#AP Macroeconomics: Demand - Your Ultimate Review 🚀

Hey there! Let's get you prepped for the AP Macro exam. We're diving into demand, making sure you're not just memorizing, but understanding what's going on. Let's do this!

# Demand: The Basics

#What is Demand?

Demand isn't just about wanting something; it's about being willing and able to buy it at various prices. Think of it as a whole range of possibilities, not just one specific purchase.

#Demand vs. Quantity Demanded

Imagine a demand curve like a slide. Demand is the entire slide, while quantity demanded is just one spot where you might be on the slide at a particular moment.

• Demand = The whole curve
• Quantity Demanded = A single point (A, B, or C)

# Law of Demand

The law of demand is a cornerstone of economics. It states that price and quantity demanded are inversely related.

• Price ⬆️, Quantity Demanded ⬇️ (People buy less when things get pricier)
• Price ⬇️, Quantity Demanded ⬆️ (People buy more when things get cheaper)

Think of it like this: if your favorite candy bar doubles in price, you probably won't buy as many, right? That's the law of demand in action!

• At point 🅱️, the price is $40 and the quantity demanded is 800 cans.$
• At point 🅰️, the price increased to60, and the quantity demanded decreased to 400 cans.

# Determinants of Demand: Shifting the Curve

Determinants are the factors that cause the entire demand curve to shift. Think of them as external forces that change how much people want at every price.

• Increase in Demand: Curve shifts to the right.
• Decrease in Demand: Curve shifts to the left.

#The INSECT Acronym 🐛

#How INSECT Affects Demand

Demand Increases (Shift Right) if:

• Income ⬆️ (For normal goods; for inferior goods, it's the opposite)
• Number of Buyers ⬆️ (More people, more demand!)
• Substitutes' Prices ⬆️ (If Coke gets pricier, people might buy more Pepsi)
• Expectation of Future Price ⬆️ (If you think prices will go up, you buy now)
• Complements' Prices ⬇️ (If hot dogs get cheaper, people might buy more buns)
• Tastes/Preferences ⬆️ (If a product becomes trendy, demand increases)

Demand Decreases (Shift Left) if:

• Income ⬇️ (For normal goods; for inferior goods, it's the opposite)
• Number of Buyers ⬇️
• Substitutes' Prices ⬇️
• Expectation of Future Price ⬇️
• Complements' Prices ⬆️
• Tastes/Preferences ⬇️

💡 Complements are goods that are used together (like peanut butter and jelly). If the price of one goes up, the demand for the other goes down.

# Practice Questions

Practice Question

Multiple Choice Questions

1. Which of the following would cause a movement along the demand curve for a good? (A) An increase in consumer income (B) A decrease in the price of a substitute good (C) An increase in the price of the good (D) A change in consumer tastes (E) An expectation that the price of the good will increase in the future

2. If the price of a complement good decreases, what happens to the demand curve for the original good? (A) It shifts to the left. (B) It shifts to the right. (C) It remains unchanged. (D) It becomes more elastic. (E) It becomes more inelastic.

3. Which of the following would most likely cause an increase in the demand for coffee? (A) A decrease in the price of tea, a substitute for coffee. (B) An increase in the price of coffee beans, the main input in coffee production. (C) A widely publicized study showing the health benefits of coffee consumption. (D) A decrease in consumer income. (E) An expectation that the price of coffee will decrease in the future.

Free Response Question

Assume that the market for smartphones is in equilibrium.

(a) Draw a correctly labeled graph of the smartphone market, showing the equilibrium price and quantity.

(b) Suppose there is a significant decrease in the price of mobile data plans, a complement to smartphones. On your graph in part (a), show the effect of this change on the demand for smartphones. Explain the change in demand.

(c) Now suppose that a new technology makes smartphone production cheaper. On a new graph, show how this change affects the smartphone market. Explain the change in supply, and show the new equilibrium price and quantity.

(d) Given your answers in parts (b) and (c), what is the likely combined effect on the equilibrium price and quantity of smartphones? Explain.

Answer Key

Multiple Choice:

1. (C)
2. (B)
3. (C)

Free Response Question (a) Graph (2 points):

• Correctly labeled axes (price and quantity) (1 point)
• Downward-sloping demand curve and upward-sloping supply curve, with equilibrium point (1 point)

(b) Demand Shift (2 points):

• Demand curve shifts to the right (1 point)
• Explanation: Decrease in the price of a complement (mobile data) increases the demand for smartphones (1 point)

(c) Supply Shift (2 points):

• Supply curve shifts to the right (1 point)
• Explanation: Decrease in production costs increases the supply of smartphones (1 point)

(d) Combined Effect (2 points): * Equilibrium quantity increases (1 point) * Equilibrium price is indeterminate (it could increase, decrease, or stay the same depending on the magnitude of the shifts) (1 point)

#Final Exam Focus 🎯

Demand is a foundational concept. Make sure you understand the difference between a change in quantity demanded vs. a change in demand.

• Key Topics:
  • Law of Demand
  • Determinants of Demand (INSECT)
  • Shifting the demand curve
  • Distinguishing between demand and quantity demanded

• Common Question Types:
  • Multiple choice questions asking about the impact of various factors on demand
  • FRQs requiring you to draw demand curves and show shifts
  • Questions that combine demand with supply concepts

• Exam Tips:
  • Time Management: Don't spend too long on one question. Move on and come back if needed.
  • Common Pitfalls: Confusing movements along the curve with shifts of the curve.
  • FRQ Strategy: Always label your graphs completely and explain your reasoning clearly.

You've got this! Keep reviewing, stay confident, and you'll ace that exam. Good luck! 🍀