Demand
AQA also says:
Spec content: The factors which determine the demand for a good or service; Causes of changes in demand; The demand curve.
Students should be able to understand: what is meant by the demand for a good or service; the factors which influence demand; how to construct an individual demand curve from consumer data; the difference between shifts of, and movements along, the demand curve.
What is Demand?
Demand is the quantity of a good or service that consumers are willing and able to buy at each possible price over a given time period. Both conditions matter — a consumer who would like to buy a Ferrari but cannot afford one does not constitute effective demand.
The fundamental relationship between price and quantity demanded is captured in the law of demand: as price rises, the quantity demanded falls; as price falls, quantity demanded rises. This inverse relationship exists because: higher prices reduce consumers' real purchasing power (income effect); and because substitutes become relatively cheaper when a good's price rises (substitution effect).
The Demand Curve
A demand curve plots the relationship between price (on the y-axis) and quantity demanded (on the x-axis). It slopes downward from left to right, reflecting the inverse price–demand relationship.
Movement Along vs Shift of the Demand Curve
This is one of the most important distinctions in economics:
- A movement along the demand curve occurs when only the price of the good itself changes. Quantity demanded changes, but the demand curve itself stays in the same position.
- A shift of the demand curve occurs when any factor other than the good's own price changes. The whole curve moves to a new position — at every price, consumers now demand a different quantity.
A shift to the right means higher demand at every price (increase in demand). A shift to the left means lower demand at every price (decrease in demand).
Factors that Shift the Demand Curve
| Factor | Effect on demand | Example |
|---|---|---|
| Income | Higher income → more demand for most goods (normal goods) | Rising wages increase demand for restaurant meals |
| Price of substitutes | Substitute rises in price → demand for this good increases | Bus fares rise → more demand for taxi services |
| Price of complements | Complement rises in price → demand for this good falls | Petrol prices rise → demand for cars falls |
| Tastes and preferences | Fashion, advertising, health trends shift demand | Health campaign increases demand for vegetables |
| Population | More consumers → greater total demand | Population growth increases demand for housing |
| Expectations | Expected future price rises → buy more now | Anticipating house price rises increases current demand |
Key Takeaways
- Demand = willingness AND ability to buy at a given price. The demand curve slopes downward.
- Movement along the curve: caused by a change in the good's own price only.
- Shift of the curve: caused by any other factor — income, substitutes, complements, tastes, population, expectations.
- Right shift = increase in demand; left shift = decrease in demand.