# The Demand Curve

Business I · Introduction to Economics · https://tryals.app/learn/business-i/the-demand-curve

## The Most Famous Curve in Economics

**Demand** is the relationship between a good's price and the quantity buyers are willing _and able_ to purchase, holding everything else constant. Wanting a yacht is not demand without purchasing power.

**The law of demand**: when price rises, quantity demanded falls. 

$$q_d = a - b\,p$$

Plotted with price on the vertical axis, demand slopes **downward**.

| Force | Mechanism | Example |
| --- | --- | --- |
| **Substitution effect** | Pricier good $\rightarrow$ switch to alternatives | Coffee up, tea instead |
| **Income effect** | Higher price shrinks real purchasing power | Buy less of everything |

The market demand curve is the horizontal **sum** of every individual buyer's curve at each price.

> **Common pitfall:** Saying "demand fell" when the price rose. A price change moves you _along_ the curve. Reserve "demand fell" for a leftward shift of the whole curve.

## Movement vs Shift

Confusing movements and shifts is the ultimate exam trap. 

- **Movement along the curve**: Caused by **one thing only: the good's own price**. Price falls, you slide down the same curve.
- **Shift of the whole curve**: Caused by anything else that changes how much buyers want at every price.

| Change in... | What happens to demand |
| --- | --- |
| **The good's own price** | Movement _along_ the curve |
| **Income (normal)** | Shifts **right** when income rises |
| **Income (inferior)** | Shifts **left** when income rises |
| **Substitute price** | Substitute pricier $\rightarrow$ shifts **right** |
| **Complement price** | Complement cheaper $\rightarrow$ shifts **right** |
| **Tastes / expectations** | Shifts in either direction |

> **Tip:** Ask _what changed?_ Own price $\rightarrow$ along the curve. Anything else $\rightarrow$ the whole curve moves.

## Practice questions

6 of this lesson's 13 practice questions, with answers. The full set is in the app.

### 1. Income rises across the economy. Sort each good by what happens to its demand.

**Answer:**

- Demand shifts right (normal good): Restaurant dinners, Foreign holidays, Fresh salmon
- Demand shifts left (inferior good): Instant noodles, Second-hand clothing bought out of necessity

**Why:** Normal goods ride income upward; inferior goods are what people escape *from* when they can finally afford better.

Page: https://tryals.app/practice/business-i/the-demand-curve/income-rises-across-the-economy-sort-each-good-by-what-happens-to

### 2. Bread sales rise after a recession cuts household incomes. Does that break the law of demand?

A. No, because the law of demand applies only to luxury goods
B. Yes, since demand rose without any price change
C. Yes, and bread is therefore a Giffen good
D. No, the law holds price constant, and here income changed

**Answer:** D. No, the law holds price constant, and here income changed

**Why:** The law relates price to quantity with everything else held still; income is one of the things being held still, so changing it shifts the curve rather than violating it. Confusing a shift of the curve with a movement along it is the single most common error in introductory demand analysis.

Page: https://tryals.app/practice/business-i/the-demand-curve/bread-sales-rise-after-a-recession-cuts-household-incomes-does-that

### 3. Match each determinant to the demand shift it causes for good X.

**Answer:**

- Price of a substitute rises → X’s demand shifts right
- Price of a complement rises → X’s demand shifts left
- Buyers expect X to cost more next month → X’s demand shifts right today
- X’s own price falls → Movement along X’s curve

**Why:** Substitutes push demand the same way their price moves; complements push it the opposite way; expectations move purchases through time; own price never shifts anything.

Page: https://tryals.app/practice/business-i/the-demand-curve/match-each-determinant-to-the-demand-shift-it-causes-for-good-x

### 4. Petrol prices double. What happens in the market for large SUVs?

A. Movement along the SUV demand curve only
B. SUV demand shifts left, because petrol is a complement
C. Nothing, petrol and SUVs are separate markets
D. SUV demand shifts right, as drivers seek sturdier cars

**Answer:** B. SUV demand shifts left, because petrol is a complement

**Why:** Petrol and SUVs are complements: the cost of *using* an SUV soars, so buyers want fewer at every SUV price, a leftward shift. The SUV’s own price hasn’t moved, so it cannot be a movement along.

Page: https://tryals.app/practice/business-i/the-demand-curve/petrol-prices-double-what-happens-in-the-market-for-large-suvs

### 5. Which events shift the demand curve for cinema tickets to the right?

A. A blockbuster season lifts enthusiasm for cinema
B. The cinema cuts its own ticket prices
C. Streaming subscriptions (a substitute) get more expensive
D. The city’s population grows

**Answer:** A. A blockbuster season lifts enthusiasm for cinema; C. Streaming subscriptions (a substitute) get more expensive; D. The city’s population grows

**Why:** Substitute prices, tastes, and buyer numbers all redraw the curve. The cinema’s own price cut moves along it, more tickets sold, same curve.

Page: https://tryals.app/practice/business-i/the-demand-curve/which-events-shift-the-demand-curve-for-cinema-tickets-to-the-right

### 6. At 5€, Ana buys 4 sandwiches a week, Ben buys 6, and Carla buys 2. Set the slider to the **market quantity demanded** at 5€.

**Answer:** 12 (within ±0.5)

**Why:** At 5€ the market absorbs $4 + 6 + 2 = 12$ sandwiches, the horizontal sum, one price at a time, is all a market demand curve is.

Page: https://tryals.app/practice/business-i/the-demand-curve/at-5-ana-buys-4-sandwiches-a-week-ben-buys-6-and-carla-buys-2