Economics · Grade 11 · Market Mechanics: Supply and Demand · Term 1

The Law of Demand

Students will define and illustrate the law of demand, explaining the inverse relationship between price and quantity demanded.

• Ontario Curriculum Expectations
• ON: The Individual and the Economy - Grade 11
• ON: Market Interactions - Grade 11

About This Topic

The Law of Demand is a cornerstone of market mechanics, explaining the inverse relationship between price and quantity demanded. Students explore why consumers behave the way they do, looking at the substitution and income effects. In the Ontario curriculum, this topic also covers the non-price determinants that shift the demand curve, such as changes in consumer tastes, income levels, and the prices of related goods.

Understanding consumer choice is essential for students as they navigate their own roles as economic actors. This unit encourages them to look at the incentives behind their spending habits and how external factors, like marketing or social trends, influence their definitions of necessity. Students grasp this concept faster through structured discussion and peer explanation of their own buying habits.

Key Questions

1. Explain why consumers buy more at lower prices.
2. Analyze the income and substitution effects on consumer behavior.
3. Predict how a change in price will affect quantity demanded for a specific good.

Learning Objectives

• Explain the inverse relationship between price and quantity demanded, citing the law of demand.
• Analyze the income effect and the substitution effect to describe how changes in price influence consumer purchasing decisions.
• Calculate the change in quantity demanded resulting from a specific price change, assuming other factors remain constant.
• Predict the impact of a price decrease on the quantity demanded for a normal good versus an inferior good.

Before You Start

Introduction to Scarcity and Choice

Why: Students need to understand that resources are limited and choices must be made, which is the foundation for understanding consumer behavior.

Basic Economic Concepts: Goods and Services

Why: Students must be able to differentiate between goods and services to apply the principles of demand to specific economic products.

Key Vocabulary

Law of Demand	A fundamental economic principle stating that, all else being equal, as the price of a good or service increases, the quantity demanded will decrease, and vice versa.
Quantity Demanded	The specific amount of a good or service that consumers are willing and able to purchase at a particular price during a given period.
Income Effect	The change in consumption resulting from a change in real income, caused by a change in the price of a good. A lower price increases purchasing power.
Substitution Effect	The change in consumption that results when a price change causes consumers to substitute a cheaper good for a more expensive one.
Normal Good	A good for which demand increases as consumer income rises, and decreases as consumer income falls, with price held constant.
Inferior Good	A good for which demand decreases as consumer income rises, and increases as consumer income falls, with price held constant.

Watch Out for These Misconceptions

Common Misconception

A change in price shifts the demand curve.

What to Teach Instead

Price only causes movement along the curve (change in quantity demanded). Only non-price factors shift the entire curve. Drawing these movements in small groups helps clarify the difference.

Common Misconception

Demand is just what people want.

What to Teach Instead

Economic demand requires both the desire and the ability to pay. A 'needs vs. wants' sorting activity can help students distinguish between personal desire and market demand.

Active Learning Ideas

Think-Pair-Share: The Coffee Switch

Students discuss what they would do if the price of their favorite drink doubled. They identify if they would buy less (Law of Demand) or switch to a substitute, then share their reasoning with the class.

15 min·Pairs

Inquiry Circle: Demand Shifters

Groups are given a product like 'Electric Vehicles' or 'Vinyl Records.' They must research and present three real-world factors that have recently shifted the demand for that product in Canada.

40 min·Small Groups

Simulation Game: The Auction Room

Conduct a silent auction for a popular item. Record how many students are willing to pay at various price points to create a real-time demand schedule and curve on the whiteboard.

30 min·Whole Class

Real-World Connections

• Retailers like Loblaws and Sobeys constantly adjust prices on staple goods such as milk and bread to influence sales volume, observing how consumers react to discounts or price increases.
• Airlines, such as Air Canada and WestJet, use dynamic pricing for flights. They lower prices during off-peak seasons or for less popular routes to stimulate demand, applying the law of demand directly to manage capacity.
• Technology companies like Apple often observe a significant increase in iPhone sales when they introduce a new model at a lower price point than the previous generation, demonstrating the price-quantity relationship.

Assessment Ideas

Quick Check

Present students with a scenario: 'The price of coffee at Tim Hortons drops from $2.50 to $1.75 per cup. What is likely to happen to the number of cups of coffee sold?' Ask students to write down their prediction and one reason based on the law of demand.

Discussion Prompt

Pose the question: 'Imagine the price of your favorite video game console suddenly doubles. How might the income effect and the substitution effect influence your decision to buy it?' Facilitate a class discussion where students share their individual analyses.

Exit Ticket

Provide students with a list of goods (e.g., gasoline, luxury watches, instant noodles, concert tickets). Ask them to classify each as a normal good or an inferior good and briefly explain their reasoning for one of the choices.

Frequently Asked Questions

What factors shift the demand curve?

Key shifters include changes in consumer income, tastes and preferences, prices of related goods (substitutes and complements), expectations of future prices, and the number of buyers in the market.

What is the difference between a substitute and a complement?

A substitute is a good used in place of another (like butter and margarine), while a complement is a good used together with another (like printers and ink). If the price of a good rises, demand for its substitute increases, but demand for its complement decreases.

How can active learning help students understand demand?

Active learning, like classroom auctions or surveys, turns students into the data points. When they see their own classmates' willingness to pay drop as prices rise, the 'inverse relationship' becomes a visible reality rather than just a line on a graph. This makes the Law of Demand intuitive.

How does income affect demand for different types of goods?

For 'normal goods,' demand increases as income rises. For 'inferior goods,' like generic brands or some public transit, demand actually decreases as consumers can afford more expensive alternatives.