Income and Substitution Effects
Demand
AO2·HL
Syllabus requirement
How a change in price leads to changes in demand due to income and substitution effects.
Assessment objectives
AO2 Application and Analysis
Higher LevelThis topic is assessed at HL.
Summary
This topic explains how changes in price affect quantity demanded through the income effect and the substitution effect, and how these interact with the law of diminishing marginal utility. It defines market demand and the demand curve, lists the non-price determinants of demand with the acronym RIPEN, and distinguishes movements along a demand curve from shifts of the entire curve.