Study Notes
Demand refers to 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. The law of demand states that there is an inverse relationship between price and quantity demanded, meaning as price increases, quantity demanded decreases, and vice versa.
- 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 2.
- Law of Demand — states that price and quantity demanded have an inverse relationship. Example: As the price of coffee increases, fewer cups are demanded.
- Demand Curve — a graphical representation showing the quantity demanded at various prices. Example: A downward sloping line on a graph showing demand for coffee.
- Non-price Determinants of Demand — factors other than price that cause the demand curve to shift. Example: Changes in consumer income or preferences.
- Normal Good — a good for which demand increases as consumer income increases. Example: Demand for organic food increases as income rises.
- Inferior Good — a good for which demand decreases as consumer income increases. Example: Demand for instant noodles decreases as income rises.
- Substitutes — goods that can replace each other in consumption. Example: Tea as a substitute for coffee.
- Complements — goods that are consumed together. Example: Bread and butter are complementary goods.
Exam Tips
Key Definitions to Remember
- Demand
- Law of Demand
- Demand Curve
- Non-price Determinants of Demand
- Normal Good
- Inferior Good
- Substitutes
- Complements
Common Confusions
- Confusing a movement along the demand curve with a shift 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 there is an inverse relationship between price and quantity demanded, ceteris paribus.
- How does a change in consumer income affect the demand for normal and inferior goods? An increase in income increases demand for normal goods and decreases demand for inferior goods.
- What causes a shift in the demand curve? Changes in non-price determinants such as consumer income, preferences, or 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 non-price determinants on demand