Study Notes
Demand is the quantity of a good or service a consumer is willing and able to buy at various prices during a given period of time, ceteris paribus.
- Demand — the quantity of a good or service a consumer is willing and able to buy at various prices. Example: A consumer buys 10 apples at $1 each.
- Law of Demand — states that price and quantity demanded have an inverse relationship, ceteris paribus. Example: As the price of coffee increases, the quantity demanded decreases.
- Demand Curve — a graphical representation of an individual's demand for a good, showing quantity demanded at various prices. Example: A downward sloping line on a graph showing coffee demand.
- Normal Good — a good for which demand increases as consumer income increases. Example: Demand for organic food increases with higher income.
- Inferior Good — a good for which demand decreases as consumer income increases. Example: Demand for instant noodles decreases with higher income.
- Substitutes — goods that can replace each other in consumption. Example: Tea and coffee.
- Complements — goods that are consumed together. Example: Bread and butter.
Exam Tips
Key Definitions to Remember
- Demand
- Law of Demand
- Demand Curve
- Normal Good
- Inferior Good
- Substitutes
- Complements
Common Confusions
- Confusing movement along the demand curve with shifts of the demand curve
- Misunderstanding the difference between normal and inferior goods
Typical Exam Questions
- What is the law of demand? The law of demand states that price and quantity demanded have an inverse relationship, ceteris paribus.
- How does a change in income affect demand for normal and inferior goods? Demand for normal goods increases with income, while demand for inferior goods decreases.
- What causes a shift in the demand curve? Changes in non-price determinants like income, tastes, and prices of related goods.
What Examiners Usually Test
- Understanding of the law of demand and its graphical representation
- Ability to distinguish between movements along and shifts of the demand curve
- Effects of changes in income and prices of related goods on demand