2.1 Demand

The law of demand says that, ceteris paribus, a higher price leads to a lower quantity demanded and a lower price to a higher quantity demanded.

The substitution and income effects explain why buyers change quantity when price changes, holding other determinants constant.

State the price change, keep other determinants fixed and predict quantity demanded.

If a coffee price rises from $3 to$4, consumers may buy fewer cups, assuming tastes and incomes do not change.

Demand is not the same as quantity demanded; the law describes a relationship, not every real-world exception.

Demand analysis assumes other relevant factors—income, tastes, prices of related goods, expectations and population—are held constant when isolating price.

If several determinants change together, observed sales cannot be attributed to price alone. The ceteris paribus assumption makes a model clear but limits direct causal claims.

List the determinant being changed and the assumptions needed to interpret the result.

A fall in ticket price and a viral trend occur together; higher sales cannot be credited to price without separating the effects.

Ceteris paribus is a reasoning condition, not a claim that the world is actually unchanged.

A demand curve shows the quantities consumers are willing and able to buy at different prices during a stated period. Its slope and position summarise the price–quantity relationship.

Each point is one price and quantity demanded; moving along the curve follows a price change, while a determinant change creates a new curve.

Read the axes, identify the point and state whether the event moves along or shifts the curve.

At $5 the curve shows 100 units; at$4 it shows 130, so the lower price causes movement along the same curve.

A curve is not a complete demand schedule for every context; period and market definition matter.

Individual demand is one buyer’s schedule; market demand is the horizontal sum of quantities demanded by all buyers at each price.

Market demand changes when buyers enter or leave and reflects differences in incomes, tastes and substitution options.

Add quantities at the same price, not prices across buyers.

At $10, three consumers demand 2, 1 and 4 units, so market demand is 7 units.

Market demand is not the average of individual demand curves.

Income, tastes, prices of substitutes and complements, expectations, population and advertising can change demand at every price.

A substitute becoming more expensive can raise demand for this good; a complement becoming more expensive can reduce it. The effect depends on whether the good is normal or inferior.

Name the determinant, its direction and the resulting demand shift before predicting quantity.

If bus fares rise, demand for train travel may increase if buses are substitutes; if petrol rises, demand for large cars may fall.

Do not call a price change of the good itself a non-price determinant.

A movement along demand is caused by the good’s own price changing; a shift is caused by a non-price determinant changing.

A movement changes quantity demanded on one curve, while a shift changes demand at every price. Confusing them reverses the diagram and explanation.

Ask “did this good’s price change?” If yes, move along; if not, test income, tastes, related goods or expectations.

A fall in cinema ticket price moves down the curve; a successful film campaign shifts demand right.

A change in demand is not interchangeable with a change in quantity demanded.