Demand

Key terms:

Demand - the quantity of goods and services that consumers are willing and able to
purchase at a given time, at a given price, ceteris paribus.

Ceteris paribus - means that all other variables remain the same.

Income effect – the effect of a change in the price of a good or service on real incomes.
As the price of a good or service falls, then the real income levels of consumers rise. This
means that consumers will be able to purchase more good and services than they were
before and quantity demanded for the product will rise - HL only.

Substitution effect – the effect of a change in the price of a good or service on the
relative price of the product. As a product falls in price then the good will be relatively
cheap, compared to its substitutes and so some consumers will switch their demand to the
good raising demand - HL only.

Activity 1

Price of Coke / Pepsi ($) Number of cans

consumed per day
0.50
1
1.5
2
2.5
3
3.5
4

Now plot the following information on a graph. On the vertical axis you should write price
and the horizontal axis should be labelled quantity or quantity demand.

© Mark Johnson,
InThinking www.thinkib.net/Economics 1
Activity 2

(a) The diagram to the right illustrates a

demand curve for a normal good or
service. Explain why the demand curve
slopes downwards from left to right.

(b) Why does the demand for a product

require consumers to be willing and able
to purchase them at each given price?

© Mark Johnson,
InThinking www.thinkib.net/Economics 2
Activity 3: Connection with TOK

What are the implications of the

assumption of ceteris paribus? Do other
areas of knowledge make a similar
assumption?

To what extent is it true to say that a

demand curve is a fictional entity?

What assumptions underlie the law of

demand? Are these assumptions likely
to be true? Does it matter if these
assumptions are actually false?

Activity 4

Describe the relationship between the following variables:

 the time of the year and demand for sun cream and beach wear?
 the income levels in a nation and demand for electronic and technology products?
 the income levels in an economy and the demand for basic necessities such as bread
and rice?
 the demand for sports equipment and the price of pay per view sports channels
 the demand for second hand cars and the price of new cars.

© Mark Johnson,
InThinking www.thinkib.net/Economics 3