Demand: notes and practice questions
- This topic explains the relationship between price and quantity demanded, the factors influencing demand, and how these are represented graphically.
- The law of demand states that, ceteris paribus, there is an inverse relationship between price and quantity demanded.
- A demand curve is a downward-sloping line illustrating the law of demand.
- Non-price determinants of demand include income, tastes and preferences, future price expectations, prices of related goods (substitutes and complements), and the number of consumers.
- A change in price causes a movement along the demand curve.
- A change in a non-price determinant causes a shift of the entire demand curve.
How it is examined
The bread-and-butter Paper 2 diagram question. A part (c) to (f) worth 4 marks asking for a demand and supply diagram plus a written explanation is the single most common shape in Paper 2, and May 2025 TZ1 Q1(b)(iii) asked for a sketch of exactly this for 2 marks. As a Paper 1 part (a) it appears folded into a wider question rather than alone.
- The law of demand: the relationship between price and quantity demanded. (AO2)
- The demand curve, drawn downward-sloping. (AO4)
- The relationship between an individual consumer's demand and market demand. (AO2)
- The non-price determinants of demand: income; tastes and preferences; future price expectations; price of related goods, in the cases of substitutes and complements; number of consumers. (AO2)
The assumptions underlying the law of demand: the income and substitution effects, and the law of diminishing marginal utility. (AO2)
Guiding questions
- How do consumers make choices in trying to meet their economic objectives?
Linking questions
- Pairs with 2.2 to give 2.3.
- The income and substitution effects (HL) explain the shape assumed throughout Unit 2.
- Non-price determinants reappear as the determinants of AD components in 3.2.
Practice questions
3 questions · 3 hardQuestion 1
HardPaper 1 · no calculator25 marks(a) Explain two non-price determinants that could decrease the market demand for a good.
(b) Using real-world examples, evaluate the view that imposing a price ceiling will always be beneficial for an economy.
Start by defining 'demand'. Then, identify two factors, other than the good's own price, that would cause consumers to want to buy less of it at any given price. For each factor, explain the mechanism through which it reduces demand. Illustrate this with a diagram showing a shift in the demand curve.
Define a price ceiling and explain its purpose. Use a diagram to show how a price ceiling set below the equilibrium price creates a shortage. Discuss the intended benefits, such as affordability for consumers. Then, critically evaluate the potential negative consequences, such as shortages, black markets, and reduced producer incentives. The command term 'evaluate' requires you to make a judgement, supported by real-world examples (e.g., rent controls, price caps on food or fuel). Consider the word 'always' in your final judgement.
Question 2
HardPaper 1 · no calculator25 marks(a) Explain how an increase in the price of gasoline (petrol) might affect the price and output of electric vehicles and of home charging stations.
(b) Using real-world examples, evaluate the view that imposing an indirect tax on gasoline (petrol) is the most effective way for a government to reduce air pollution from road transport.
Start by defining substitute and complement goods. Then, consider the relationship between gasoline-powered cars and electric vehicles. How does a change in the cost of using one affect the demand for the other? Finally, think about the relationship between electric vehicles and the equipment needed to run them.
To evaluate this view, you need to consider both the strengths and weaknesses of a gasoline tax. Explain how it is intended to work using the concept of negative externalities. Then, critically assess its effectiveness. Crucially, the question asks if it is the 'most effective' way, so you must compare it with alternative policies designed to achieve the same goal.
Question 3
HardPaper 1 · no calculator25 marksExplain how one determinant of demand might lead to an increase in the price of electric vehicles and how one determinant of supply might lead to a decrease in the price of electric vehicles.
Using real-world examples, evaluate the proposition that governments should always use price ceilings (maximum prices) to make essential goods more affordable.
For the first part, think about factors that would make more people want to buy electric vehicles at any given price. For the second part, consider factors that would make it cheaper or easier for firms to produce electric vehicles. Use separate demand and supply diagrams to illustrate each change and its effect on the equilibrium price.
Start by explaining how a price ceiling works using a diagram. Then, consider the arguments for this policy (e.g., equity, affordability) and the arguments against it (e.g., shortages, black markets). Use a specific real-world example, like rent control or food price caps, to support your evaluation. The word 'always' is a key part of the proposition to evaluate.
No question on this page matches those filters. Try another difficulty or paper.
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Where marks are lost
- No real-world example, or a stated one. An answer that names a country and stops cannot reach the top two bands.
- One-sided argument. Balance is an explicit axis. A student who argues only that a policy works is capped at 9 out of 15 on that axis alone.
- Diagram present but not explained. The diagram bullet escalates across three bands: included, included and explained, included and fully explained. A diagram dropped into an answer without prose that refers to it sits at 5 to 6 on a 10-mark part.
