Demand
Willingness and ability to buy a good at different prices over a period of time
Law of demand
Higher prices lead to lower quantity demanded, ceteris paribus
Price vs quantity demanded
Price is the independent factor, quantity demanded is the response
Assumptions behind law of demand (HL)
Preferences, income, and prices of related goods are unchanged, and consumers behave predictably
Income effect
A price fall increases real purchasing power, raising quantity demanded
Substitution effect
A price fall makes a good relatively cheaper than substitutes, raising quantity demanded
Law of diminishing marginal utility
As consumption increases, extra satisfaction from each additional unit tends to fall
Why demand is typically downward sloping
Substitution and income effects plus diminishing marginal utility
Individual demand
One consumer’s demand at different prices
Market demand
Total demand of all consumers combined
Non-price determinant: income
Changes in income shift demand depending on whether the good is normal or inferior
Normal good
Demand increases when income rises
Inferior good
Demand decreases when income rises
Non-price determinant: tastes/preferences
Changes in preferences shift demand
Non-price determinant: future price expectations
Expected future price rises tend to increase current demand
Non-price determinant: substitutes
If a substitute becomes more expensive, demand increases
Non-price determinant: complements
If a complement becomes more expensive, demand decreases
Non-price determinant: number of consumers
More consumers increases market demand
Movement along demand vs shift
Price change causes a movement along
Change in quantity demanded
Movement along the demand curve caused by price change
Change in demand
Shift of the entire demand curve caused by non-price factors
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1.1 What is Economics?54
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1.2 How do Economists Approach the World?24
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2.1 Demand21
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2.2 Supply21
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2.3 Competitive Market Equilibrium18
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2.4 Critique of Maximizing Behaviour of Consumers and Producers23
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2.5 Elasticities of Demand23
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2.6 Elasticity of Supply10
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2.7 Role of Government in Microeconomics19
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2.8 Market failure—externalities and common pool/common access resources28
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2.9 Market failure—public goods7
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2.10 Market failure—asymmetric information (HL)7
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2.11 Market failure—market power (HL)24
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2.12 Market’s inability to achieve equity (HL)6
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3.1 Measuring economic activity14
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3.2 Variations in economic activity—aggregate demand and aggregate supply16
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3.3 Macroeconomic objectives + Unemployment41
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3.4 Economics of inequality and poverty15
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3.5 Demand management—monetary policy (HL included)12
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3.6 Demand management—fiscal policy (HL included)15
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3.7 Supply-side policies22
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4.1 Benefits of international trade9
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4.2 Types of trade protection8
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4.3 Arguments for and against trade control/protection16
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4.4 Economic integration11
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4.5 Exchange rates19
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4.6 Balance of payments (HL included)22
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4.7 Sustainable development3
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4.8 Measuring development14
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4.9 Barriers to economic growth and/or development17
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4.10 Growth and/or development strategies25
