1.2.2 Demand

Edexcel A-Level Economics (9EC0) | Theme 1.2.2

Specification Coverage: Edexcel unit 1.2.2 - Demand. Students should be able to understand and explain the law of demand, the demand curve, conditions of demand (shifts of the curve), and the concept of diminishing marginal utility and its relationship to demand.

The Basics of Demand

Definition: The quantity of a good/service consumers are willing and able to buy at a given price in a given time period.

Effective Demand: Must be both a willingness and an ability to pay. Desire alone is not demand.

The Law of Demand: There is an inverse relationship between price and quantity demanded (QD). As price rises, QD falls (ceteris paribus).

The Demand Curve

Demand curve showing extensions and contractions along the curve
Figure 1: Standard downward-sloping demand curve (D1) showing movements along the curve. A movement from point B to A shows a 'Contraction in QD' due to price rise. A movement from point A to B shows an 'Extension in QD' due to price fall.

It is downward sloping due to the law of demand.

A Movement Along the Curve: Caused only by a change in the price of the good itself (ceteris paribus).

  • Extension in QD: A fall in price leads to a movement down the curve (A → B).
  • Contraction in QD: A rise in price leads to a movement up the curve (B → A).

Conditions of Demand (Shifts of the Curve)

A shift of the entire demand curve is caused by a change in a non-price factor influencing demand.

Demand curve shifting left and right due to non-price factors
Figure 2: Shifts of the demand curve. D1 to D2 shows an increase in demand (shift right). D2 to D1 shows a decrease in demand (shift left).
Condition of Demand Effect on Demand for Good X Reason & Example
Change in Real Incomes Normal Good: D ↑ if incomes rise.
Inferior Good: D ↓ if incomes rise. 		Direct relationship for normal goods (e.g., restaurant meals). Inverse for inferior goods (e.g., own-brand value products).
Change in Tastes/Fashion D ↑ if the good becomes more popular. Direct relationship (e.g., surge in demand for a trending product).
Advertising & Branding D ↑ with successful marketing. Increases consumer awareness and perceived value.
Price of Substitutes D for Good X ↑ if price of Substitute Y rises. Direct relationship (e.g., price of Coke rises → demand for Pepsi increases).
Price of Complements D for Good X ↓ if price of Complement Z rises. Inverse relationship (e.g., price of petrol rises → demand for cars decreases).
Changes in Population D ↑ if population size or a key demographic grows. More potential consumers (e.g., ageing population increases demand for healthcare).

Diminishing Marginal Utility & Demand

Marginal Utility (MU): The extra satisfaction from consuming one more unit.

The Law of Diminishing Marginal Utility: As more units are consumed, the extra utility gained from the next unit falls.

Example: The first slice of pizza gives high satisfaction, the fourth gives much less.

Link to the Demand Curve: This law helps explain why the demand curve slopes down.

Because each additional unit gives less satisfaction, a consumer is only willing to buy more if the price is lower. This rationalises the inverse price-QD relationship.

Exam Focus: Key Takeaways

  1. Distinguish clearly between a movement along the demand curve (caused by price change) and a shift of the curve (caused by a condition of demand).
  2. Draw and interpret demand curve diagrams showing both movements and shifts.
  3. Analyse how each condition of demand causes an increase (shift right) or decrease (shift left).
  4. Apply the concepts of substitutes and complements.
  5. Explain how the law of diminishing marginal utility underpins the shape of the demand curve.