top of page



a) Movements and shifts of the demand curve

Demand - the ability and willingness to buy a good or service at a given price level and at a given moment in time (KEY DEFINITION).

A movement along the demand curve D1 is ONLY caused by a change in price. If there is a movement from point A to point B, this is an extension of demand, because as the price falls, quantity demanded increases. Conversely, if there is a movement from point B to point A, this is a contraction of demand (as price rises, quantity demanded falls).

A shift in the demand curve is caused by one of the conditions of demand (listed below). A shift inwards (from D1 to D2) means that now, fewer goods are demanded for every price. Whereas, a shift outwards (from D1 to D3) means that now, more goods are demanded for every price.

Screen Shot 2023-10-16 at 20.15.39.png

b) Factors causing a shift (the conditions of demand)

Population - If there is a rise in the population, ceteris paribus all demand will rise as more people need more goods and services to be satisfied. This would cause the demand curve to shift out.

Income - If consumer incomes rise, demand rises as they can afford to buy more goods and services (similar to what you learn for AD in macro, as the AD and demand curves use the same concepts). This causes the demand curve to shift out.

Season - Season can significantly impact on demand for goods. For example, there is very high demand for skiing in the Winter, but virtually none in the Summer. This can cause quite sporadic shifts in the demand curve throughout the year.

Advertising - If a firm has a successful advertising campaign, demand will increase for their good or service as more people are aware of it. This in turn can lower demand for competitors, as consumers switch from using their product.

Complement/substitute prices - Complement goods are ones which go hand in hand when buying, for example an iPhone and the charging cable. It makes sense for consumers to buy both at the same time as they complement each other. For this reason, if the price rises for one of these items, there may be a shift in of demand for the other. Substitute goods are ones which can be bought as an alternative to another good, for example Coca Cola and Tesco coke. If the price rises for one of these goods, rational consumers will switch to use the other as it is lower priced, causing a shift out in the demand curve for the preferred one.

Trends - If something becomes more fashionable, more people will buy it, leading to a shift out in the demand curve.

Use the word PISACT as a mnemonic device for remembering the conditions of demand!

c) Diminishing marginal utility

The law of diminishing marginal utility states that the satisfaction gained from consumption of one additional unit of a good will decrease as more of that good is consumed (KEY DEFINITION). For example, if I were starving and arrived at an all-you-can-eat buffet, the first unit of food I consume would be incredibly delicious. However, as I continue to eat I would get more and more full, and my satisfaction gained from each extra unit consumed would fall over time.

This law explains why the demand curve slopes downwards, as if more of a good is consumed there is less satisfaction gained from consuming. Conversely, if a good is very rarely consumed, the satisfaction gained from consuming it is much higher. This explains why diamonds, a good unnecessary for human survival, are so highly sought after, but water, something essential to stay alive, is so cheaply priced and readily available. This points to the conclusion that there is an inverse relationship between demand and price, and therefore the demand curve slopes downwards.

To help revise this, click the button for my condensed flashcards!

bottom of page