Demand Revision Notes

Demand in economics refers to the quantity of a good or service that consumers are both willing and able to buy at different prices over a specific period. It is important to note that demand is not just about desire; consumers must have the financial means to purchase the product for it to count as demand.

For example, if a person wants a smartphone but cannot afford it, this desire does not contribute to demand. However, if they can afford it and are willing to buy it at a given price, this counts as demand.

• Demand involves both willingness and ability to purchase.
• It is measured over a specific time period, such as a week or a month.

There is an inverse relationship between the price of a good and the quantity demanded, meaning that as the price falls, the quantity demanded generally rises, and vice versa. This relationship occurs because lower prices make goods more affordable to more consumers, increasing the quantity they want to buy.

For instance, if the price of a chocolate bar decreases from $1.50 to $1.00, more people may buy it, increasing the quantity demanded. Conversely, if the price rises to $2.00, fewer people may be willing or able to buy it, reducing demand.

• Price and quantity demanded move in opposite directions.
• This relationship is fundamental to the shape of the demand curve.

A demand curve is a graphical representation of the relationship between price and quantity demanded. On a graph, the vertical axis (y-axis) shows the price of the good, while the horizontal axis (x-axis) shows the quantity demanded.

To draw a demand curve, plot points for different prices and their corresponding quantities demanded, then connect these points with a smooth downward-sloping line. The downward slope reflects the inverse relationship between price and quantity demanded.

For example, if at $5 the quantity demanded is 10 units, and at $3 the quantity demanded is 20 units, these points can be plotted and connected to form the demand curve.

• Price is on the vertical axis; quantity demanded is on the horizontal axis.
• The demand curve slopes downwards from left to right.
• Each point on the curve shows quantity demanded at a specific price.

The downward slope of the demand curve means that a movement along the curve occurs when the price changes, causing a change in quantity demanded. This is called a change in quantity demanded, not a change in demand.

For example, if the price of coffee falls from $4 to $3, the quantity demanded increases from 15 cups to 25 cups per day, moving along the same demand curve.

It is important to distinguish this from a shift in the demand curve, which happens when factors other than price change (covered in other objectives).

• Movement along the curve = change in quantity demanded due to price change.
• The demand curve itself remains unchanged unless other factors affect demand.

To summarise, demand is the quantity consumers are willing and able to buy at various prices, represented graphically by a downward-sloping demand curve. Understanding this helps explain consumer behaviour and market outcomes.

Consider a local cinema: if ticket prices drop from $10 to $7, more people may attend, increasing the quantity demanded of tickets. This increase is shown as a movement down along the demand curve.

• Demand combines willingness and ability to buy.
• Demand curves graphically show price-quantity relationships.
• Price changes cause movements along the demand curve.

Demand refers to the quantity of a good or service that consumers are willing and able to buy at different prices over a period of time. Price is a key factor affecting demand. Generally, when the price of a product falls, consumers buy more of it; when the price rises, they buy less. This inverse relationship is fundamental in economics and is due to the substitution effect (consumers switch to cheaper alternatives) and the income effect (lower prices increase consumers’ real income, allowing them to buy more).

• Price and quantity demanded move in opposite directions.
• Lower prices increase quantity demanded; higher prices decrease it.

A demand curve is a graphical representation of the relationship between price and quantity demanded. It is drawn with price on the vertical (Y) axis and quantity demanded on the horizontal (X) axis. The curve slopes downwards from left to right, reflecting the inverse relationship between price and quantity demanded. Each point on the curve shows the quantity consumers will buy at a specific price.

• Price on vertical axis, quantity demanded on horizontal axis.
• Downward sloping curve illustrates inverse price-quantity relationship.
• Each point corresponds to a price-quantity pair.

When the price of a good changes, the quantity demanded changes, causing a movement along the demand curve. If the price decreases, the quantity demanded increases, and this movement is called an extension of demand. Conversely, if the price increases, the quantity demanded decreases, known as a contraction of demand. These movements do not shift the demand curve itself; they represent changes in quantity demanded due to price changes alone.

• Extension: price falls, quantity demanded rises, movement down the curve.
• Contraction: price rises, quantity demanded falls, movement up the curve.
• Movements along the curve reflect quantity changes, not demand shifts.

It is important to differentiate between movements along the demand curve and shifts of the demand curve. Movements along the curve occur only when price changes, affecting quantity demanded. Shifts in demand happen when factors other than price change, such as consumer income, tastes, or prices of related goods. A shift means at every price, the quantity demanded changes, moving the entire curve left (decrease) or right (increase). This note focuses on movements along the curve caused by price changes.

• Movement along curve = change in quantity demanded due to price change.
• Shift of curve = change in demand due to non-price factors.
• This objective covers movements, not shifts.

Imagine the price of a cup of coffee falls from $3 to $2. At $3, consumers buy 100 cups daily; at $2, they buy 150 cups. This increase from 100 to 150 cups is an extension of demand, shown by a movement down the demand curve. If the price rises from $2 to $3, the quantity demanded contracts from 150 to 100 cups, a movement up the curve. This example illustrates how price changes cause movements along the demand curve, affecting quantity demanded.

• Price drop from $3 to $2 increases quantity demanded from 100 to 150 cups (extension).
• Price rise from $2 to $3 decreases quantity demanded from 150 to 100 cups (contraction).
• Movements along the curve reflect consumer response to price changes.

Individual demand represents the quantity of a good or service that a single consumer is willing and able to purchase at various prices over a given period. It reflects personal preferences, income, and the price of the good.

For example, if Alice is willing to buy 3 apples at £1 each but only 1 apple at £2 each, her individual demand decreases as price rises, illustrating the law of demand.

• Depends on one consumer’s preferences and income.
• Varies with price changes for that individual.

Market demand is the total quantity of a good or service demanded by all consumers in a market at different prices. It aggregates the individual demands of every consumer.

If Alice demands 3 apples at £1 and Bob demands 2 apples at £1, the market demand at £1 is 5 apples. This summation occurs for each price level to form the market demand curve.

• Sum of all individual demands at each price.
• Represents overall consumer behaviour in the market.

To derive market demand, add the quantities demanded by all individuals at each price point. This horizontal summation creates the market demand curve.

For instance, at £2, Alice demands 1 apple and Bob demands 3 apples; market demand is 4 apples at £2.

This process assumes consumers act independently and that the good is homogeneous.

• Add individual quantities demanded at each price.
• Results in a market demand curve that slopes downward.

Both individual and market demand curves typically slope downwards from left to right, reflecting the inverse relationship between price and quantity demanded.

The market demand curve is generally smoother and less steep than individual curves because it averages diverse consumer responses.

For example, some consumers may reduce demand sharply as price rises, while others reduce it less, balancing out in the market curve.

• Downward slope due to law of demand.
• Market curve is a horizontal sum of individual curves.
• Market curve smooths out individual variations.

Individual demand depends on personal income, tastes, prices of related goods, and expectations.

Market demand reflects the aggregate effect of these factors across all consumers.

Changes in income or preferences in the population shift the market demand curve, not just individual curves.

• Individual factors: income, preferences, prices of substitutes/complements.
• Market factors: population size, aggregate income, overall preferences.

The demand curve shows the relationship between the price of a good (on the vertical axis) and the quantity demanded (on the horizontal axis). A movement along the demand curve occurs when the price changes, causing a change in quantity demanded; this is called an extension (quantity demanded rises as price falls) or contraction (quantity demanded falls as price rises).

In contrast, a shift of the entire demand curve happens when a non-price factor changes, altering demand at every price level. A rightward shift indicates an increase in demand, meaning consumers want to buy more at every price. A leftward shift indicates a decrease in demand, meaning consumers want to buy less at every price.

• Vertical axis: Price of the good
• Horizontal axis: Quantity demanded
• Movement along curve: change in quantity demanded due to price change
• Shift of curve: change in demand due to non-price factors

Changes in consumer income affect demand differently depending on the type of good. For normal goods, an increase in income leads to an increase in demand (shift right), as consumers can afford to buy more. For example, if incomes rise, people may buy more branded clothing.

For inferior goods, an increase in income causes demand to decrease (shift left), as consumers switch to better alternatives. For instance, if incomes rise, demand for instant noodles may fall.

Example: If average incomes rise in a country, the demand curve for new cars shifts right, increasing demand at all prices.

• Normal goods: income ↑ → demand ↑ (shift right)
• Inferior goods: income ↑ → demand ↓ (shift left)

Changes in consumer tastes, influenced by trends, advertising, or health concerns, can shift demand.

If a product becomes more fashionable or perceived as healthier, demand increases (shift right). For example, a rise in popularity of electric scooters increases their demand.

Conversely, negative publicity or changing preferences can reduce demand (shift left). For example, if a food product is found to be unhealthy, demand may fall.

• Positive change in tastes → demand increases (shift right)
• Negative change in tastes → demand decreases (shift left)

The demand for a good is affected by the prices of related goods, which include substitutes and complements.

Substitutes are goods that can replace each other. If the price of a substitute rises, demand for the original good increases (shift right). For example, if the price of tea rises, demand for coffee may increase.

Complements are goods used together. If the price of a complement rises, demand for the original good decreases (shift left). For example, if the price of printers rises, demand for printer ink may fall.

• Substitute price ↑ → demand for original good ↑ (shift right)
• Complement price ↑ → demand for original good ↓ (shift left)

Expectations about future prices or income can influence current demand. If consumers expect prices to rise, they may buy more now, increasing demand (shift right). If they expect a price drop, demand may decrease (shift left).

Other factors include population changes (more consumers increase demand), seasonal effects (demand for heaters rises in winter), and government policies (taxes or subsidies).

• Expectations of price rise → demand increases now (shift right)
• Population growth → demand increases (shift right)
• Seasonal changes affect demand accordingly