When demand shifts, the price and the quantity move the same way as demand. Think of flights before a holiday: everyone wants to fly home, so airlines raise fares. At those higher fares it pays to add extra flights. Price and quantity both go up.
Shortage and surplus
Shortage
Buyers want more than sellers have. Shelves empty and queues form, so sellers raise the price.
Surplus
Sellers have more than buyers want. Stock goes unsold, so sellers cut the price.
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Now the other way: demand falls. Price and quantity both go down.
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When supply shifts, the price moves the opposite way to supply; the quantity follows supply. Think of coffee after a frost in Brazil: there are fewer beans to sell, so roasters pay more and buy fewer.
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Now the other way: supply rises. The price goes down and the quantity goes up.
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What happens to demand
- When supply shifts, the demand curve does not move.
- Buyers move along D: a higher price means quantity demanded falls.
Remember it as: Demand: price and quantity move together. Supply: the price moves the other way.
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Quick reminder
- Curves: D1, D2 and S when demand shifts; D, S1 and S2 when supply shifts
- Marks: P1, P2, Q1 and Q2
- Dots with dashed lines to the axes, an arrow for the shift
- No numbers, no title
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When supply shifts, demand keeps its plain name, D, and supply becomes S1 and S2.
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Some questions ask about revenue. Revenue is price × quantity: draw it as the box under the dot, and show how the box changes.
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Standard Level Paper 1 asked this in May 2024, as part (a) for 10 marks; the same question can appear at Higher Level.
Explain how one determinant of demand might lead to a decrease in the price of a good and how one determinant of supply might lead to an increase in its price.
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See the answer broken into clear points, with guidance on how each point earns marks.
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What the diagrams must show
- Two diagrams, each with P and Q axes.
- Diagram 1: S, D1 → D2 to the left, P1 → P2 down and Q1 → Q2.
- Diagram 2: D, S1 → S2 to the left, P1 → P2 up and Q1 → Q2.
- Say surplus in half 1 and shortage in half 2.
How the 10 marks are given
| Marks | What your answer needs |
|---|---|
| 9–10 | Both parts fully explained, terms used correctly all the way through, the diagram included and fully explained |
| 7–8 | Both parts explained, terms mostly right, the diagram included and explained |
| 5–6 | Partly explained, some terms, the diagram included |
| 6 at most | Only one of the two parts answered, however good it is |