Demand shows how much of a good buyers are willing and able to buy at each price. A change in the good's own price moves buyers along the demand curve, while a change in anything else that affects buyers shifts the whole curve. Slide the price, try each determinant, then drill until you can tell a shift from a movement every time.
The sample good is pizza, sold by the slice. Burgers are a substitute and soda is a complement. The dashed grey line and point show where the market started: $5.00 a slice and 500 slices a day.
Demand is the whole curve: how much buyers want at every price. Quantity demanded is one point on it: how much they want at one price. A price change changes quantity demanded. A determinant changes demand.
Other things equal, a higher price lowers quantity demanded and a lower price raises it, so the demand curve slopes down. How much quantity responds is called elasticity, which you study in microeconomics.
Substitution effect: a higher price makes other goods relatively cheaper, so buyers switch. Income effect: a higher price shrinks what your income can buy. Diminishing marginal utility: each extra unit adds less satisfaction, so buyers buy more only at a lower price.
Tastes, Related goods' prices, Income, number of Buyers, Expectations. A change in any of these shifts the curve. Right is an increase in demand; left is a decrease.
For a normal good, higher income raises demand. For an inferior good, such as bus rides or store-brand ramen for many buyers, higher income lowers demand because buyers switch to something they like better.
Substitutes replace each other (burgers and pizza): a higher burger price raises demand for pizza. Complements go together (soda and pizza): a higher soda price lowers demand for pizza.
Every row is about the market for pizza. Memorize the pattern, then check it against the lab.
| Event | What changed | Effect | On the graph |
|---|---|---|---|
| The price of pizza falls | Own price | Quantity demanded ↑ | Move down along D |
| The price of pizza rises | Own price | Quantity demanded ↓ | Move up along D |
| Pizza becomes more popular | Tastes | Demand ↑ | D shifts right |
| A new college brings more students to town | Number of buyers | Demand ↑ | D shifts right |
| Incomes rise, pizza is a normal good | Income | Demand ↑ | D shifts right |
| Incomes rise, pizza is an inferior good | Income | Demand ↓ | D shifts left |
| The price of burgers (a substitute) rises | Price of a related good | Demand ↑ | D shifts right |
| The price of soda (a complement) rises | Price of a related good | Demand ↓ | D shifts left |
| Buyers expect the price of pizza to rise next week | Expectations | Demand today ↑ | D shifts right |
| Buyers expect their incomes to fall (normal good) | Expectations | Demand today ↓ | D shifts left |
AP-style multiple choice. Pick an answer to see the explanation.
The vocabulary for topic 1.4. Read the list, flip through flashcards, or quiz yourself. For every term in the unit, see the Unit 1 terminology guide.