AP Microeconomics AMSCO Guided Notes
2.1: Demand
AMSCO Guided Notes
AP Microeconomics Guided Notes
AMSCO 2.1 - Demand
Essential Questions
- How are consumer decisions affected by the law of demand and by incentives and constraints?
I. Market Systems and Property Rights
1. What is a market system and what role do economic agents play within it?
2. Why are clearly defined property rights essential for a market system to function well?
II. The Law of Demand
1. What is demand and how does it differ from simply wanting or desiring a product?
2. What does the law of demand state about the relationship between price and quantity demanded?
3. Why do lower prices lead to greater quantity demanded?
III. Demand Schedules and Demand Curves
A. Demand Schedules
1. What is a demand schedule and how do businesses use it?
2. What is a change in quantity demanded and what causes it?
B. Demand Curves
1. What is a demand curve and what does its downward slope represent?
2. How do merchants use the law of demand to make business decisions about pricing and inventory?
IV. Price and Quantity Demanded
A. Diminishing Marginal Utility
1. What is marginal utility and how does diminishing marginal utility explain consumer purchasing decisions?
2. How does the concept of diminishing marginal utility apply to products like backpacks or hamburgers?
B. Substitution Effect
1. What is the substitution effect and how does it influence consumer behavior when prices change?
C. Income Effect
1. What is the income effect and how does a price change affect a consumer's purchasing power?
2. How can the income effect and substitution effect work against each other in consumer decision-making?
V. Changes in Demand
1. What is the difference between a change in quantity demanded and a change in demand?
2. What factors besides price can cause overall market demand for a product to increase or decrease?
A. Shift in the Demand Curve
1. What happens to the demand curve when demand increases or decreases?
2. How does a shift in the demand curve differ from movement along an existing demand curve?
VI. Determinants of Demand
A. The Price of Substitute Goods
1. What are substitute goods and how does the price of substitutes affect demand for a product?
B. The Price of Complementary Goods
1. What are complementary goods and how does a change in the price of one affect demand for the other?
C. Change in Consumers' Incomes
1. What is a normal good and how does consumer income affect its demand?
2. What are inferior goods and when do consumers purchase more of them?
D. Preferences among Consumers
1. How do consumer preferences influence the demand for a product?
E. Expectations about the Future
1. How do consumer expectations about future prices affect current demand for a product?
F. Number of Buyers in the Market
1. How does the number of buyers in a market affect overall demand for goods and services?
Key Terms
economic incentive
economic constraints
market system
economic agents
property rights
demand
consumer decision-making
law of demand
own-price
quantity demanded
market demand
demand schedule
change in quantity demanded
demand curve
marginal utility
diminishing marginal utility
substitution effect
income effect
change in demand
shift in the demand curve
determinants of demand
complementary goods
normal good
inferior goods