Demand
Allocation of Resources · 4 question types
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:
- . When the good becomes more expensive, consumers switch to cheaper alternatives. When it becomes cheaper, they switch towards it.
- . A higher price effectively reduces a consumer's purchasing power (their income buys less of the good), and the lower-price effect is the reverse.
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".