Demand
EconomicsΒ· 2.3Β· 15 min read
1. 1. Definition of Demand and the Law of Demandβ β ββββ± 4 min
Demand
The quantity of a good or service that consumers are willing and able to purchase at different prices, over a given period of time.
Example:
A consumer may be willing to buy 2 coffees per week at \5 each.
The law of demand is a fundamental IGCSE microeconomics rule: ceteris paribus (all other factors remaining equal), as the price of a good rises, the quantity demanded falls, and vice versa. This inverse relationship between price and quantity demanded explains why the demand curve slopes downwards from left to right.
A small bakery sells loaves of bread. At a price of \3 per loaf, consumers buy 100 loaves per week. Use the law of demand to explain this change.
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Step 1: State the law of demand: ceteris paribus, price and quantity demanded are inversely related.
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Step 2: Link to the example: when the price of bread increased from \3, the quantity of loaves consumers were willing and able to buy fell from 150 to 100.
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Step 3: Confirm this matches the law of demand, as a price rise leads to a fall in quantity demanded, holding all other factors (like consumer income, price of substitutes) constant.
Exam tip:
Always reference ceteris paribus when explaining the law of demand in exam answers to get full marks.
2. 2. Individual and Market Demand Curvesβ β ββββ± 4 min
A demand curve is a graphical representation of the relationship between the price of a good and the quantity demanded, plotted with price (P) on the vertical y-axis and quantity demanded () on the horizontal x-axis. You can draw two types of demand curves at IGCSE level: individual demand curves (for one consumer) and market demand curves (for all consumers in the market).
Two consumers, Ali and Bella, buy orange juice. At \2 per litre, Ali buys 2 litres and Bella buys 1 litre. Calculate the market demand at each price, and describe the slope of the resulting market demand curve.
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Step 1: Calculate market demand at \$1: add Ali's 3L + Bella's 2L = 5L total.
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Step 2: Calculate market demand at \$2: add Ali's 2L + Bella's 1L = 3L total.
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Step 3: The market demand curve slopes downwards from left to right, as higher prices lead to lower total quantity demanded, following the law of demand.
Exam tip:
When asked to describe a demand curve in exams, always note its downward slope and the inverse relationship between price and quantity demanded.
3. 3. Movements Along vs Shifts of the Demand Curveβ β β βββ± 4 min
Movement along the demand curve
A change in the quantity demanded of a good caused only by a change in the price of the good itself, holding all other factors constant. A rise in price causes a contraction (upward movement) in quantity demanded; a fall in price causes an extension (downward movement) in quantity demanded.
A shift of the entire demand curve occurs when a non-price factor affecting demand changes. This means consumers demand a different quantity of the good at every price point. A rightward shift is an increase in demand; a leftward shift is a decrease in demand.
State whether each of the following causes a movement along or shift of the demand curve for branded running shoes: (a) A 20% rise in the price of branded running shoes; (b) A widespread social media trend promoting running as a hobby.
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Part (a): This is a change in the price of the good itself, so it causes a movement along the demand curve (specifically a contraction in quantity demanded).
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Part (b): This is a change in consumer tastes/preferences, a non-price factor, so it causes a rightward shift of the entire demand curve, as consumers want more running shoes at every price.
Exam tip:
If you can identify the change is related to the price of the good in question, it is always a movement, not a shift. Shifts come from factors unrelated to the good's own price.
4. 4. Non-Price Factors That Shift the Demand Curveβ β β βββ± 3 min
Income of consumers: Rising income increases demand for normal goods (e.g. restaurant meals) but reduces demand for inferior goods (e.g. value supermarket bread).
Prices of related goods: Demand rises if the price of a substitute good (e.g. Coca-Cola vs Pepsi) rises, or if the price of a complementary good (e.g. cars and petrol) falls.
Tastes, fashions and preferences: Positive advertising or social trends increase demand, while negative news (e.g. health scares) reduce demand.
Demographic changes: A rise in the number of young people in an area increases demand for university places or youth clothing.
Expectations of future price changes: If consumers expect prices to rise soon, they will increase current demand to avoid paying more later.
Explain the effect of a fall in the price of petrol on the demand for electric cars, justifying your answer.
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Step 1: Identify the relationship between the two goods: petrol cars and electric cars are substitute goods, as consumers can choose to buy either type of car.
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Step 2: Link to the price change: a fall in the price of petrol reduces the running cost of petrol cars, making them more attractive relative to electric cars.
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Step 3: State the impact on demand: demand for electric cars will fall, causing a leftward shift of the electric car demand curve, as consumers choose cheaper-to-run petrol cars instead.
Exam tip:
Always state the relationship between related goods (substitute or complement) before explaining the shift in demand to earn full marks in 3-4 mark questions.
5. Common Pitfalls
Wrong move:
Stating that a rise in consumer income always increases demand for all goods.
Why:
Demand for inferior goods falls when income rises, as consumers switch to higher-quality alternatives.
Correct move:
Specify whether the good is normal or inferior before explaining the impact of income changes on demand.
Wrong move:
Confusing a movement along the demand curve with a shift of the curve when the price of the good changes.
Why:
Only non-price factors shift the entire demand curve; changes in the good's own price only change quantity demanded along the existing curve.
Correct move:
First check if the change is to the good's own price (movement) or another factor (shift) when answering demand questions.
Wrong move:
Forgetting to reference ceteris paribus when explaining the law of demand.
Why:
The law of demand only holds if all other factors affecting demand are held constant, so omitting this loses marks in definition questions.
Correct move:
Always include 'ceteris paribus' or 'all other factors remaining equal' when defining or explaining the law of demand.
Wrong move:
Labeling the axes of the demand curve incorrectly (quantity on y-axis, price on x-axis).
Why:
Standard IGCSE convention requires price on the vertical (y) axis and quantity demanded on the horizontal (x) axis, so incorrect labels lead to lost diagram marks.
Correct move:
Memorize the axis labels as P (y) and Qd (x) for all demand and supply diagrams.
Wrong move:
Calling a rightward shift in demand an 'increase in quantity demanded'.
Why:
An increase in quantity demanded only refers to an extension along the curve from a price fall; a shift is an increase or decrease in overall demand at all prices.
Correct move:
Use 'quantity demanded' only for movements along the curve, and 'demand' for shifts of the entire curve.
6. Quick Reference Cheatsheet
Concept | Key Rule | Exam Answer Prompt |
|---|---|---|
Law of Demand | Ceteris paribus, price and Qd are inversely related | State ceteris paribus + link price change to Qd change |
Movement along D curve | Caused only by change in good's own price | Specify if it is an extension (price fall) or contraction (price rise) |
Shift of D curve | Caused by non-price factors (I P T D E) | State direction of shift (left/right) + the non-price factor causing it |
Normal good | Demand rises as income rises | Link income change to positive change in demand for normal goods |
Inferior good | Demand falls as income rises | Note consumers switch to higher-quality alternatives as income increases |
7. Frequently Asked
Does a change in the price of a good shift its demand curve?
No. A change in the good's own price only causes a movement along the existing demand curve, not a shift. Shifts are only caused by non-price factors like income, tastes, or prices of related goods.
What is the difference between individual and market demand?
Individual demand is the quantity a single consumer is willing and able to buy at each price. Market demand is the sum of all individual demands for the good across the entire market.
Going deeper
What's Next
Now that you have mastered the core principles of demand, you are ready to move on to studying supply, the other half of the price mechanism that determines market equilibrium. Demand is a foundational microeconomics concept that you will apply to topics like price controls, labour markets, and exchange rates later in the CIE IGCSE Economics 0455 syllabus. Practice constructing demand curves and analysing shift factors to prepare for 3-6 mark structured questions in Paper 2, which often ask you to explain changes in demand for real-world goods and services.