Allocation of Resources · 4 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 20% of your exam marks.
Demand is the single highest-frequency topic; demand definition, curve shifts, and factors appear on virtually every Paper 2, typically worth 10 to 18 marks.
The states that, holding all other factors constant (), as the price of a good rises, the quantity demanded falls; and as the price falls, the quantity demanded rises.
In one symbol: price and quantity demanded are inversely related (P↑ → Qd↓, P↓ → Qd↑), ceteris paribus.
Two intuitions behind the law:
The ceteris paribus condition is essential. If income, tastes, or the price of a related good change at the same time as the good's own price, the simple inverse relationship may not show cleanly. A definition that leaves out "ceteris paribus" or "all else equal" loses a mark.
Identifying a movement along the demand curve
What comes up: A diagram is shown with a point moving up or down an existing demand curve; the question asks what the movement represents.
Write: A movement along the demand curve (1 mark) caused by a change in the good's own price (1 mark). Moving down and to the right is an extension (price fell, quantity demanded rose); moving up and to the left is a contraction (price rose, quantity demanded fell).
Watch out: Do not describe either movement as "an increase in demand" or "a decrease in demand" — those phrases refer to a shift of the whole curve. The mark scheme explicitly rejects "increase in demand" for an extension; the accepted phrase is "increase in quantity demanded".