What this lesson teaches
I can define demand, link one buyer's demand to market demand, and draw a demand curve.
Syllabus K343, 2.2.1. Individual and market demand: definition of demand; link between individual demand and market demand; drawing and interpretation of the demand diagram
I can explain and draw extensions and contractions of demand as movements along the curve.
Syllabus K343, 2.2.2. Movements along a demand curve: causes of extensions and contractions in demand; diagrams that illustrate movements along a demand curve
Make a guess
Cinema tickets rise in price and fewer tickets are sold. Has the demand for cinema tickets decreased?
- Yes. Fewer tickets sold means the demand for tickets fell.
- No. Quantity demanded contracted along the same curve.
- No. Demand rose, because cinemas now earn more.
Show the answer
No. Quantity demanded contracted along the same curve.
Only the good's own price changed. That moves buyers along the curve; a decrease in demand would shift the whole curve left.
Demand is what buyers are willing and able to buy at each price; a lower price raises quantity demanded.
Demand is the quantity of a good that buyers are willing and able to buy at each possible price, over a period of time. Both parts matter. Wanting a sports car is not demand unless you can afford it.
The law of demand says that as price falls, quantity demanded rises, other things being equal. Cheaper goods are more affordable, and they become better value compared with other goods.
A demand curve shows this. It slopes down from left to right. A change in the good's own price causes a movement along the curve. A fall in price causes an extension in demand. A rise in price causes a contraction.
Market demand is the total of all individual buyers' demand. At each price, add up the quantity every buyer would buy.
- Demand
- Quantity buyers are willing and able to buy at each price over a period.
- Extension in demand
- Rise in quantity demanded caused by a fall in price.
- Contraction in demand
- Fall in quantity demanded caused by a rise in price.
- Market demand
- Sum of all individual demand at each price.
| Price ($) | Ali | Bea | Market demand |
|---|---|---|---|
| 5 | 2 | 1 | 3 |
| 4 | 3 | 3 | 6 |
| 3 | 4 | 5 | 9 |
Worked example: Building market demand from two buyers
Suppose a market for bubble tea has only two buyers, Ali and Bea.
- At $5, Ali buys 2 cups a week and Bea buys 1. Market demand is 2 + 1 = 3 cups.
- At $4, Ali buys 3 and Bea buys 3. Market demand is 6 cups.
- At $3, Ali buys 4 and Bea buys 5. Market demand is 9 cups.
- Plot price against these totals to draw the market demand curve.
Watch out for this
When the price of a good falls, demand increases.
A fall in the good's own price causes an extension in demand: a rise in quantity demanded along the same curve. "An increase in demand" means the whole curve shifts, which needs a non-price cause.
Check your understanding
Which of these counts as part of the demand for a $30 concert seat?
- A promoter who has seats to sell at $30 each.
- A fan who wants a seat and has $30 to spend.
- A fan who wants a seat but has only $10 to spend.
Show the answer
A fan who wants a seat and has $30 to spend.
Right. Demand needs both the wish to buy and the ability to pay at that price.
Check your understanding
Why does a demand curve usually slope downwards from left to right?
- At a lower price, sellers offer more of the good for sale
- At a lower price, buyers expect the price to rise again soon
- At a lower price, buyers can afford more and switch from substitutes
- At a lower price, the good becomes a luxury that people want more
Show the answer
At a lower price, buyers can afford more and switch from substitutes
Right. A lower price stretches incomes and makes the good better value than its rivals.