Key Idea: Topic 2.1 explains what demand is, why the demand curve slopes downward, what shifts it, and the crucial exam skill of distinguishing movements vs shifts.
✅ Core definitions
- Demand
- The quantity of a good consumers are willing and able to buy at each price in a given time period.
- Effective demand
- Demand backed by purchasing power (not just desire).
- Law of demand
- As price rises, quantity demanded falls (inverse relationship), ceteris paribus.
- Market demand
- The horizontal sum of all individual demand curves.
If a question says 'want' without 'able to buy', it is NOT effective demand.
📉 Why demand slopes downward
- Income effect — higher price reduces purchasing power → buy less
- Substitution effect — higher price makes alternatives relatively cheaper → switch away
🔄 Non-price determinants (shift the curve)
- Income — normal goods: income↑ → D right; inferior goods: income↑ → D left
- Related goods — substitutes: Ps↑ → D right; complements: Pc↑ → D left
- Tastes/preferences — advertising, trends, health scares
- Population — size, age structure, demographics
- Future expectations — expected price rises → D right now
⚡ Movements vs shifts — the KEY exam skill
- Movement along = caused by a change in the good's OWN PRICE (up or down the curve)
- Shift of the curve = caused by a NON-PRICE factor (whole curve moves left or right)
- Read the question: if it mentions price → movement. If it mentions income, tastes, related goods → shift
Every time you draw a demand diagram, label: axes (P, Q), curve (D₁, D₂), direction of shift, and new equilibrium.