Demand, Price & Quantity (Cambridge International IGCSE Economics)

Introduction to Demand

Spec point — 2.3.1 · Definition, drawing and interpretation of appropriate diagrams. The link between individual and market demand in terms of aggregation.

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

• Individual and market demand can also be represented graphically

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

Spec point — 2.3.1 · A demand curve to be drawn and used to illustrate movements along a demand curve with appropriate terminology, for example extensions and contractions in demand.

• 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

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