Demand Curves (AQA A Level Economics)

An Introduction to Demand

• Demand is the amount of a good/service that a consumer is willing and able to purchase at a given price in a given time period

  • Effective demand is demand supported by the necessary purchasing power (the ability to pay)

  • If a consumer is willing to purchase a good, but cannot afford to, it is not effective demand

• A demand curve is a graphical representation of the price and quantity demanded (QD) by consumers

  • If the data were plotted, it would be an actual curve.  Economists, however, use straight lines so as to make analysis easier

• The law of demand states that there is an inverse relationship between price and quantity demanded (QD), ceteris paribus

  • When the price rises, the QD falls

  • When the price falls, the QD rises

Individual and Market Demand

• Market demand is the combination of all the individual demand for a good/service

  • It is calculated by adding up the individual demand at each price level  

The Monthly Market Demand for Newspapers in a Small Village

• Individual and market demand can also be represented graphically

Diagram: Market Demand for Children's Swimwear 

Diagram analysis

• A shop sells both boys and girls swimwear

• In July, at a price of $10, the demand for boys swimwear is 500 units and girls is 400 units

• At a price of $10, the shops market demand during July is 900 units

Movements Along a Demand Curve

• If price is the only factor that changes (ceteris paribus), there will be a change in the quantity demanded (QD)

  • This change is shown by a movement along the demand curve

Diagram: Movement Along a Demand Curve 

Diagram analysis

• An increase in price from £10 to £15 leads to a movement up the demand curve from point A to B

  • Due to the increase in price, the QD has fallen from 10 to 7 units

  • This movement is called a contraction in QD

• A decrease in price from £10 to £5 leads to a movement down the demand curve from point A to point C

  • Due to the decrease in price, the QD has increased from 10 to 15 units

  • This movement is called an extension in QD

The Conditions of Demand

• There are numerous factors that will change the demand for a good/service, irrespective of the price level. Collectively, these factors are called the conditions of demand and include

  • Changes in real income

  • Changes in tastes/preferences

  • Changes in the price of related goods (substitutes and complements)

  • Changes in the number of consumers

  • Future price expectations

• Changes to each of the conditions of demand, shift the entire demand curve (as opposed to a movement along the demand curve)

Diagram: Shift of the Demand Curve

• For example, if a firm increases their Instagram advertising, there will be an increase in demand as more consumers become aware of the product

  • This is a shift in demand from D to D₁. The price remains unchanged at £7 but the demand has increased from 15 to 25 units

How Changes to the Conditions of Demand Shift the Entire Demand Curve at Every Price Level