Ch 2 Unit 1: Theory of Demand
Let's start with a simple question: Who wants a Ferrari?
Check the boxes below to see if you actually create "Economic Demand".
The Checklist
No Demand
You need all three pillars to count in Economics.
Determinants of Demand
Why do we buy? Interact with these scenarios to see how different factors affect demand.
Own Price
Relationship: Inverse
Substitute Price
Example: Tea vs Coffee.
Relationship: Direct
Complement Price
Example: Car & Petrol.
Relationship: Inverse
Income
Effect depends on good type.
Relationship: Variable
The Law of Demand
Ceteris Paribus (Other things constant):
Price ⬆️ = Demand ⬇️
Why downwards?
- Substitution Effect: Cheaper items are more attractive than rivals.
- Income Effect: Price drop = You feel richer = Buy more.
- Diminishing Utility: You pay less for the 2nd unit.
Standard inverse relationship.
Demand Curve Simulator
Movement vs. Shift
The #1 Exam Trap. Control the sliders to see the difference.
Change Price Only
Expansion / Contraction
Change Factors (Income/Taste)
Increase / Decrease
Elasticity Math Lab
Understand the math behind the responsiveness. Choose a method and see step-by-step calculations.
Step-by-Step Calculator
Total Outlay (Revenue) Method
Revenue = Price × Quantity. Compare Total Expenditure before and after.
Exam Day Cheat Sheet ⚡
Cross Elasticity Signs
- Positive (+) = Substitutes (Tea/Coffee). They move together.
- Negative (-) = Complements (Car/Petrol). They move oppositely.
- Zero (0) = Unrelated Goods.
Income Elasticity Signs
- Positive (+) = Normal Good.
- Negative (-) = Inferior Good.
- > 1 = Luxury Good.
Total Outlay Trick
- Price ⬇️ & Exp ⬆️ = Elastic (>1)
- Price ⬇️ & Exp ⬇️ = Inelastic (<1)
- Exp Constant = Unitary (=1)