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Core Concept: The Law of Demand

As price increases, quantity demanded decreases — all else being equal.

Ed = %ΔQd ÷ %ΔP

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Introduction to Economics · Chapter 2
15 min

Core Concept: The Law of Demand

As price increases, quantity demanded decreases — all else being equal. This inverse relationship is the foundation of all demand analysis in economics.

Price Elasticity of Demand

Ed = %ΔQd ÷ %ΔP

If |Ed| > 1 → Elastic (luxury goods) · If |Ed| < 1 → Inelastic (necessities)

Exam Pitfalls

Common mistakes students make when calculating price elasticity include confusing percentage change with absolute change, and forgetting to take the absolute value of the result before classification.

Quick Review Checklist

  • ☐ Define demand vs quantity demanded
  • ☐ State the Law of Demand
  • ☐ Calculate price elasticity

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