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Theory of Demand
- Level:
- GCSE, AS, A Level, IB
- Board:
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 2 Jul 2018
Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period
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Revision Flashcards for A Level Economics Students
Resource Collection
Income and Substitution Effects and the theory of demand
Income effect
- A fall in price increases the real purchasing power of consumers
- This allows people to buy more with a given budget
- For normal goods, demand rises with an increase in real income
Substitution effect
- A fall in the price of good X makes it relatively cheaper compared to substitutes
- Some consumers will switch to good X leading to higher demand
- Much depends on whether products are close substitutes
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