Law of Demand: As price rises, quantity demanded falls (and vice versa), ceteris paribus (all else equal).
Two reasons: Substitution effect (it becomes relatively more expensive than alternatives) and Income effect (higher price reduces real purchasing power).
Two reasons: Substitution effect (it becomes relatively more expensive than alternatives) and Income effect (higher price reduces real purchasing power).
โ The Coffee Shop Analogy: At ยฃ5 a cup, only coffee addicts buy. At ยฃ1, the queue is out the door. The demand curve maps every point along this relationship. The curve slopes downward โ always.
What SHIFTS the Demand Curve?
๐ฐ Income
More income โ more demand for normal goods. Less income โ more demand for inferior goods (e.g., budget brands).
๐ Substitutes
If the price of tea rises, demand for coffee increases โ consumers switch. Positive cross-price effect.
๐ค Complements
If the price of printers rises, demand for printer ink falls โ they go together. Negative cross-price effect.
๐ฃ Tastes
Fashion, health trends, advertising can shift demand without any price change.
โ ๏ธ Critical Distinction:
Movement ALONG the demand curve = change in the good's OWN price.
SHIFT of the demand curve = change in any other factor (income, related prices, tastes).
Movement ALONG the demand curve = change in the good's OWN price.
SHIFT of the demand curve = change in any other factor (income, related prices, tastes).