Demand

Economics · The allocation of resources. The idea in plain words, the rules to remember, the mistake to avoid and a worked example, written and checked by Mega Lecture.

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The idea

Demand is the willingness and ability to buy a product at a given price. Wanting a product is not enough; the buyer must also be able to pay. Market demand is the total of all the individual demands at each price.

A demand curve slopes downwards from left to right: the lower the price, the greater the quantity demanded. A change in the price of the product itself causes a movement along the curve. A fall in price causes an extension of demand, and a rise in price causes a contraction.

A change in any other influence moves the whole curve. A shift to the right is an increase in demand; a shift to the left is a decrease.

Rules to remember

Demand: the willingness and ability to buy a product at a given price
Market demand = the sum of the quantities all buyers demand at each price
Price of the product falls: extension of demand (movement down along the curve). Price rises: contraction (movement up along the curve)
Demand increases (curve shifts right) when income rises for a normal good, a substitute becomes dearer, a complement becomes cheaper, tastes or advertising favour the product, or population grows
Substitutes are used instead of each other (tea and coffee); complements are used together (tea and sugar)
The opposite changes decrease demand (curve shifts left)

Common mistake

A change in the product's own price never shifts its demand curve. It only causes a movement along the curve; only non-price influences such as income, tastes or the prices of related goods shift it.

Worked example

Tea is a substitute for coffee. Describe the effect on the demand diagram for coffee of (1) a fall in the price of coffee and (2) a fall in the price of tea.

In (1) the product's own price changes, so there is a movement along the coffee demand curve.
The price has fallen, so the quantity demanded rises: an extension of demand.
In (2) a substitute becomes cheaper, so some buyers switch from coffee to tea at every coffee price.
A change at every price moves the whole curve.

Answer: (1) An extension of demand, a movement down along the curve. (2) A decrease in demand, the curve shifts to the left.

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