2.1 Demand

The law of demand states that, ceteris paribus, a higher price causes a lower quantity demanded and a lower price causes a higher quantity demanded over a stated period.

This Objective establishes the observable inverse relationship while holding income, tastes, related-good prices, expectations and consumer numbers constant. The deeper income, substitution and marginal-utility explanations belong to HL 2.1.2.

Identify the good's own price change, explicitly hold non-price determinants constant, and predict the opposite change in quantity demanded.

If coffee rises from $3 to$4 per cup while other conditions are unchanged, quantity demanded falls—for example from 120 to 90 cups per day.

Demand is the whole relationship; quantity demanded is one amount at one price. The law is ceteris paribus, not a claim that every observed sales change comes only from price.

At HL, three mechanisms support the law of demand. A price rise reduces real purchasing power (income effect), makes substitutes relatively cheaper (substitution effect), and confronts consumers with declining extra satisfaction from successive units (diminishing marginal utility).

For a normal good, a lower price increases real income and tends to increase quantity demanded. It also encourages substitution toward this now relatively cheaper good. Because marginal utility falls as consumption rises, extra units are normally chosen only at lower prices.

For a price change, explain the income and substitution channels separately, then connect marginal utility to consumers' willingness to pay for additional units.

When train fares fall, commuters may switch from buses because trains are relatively cheaper, and the same budget buys more travel. Additional trips provide less marginal benefit, so the consumer accepts them at the lower fare.

Ceteris paribus is assumed, but it is not itself the HL mechanism. Do not confuse the income effect of a price change with a separate shift caused by an actual change in income.

A demand curve plots price on the vertical axis and quantity demanded per stated period on the horizontal axis. It normally slopes downward from left to right, representing the law of demand.

Every point pairs one price with the quantity consumers are willing and able to buy, ceteris paribus. A demand schedule can be transferred point by point to the curve.

Label both axes and units, plot each price–quantity pair accurately, and describe the inverse relationship without treating the line as a time trend.

If quantity demanded is 100 units at $5 and 130 at$4, plot $(100,5)$ and $(130,4)$; the second point lies lower and farther right.

The curve is a model for a defined good, market and period. Movements and shifts are assessed separately in Objective 2.1.6.

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.