Demand (Edexcel IGCSE Economics)

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

• 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

Movement Along a Demand Curve

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

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

Diagram: Movement Along a Demand Curve

A demand curve shows contraction in QD as prices increase and an extension in 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 price rises, the QD falls

    • When prices fall, the QD rises

• This relationship partly explains why the demand curve is downward sloping