Topic 1.4 Demand: explain the law of demand, distinguish a change in quantity demanded from a change in demand, and identify the determinants that shift the demand curve.

What this topic is asking

Topic 1.4 introduces the demand side of a market. The College Board wants you to state the law of demand, to draw and read a demand curve, to distinguish a change in quantity demanded (a movement along the curve) from a change in demand (a shift of the whole curve), and to identify the determinants that shift demand. Mastering the shift-versus-movement distinction is essential for the rest of the course.

The law of demand

The law of demand holds for two reasons. The substitution effect: as a good becomes more expensive, buyers switch to relatively cheaper alternatives. The income effect: a higher price reduces the real purchasing power of a fixed income, so buyers can afford less. Both push quantity demanded down as price rises.

Movement along versus shift of demand

This distinction is the single most tested idea in Unit 1:

If coffee's price falls, you move down the existing coffee demand curve. If incomes rise and people want more coffee at every price, the whole coffee demand curve shifts right. Confusing these two leads to wrong predictions about prices and quantities, so the exam tests it directly.

The determinants of demand

The factors that shift the demand curve are often remembered as TRIBE (Tastes, Related goods, Income, number of Buyers, Expectations):

• Tastes and preferences: more favorable tastes shift demand right.
• Prices of related goods: for substitutes (tea and coffee), a higher price of one raises demand for the other; for complements (coffee and sugar), a higher price of one lowers demand for the other.
• Income: for a normal good, higher income raises demand; for an inferior good, higher income lowers demand.
• Number of buyers: more buyers in the market shift demand right.
• Expectations: if buyers expect higher future prices, current demand rises.

Putting demand to work

Demand is one half of every market model in AP Macroeconomics, so fluency here pays off throughout the course. When you analyze a market, your first question should always be: did the good's own price change, or did a determinant change? If the own price changed, you move along the curve and there is no shift; the market simply adjusts quantity demanded. If a determinant changed, the whole curve shifts, and you then trace the new equilibrium. The same TRIBE determinants reappear when you study aggregate demand in later units, where consumption, investment, government spending, and net exports play the role that the individual determinants play here. Building the habit now of naming the determinant, stating the direction of the shift, and labelling the graph clearly (price on the vertical axis, quantity on the horizontal, curves labelled D1 and D2) is exactly what earns free-response points later. It is also worth remembering that demand reflects willingness and ability to pay: a buyer who wants a good but cannot afford it does not contribute to market demand, which is why both desire and purchasing power matter. Keeping the substitution and income effects in mind explains not just the slope of the curve but also why income changes shift it, tying the law of demand to the determinants in one coherent picture.

Try this

Q1. State the law of demand and one reason it holds. [2 points]

• Cue. As price rises, quantity demanded falls (ceteris paribus); this holds because of the substitution effect (buyers switch to cheaper alternatives) and the income effect (higher prices reduce real purchasing power).

Q2. Identify whether a rise in income shifts the demand for an inferior good left or right, and explain. [2 points]

• Cue. Left; for an inferior good, higher income leads consumers to switch to preferred alternatives, so demand falls.