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2.1 β€” Demand

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Demand refers to the different quantities of goods or services that consumers are willing and able to buy at various prices. For detailed notes, refer to AP Macroeconomics Demand.

A quick summary:

  1. Law of Demand:
    • There is an inverse relationship between price and quantity demanded.
    • As price increases, quantity demanded decreases, and vice versa.
  2. Why the Law of Demand Occurs:
    • Substitution Effect: Higher prices lead consumers to buy substitutes.
    • Income Effect: Lower prices increase purchasing power.
    • Diminishing Marginal Utility: Additional units provide less satisfaction.
  3. Shifts in Demand:
    • A shift occurs when a determinant of demand changes, moving the entire curve.
    • 5 Shifters of Demand:
      1. Tastes and Preferences.
      2. Number of Consumers.
      3. Price of Related Goods (Substitutes & Complements).
      4. Income (Normal & Inferior Goods).
      5. Future Expectations.
  4. Graphing Demand:
    • The demand curve is downward-sloping due to the inverse relationship between price and quantity demanded.

Graph View