Law of Demand vs Determinants of Demand
Law of Demand and Determinants of Demand are two Supply & Demand concepts in AP Economics that students often mix up. The law of demand states that quantity demanded falls when price rises, holding all else constant. Determinants of demand are factors that shift the demand curve, changing the quantity demanded at each price. Here is how they compare side by side.
The law of demand describes the inverse relationship between price and quantity demanded. When the price of a good rises, consumers are willing and able to buy less of it. Conversely, when the price falls, consumers are willing and able to buy more. This holds true as long as other factors like income and preferences remain constant.
The main determinants of demand are consumer income, preferences, the prices of related goods, and expectations. When these factors change, the demand curve shifts to the right or left. For example, if consumer income rises, demand will shift to the right, indicating an increase in demand at each price level.
Law of Demand vs Determinants of Demand: Along the Curve or a New Curve
| Law of Demand | Determinants of Demand | |
|---|---|---|
| What it explains | Why the demand curve slopes downward | Why the demand curve moves position |
| Variable doing the work | The good's own price | Income, tastes, related goods' prices, expectations, number of buyers |
| Effect on the diagram | A slide along one fixed curve | A whole new curve to the left or right |
| Correct wording for the change | Change in quantity demanded | Change in demand |
| Status of the all else equal assumption | Held, because only price moved | Broken, because a held factor changed |
| Effect on equilibrium price | None by itself; it is a response to a price | It sets a new equilibrium price and quantity |
One curve or a different curve, and the price tag tells you which
The law of demand describes a single curve. Hold income, tastes and every other influence still, raise the price, and the quantity buyers want falls. The determinants are exactly the things you were holding still. Change one and the old curve is no longer valid, because buyers now want a different quantity at every price, including prices they were never actually charged. Numbers make the split visible. Suppose an illustrative demand schedule is Qd equals 60 minus 2P. At a price of 10 buyers want 40 units, and at a price of 20 they want 20 units. That drop of 20 units is the law of demand at work, and both figures come out of the same equation. Now let average income rise so buyers want 14 more units at any price, giving Qd equals 74 minus 2P. At a price of 10 they want 54 units, and at 20 they want 34. The whole schedule moved right by 14 units, something no price change could ever produce. Read the two changes side by side and the wording writes itself. Going from 40 to 20 is a change in quantity demanded. Going from 40 to 54 while the price stays at 10 is a change in demand. The full diagram is at /micro/supply-and-demand.
The law of demand survives every shift, which is why it is called a law
A determinant changing does not suspend the law of demand. After income rises the new curve still slopes down; buyers simply want more at each price than they did before. This is worth stressing because students sometimes claim that higher income breaks the law of demand, or that a price rise happening alongside rising sales disproves it. Rising price with rising sales means a determinant moved at the same time, and the curve you should be reading is the new one. The determinants are conventionally grouped as income, tastes, the prices of related goods, expectations about future prices or income, and the number of buyers. Each acts on the whole schedule at once. Income splits by good type, since a normal good's demand rises with income while an inferior good's falls, so the label attached to the good decides the direction of the shift. Related goods split the same way: a substitute getting more expensive raises demand for this good, and a complement getting more expensive lowers it. The one factor never on the list is the good's own price, and that omission is deliberate, because own price is already built into the shape of the curve. See /glossary/normal-good and /glossary/inferior-good for the income cases.
Frequently asked questions
Is price a determinant of demand?
No, the good's own price is not a determinant of demand, because it moves you along the existing curve instead of shifting the curve. The determinants are the factors held constant while the curve is drawn: income, tastes, prices of related goods, expectations and the number of buyers. A price change therefore produces a change in quantity demanded, not a change in demand.
What are the five determinants of demand?
The standard list is income, tastes and preferences, the prices of related goods, expectations about future prices or income, and the number of buyers in the market. A change in any of them redraws the demand curve at a new position. Some courses split or rename these categories, so match the list your own textbook uses.
Does the law of demand still hold when demand increases?
Yes, an increase in demand shifts the curve right but leaves it sloping downward, so quantity demanded still falls as price rises along the new curve. The law is a statement about one curve at a time, not a claim about how total sales move over a stretch of time when several things change together.
Live Supply and Demand graph. Drag the curves, or open the full version.
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