Demand theory
IB Economics HLΒ· Microeconomics > Consumer Theory > DemandΒ· 15 min read
1. Core Definitions: What is Demand?β β ββββ± 5 min
Demand in economics is not just a desire for a good: it requires both willingness to buy and the ability to pay, which is called effective demand. We measure demand over a specific time period (e.g. per week, per year) to give it meaning.
Effective Demand
The quantity of a good or service that consumers are both willing and able to purchase at a given price, over a specific time period.
Example:
A consumer may want a sports car, but only has effective demand if they can afford the purchase price.
Classify each of the following as effective demand or just a want: 1. A teenager wants a new extbackslash$1000 smartphone but only has saved extbackslash$200. 2. A household wants to buy groceries and has enough income to cover the cost.
- 1
Recall that effective demand requires both willingness and ability to pay.
- 2
For the smartphone: The teenager is willing to buy it, but cannot afford the full price, so this is just a want, not effective demand (they have effective demand for a cheaper extbackslash$200 phone).
- 3
For groceries: The household has both willingness to buy and the ability to pay, so this is effective demand.
Exam tip:
IB multiple choice and 2-mark definition questions regularly test the difference between wants and effective demand.
2. Law of Demand: Movements vs Shiftsβ β β βββ± 6 min
The Law of Demand states that, ceteris paribus (all other things equal), as the price of a good increases, quantity demanded falls, and as price falls, quantity demanded rises. This gives the demand curve its characteristic downward slope. A key distinction IB exams test repeatedly is between movements along the curve and shifts of the curve.
Change in Quantity Demanded vs Change in Demand
- Change in quantity demanded: Caused only by a change in the own price of the good β movement along the existing demand curve.
- Change in demand: Caused by a change in non-price determinants β shift of the entire demand curve (right = increase, left = decrease).
For each event affecting the market for tea, state whether there is a movement along or shift of the demand curve: 1. The price of tea drops by 15%. 2. A new study finds tea reduces long-term stress. 3. Average household incomes fall.
- 1
Rule: Only own-price changes cause movement along the curve; all other changes cause a shift.
- 2
Event 1: The change is the own price of tea β this is a downward movement (expansion) along the existing demand curve.
- 3
Event 2: The change is consumer preferences (a non-price determinant) β this is a rightward shift of the entire demand curve.
- 4
Event 3: The change is consumer income (a non-price determinant) β assuming tea is a normal good, this is a leftward shift of the entire demand curve.
Exam tip:
Always check what variable is changing: if it is the own price of the good in question, it is always a movement along the curve, never a shift.
3. Determinants of Demand & Market Demandβ β β βββ± 7 min
There are 6 core non-price determinants that shift the entire demand curve:
Income: For normal goods, demand rises with income (shift right); for inferior goods, demand falls with income (shift left)
Prices of related goods: Substitutes: if a substitute's price rises, demand for your good rises. Complements: if a complement's price rises, demand for your good falls.
Preferences/Tastes: Changes in trends, health information, or advertising shift demand.
Future price expectations: If consumers expect price to rise later, current demand shifts right.
Number of consumers: More buyers in the market shifts market demand right.
Government policy: Taxes or bans shift demand left; subsidies shift demand right.
Market Demand
The total quantity of a good demanded by all individual consumers in a market at each possible price, calculated by horizontally summing individual demand curves.
There are two consumers in the market for oranges: Anna and Ben. Anna demands 6kg at extbackslash$3 per kg, 10kg at extbackslash$2 per kg. Ben demands 4kg at extbackslash$3 per kg, 8kg at extbackslash$2 per kg. Calculate market demand at each price.
- 1
Market demand is the sum of individual quantities at each price (horizontal summation).
- 2
At extbackslash$3 per kg: Market demand = 6kg + 4kg = 10kg
- 3
At extbackslash$2 per kg: Market demand = 10kg + 8kg = 18kg
- 4
To get the full market demand curve, repeat this sum for all possible price points.
4. Common Pitfalls
Wrong move:
Calling an own-price caused movement a shift of the demand curve
Why:
This is the most common mistake tested in IB multiple choice and short answer questions, costing easy marks
Correct move:
Always remember: only non-price determinants shift the entire demand curve; own-price changes only cause movement along the existing curve
Wrong move:
Assuming all goods are normal, so demand always rises with income
Why:
IB questions intentionally use inferior goods to test this distinction, catching students who make this assumption
Correct move:
Check if the good is inferior (e.g. generic bread, bus travel for high-income groups): for inferior goods, higher income shifts demand left
Wrong move:
Vertically summing individual demand curves to get market demand
Why:
Students confuse private good market demand with public good marginal social benefit, which uses vertical summation
Correct move:
Market demand for ordinary private goods is always horizontally summed: add quantities at each price, not prices at each quantity
Wrong move:
Describing a price fall causing higher quantity demanded as an 'increase in demand'
Why:
IB exam vocabulary specifically reserves 'increase in demand' for a right shift, so this wording loses marks
Correct move:
A price fall causes an increase in quantity demanded, not an increase in demand. Use the correct terminology
5. Quick Reference Cheatsheet
Change Type | Cause | Effect on Demand Curve | Key Terms |
|---|---|---|---|
Change in Quantity Demanded | Change in own price of good | Movement along existing curve | Expansion (price β) / Contraction (price β) |
Increase in Demand | Change in non-price determinant | Right shift of entire curve | Higher quantity at all prices |
Decrease in Demand | Change in non-price determinant | Left shift of entire curve | Lower quantity at all prices |
Market Demand (private good) | Sum of individual demand | Horizontal summation | Add quantities at each price |
6. Frequently Asked
What is the difference between a change in quantity demanded and a change in demand?
A change in quantity demanded is caused only by a change in the own price of the good, resulting in movement along the existing demand curve. A change in demand is caused by non-price determinants, shifting the entire demand curve left or right.
When this came up on past exams
AI-estimated based on syllabus patterns β cross-check with official past papers for accuracy. Use only as revision-focus signals.
- 2025 Β· 1
Shift vs movement along demand
- 2024 Β· 2
Market demand derivation
- 2023 Β· 1
Determinants of demand change
Going deeper
What's Next
Demand theory is the foundation of all microeconomic analysis for IB Economics. Mastering the distinction between shifts and movements, and the determinants of demand, is critical for analysing every subsequent topic from market equilibrium to elasticity, consumer choice, and government intervention. This topic appears in both paper 1 and paper 2, so a solid understanding will help you earn marks across all exam sections. Next, you will build on this foundation by learning how responsive demand is to price changes (price elasticity of demand), before moving on to supply theory and competitive market equilibrium.