EC6: Demand
The demand for goods and services: determinants of demand, the demand curve, movements along vs shifts of the demand curve, individual and market demand.
Demand
The demand for goods and services: determinants of demand, the demand curve, movements along vs shifts of the demand curve, individual and market demand.
Key Fact: Demand is the quantity consumers are willing and able to buy at a given price over a period of time.
Key Fact: Law of demand: as price rises, quantity demanded falls (inverse relationship), shown by a downward-sloping demand curve.
Key Fact: Factors shifting demand: income, tastes/fashion, price of substitutes and complements, population, advertising.
Key Fact: Movement ALONG the curve = price change (affects quantity demanded). SHIFT of the curve = non-price factor change (changes demand at every price).
Key Fact: Market demand = sum of all individual demand curves at each price level.
📋 Key Vocabulary and Concepts
For Demand, you must know:
- Demand
- Quantity demanded
- Law of demand
- Demand curve
- Shift in demand
- Movement along
- Substitute
- Complement
- Normal good
- Inferior good
❓ Practice Questions
Q1: Explain the difference between a movement along the demand curve and a shift of the demand curve.
Q2: Describe three factors that could cause an increase in demand for electric cars.
Q3: Analyse how a rise in petrol prices would affect demand for public transport and demand for large cars.
✅ Answers
- Movement along: caused ONLY by price change (e.g. coffee falls from £3 to £2, consumers buy more). Shift: caused by non-price factor (e.g. incomes rise, demand increases at EVERY price).
- Three factors: (1) Rising incomes — electric cars are normal goods. (2) Government subsidies — reducing effective cost. (3) Environmental concern — changing tastes. (4) Rising petrol prices — making electric cars relatively cheaper to run.
- Petrol and public transport are substitutes: petrol rises → demand for public transport shifts right. Petrol and large cars are complements: petrol rises → running large cars becomes expensive → demand for large cars shifts left. This shows intermarket relationships.
🎯 Exam Tips
- ALWAYS distinguish 'demand' (whole curve) from 'quantity demanded' (a point). Price change = movement; other factor = shift.
- When explaining shifts, specify DIRECTION: right = increase, left = decrease.
- Substitutes: price of A rises → demand for B rises. Complements: price of A rises → demand for B falls.
📝 Exam Technique
Economics Exam Tips:
When analysing demand changes, use the SIF framework: Shift or movement? Identify the factor. Follow through to equilibrium. Confusing shifts and movements is the most common exam error.
When analysing demand changes, use the SIF framework: Shift or movement? Identify the factor. Follow through to equilibrium. Confusing shifts and movements is the most common exam error.
⚠️ Common Errors
Watch Out!
Students often make mistakes here. Wrong: A rise in income always increases demand for all goods. Correct: A rise in income increases demand for NORMAL goods but DECREASES demand for INFERIOR goods (cheaper alternatives people buy less of as they get richer — e.g. own-brand products, bus travel). Always consider whether the good is normal or inferior.
✍️ Model Answer
Full-Mark Response
Evaluate how a recession (falling incomes) would affect demand for supermarket own-brand products and luxury restaurant meals.
A grade 9 response will: identify own-brand as inferior goods (demand increases as incomes fall) and restaurant meals as normal goods (demand decreases); analyse the extent; conclude: recession typically benefits value retailers and hurts premium services.
📊 AO Deep Dive
Assessment Objective Focus: Demand
AO1 — Knowledge: Demonstrate knowledge of Demand with precise business/economic terminology. Define key terms and state accurate factual information.
AO2 — Application: Apply knowledge of Demand to business scenarios and case studies. Use quantitative data where relevant to support your points.
AO3 — Analysis & Evaluation: Analyse and evaluate Demand by considering trade-offs, weighing costs against benefits, and reaching a reasoned judgement. Use connectives to show chains of reasoning.
Detailed Notes: Demand
Understanding the Demand Curve and the Law of Demand
Demand is the quantity of a good or service that consumers are willing and able to buy at a given price over a period of time. The law of demand states that, ceteris paribus (all other things being equal), as the price of a good rises, the quantity demanded falls, and vice versa. This inverse relationship is shown by a downward-sloping demand curve on a diagram, with price on the vertical axis and quantity on the horizontal axis. The demand curve slopes downwards because of the income effect (higher prices reduce real purchasing power) and the substitution effect (higher prices make consumers switch to cheaper alternatives).
It is essential to distinguish between demand (the entire curve) and quantity demanded (a specific point on the curve). A change in the price of the good itself causes a movement along the demand curve, not a shift. For example, if the price of a pint of milk in the UK falls from 60p to 50p, consumers buy more milk — this is a movement along the demand curve, sometimes called an extension of demand. A shift of the whole curve is caused by changes in non-price factors, which are known as the conditions of demand.
Real-World Example
In 2022, UK domestic gas prices rose sharply due to the energy crisis. As the price per unit increased, many households reduced their gas consumption by turning down thermostats and using less hot water — this was a movement along the demand curve as consumers responded to higher prices. The quantity of gas demanded fell even though the demand curve itself had not shifted.
The Conditions of Demand: Factors That Shift the Curve
Several non-price factors can shift the demand curve to the right (increase in demand) or to the left (decrease in demand). Income is the most significant: as UK household incomes rise, demand for normal goods increases (the curve shifts right). However, for inferior goods — such as own-brand basic products or bus travel — rising incomes actually reduce demand as consumers switch to better alternatives. Changes in tastes and fashion also shift demand: the growing popularity of plant-based diets has dramatically increased demand for vegan products in the UK, with the market growing to over £1 billion by 2023.
The prices of related goods matter too. Substitutes are goods that can replace each other: if the price of butter rises, demand for margarine increases (the demand curve for margarine shifts right). Complements are goods consumed together: if the price of printers falls, demand for printer ink rises. Population changes affect demand — the UK's population grew from 59 million in 2000 to over 67 million by 2023, increasing demand for housing, healthcare and education. Advertising and seasonal factors can also shift demand curves.
Real-World Example
The rapid growth of electric vehicle (EV) demand in the UK illustrates multiple shift factors. Between 2019 and 2023, EV market share rose from around 3% to over 16%. This was driven by rising consumer environmental awareness (tastes), government grants reducing effective prices (complements/subsidies), increasing fuel costs making petrol cars more expensive to run (substitute price), and expanding charging infrastructure (complementary good availability). Multiple conditions of demand shifted the EV demand curve to the right simultaneously.
Individual and Market Demand
Individual demand is the demand from one consumer; market demand is the total demand from all consumers in the market. Market demand is calculated by horizontally summing all individual demand curves — that is, adding together the quantities each consumer demands at each price level. This means market demand is always greater than any individual demand, and the market demand curve has a flatter slope than individual curves in most cases.
Understanding market demand is important because firms make decisions based on total market demand, not individual demand. A firm like Asda needs to know total UK demand for groceries, not how much one household buys. Market demand can change even if individual preferences stay the same, simply because the number of consumers changes — for instance, population growth in the UK has increased market demand for housing even though each individual household's demand curve may not have changed.
Real-World Example
The UK housing market demonstrates market demand clearly. With the average UK household containing roughly 2.4 people, and the population growing by approximately 400,000 per year through net migration and natural growth, roughly 170,000 additional households form each year. Even if each individual household's demand for housing remains the same, total market demand increases simply because there are more households — this demographic shift is a major reason why UK house prices have risen consistently over the long term.
Comparison: Movements vs Shifts in Demand
| Feature | Movement Along | Shift Right (Increase) | Shift Left (Decrease) |
|---|---|---|---|
| Cause | Change in price of the good itself | Favourable change in non-price factor | Unfavourable change in non-price factor |
| What changes | Quantity demanded | Demand at every price | Demand at every price |
| Income effect | Higher price = less real purchasing power | Higher income = more purchasing power | Lower income = less purchasing power |
| UK example | Gas price rises, consumption falls | Rising wages increase restaurant demand | Recession reduces demand for new cars |
| Diagram | Slide along existing curve | Whole curve moves right | Whole curve moves left |
Additional Practice Questions
Q1: Explain, using a demand diagram, how a rise in the price of train tickets would affect the demand for bus travel and the demand for car parking in city centres.
Q2: Evaluate whether demand for petrol in the UK is likely to be price elastic or price inelastic, justifying your answer with economic reasoning.
Additional Model Answers
- Train travel and bus travel are substitute goods. When train ticket prices rise, some commuters switch to buses as a cheaper alternative — the demand curve for bus travel shifts to the right. Train travel and city-centre car parking are complements (commuters take the train then need less parking). When train prices rise and fewer people take the train, demand for city-centre car parking shifts left as some commuters choose to drive the entire journey instead, while others who would have combined train with city-centre activity simply travel less. On a diagram, the bus demand curve shifts right from D1 to D2, increasing both quantity and price of bus travel, while the parking demand curve shifts left from D1 to D2, reducing both quantity and price of parking.
- Demand for petrol in the UK is likely to be price inelastic in the short run. This is because petrol is a necessity for many motorists who rely on cars for commuting, especially in rural areas with limited public transport — there are few close substitutes available immediately. Evidence supports this: when petrol prices rose from around 130p per litre in 2020 to over 190p in 2022, consumption fell by only around 5–10%, giving a PED estimate well below 1 (inelastic). However, demand becomes more elastic over time as consumers can switch to alternatives: buying electric vehicles, using public transport, or working from home. The UK's growing EV market and the shift to hybrid working since COVID-19 mean the long-run demand for petrol is becoming more elastic. Overall, petrol demand is inelastic in the short run but increasingly elastic in the long run as substitutes become more viable.
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🎬 Video Resources
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