ECON1101 Chap.2 Demand Curves and Demand Shifters
Demand Curves and Demand Shifters
Demand Curves and Demand Shifters covers how buyers respond to price. It states the law of demand, writes linear demand as q = a − mp with a for market size and m for sensitivity, inverts it for graphing and reads off the choke price.
It builds market demand by summing individual demands horizontally, then separates a movement along the curve caused by the good’s own price from a shift caused by income, related goods, preferences, the number of buyers and expectations. These skills feed straight into exam sub-parts that ask for a graph of a demand function, its choke price and slope, and the effect of a named event.
What this chapter covers
- 01
The law of demand
- 02
Linear demand: size and sensitivity
- 03
Inverse demand and the choke price
- 04
Horizontal summation of individual demand
- 05
Movement along versus shift
- 06
Income, substitutes and complements
Worked example · free
Adding Ana’s and Ben’s demand curves
- 1At $4, Ana buys 10 − 4 = 6 and Ben buys 14 − 8 = 6.
- 1Market quantity at $4 is the horizontal sum, 6 + 6 = 12.
- 1Ben’s choke price is 14/2 = $7, so above $7 market demand is Ana’s alone: q = 10 − p.
- 1Below $7 both buy: q = (10 − p) + (14 − 2p) = 24 − 3p.
Key terms
- Law of demand
- The law of demand states that, other things equal, a higher price lowers the quantity demanded.
- Choke price
- The choke price is the price at which quantity demanded falls to zero.
- Inferior good
- An inferior good is one whose demand falls when buyers’ incomes rise.
- Complement
- A complement is a good used together with another, so a rise in its price lowers demand for the other.
- Market demand
- Market demand is the total quantity all buyers want at each price, found by adding individual quantities.
- Substitute
- A substitute is a good that can replace another, so a rise in its price raises demand for the other.
Demand Curves and Demand Shifters FAQ
What is the difference between demand and quantity demanded?
Demand is the whole relationship between price and quantity, the curve itself. Quantity demanded is one point on it, the amount buyers want at a particular price. A price change alters quantity demanded; other factors alter demand.
Why do we add demand curves horizontally?
At any given price each buyer chooses a quantity, and the market quantity is the total of those choices. Adding quantities at a fixed price means summing sideways along the quantity axis, not stacking prices.
How do I find the choke price from a demand function?
Set quantity to zero and solve for price. For q = a − mp the choke price is a/m, which is also the vertical intercept when the demand curve is drawn with price on the vertical axis.
Does a rise in income always increase demand?
Only for normal goods. For an inferior good, such as a cheap staple that buyers replace with better options when they can afford to, higher income shifts demand to the left.
How should I draw a demand curve from an equation?
Rearrange the function so price is on the left, plot the choke price on the vertical axis and the quantity at a zero price on the horizontal axis, and join them with a straight line. Label both intercepts and the curve, and put price on the vertical axis as the course does.
What is the difference between the slope and the sensitivity of demand?
Sensitivity, m in q = a − mp, counts units lost per extra dollar with quantity on the left. The slope of the drawn curve, with price on the vertical axis, is its reciprocal with a minus sign. Both depend on units, which is why elasticity is introduced later.
Exam move
Drill the conversion between a schedule, an equation and a graph until it takes under a minute, including the choke price and the slope with units. Build one market demand curve from two buyers with different choke prices and mark the kink. Then make a two-column list of events, movements and shifts, and test yourself on the direction of each shift, paying special attention to substitutes, complements and inferior goods.
In the last week before an exam, time yourself on a mixed set: one schedule to convert, one market to sum and four shocks to classify, aiming to finish in ten minutes with every graph labelled.
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