Diagrams that illustrate movements along a demand curve

Allocation of Resources – Demand

Learning Objectives (Cambridge AO1‑AO3)

• AO1 – Knowledge: Define individual and market demand and state the ceteris paribus condition.
• AO2 – Application & Analysis: Draw and label a demand diagram, distinguish between a movement along a demand curve and a shift of the demand curve, and explain the law of demand.
• AO3 – Evaluation: Assess the likely impact of a change in a non‑price determinant on market equilibrium (price and quantity).

Key Definitions

• Individual demand: The quantity of a good that a single consumer is willing and able to buy at each possible price, ceteris paribus.
• Market demand: The horizontal sum of all individual demand curves at each price.
  Example: If Consumer A buys 30 units at £2 and Consumer B buys 20 units at £2, market demand at £2 is 30 + 20 = 50 units.
• Demand curve (D): A graph showing the relationship between price (P) on the vertical axis and quantity demanded (Q_d) on the horizontal axis, assuming all other factors are constant.
• Law of demand: All else equal, a higher price leads to a lower quantity demanded, giving the demand curve a downward slope.
• Ceteris paribus: “All other things being equal”; the condition that must be stated when analysing a movement or a shift.

How to Draw a Correctly Labeled Demand Diagram

1. Draw the axes: price (P) on the vertical axis, quantity demanded (Q_d) on the horizontal axis.
2. Label the axes clearly (“Price (P)” and “Quantity demanded (Q_d)”).
3. Sketch a downward‑sloping straight line and label it D.
4. Indicate the ceteris paribus condition somewhere on the diagram.
5. Mark two points on the same curve to illustrate a movement (e.g., A: P = £2.00, Q_d = 100; B: P = £1.00, Q_d = 200).
6. Draw an arrow from A to B and label it “Movement along D – price fall”.

Movement Along the Demand Curve

A movement occurs when the **price of the good itself** changes, while all other determinants remain unchanged.

Key point: **Only** a change in the price of the good causes a movement along the same demand curve.

Diagram Description – Movement

Draw P on the vertical axis and Q_d on the horizontal axis. Sketch a downward‑sloping line labelled D. Plot point A (P = £2.00, Q_d = 100) and point B (P = £1.00, Q_d = 200) on the same line. Add an arrow from A to B and caption “Movement down D – price fall”.

Shift of the Demand Curve

A shift occurs when any **non‑price determinant** changes **while the price of the good is held constant** (ceteris paribus).

• Income: Increase (normal good) → right‑ward shift; decrease → left‑ward shift.
• Tastes & preferences: More popular → right‑ward shift; less popular → left‑ward shift.
• Prices of related goods:
  • Substitutes – price rise of the substitute → right‑ward shift.
  • Complements – price rise of the complement → left‑ward shift.
• Expectations: Expect higher future prices → right‑ward shift today.
• Number of buyers: Population growth → right‑ward shift.

Shift Checklist

1. Identify the determinant that has changed (income, tastes, related‑goods price, expectations, number of buyers).
2. Hold the price of the good constant (ceteris paribus).
3. Determine the direction of the shift (right = increase in demand, left = decrease).
4. Draw the new curve (D₂) parallel to the original (D₁) and add a double‑arrow indicating the shift.

Diagram Description – Shift

Start with the original demand curve D₁. Draw a second curve D₂ to the right (or left) of D₁, keeping the same slope. Use a double‑arrow between the two curves and label it “Right‑ward shift – income rise” (or appropriate determinant). The price axis remains unchanged, illustrating that the shift is not caused by a price change.

Impact of a Shift on Quantity Demanded & Price

• A right‑ward shift means a higher quantity demanded at every price. If supply is unchanged, the new equilibrium will be at a higher price and higher quantity.
• A left‑ward shift means a lower quantity demanded at every price, leading to a lower equilibrium price and quantity (again, assuming supply is unchanged).

Link to Assessment Objectives (Exam Tips)

Practice Question

Question: The price of coffee falls from £3.00 to £2.00 per cup and quantity demanded rises from 80 cups to 120 cups. Using a diagram, explain whether this represents a movement along the demand curve or a shift, and justify your answer.

Answer Outline

1. Identify the change – the price of coffee (the good itself) has fallen.
2. Conclusion – this is a movement down the existing demand curve, not a shift.
3. Diagram instructions:
   • Draw axes (P vertical, Q_d horizontal) and label the curve D.
   • Plot point A (P = £3.00, Q_d = 80) and point B (P = £2.00, Q_d = 120) on the same curve.
   • Draw an arrow from A to B and label it “Movement along D – price fall”.
4. State that no non‑price determinants (income, tastes, related‑goods prices, expectations, number of buyers) have changed; therefore the demand curve does not shift.
5. Optional AO3 extension – if supply were unchanged, the new equilibrium price would be lower and the equilibrium quantity higher.