State the law of demand.

Ceteris paribus, as the price of a good rises, quantity demanded falls (and vice versa).

Movement along vs shift of demand?

Own-price change: movement along the curve. Change in a non-price determinant: the whole curve shifts.

List the main non-price determinants of demand.

Income, prices of substitutes and complements, tastes and preferences, future expectations, number of consumers.

How is market demand derived?

By adding individual demands horizontally: summing quantities demanded at each price.

(HL) What is diminishing marginal utility?

Each additional unit consumed adds less extra satisfaction than the one before, so consumers buy more only at lower prices.

Common mistake: "a rise in price reduces demand".

A rise in price reduces *quantity demanded* (movement along). *Demand* only changes when the curve shifts.

Economics

2.1 Demand

Demand is the quantity consumers are willing and able to buy at each price, falling as price rises, and shifting when non-price factors change. Study guide, 4 practice questions with markschemes and 6 flashcards. Free.

Law of demand · individual vs market demand · movements along vs shifts of the curve · non-price determinants · (HL) income and substitution effects · (HL) law of diminishing marginal utility

Practise all 4 questions Study 6 flashcards

Study guide

The law of demand

Demand is the quantity of a good that consumers are willing and able to buy at each possible price over a period of time. The law of demand says that, ceteris paribus, as price rises quantity demanded falls, and as price falls quantity demanded rises. This gives a downward-sloping demand curve.

Diagram in words: price (P) on the vertical axis, quantity (Q) on the horizontal axis. The demand curve (D) slopes down from left to right. A change in the good's own price moves you along the curve.

Market demand is the horizontal sum of all individual demand curves: at each price, add the quantities each consumer would buy.

Movements versus shifts

A change in the good's own price causes a movement along the curve, called an extension (price falls) or contraction (price rises) of quantity demanded.
A change in any non-price determinant shifts the whole curve: right means more is demanded at every price, left means less.

Non-price determinants

Income: for a normal good, higher income shifts demand right; for an inferior good (cheap own-brand products, bus travel in some places) it shifts left.
Prices of related goods: a rise in the price of a substitute shifts demand right; a rise in the price of a complement shifts it left.
Tastes and preferences, often shaped by advertising or health information.
Expectations of future prices or income.
Number of consumers, including population and demographic change.

(HL) Why the curve slopes down

Diminishing marginal utility (HL): each extra unit consumed adds less satisfaction than the previous one. A consumer will only buy more units if the price falls to match the lower extra benefit, so the demand curve slopes down. The demand curve can be read as a marginal benefit curve.

Income and substitution effects (HL): when price falls,

the substitution effect makes the good relatively cheaper than alternatives, so consumers switch towards it;
the income effect raises consumers' real income (purchasing power), so for a normal good they buy more.

Both work in the same direction for normal goods, reinforcing the law of demand.

(HL) Linear demand functions

Demand can be written as $Q_d = a - bP$. Here $a$ is the quantity demanded at a zero price and $b$ shows how much quantity changes for each one-unit change in price. A change in $a$ is a shift; a change in $P$ is a movement.

Worked example (HL): $Q_d = 80 - 4P$.

At P = 5: $Q_d = 80 - 20 = 60$. At P = 8: $Q_d = 80 - 32 = 48$.
The price at which demand reaches zero: $0 = 80 - 4P$, so P = 20.
Rising incomes add 20 units at every price: new function $Q_d = 100 - 4P$. At P = 5, quantity is now 80. The slope is unchanged, so the curve shifts right in parallel.

Common mistakes

Saying "demand rises" when price falls. Price changes alter quantity demanded, not demand.
Shifting the demand curve when a supply-side factor changes.
Forgetting "able" in the definition: wanting something without the money to pay is not demand.
Assuming every good is normal. Check the context for inferior goods.

Exam tips

10-mark questions: define demand, draw a correctly labelled diagram (P, Q, D1, D2, arrows, new equilibrium if supply is shown) and explain the specific determinant in the question's context.
15-mark questions: demand usually appears inside a wider issue (a sugar tax, an advertising ban). Use demand shifts as part of your analysis, then evaluate magnitude, time frame and stakeholders.
In calculations, show the substitution of each price into the function; one-mark answers still need working.

Cheat sheet

Own price change → movement along D · Non-price change → shift of D
Shifters: income, related goods' prices, tastes, expectations, number of buyers
Substitute price ↑ → D ↑ · Complement price ↑ → D ↓
Income ↑: normal good D ↑, inferior good D ↓
Linear demand (HL): $Q_d = a - bP$; change in $a$ = shift, change in $P$ = movement
P-intercept: set $Q_d = 0$ → $P = a/b$
Market demand = horizontal sum of individual demands
Diagram checklist: axes P and Q, D1 and D2 labelled, arrow showing shift, P and Q values marked
HL: slope explained by diminishing marginal utility and by income + substitution effects

Key definitions

Demand: The quantity of a good consumers are willing and able to buy at each price over a given period, ceteris paribus.
Law of demand: Ceteris paribus, quantity demanded falls as price rises and rises as price falls.
Market demand: The sum of all individual consumers' demand for a good at each price.
Normal good: A good for which demand rises when income rises.
Inferior good: A good for which demand falls when income rises.
Substitutes: Goods that can be used in place of each other, so a price rise for one raises demand for the other.
Complements: Goods consumed together, so a price rise for one reduces demand for the other.
Diminishing marginal utility (HL): The idea that each additional unit of a good consumed gives less extra satisfaction than the one before.
Substitution effect (HL): The change in quantity demanded caused by a change in the good's price relative to other goods.
Income effect (HL): The change in quantity demanded caused by the change in real income that follows a price change.

Practice questions

SLPaper 2Standard

Question 1

Extract: Plant milk sales cool

Sales of oat milk in the country of Norland fell 9% this spring. Supermarkets say dairy milk prices dropped sharply after a record grass-growing season, and many shoppers who had switched to oat milk are returning to cheaper cow's milk.

(a) [2]

Define the term substitute goods.

Markscheme

1 Goods that can be used in place of each other
1 so a rise in the price of one increases demand for the other

(b) [4]

Using a demand and supply diagram, explain the likely effect of the fall in dairy milk prices on the market for oat milk.

Markscheme

1 Diagram with axes labelled Price and Quantity of oat milk, original demand and supply
1 Demand for oat milk shifts to the left
1 New lower equilibrium price and quantity shown
1 Explains that dairy milk is a substitute, so some consumers switch away from oat milk

(c) [2]

Distinguish between a movement along the demand curve for oat milk and a shift of that curve.

Markscheme

1 A movement along is caused only by a change in the price of oat milk itself
1 A shift is caused by a change in a non-price determinant such as the price of a substitute, income or tastes

HLPaper 1Challenging

Question 2

(a) [10]

Explain the law of demand with reference to diminishing marginal utility and to the income and substitution effects.

Markscheme

1 Defines the key economic terms used in the question accurately
2 Accurate diagram showing a downward-sloping demand curve with a movement along it after a price fall
2 Explains diminishing marginal utility: each extra unit gives less extra satisfaction, so consumers buy more only at a lower price
2 Explains the substitution effect: after a price fall the good is relatively cheaper than alternatives
2 Explains the income effect: a price fall raises real income, so more of a normal good is bought
1 Uses a relevant example, e.g. a café cutting the price of a sandwich

SLPaper 2Foundation

Question 3

Weekly demand for sandwiches at a small café from its only three customers:

Price ($)	Ana	Ben	Chloe
2	8	5	7
4	6	3	5
6	4	2	2

(a) [2]

Calculate the market quantity demanded at each price.

Markscheme

1 Adds individual quantities horizontally
1 $2: 20; $4: 14; $6: 8

(b) [2]

Using the data, explain why the market demand curve slopes downwards.

Markscheme

1 Every consumer buys fewer sandwiches as price rises
1 so the sum (market demand) also falls as price rises: an inverse relationship

(c) [4]

Explain two non-price factors that could shift this market demand curve to the right.

Markscheme

2 First factor explained, e.g. a rise in income if sandwiches are a normal good
2 Second factor explained, e.g. more consumers entering the market (new office opening) or a rise in the price of a substitute

Key facts

State the law of demand.: Ceteris paribus, as the price of a good rises, quantity demanded falls (and vice versa).
Movement along vs shift of demand?: Own-price change: movement along the curve. Change in a non-price determinant: the whole curve shifts.
List the main non-price determinants of demand.: Income, prices of substitutes and complements, tastes and preferences, future expectations, number of consumers.
How is market demand derived?: By adding individual demands horizontally: summing quantities demanded at each price.
(HL) What is diminishing marginal utility?: Each additional unit consumed adds less extra satisfaction than the one before, so consumers buy more only at lower prices.
Common mistake: "a rise in price reduces demand".: A rise in price reduces quantity demanded (movement along). Demand only changes when the curve shifts.