Cambridge Syllabus Notes

The Allocation of Resources – Demand

What is a Demand Curve?

A demand curve shows the relationship between the price of a good ($P$) and the quantity that consumers are willing to buy ($Q$). It slopes downwards because, all else equal, people buy more when the price is lower. Think of it like a line of friends waiting for a concert ticket – the cheaper the ticket, the more friends want to join the line! 🎟️

Why Demand Shifts?

A demand curve can shift left or right when something other than price changes. These are called non‑price determinants of demand. Common reasons include:

Changes in consumer income
Changes in tastes or preferences
Prices of related goods (substitutes or complements)
Expectations about future prices
Number of buyers in the market

Diagram of a Demand Shift

Below is a simple table that represents the demand curve before and after a shift. The arrows show the direction of the shift.

Price ($P$)	Quantity Demanded ($Q$)	Demand Curve
$10	50	D₁
$8	70	D₁
$6	90	D₁
$10	70	D₂ →
$8	90	D₂ →
$6	110	D₂ →

In the table, the original demand curve is D₁. After a positive change (e.g., a new advertisement makes coffee more popular), the demand curve shifts right to D₂. The arrows indicate the direction of the shift. The price stays the same in this example, so the quantity demanded increases at each price level.

Example: Coffee Demand

Imagine the price of a cup of coffee is $3. If a new coffee shop opens and people start liking coffee more, the demand curve shifts right. At the same price of $3, the quantity demanded might rise from 100 cups to 150 cups. This shift shows that more people want coffee, not because the price changed, but because of a change in preference. ☕️

Exam Tip Box

📌 Exam Tip: When you see a diagram with a demand curve shifting, note the cause (e.g., higher income, new technology) and the direction (right for an increase, left for a decrease). In your answer, explain how the shift changes the equilibrium price and quantity. Use the notation $D_1$ and $D_2$ to label the curves clearly.

Practice Question

Suppose the price of smartphones falls from $800 to $600. Describe what happens to the demand curve and the equilibrium in the market.
Explain how an increase in the price of a substitute (e.g., tablets) would affect the demand for smartphones.

Key Takeaway

Demand curves are powerful tools for visualising how changes in the market affect the quantity people want to buy. Remember: a shift is caused by something other than price, and it moves the entire curve left or right. 📈

Diagrams that illustrate shifts of a demand curve