Demand

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AP Macroeconomics › Demand

Questions 1 - 5
1

Based on the demand curve shown, the economy moves from point A to point B due to a change in price only. This is a movement along demand. Which statement is correct?

Demand increases because consumer confidence rises, moving from A to B

Demand increases because the lower price shifts the curve to the right

Quantity demanded increases because price falls from A to B on the same curve

Quantity demanded decreases because price falls from A to B on the same curve

Demand decreases because the lower price shifts the curve to the left

Explanation

Demand is the entire curve showing the price-quantity relationship, while quantity demanded is the specific amount at one price. The graph shows movement from point A (higher price) to point B (lower price) along the same demand curve. According to the law of demand, when price falls, quantity demanded increases—we move down and right along the existing curve. This represents a movement along the demand curve, not a shift, because only price changed. A key misconception is thinking lower prices shift demand right; price changes never shift curves, they only cause movements along them. Strategy: If the curve stays in place and we move between points on it, price is the only thing that changed.

2

Based on the demand curve shown for an economy-wide good, the price increases from $P_1$ to $P_2$ as indicated. This change represents a movement along the demand curve. Which statement correctly describes what happens?

Demand increases because the higher price causes the curve to shift right

Demand shifts right because consumers expect even higher future prices

Quantity demanded increases, moving from point A to point B on the same curve

Quantity demanded decreases, moving from point A to point B on the same curve

Demand decreases because the higher price causes the curve to shift left

Explanation

Demand is the entire price-quantity relationship shown by the curve, while quantity demanded is the specific amount consumers will buy at a particular price. The graph shows movement from point A to point B along the same demand curve as price rises from P₁ to P₂. When price increases, the law of demand tells us quantity demanded decreases—we move up and left along the existing curve. This is a movement along the demand curve, not a shift of the curve itself. A key misconception is thinking that price changes shift the demand curve; they don't—price changes cause movements along the existing curve. Strategy: Ask yourself what changed—if only price changed, it's a movement along; if a non-price factor changed, the curve shifts.

3

Based on the demand curve shown for an economy-wide good, the short run moves from point A to point B due to a price decrease, while the long run shows a demand shift from $D_1$ to $D_2$ due to higher consumer confidence. Which option correctly distinguishes quantity demanded from demand?

In the short run, quantity demanded increases; in the long run, demand increases

In the short run, demand decreases; in the long run, quantity demanded decreases

In the short run, demand increases; in the long run, quantity demanded increases

In the short run, demand increases; in the long run, demand is unchanged

In the short run, quantity demanded decreases; in the long run, demand decreases

Explanation

Demand is the entire curve showing all price-quantity combinations, while quantity demanded is the amount at one specific price. The scenario describes two distinct changes: first, a price decrease causes movement from A to B along D₁ (quantity demanded increases in the short run). Second, higher consumer confidence shifts the entire curve from D₁ to D₂ (demand increases in the long run). This perfectly illustrates the difference—price changes cause movements along curves (affecting quantity demanded), while determinant changes shift curves (affecting demand itself). A key misconception is using these terms interchangeably when they represent fundamentally different concepts. Strategy: Movement along = quantity demanded changes due to price; shift of curve = demand changes due to determinants.

4

Based on the demand curves shown, the economy is at price $P^$ (unchanged). The question concerns a shift from $D_1$ to $D_2$, not a movement along demand. At price $P^$, what happens to quantity demanded?

Quantity demanded decreases from $Q_1$ to $Q_2$ at price $P^*$

Quantity demanded is unchanged because only price can change quantity demanded

Demand decreases because the price level rose from $P_1$ to $P_2$

Quantity demanded increases from $Q_1$ to $Q_2$ at price $P^*$

Demand increases because quantity demanded rose from $Q_1$ to $Q_2$

Explanation

Demand refers to the entire curve relationship, while quantity demanded is the specific amount consumers buy at one price. The graph shows a rightward shift from D₁ to D₂ with price held constant at P*. At any given price, a rightward shift means consumers now want to buy more—so at price P*, quantity demanded increases from Q₁ to Q₂. This illustrates how demand shifts change quantity demanded even when price doesn't change. A misconception is thinking quantity demanded can only change if price changes—but shifts in demand change quantity demanded at every price, including the current one. Strategy: When demand shifts right, quantity demanded increases at every price; when demand shifts left, quantity demanded decreases at every price.

5

Based on the demand curves shown for real output (Real GDP), which macro-level determinant most likely caused the shift from $D_1$ to $D_2$?

A fall in the price of a complement that shifted demand left for real output

An increase in consumer confidence that raised planned spending at each price level

A decrease in consumer confidence that reduced planned spending at each price level

An increase in the overall price level that decreased quantity demanded along $D_1$

A decrease in the overall price level that increased quantity demanded along $D_1$

Explanation

Demand refers to the entire relationship between price and quantity at all price levels, while quantity demanded is a specific amount at one price. The graph shows a rightward shift from D₁ to D₂, meaning consumers are willing to buy more at every price level. This shift indicates an increase in demand, which occurs when a non-price determinant changes favorably. Consumer confidence is a key macroeconomic determinant—when confidence rises, people feel more optimistic about their economic future and increase planned spending at each price level. A common misconception is confusing movements along a curve (caused by price changes) with shifts of the curve (caused by determinant changes). Strategy: If the entire curve moves, look for what changed besides price—here it's consumer confidence affecting spending behavior.