Demand in economics means wanting a good and being able to pay for it, at a given price, over a set time. Wanting on its own is not enough.
The points to remember
- Willing: the buyer wants it.
- Able: the buyer can pay for it.
- At each price: demand is linked to a price.
- Over a period: per week, month or year.
Example: a €40 concert ticket
Aiko
Loves the band and has €40. Willing and able: she is part of demand.
Ben
Loves the band but has €15. Willing, not able: not part of demand.
Carla
Has €200 but no interest in the band. Able, not willing: not part of demand.
Individual demand is one buyer's demand. Market demand adds every buyer's quantity at each price: if 2 000 fans each want one ticket at €40, market demand at €40 is 2 000 tickets.
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The law of demand: as the price of a good falls, the quantity demanded rises, and as the price rises, it falls, ceteris paribus.
The canteen's price list
| Price of a slice | Slices sold per day |
|---|---|
| €6 | 30 |
| €5 | 42 |
| €4 | 60 |
| €3 | 90 |
| €2 | 150 |
Animated graph
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The points to remember
- Price and quantity demanded move in opposite directions.
- Price on the vertical axis, quantity on the horizontal.
- A price change moves buyers along the curve; it changes quantity demanded.
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A price cut makes buyers take more for two separate reasons. Each one has a name.
A slice of pizza falls from €4 to €3
Income effect
Your real income rises: €12 now buys 4 slices instead of 3, so you can afford more.
Substitution effect
Pizza is now cheaper compared with a sandwich, so you swap some sandwiches for pizza.
Together
Both push the same way: quantity demanded rises. A price rise works in reverse.
Animated graph
Watch the graph build step by step in study mode.
The points to remember
- Income effect: a lower price raises real income, so buyers can afford more.
- Substitution effect: the good is now relatively cheaper than its substitutes, so buyers switch to it.
- Both effects raise quantity demanded when the price falls.
Utility is the satisfaction a good gives you. Marginal utility is the extra satisfaction from one more unit.
Animated graph
Watch the graph build step by step in study mode.
The points to remember
- Each extra unit gives less extra satisfaction than the one before.
- So a buyer will pay less for each extra unit.
- So a lower price is needed to sell more: demand slopes down.
Remember it as: Hungry for the first slice, full by the fifth.
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Paper 2 tests this micro with define the term demand, for 2 marks. The income and substitution effects and diminishing marginal utility have not been set on their own yet: they are the reasons a Paper 1 essay gives for the downward slope.
Demand for electric bikes in the city has doubled in five years.
Define the term demand.
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Drawing a demand curve in the exam
- Label the axes P and Q, or Price and Quantity.
- Label the curve D.
- A title is not needed.
- In a 4-mark diagram question, a wrong label caps the answer at 3 marks.
Explain why the demand curve for a good slopes downward.
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