Short on time? This page is the recap. For explanations, graphs and worked examples, use the full study guide.
Recap
- Demand is the quantity buyers are willing and able to buy at each price, in a given period, other things equal.
- Quantity demanded is the amount at one price.
- Law of demand: price and quantity demanded are inversely related, so the demand curve slopes downward.
- Market demand = the sum of all buyers’ quantities at each price (add sideways).
- A change in the good’s own price gives a movement along the curve. A change in any determinant shifts the curve.
Key relationships
| Change | Effect on demand for good X | Graph |
|---|---|---|
| Price of X rises | Quantity demanded falls | Move up along D |
| Price of X falls | Quantity demanded rises | Move down along D |
| Income rises (X normal) | Increases | Shift right |
| Income rises (X inferior) | Decreases | Shift left |
| Price of a substitute rises | Increases | Shift right |
| Price of a complement rises | Decreases | Shift left |
| Tastes move towards X | Increases | Shift right |
| Buyers expect X’s price to rise | Increases now | Shift right |
| More buyers | Increases | Shift right |
Graph checklist
- Vertical axis: Price. Horizontal axis: Quantity.
- Downward-sloping curve labelled D (or D₁).
- For a shift: draw D₂, label it, and add an arrow showing the direction.
- For a movement: mark two points on the same curve.
Assumptions behind the model
- Only one influence changes at a time (other things equal).
- Buyers are willing and able to pay.
- Demand is measured over a stated period (per week, per month).
- In this topic you do not find the new price. That needs supply (Topics 1.5 and 1.6).
Mistakes to avoid
- Saying “demand rose” when only the price fell.
- Adding prices instead of quantities for market demand.
- Getting substitutes and complements the wrong way round.
- Assuming higher income always raises demand (not for inferior goods).
- Forgetting that an expected price rise increases demand now.
- Leaving axes, curves or shift arrows unlabelled.
Quick self-check
VD is the valda, the currency of the fictional country Valdoria used in the study guide.
- At VD 5, group A wants 30 units and group B wants 45. What is market quantity demanded at VD 5? (75 units)
- Coffee becomes more expensive. What happens to the demand for tea, a substitute? (It increases; the curve shifts right.)
- 200 identical buyers each want 4 units at VD 10. The number of buyers rises to 250. What is the new market quantity demanded at VD 10, and is this a shift or a movement? (1,000 units, up from 800; a shift right, because the number of buyers is a determinant)
Next: practice questions.