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Educerie · IB Diploma · Economics
Unit 2 Microeconomics · 2.1 Demand
What you must be able to do
| You must be able to | Level | What it looks like in the exam |
|---|---|---|
| State the law of demand and explain it | SL, HL | "Define demand" (2 marks). "Explain the relationship between price and quantity demanded" (4 marks) |
| Draw a downward-sloping demand curve | SL, HL | Any diagram question. The curve, the axes and the labels are worth marks on their own |
| Explain how one person's demand becomes the market's demand | SL, HL | Short explanation, occasionally a diagram |
| Explain the five non-price determinants of demand | SL, HL | "Explain two factors that could shift the demand for…" |
| Tell a movement along the curve from a shift of the curve, and draw both | SL, HL | This is the one that decides whether your diagram earns full marks |
| Explain why the curve slopes down at all: income and substitution effects, and diminishing marginal utility | HL only | Paper 1 part (a), 10 marks, or a Paper 3 explanation |
Before you start
You need two things from Unit 1. Scarcity means nobody can buy everything, so every purchase is a choice. And ceteris paribus means "with everything else held still": when we say price affects quantity, we are pretending that nothing else changes at the same time. Every diagram in this unit is drawn under that pretence. Keep it in mind, because it is the reason the movement-versus-shift rule works.
1The idea in one paragraph
When something gets more expensive, people buy less of it. When it gets cheaper, they buy more. That is the whole of the law of demand, and the demand curve is just that sentence drawn as a line. Everything else in this unit is about two questions: what happens on the line when the price moves, and what happens to the line when anything other than the price moves.
2The law of demand
Start with the word itself. In economics, demand does not mean wanting something. It means being willing and able to buy a certain quantity, at a given price, over a given period of time. All four parts matter. A student who wants a car but cannot pay for one contributes nothing to the demand for cars. Economists sometimes call this "effective demand" to stress the point.
The law of demand says: as the price of a good rises, the quantity demanded falls, and as the price falls, the quantity demanded rises, ceteris paribus. Price and quantity demanded move in opposite directions. The formal phrase is that they are inversely related.
Notice the phrase quantity demanded. It is not the same as demand, and confusing them is the most common way to lose marks in this unit.
- Quantity demanded is one number: how much people buy at one particular price. Change the price and you get a different quantity demanded.
- Demand is the whole relationship: how much people would buy at every possible price. It is the entire curve, not a point on it.
So a price cut does not "increase demand". It increases the quantity demanded. Demand only changes when the whole relationship changes, and the price is not part of that relationship, it is the input to it.
3The demand curve
Take a small market, say weekly demand for coffee at a school café, and write down how many cups students would buy at each price.
| Price per cup | Cups bought per week |
|---|---|
| 4.00 | 100 |
| 3.00 | 160 |
| 2.00 | 240 |
| 1.00 | 350 |
That table is a demand schedule. Plot it with price on the vertical axis and quantity on the horizontal axis, join the points, and you have the demand curve. Figure 1 does exactly that with the coffee numbers.
Two things about the drawing that trip people up.
Price goes on the vertical axis. That is backwards compared with maths, where the thing you control goes across the bottom. Economics has drawn it this way for over a century and the exam expects it. Do not fight it.
The curve is usually drawn as a straight line. That is allowed and normal. It is still called a curve.
Now the important part.
In Figure 2, the price falls from P₁ to P₂. What happens? We slide down the same line from point A to point B, and quantity demanded rises from Q₁ to Q₂. This is a movement along the demand curve. The curve has not gone anywhere. Only our position on it has changed, because only the price has changed.
Some textbooks call a slide down the curve an extension of demand and a slide up a contraction. The IB guide uses "movement along the demand curve", so use that.
4From one buyer to the whole market
Each person has their own demand curve. The market demand curve is all of them added together, price by price. At a price of 4, Ayşe buys 2 and Ben buys 3, so the market buys 5. At a price of 2, Ayşe buys 4 and Ben buys 6, so the market buys 10. Do that at every price and you have the market curve.
Because you add quantities sideways, the market curve is always flatter and further to the right than any single person's curve. This is called horizontal summation, which is just a name for adding across. Two consequences follow, and both come back later: the market curve slopes down for the same reason the individual curves do, and the number of buyers in the market changes the market curve without any individual changing their mind.
5What moves the whole curve: the five non-price determinants
The demand curve is drawn on the assumption that everything except price is fixed. When one of those fixed things changes, the old curve is wrong at every price, so the whole curve moves. The guide lists five non-price determinants of demand. Learn all five with an example each, and learn which way each one pushes the curve.
Income. For most goods, more income means more demand at every price: the curve shifts right. These are normal goods. For a few goods, more income means less demand, because people trade up to something better: instant noodles, second-hand clothes, bus travel once you can afford a car. These are inferior goods, and their curve shifts left when income rises. The word "inferior" says nothing about quality. It only describes how demand responds to income. Figure 4 shows the same rise in income doing opposite things to the two kinds of good.
Tastes and preferences. A health scare, a celebrity, a fashion, a successful advertising campaign. If people come to like the good more, the curve shifts right; if they go off it, left.
Future price expectations. If people expect the price to be higher next month, some of them buy now, so demand today shifts right. If they expect a sale, they wait, and demand today shifts left. Notice that the price has not actually changed. Only the expectation has, which is why this is a shift and not a movement.
Prices of related goods. Two cases, and you must name which one you mean.
- Substitutes are goods used instead of each other: tea and coffee, two brands of trainers. If the price of tea rises, some tea drinkers switch, and the demand for coffee shifts right. A higher price for a substitute increases demand for the good.
- Complements are goods used together: printers and ink, phones and cases. If the price of printers rises, fewer printers are sold, so fewer people need ink, and the demand for ink shifts left. A higher price for a complement decreases demand for the good.
Figure 5 draws both cases. Look at which market each diagram shows: the price that changed belongs to the other good, so it is not on the axis, and that is exactly why the curve shifts instead of moving.
Number of consumers. More buyers in the market means more demand at every price. Population growth, migration, a new age group entering the market, tourism. This one comes straight from section 4: you are adding more individual curves to the sum.
A sentence pattern that earns the mark every time: name the determinant, say which way it changed, say which way demand shifts, and say why. "A rise in the price of tea, a substitute, causes some consumers to switch to coffee, so the demand for coffee increases and the curve shifts to the right."
6Movement along versus shift, side by side
This is the distinction that examiners test again and again, because it separates students who understand the diagram from students who have memorised it.
The rule is short enough to memorise and true without exceptions:
If the good's own price changed, move along the curve. If anything else changed, shift the curve.
The wording follows the rule. A movement along the curve is a change in quantity demanded. A shift of the curve is a change in demand. In Figure 6, the left panel is a fall in price and a rise in quantity demanded; the right panel shows an increase in demand, from D₁ to D₂, and a decrease, from D₁ to D₃, with the price unchanged.
Check yourself on one case. The price of coffee falls, and more cups are sold. Movement or shift? Movement: the good's own price changed, so quantity demanded rose, and the curve stayed put. Now: the café next door closes, and more cups are sold here. Shift: the number of consumers rose, so demand rose, and the curve moved right.
When you are unsure in the exam, run the question in Figure 7. It takes five seconds and it is never wrong.
7HLWhy the curve slopes down at all
SL students take the law of demand as given. HL students must explain where it comes from. The guide names two explanations, and either can be asked for on its own.
The income and substitution effects. When the price of a good falls, two separate things happen to the buyer at once.
- The substitution effect: the good is now cheaper relative to other goods, so people substitute towards it and away from the alternatives. Coffee at 2 instead of 4 looks better next to a 3 tea than it did before.
- The income effect: the buyer's money now goes further. Their income has not changed, but its purchasing power has, and with that extra room some of them buy more of the good.
Both effects push the same way for a normal good, so a lower price means a higher quantity demanded. That is the law of demand rebuilt from the buyer's point of view. Figure 8 lays the chain out.
The law of diminishing marginal utility. Utility is the economist's word for the satisfaction you get from consuming something. Marginal utility is the extra satisfaction from one more unit. The law says that as you consume more of a good, each additional unit adds less satisfaction than the one before. The first cup of coffee in the morning is worth a great deal to you; the fourth, much less.
| Cup of coffee | Extra satisfaction from that cup (marginal utility) |
|---|---|
| 1st | 10 |
| 2nd | 7 |
| 3rd | 4 |
| 4th | 1 |
Now link it to price. A rational buyer will pay for a unit only if it is worth at least that much to them. Since each further unit is worth less, they will only buy the further units if the price is lower. Falling marginal utility therefore produces a falling willingness to pay, and a falling willingness to pay is a downward-sloping demand curve. Figure 9 shows the bars of the table turning into the curve.
An HL answer that earns full marks names the effect, defines it in one sentence, applies it to a concrete good, and ends by saying how it produces the inverse relationship between price and quantity demanded. Four steps, four sentences.
8Where marks are lost
Writing "demand" when you mean "quantity demanded". The single most common error. If the price changed, the phrase is quantity demanded.
Shifting the curve for a price change. A student reads "the price of coffee fell" and draws a new curve to the right. That is wrong. A price change is a movement along the existing curve. The diagram is marked wrong even if the sentence beside it is right.
Circular reasoning. "Demand fell, so the price fell, so demand fell further." The first fall in demand is a shift; the fall in price that follows is a movement along the new curve, not another shift. Keep the two steps separate and the argument stops chasing its tail.
Mixing up substitutes and complements. Ask: are these two goods used instead of each other, or together? Then apply the rule from section 5.
Assuming income always raises demand. It does for normal goods. For inferior goods it lowers demand. If the question does not say which, say which you are assuming.
Confusing expectations with actual price changes. "People expect the price to rise" shifts the curve today. "The price rose" moves along it. Read the sentence twice.
An unlabelled diagram. Axes without P and Q, a curve without a D, no P₁ and P₂. Each missing label is a mark not given. See the checklist below.
9Draw it right
Every demand diagram in an exam should have all of the following. Examiners look for them in this order.
- A title, or a caption in your text: "Figure 1: the market for coffee".
- Axes labelled P (price) and Q (quantity), with the price axis vertical.
- The curve labelled D. If it shifts, the new one is D₁ or D₂, and an arrow shows the direction.
- The original and new positions marked on both axes: P₁ and P₂, Q₁ and Q₂, with dotted lines dropping to the axes.
- One change per diagram. If two things happen, draw two diagrams or say clearly which shift you are showing.
- A sentence in your answer that refers to the diagram by name: "As Figure 1 shows, …". A diagram nobody mentions earns fewer marks than one that is used.
Draw in pencil, large, and take up a third of the page. Small diagrams are hard to label and hard to mark.
Figure 10 is what the finished thing looks like, with each item from the list pointed out.
10Try it
Marks in brackets. Answers and marker's notes are at the end. Do them before you look.
Q1. Define the term demand. 2 marks
Q2. Explain, using a diagram, the difference between a movement along the demand curve and a shift of the demand curve. 4 marks
Q3. The price of electric scooters falls sharply. Explain what happens to the demand for scooter helmets, and to the demand for bus tickets. 4 marks
Q4 (HL). Explain, with reference to the income and substitution effects, why the demand curve for a normal good slopes downward. 4 marks
11In one breath
Demand is willingness and ability to buy at each price. Price up, quantity demanded down, ceteris paribus. The curve is that rule drawn as a line, price on the vertical axis. Own price changes: move along the curve, and say "quantity demanded". Anything else changes: shift the curve, and say "demand". The five shifters are income, tastes, expectations, prices of related goods, and number of consumers. The market curve is everyone's curve added sideways. HL: the curve slopes down because of the income and substitution effects, and because marginal utility diminishes.
Answers
Q1. Demand is the quantity of a good or service that consumers are willing and able to buy at a given price over a given period of time. one mark for "willing and able", one for "at a given price / per period". "Wanting something" on its own scores 0.
Q2. A movement along the demand curve is caused by a change in the good's own price and is a change in quantity demanded: in the diagram, a fall in price from P₁ to P₂ moves us from point A to point B on the same curve D. A shift of the curve is caused by a change in a non-price determinant, such as income, and is a change in demand: the whole curve moves from D₁ to D₂, so a larger quantity is demanded at every price, including the unchanged price P₁. 1 for a correctly labelled diagram with both features, 1 for identifying own price as the cause of a movement, 1 for identifying a non-price determinant as the cause of a shift, 1 for the quantity demanded / demand distinction in words.
Q3. Scooters and helmets are complements: they are used together. A fall in the price of scooters raises the quantity of scooters demanded, so more people need helmets, and the demand for helmets increases; the helmet demand curve shifts right. Scooters and bus tickets are substitutes: a scooter replaces some bus journeys. Cheaper scooters draw some passengers away from buses, so the demand for bus tickets decreases and its curve shifts left. 1 for identifying each relationship correctly, 1 for each correct direction with a reason. Naming "complement" and "substitute" is required; an answer that gets the directions right without the terms scores 2.
Q4 (HL). When the price of a normal good falls, the substitution effect makes it cheaper relative to alternatives, so consumers substitute towards it and buy more. The income effect means the fall in price raises the purchasing power of consumers' incomes, and for a normal good some of that extra purchasing power is spent on the good, so they buy more. Both effects raise quantity demanded when price falls, giving the inverse relationship that a downward-sloping demand curve shows. 1 for each effect correctly defined, 1 for applying each to a price fall. An answer that describes the effects but never says "so quantity demanded rises" is capped at 3.
Educerie · written from the published IB Diploma Programme Economics guide, first assessment 2022, section 2.1 Demand. Original text, examples and questions. Ten diagrams drawn by Educerie. Sources consulted: the guide's syllabus content for 2.1 and its assessment outline. Last reviewed 9 September 2026.