Demand — AP Microeconomics Study Guide

For: AP Microeconomics candidates sitting AP Microeconomics.

Covers: Definition of demand, the law of demand, quantity demanded vs change in demand, movement vs shift of the demand curve, determinants of demand, individual vs market demand, and demand function notation.

You should already know: Ceteris paribus assumption, slope of linear functions, basic consumer utility theory.

A note on the practice questions: All worked questions in the "Practice Questions" section below are original problems written by us in the AP Microeconomics style for educational use. They are not reproductions of past College Board / Cambridge / IB papers and may differ in wording, numerical values, or context. Use them to practise the technique; cross-check with official mark schemes for grading conventions.

1. What Is Demand?

Demand is the foundational concept of AP Microeconomics’ Unit 2 (Supply and Demand), which accounts for 18-20% of the total AP exam score, with demand itself making up roughly a third of the unit’s tested content. It appears in both multiple-choice (MCQ) and free-response (FRQ) sections, almost always as a building block for other questions like equilibrium analysis, consumer surplus, and elasticity.

Formally, demand describes the relationship between the price of a specific good or service and the maximum quantity consumers are willing and able to purchase at that price, holding all other factors constant (ceteris paribus). A key distinction: demand is not just desire to buy a good—it requires both willingness and ability to pay. In standard AP notation, quantity demanded is written as $Q_D$. Direct demand functions express $Q_D$ as a function of price: $Q_D=c-dP$, while inverse demand (used for graphing) writes price as a function of quantity: $P=a-b{Q}_D$. Demand can be presented as a table (demand schedule), a graph (demand curve), or a mathematical function. It is categorized as individual demand (for one consumer) or market demand (for all consumers in the market), the latter being what is most commonly drawn on AP exam graphs.

2. The Law of Demand and Quantity Demanded

Quantity demanded is the specific amount of a good consumers are willing and able to buy at one specific price point, while demand refers to the entire relationship between all possible prices and corresponding quantities. The Law of Demand is the core principle of this topic: it states that, holding all other factors constant, there is an inverse relationship between a good’s own price and its quantity demanded. When price increases, quantity demanded decreases; when price decreases, quantity demanded increases.

This inverse relationship (and the resulting downward slope of the demand curve, when price is on the vertical axis and quantity on the horizontal) comes from three complementary sources: (1) the substitution effect (higher prices make consumers switch to cheaper substitutes), (2) the income effect (higher prices reduce consumers’ real purchasing power, so they buy less), and (3) diminishing marginal utility (each additional unit of the good gives less extra satisfaction than the last, so consumers will only buy more if price falls).

Worked Example

A college student’s monthly demand for bubble tea is given by the direct demand function: $$Q_D=30-3P$$ where $Q_D$ is number of bubble teas and $P$ is price in dollars per bubble tea. What is the quantity demanded when $P=\$4$? If price rises to $\$6$, how does quantity demanded change, and is this consistent with the law of demand?

1. Step 1: Recall that quantity demanded is calculated by substituting the given price into the demand function, since it is a point-specific value.
2. Step 2: For $P=4$, substitute to get: $Q_D=30-3(4)=30-12=18$ bubble teas per month.
3. Step 3: For $P=6$, substitute to get: $Q_D=30-3(6)=30-18=12$ bubble teas per month.
4. Step 4: Compare the two values: when price increased by $2, quantity demanded fell by 6 units. This matches the inverse relationship required by the law of demand.

Exam tip: Always separate the terms "demand" and "quantity demanded" on FRQs. AP graders routinely dock points for using these terms interchangeably, as the distinction between the two is the most heavily tested concept in this topic.

3. Movements Along vs Shifts of the Demand Curve

The most frequently tested distinction on AP Micro demand questions is between a movement along the existing demand curve and a shift of the entire demand curve. The rule is simple: only a change in the good’s own price causes a movement along the demand curve. This movement represents a change in quantity demanded, not a change in the overall relationship between price and quantity. A price increase causes an upward-left movement, and a price decrease causes a downward-right movement.

A shift of the entire demand curve (a change in demand) is caused by a change in one or more non-price determinants of demand. A right shift means demand increased (quantity demanded is higher at every price), and a left shift means demand decreased (quantity demanded is lower at every price). The 5 core non-price determinants tested on the AP exam can be remembered with the mnemonic TIPEN:

• T: Tastes and preferences (more popular = right shift)
• I: Income (normal goods: higher income = right shift; inferior goods: higher income = left shift)
• P: Price of related goods (substitutes: higher substitute price = right shift; complements: higher complement price = left shift)
• E: Expectations (expected future price increase = right shift for current demand)
• N: Number of buyers in the market (more buyers = right shift)

Worked Example

For each of the following changes in the market for organic apples, state whether the result is a movement along the demand curve or a shift of the demand curve, and the direction of the change. (a) The price of organic apples falls; (b) The price of peanut butter (a complement for apples) rises; (c) Average consumer income rises, and organic apples are a normal good.

1. Step 1: Apply the core rule: only changes in own price cause movements.
2. Step 2: (a) This is a change in the own price of organic apples, so it causes a downward-right movement along the existing demand curve (increase in quantity demanded, no change in overall demand).
3. Step 3: (b) Peanut butter is a complement. When the price of a complement rises, consumers buy less apples at every apple price, so demand decreases, shifting the entire demand curve left.
4. Step 4: (c) Organic apples are a normal good, so higher average income increases demand at every price, shifting the entire demand curve right.

Exam tip: For any MCQ asking if a change is a shift or movement, first check if the change is to the good’s own price. If yes, it is a movement, and you can immediately eliminate all shift options to cut your work in half.

4. Individual Demand vs Market Demand

Individual demand describes the quantity demanded by a single consumer at each price, while market demand describes the total quantity demanded by all consumers in the market at each price. To get market demand, you calculate the horizontal sum of all individual demand curves. That means, for any given price, you add up the quantity demanded by each individual consumer to get the total market quantity demanded. This is different from vertical summation (used for public goods), where you add prices instead of quantities—this is a common source of error on AP exams.

Because some consumers will drop out of the market at higher prices (they will not buy any units when price exceeds their maximum willingness to pay), market demand is often a piecewise function, with different segments for different price ranges. This is explicitly tested on AP FRQs.

Worked Example

There are only two consumers in the local market for homemade bread: Elena and Raj. Elena’s demand is $Q_E=10-2P$, and Raj’s demand is $Q_R=8-P$, where $Q$ is number of loaves per month and $P$ is price per loaf in dollars. Derive the market demand function for homemade bread.

1. Step 1: Recall that market demand is the sum of individual quantities at each price.
2. Step 2: Add the two individual demand functions: $Q_{market}=Q_E+Q_R=(10-2P)+(8-P)=18-3P$.
3. Step 3: Identify price ranges where both consumers buy positive quantity: Elena will buy loaves only when $P<5$, and Raj will buy only when $P<8$. For prices between $5and$8, only Raj buys positive quantity, so market demand equals Raj’s demand. For prices $8 or higher, no one buys any bread.
4. Step 4: Write the full piecewise market demand function:$$Q_{market}=\{\begin{array}{ll}18-3P& \text{if }0\le P<5\\ 8-P& \text{if }5\le P<8\\ 0& \text{if }P\ge 8\end{array}$$

Exam tip: Always write the full piecewise segments for market demand, even if the question doesn’t explicitly ask. AP FRQs almost always award an extra point for correctly accounting for consumers that drop out at high prices.

5. Common Pitfalls (and how to avoid them)

• Wrong move: Calling a change in quantity demanded caused by an own-price change a "shift in demand". Why: Students confuse the definition of demand (the entire relationship) and quantity demanded (a single point on the curve). Correct move: Any time the change is to the good’s own price, describe the change as a "change in quantity demanded" and a "movement along the demand curve".
• Wrong move: Shifting demand right when income rises for an inferior good. Why: Students mix up normal and inferior good definitions, remembering income shifts demand but forgetting the direction for inferior goods. Correct move: For every income change question, first label the good as normal or inferior, then apply the rule: income up → demand up for normal, income up → demand down for inferior.
• Wrong move: Vertically summing individual demand curves to get market demand for private goods. Why: Students confuse private good market demand with public good demand, which uses vertical summation. Correct move: For private goods (the standard case in Unit 2), always sum quantities at each price (horizontal summation), never sum prices.
• Wrong move: Claiming the law of demand says demand falls when income falls. Why: Students misremember what the law of demand describes, confusing non-price determinants with the core price-quantity relationship. Correct move: Memorize that the law of demand only describes the inverse relationship between a good’s own price and its quantity demanded, ceteris paribus.
• Wrong move: Drawing an upward-sloping demand curve for a good when the question does not explicitly label it a Giffen or Veblen good. Why: Students remember Giffen goods are an exception to the law of demand and over-apply the exception. Correct move: Assume all goods follow the law of demand (downward-sloping demand) unless the question explicitly identifies the good as an exception.

6. Practice Questions (AP Microeconomics Style)

Question 1 (Multiple Choice)

Which of the following events will cause a rightward shift in the market demand curve for plant-based burgers, a normal good? A) A decrease in the price of plant-based burgers B) An increase in the price of beef burgers, a substitute for plant-based burgers C) A decrease in average consumer income during a recession D) A new manufacturing process that lowers the marginal cost of producing plant-based burgers

Worked Solution: First, eliminate options that do not shift demand. Option A is a change in the own price of plant-based burgers, so it only causes a movement along the demand curve, so A is incorrect. Option C: plant-based burgers are normal, so lower income decreases demand, shifting demand left, so C is incorrect. Option D: lower production costs affect the supply curve, not the demand curve, so D is incorrect. Option B: when the price of a substitute rises, consumers buy more plant-based burgers at every price, shifting demand right. The correct answer is B.

Question 2 (Free Response)

There are two consumers in the market for ice cream cones: Lila and Tom. Lila’s demand is $Q_L=10-2P$, and Tom’s demand is $Q_T=15-3P$, where $Q$ is cones per week and $P$ is price per cone in dollars. (a) Derive the market demand function for ice cream cones. (3 points) (b) What is total market quantity demanded when $P=\$2$ per cone? (1 point) (c) A third consumer, Mia, moves into the market, and her demand is $Q_M=8-2P$. Explain how the market demand curve changes, and calculate the new total quantity demanded at $P=\$2$. (2 points)

Worked Solution: (a) Market demand is the horizontal sum of individual demand. Add the quantities: $Q_{market}=Q_L+Q_T=(10-2P)+(15-3P)=25-5P$ Identify price ranges: Lila buys when $P<5$, Tom buys when $P<5$, so the full demand is: $$ Q_{market} = \begin{cases} 25 - 5P & 0 \leq P < 5 \ 0 & P \geq 5 \end{cases} $$ (b) Substitute $P=2$: $Q=25-5(2)=15$ ice cream cones per week. (c) Adding a new consumer increases quantity demanded at every price, so the entire market demand curve shifts right. The new market demand is $Q_{new}=25-5P+8-2P=33-7P$. At $P=2$, new total quantity demanded is $Q_{new}=33-7(2)=19$ cones per week.

Question 3 (Application / Real-World Style)

A food truck collects data on its sales of loaded nachos, holding all other factors (weather, location, nearby events) constant. When the price is $8 per order, it sells 60 orders per day. When it lowers the price to $6 per order, it sells 80 orders per day. Is this data consistent with the law of demand? Assuming linear demand, calculate the expected quantity of orders sold if the price is $5 per order.

Worked Solution: First, check the law of demand: when price fell from $8 to $6, quantity demanded rose from 60 to 80, which matches the inverse relationship, so the data is consistent with the law of demand. Next, derive the linear demand function: we have two points $(Q_1=60,P_1=8)$ and $(Q_2=80,P_2=6)$. The slope of the direct demand function is $\frac{\Delta Q}{\Delta P}=\frac{80-60}{6-8}=\frac{20}{-2}=-10$. Using point-slope form, we get $Q_D=140-10P$. Substitute $P=5$: $Q_D=140-10(5)=90$ orders. Interpretation: If the food truck sets a price of $5 per order of nachos, holding all other factors constant, it can expect to sell 90 orders per day, which aligns with the law of demand.

7. Quick Reference Cheatsheet

8. What's Next

This chapter on demand is the foundation for all of Unit 2 and nearly all of AP Microeconomics. Next, you will learn the parallel concept of supply, then combine demand and supply to find market equilibrium, analyze how market outcomes adjust to external shocks, and calculate consumer and producer surplus. Without mastering the critical distinction between shifts and movements of demand, you will not be able to correctly predict equilibrium price and quantity changes, which is a core skill tested on every AP Micro exam. Demand also underpins all later concepts, including elasticity, consumer choice, monopoly pricing, and welfare analysis. Follow these topics next to build on what you learned here: Supply Market Equilibrium Price Elasticity of Demand Consumer Choice Theory