How does the law of demand explain consumer behavior?

The law of demand states that, all else being equal, as the price of a good or service decreases, the quantity demanded increases, and vice versa. This inverse relationship is due to the substitution effect and the income effect, which influence consumer choices and purchasing power.

What factors can cause a shift in the demand curve?

Several factors can cause the demand curve to shift, including changes in consumer income, preferences, prices of related goods (substitutes and complements), expectations of future prices, and the number of buyers in the market. A shift to the right indicates an increase in demand, while a shift to the left indicates a decrease.

How is elasticity of demand calculated and why is it important?

Elasticity of demand measures how responsive the quantity demanded is to a change in price. It is calculated using the formula: Elasticity = (% change in quantity demanded) / (% change in price). Understanding elasticity helps businesses and policymakers predict consumer reactions to price changes and make informed decisions.

What is the difference between individual demand and market demand?

Individual demand refers to the demand for a good or service by a single consumer, while market demand is the total demand for a good or service by all consumers in the market. Market demand is derived by summing up all individual demands at each price level, providing a broader view of consumer behavior in the economy.

Demand | IB DP Economics

Q: What is the definition of demand in microeconomics?

In microeconomics, demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices over a given period of time. It is a fundamental concept that helps in understanding consumer behavior and market dynamics.

Summary and Exam Tips for Demand

Demand is a subtopic of Microeconomics, which falls under the subject Economics in the IB DP curriculum. Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices over a given period, assuming all other factors remain constant (ceteris paribus). The law of demand states that there is an inverse relationship between the price of a good and the quantity demanded, meaning as price increases, demand decreases, and vice versa. This relationship is graphically represented by a downward-sloping demand curve.

Movements along the demand curve occur due to price changes, resulting in either an extension or contraction of demand. In contrast, shifts in the demand curve are caused by non-price determinants such as changes in income, tastes, future price expectations, and the prices of substitutes and complements. An increase in demand shifts the curve to the right, while a decrease shifts it to the left.

The income effect and substitution effect explain how price changes impact demand, while the law of diminishing marginal utility describes how additional consumption of a good results in decreasing additional satisfaction. Understanding these concepts is crucial for constructing both individual and market demand curves.

Exam Tips

Understand Key Definitions: Be clear on terms like demand, law of demand, and demand curve. These are foundational concepts that often appear in exams.
Graphical Representation: Practice drawing and interpreting demand curves. Be able to explain movements along the curve versus shifts in the curve due to non-price determinants.
Non-Price Determinants: Familiarize yourself with factors like income, tastes, and related goods. Be prepared to discuss how these influence demand shifts.
HL Concepts: If you're taking Higher Level, focus on understanding the income effect, substitution effect, and law of diminishing marginal utility. These are often tested in more depth.
Real-World Examples: Use examples like coffee demand or the effect of Netflix prices on DVD demand to illustrate your understanding of theoretical concepts. This can help in essay-type questions.

Demand

Exam Tips and Study Notes for Demand