Unit 1 · Basic Economic Concepts
1.4 Demand
When coffee prices spike, people buy less of it — not because they suddenly dislike coffee, but because of the price itself. That single relationship is the law of demand, and it is the reason the demand curve always slopes the same direction.
Guiding question
Why does a price change move you along the demand curve, while a change in income shifts the whole curve?
Learning outcome. Define the law of demand and explain, using a graph, the relationship between price and quantity demanded; explain the determinants of demand.
The law of demand states that, all else held equal, there is an inverse relationship between the price of a good and the quantity of it that consumers are willing and able to buy. As price rises, quantity demanded falls; as price falls, quantity demanded rises. Plotted with price on the vertical axis and quantity on the horizontal axis, that inverse relationship is exactly what produces a downward-sloping demand curve.
MKT-2.A.1 · the exact idea the exam tests
The law of demand states there is an inverse relationship between price and quantity demanded, leading to a downward-sloping demand curve.The purple arrow above is a movement along the demand curve — it happens only because the good's own price changed. Nothing else about the market changed; the curve itself did not move.
A price change of the good itself never shifts its own demand curve — it only moves you along it. What does shift the entire curve are the determinants of demand: everything held equal in the law of demand's "all else held equal" clause.
- Demand
- — The full relationship between every possible price of a good and the quantity consumers would buy at each of those prices — not a single quantity, but the whole schedule.
- Determinants of demand
- — Factors other than the good's own price that change how much consumers want to buy at every price: consumer income, tastes and preferences, prices of related goods, expectations about the future, and the number of buyers in the market.
- Normal good
- — A good for which demand increases (curve shifts right) when consumer income rises.
- Inferior good
- — A good for which demand decreases (curve shifts left) when consumer income rises — consumers switch to better alternatives they can now afford.
- Substitute goods
- — Goods that satisfy a similar need, so a price rise in one increases demand for the other (e.g., coffee and tea).
- Complementary goods
- — Goods typically used together, so a price rise in one decreases demand for the other (e.g., coffee and coffee creamer).
For example: if average consumer income rises and coffee is a normal good, consumers want to buy more coffee at every single price — not just at the price they were already paying. That is a rightward shift of the entire demand curve, called an increase in demand.
MKT-2.B.1 · the exact idea the exam tests
Factors that influence consumer demand, such as changes in consumer income, cause the market demand curve to shift.The price of coffee falls, and consumers buy more of it. Separately, a health study reports major new benefits of drinking coffee, and consumers buy more of it at every price than before. Are these the same kind of change on the demand graph?
Ask what actually changed in each case — the good's own price, or something else about consumer attitudes toward it.
The vocabulary AP uses for this distinction is precise, and mixing it up is one of the most common ways points are lost: a change in the good's own price causes a change in quantity demanded (movement along the curve). A change in any determinant causes a change in demand (a shift of the entire curve).
"Demand increased" ≠ "quantity demanded increased"
These phrases are not interchangeable on the exam. "Demand increased" means the whole curve shifted right (a determinant changed). "Quantity demanded increased" means you moved along the existing curve to a lower price (nothing shifted). Using the wrong phrase for the wrong graph is a guaranteed lost point.
A change in the good's own price NEVER shifts its own demand curve
This is easy to say and easy to forget under exam pressure. If a question changes the price of the good you are graphing, draw a movement along the curve — never redraw the curve itself.
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