<2.1 DEMAND & SUPPLY CURVES>

"When surveyed, 100% of the school (500 students) said they would be 'willing' to pay $10,000 for the latest iPhone. In other words, the quantity demanded of 'iPhones', at a price of $10,000, would be 500, right?"

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[Insert S&D diagram with 500 at $1000 plotted]

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"Wrong!!! Willingness to buy an iPhone is not enough. Unless customers can back that willingness with purchasing power, then iPhone has no reason to order more raw materials, hire more staff, etc. Willingness backed by the ability to pay is called effective demand, and helps determine the allocation of the scarce productive resources."

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"So how does Apple price its iPhone?" "If they set the price too high, what will happen to the quantity demanded? And what about if they set it too low?"

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That's right, higher price => lower Qd and vice versa. This inverse relationship is called 'THE LAW OF DEMAND', which states that there is a NEGATIVE RELATIONSHIP between price (P) and quantity (Q) of a good demanded: 

"THE HIGHER (LOWER) THE PRICE, THE LOWER (HIGHER) THE QUANTITY DEMANDED, CETERIS PARIBUS..."

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"...and when plotted with the price of the good on the Y-axis and quantity on the X-axis, we get a DEMAND CURVE.

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--TASK--

"Sketch a demand curve illustrating a price change, and explain what happens in terms of the 'law of demand' [4] 

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--2.1.3 DETERMINANTS OF DEMAND--

--2.1.4 DETERMINANTS OF SUPPLY--

--2.1.5 CAUSES OF SHIFTS IN DEMAND--

--2.1.6 CAUSES OF SHIFTS IN SUPPLY--

--2.1.7 SHIFTS vs MOVEMENTS--