📈 Price on the vertical axis
In economics, price always goes on the vertical axis, even though it is the thing that changes first.
Demand, Supply and Equilibrium » Demand and the Demand Curve
What you'll learn this session
Study time: 30 minutes
Edexcel spec: 1.1.3 (a)-(b)
- What economists mean by demand
- How to read a demand schedule
- How to draw a demand curve and its downward slope
- The difference between a movement along the curve and a shift of the curve
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Unlock This CourseWhat is demand?
Demand only counts if you are willing AND able to buy: wanting the car isn't enough
Everyone wants things, but wanting is not enough in economics. You might want a sports car, yet you cannot buy one. Economists only count the wants that shoppers can actually act on. That is why demand has two parts.
Key terms:
- Demand: the quantity of a good or service that consumers are willing and able to buy at a given price in a given period of time.
- Willing: the consumer really wants the product.
- Able: the consumer has the money to pay for it.
Both parts must be true. A student who loves hot chocolate but has no money has a want, but not demand. A student with plenty of money who dislikes hot chocolate also has no demand for it.
Demand is about a certain price and a certain time. "Rosa will buy 30 hot chocolates" means little. "Customers will buy 30 hot chocolates per day at a price of £3.00" is demand.
This topic is examined on Paper 1, Microeconomics and Business Economics.
The demand schedule
A demand schedule is a table that shows how many units consumers will buy at each price. Rosa runs a small café near a school. Here is the demand for her hot chocolates each day.
| Price per cup (£) | Quantity demanded per day |
|---|---|
| 4.00 | 10 |
| 3.50 | 20 |
| 3.00 | 30 |
| 2.50 | 40 |
| 2.00 | 50 |
Look at the pattern. As the price falls, the quantity demanded rises. As the price rises, the quantity demanded falls. This is the normal pattern for most goods.
Key terms:
- Demand schedule: a table showing the quantity demanded at different prices.
- Quantity demanded: the amount consumers will buy at one particular price.
Drawing the demand curve
A demand curve is a line on a diagram that shows the quantity demanded at each price. It is the demand schedule drawn as a picture. To draw Rosa's curve in the exam, follow these steps.
- Draw two axes. Label the vertical axis Price (P). Label the horizontal axis Quantity (Q).
- Mark prices going up the vertical axis (£2.00 to £4.00) and quantities along the horizontal axis (0 to 50).
- Plot each pair from the table as a point. For example, plot £4.00 against 10, and £2.00 against 50.
- Join the points with a straight line (or smooth curve) and label it D.
The line slopes downwards from left to right. It starts high on the left, where price is high and quantity is low, and ends low on the right, where price is low and quantity is high. This shows the link between price and quantity demanded.
🏷️ Always label
Label both axes and label the curve D. Unlabelled diagrams lose marks.
Movements along the demand curve
Cut the price of hot chocolate and more cups are sold: a movement along the demand curve
Rosa cuts her price from £3.50 to £2.50. Nothing else changes. Customers now buy 40 cups instead of 20. On the diagram you move down along the same curve from one point to another. The curve itself stays where it is.
Key terms:
- Extension of demand: a fall in price causes quantity demanded to rise. You move down along the demand curve.
- Contraction of demand: a rise in price causes quantity demanded to fall. You move up along the demand curve.
The rule to remember: a change in the price of the good itself causes a movement along the curve. The curve does not move.
To show this in the exam, draw the curve D, mark the old point (P1, Q1) and the new point (P2, Q2) on the same line, and add an arrow along the curve between them.
Shifts of the demand curve
Sometimes customers want to buy a different amount at every price. Then the whole curve moves. This is a shift.
Suppose Rosa now sells 10 more cups at every price. At £3.00 she sells 40 instead of 30. At £2.00 she sells 60 instead of 50. The new schedule is below.
| Price per cup (£) | Old quantity demanded | New quantity demanded |
|---|---|---|
| 4.00 | 10 | 20 |
| 3.00 | 30 | 40 |
| 2.00 | 50 | 60 |
▶️ Increase in demand
The curve shifts to the right. Draw a second curve, D1, to the right of D. More is demanded at every price.
◀️ Decrease in demand
The curve shifts to the left. Draw a second curve, D1, to the left of D. Less is demanded at every price.
This lesson is about what a shift looks like. The reasons why demand shifts are covered in the next lesson, What Shifts the Demand Curve.
Movement or shift?
Movement along the curve: the price of the good changes. One curve, two points.
Shift of the curve: demand changes at every price. Two curves, D and D1.
Worked example
Using Rosa's first schedule, what is the change in quantity demanded when the price rises from £2.50 to £3.50?
At £2.50 the quantity demanded is 40. At £3.50 it is 20. Quantity demanded falls by 20 cups. Because the price of the good itself changed, this is a contraction of demand, a movement up along the curve.
Common mistakes
- Saying a price change "shifts" the curve. A price change moves you along it.
- Putting quantity on the vertical axis and price on the horizontal axis.
- Forgetting to say "willing and able". Both are needed for demand.
- Forgetting to label D, D1, P and Q.
Exam-style question
A theme park sells day tickets. The table shows the daily demand at different prices.
| Ticket price (£) | Tickets demanded per day |
|---|---|
| 50 | 200 |
| 40 | 400 |
| 30 | 600 |
| 20 | 800 |
(a) Define demand. [2 marks]
(b) State the quantity demanded when the price is £30. [1 mark]
(c) The park cuts the price from £40 to £20. Explain what happens on the demand curve diagram. [3 marks]
(d) Describe how the demand curve would look if demand for tickets increased. [2 marks]
Model answer
(a) Demand is the quantity of a good or service (1) that consumers are willing and able to buy at a given price in a given time period (1).
(b) 600 tickets per day (1).
(c) A fall in the price of the tickets themselves causes an extension of demand (1). Quantity demanded rises from 400 to 800 (1). This is shown as a movement down along the same demand curve, with no shift of the curve (1).
(d) The whole demand curve would shift to the right, from D to D1 (1). More tickets would be demanded at every price (1).
Exam tip
In part (c), the price of the good changed, so write "movement along" and never "shift". Quote the figures from the table to earn the data mark.