Demand, Price & Quantity (Cambridge (CIE) IGCSE Economics)

Revision Note

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

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

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

Customer 1

Customer 2

Customer 3

Customer 4

Market Demand

30

15

4

4

53

  • Individual and market demand can also be represented graphically
     

    Three side-by-side graphs show the demand curves for boys, girls, and total customers. Each graph has price on the Y-axis and quantity on the X-axis.
    Market demand for children's swimwear in July is the combination of boys and girls demand

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

Graph showing demand curve. Point A is at price 10 and quantity 10; point B shows contraction at price 15; point C shows extension at price 5.
A demand curve showing a contraction in quantity demanded (QD) as prices increase and an extension in quantity demanded (QD) as prices decrease

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 law of demand captures this fundamental relationship between price and QD

    • It states that there is an inverse relationship between price and QD

      • When the price rises the QD falls

      • When prices fall the QD rises

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