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Understanding
Demand

Explore the law of demand, demand curves, shifts vs. movements, and the determinants that shape consumer behavior in markets.

AP Microeconomics

What Is Demand?

Demand is the relationship between the price of a good and the quantity consumers are willing and able to purchase, all else being equal (ceteris paribus). It is not just a single number: it is an entire schedule or curve.

The Law of Demand

Ceteris paribus, as the price of a good rises, the quantity demanded falls, and vice versa. This inverse relationship is the foundation of demand analysis.

Substitution Effect
When price rises, consumers switch to cheaper alternatives.
Income Effect
When price rises, consumers' real purchasing power decreases, so they buy less.

Visualizing the Demand Curve

Price (P) Quantity (Q) D \(P_1\) \(Q_1\) A \(P_2\) \(Q_2\) B

The Demand Function

Economists express demand mathematically. A simple linear demand function takes the form:

\( a \)
The horizontal intercept: maximum quantity if price were free.
\( b \)
Responsiveness of quantity to price. A larger \( b \) means demand is more sensitive.

Movement vs. Shift

Price (P) Quantity (Q) \(D_0\) \(D_1\) Shift Movement
Movement Along
Caused by a change in the good's own price. Slides along the same curve.
Shift of Curve
Caused by a change in a non-price determinant. The entire curve moves left or right.

Determinants That Shift Demand

Remember the mnemonic TRIBE for the five major non-price determinants:

T
Tastes and Preferences: If a product becomes trendy, demand increases.
R
Related Goods: Changes in prices of substitutes or complements shift demand.
I
Income: For normal goods, higher income shifts demand right; for inferior goods, it shifts left.
B
Buyer Expectations: If consumers expect prices to rise, they buy more now.
E
Number of Buyers (Entry): More buyers in the market means higher market demand.

Normal vs. Inferior Goods

Normal Good Inferior Good
Income rises Demand increases (shifts right) Demand decreases (shifts left)
Income falls Demand decreases Demand increases
Example Restaurant meals Instant noodles

Substitutes vs. Complements

Substitutes
Goods that replace each other. If the price of Coke rises, demand for Pepsi increases.
Complements
Goods used together. If the price of printers rises, demand for ink cartridges decreases.

How to Analyze a Demand Change

1
Identify the change: Did the good's own price change, or did something else change?
2
If own price changed: It is a movement along the demand curve: price up means \( Q_d \) down, and vice versa.
3
If a non-price factor changed: Use TRIBE to determine if demand shifts right (increase) or left (decrease).
4
Draw the new curve: Show the original and new demand curves, labeling them \( D_0 \) and \( D_1 \).

Example 1: Computing \( Q_d \)

The demand for widgets is given by \( Q_d = 100 - 5P \). Find the quantity demanded when \( P = 12 \).

1
Substitute: \( Q_d = 100 - 5(12) \)
2
Calculate: \( Q_d = 100 - 60 = 40 \)

Example 2: Identifying a Shift

A news report reveals that coffee causes health benefits. Explain the effect on the market for coffee.

1
Identify the factor: Health news affects tastes and preferences (the "T" in TRIBE).
2
Direction: Favorable news increases the desirability of coffee.
3
Result: Demand curve shifts right (from \( D_0 \) to \( D_1 \)). At every price, more coffee is demanded.

Example 3: Demand Schedule

Given the demand function \( Q_d = 200 - 10P \), build a demand schedule and find the price at which \( Q_d = 0 \).

Price (\( P \)) \( Q_d = 200 - 10P \)
\$0200
\$5150
\$10100
\$1550
\$200

Individual vs. Market Demand

Price Quantity \(d_A\) \(d_B\) \(D_M\)

Common Mistakes

✕ Confusing Demand and \( Q_d \)
Saying "demand increased" when only the quantity demanded changed due to a price change. Use precise language.
✕ Shifting Instead of Moving
Drawing a new curve when the good's own price changes. Own-price changes cause movement along the curve, not a shift.
✕ Wrong Shift Direction
Shifting demand left for an inferior good when income falls. Income down for inferior goods means demand shifts right, not left.

Demand Summary

Concept Key Idea Graph Effect
Law of Demand \( P \uparrow \Rightarrow Q_d \downarrow \) Downward slope
Own-Price Change Only the good's price changes Movement along curve
Non-Price Change TRIBE factors change Entire curve shifts
Normal Good Income up: demand up Shifts right
Inferior Good Income up: demand down Shifts left
Market Demand Horizontal sum of individual \( d \) Flatter, further right

Question 1 of 5

According to the law of demand, if the price of a good increases, what happens to the quantity demanded, ceteris paribus?

Question 2 of 5

If consumer incomes rise and bus rides are an inferior good, what happens to the demand for bus rides?

Question 3 of 5

Given \( Q_d = 150 - 3P \), what is the quantity demanded when \( P = 20 \)?

Question 4 of 5

The price of peanut butter rises. Peanut butter and jelly are complements. What happens to the demand for jelly?

Question 5 of 5

Which of the following would cause a movement along the demand curve for oranges rather than a shift?