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Economics IGCSEPDF 22
118 pagesrevision 46932
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The Law of Demand
Statement:
quantity
ANS: C. To provide signals and incentives to consumers and producers to allocate scarce
resources.
•
Thelaw of demand states that there is an inverse relationship between price
and quantity demanded (ceteris paribus - all other factors remain constant). • An
increase in price leads to a decrease in demand (or quantity demanded). • A decrease
in price leads to an increase in demand (or quantity demanded). • Note on Causality:
The law is established with respect to changes in price affecting
demanded. Changes in demand (a shift of the curve) affect price, not the other way aroundin
this context.
•Demand: The want and willingness of consumers to buy a good or service at a given price.
•Effective Demand: Demand where the willingness to buy is backed by the ability to pay (i.e.,
having the money).
•Example: Wanting a laptop is 'demand'; having the money to buy it is 'effective demand'.
•Quantity Demanded: The term for the effective demand for a specific good or service.
•Individual Demand: The demand from a single consumer.
•Market Demand (Aggregate Demand): The total demand for a product, which is the sum of
allindividual demands from consumers.