting down relative prices implied that wages and salaries are reduced as a result of deflation. Had it been the Euro-zone had a low to moderate Inflation rate, it would have been much easier for Spain and Italy (from the above instance) to regain economic competitiveness without undergoing the dangerous processes of deflation.

You can read on supply curve and law of supply here.


  • Inflation reduces the value of debt

Generally, when people take up debts; for instance, a mortgage, they usually envisage that an impending inflation rate will aid them cancel out the value of such debt overtime.

In a scenerio where inflation fails to occur (rather deflation took its place), such events can become catastrophic for those who had taken up the debt as some may even contemplate suicide as a result.

Please read on the concept and types of cost here.

Note: An instance of the above explanation occured in United Kingdom in 1920s and 'Euro-zones' in 2010s and these led to serious problems in the affected economies.

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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.