IGCSE Economics 0455 – The Allocation of Resources: Demand
The Allocation of Resources – Demand
Objective
To be able to draw and interpret diagrams that illustrate movements along a demand curve and to distinguish these from shifts of the curve.
Key Concepts
Demand curve – graphical representation of the relationship between price (\$P\$) and quantity demanded (\$Q_d\$) ceteris paribus.
Movement along the curve – caused by a change in the price of the good itself.
Shift of the demand curve – caused by changes in non‑price determinants (income, tastes, prices of related goods, expectations, number of buyers).
Movement Along the Demand Curve
When the price of a good changes, the quantity demanded changes, resulting in a movement from one point to another on the same demand curve.
Suggested diagram: A downward‑sloping demand curve labelled D. Mark two points A and B on the curve. Point A corresponds to a higher price and lower quantity; point B corresponds to a lower price and higher quantity. An arrow from A to B illustrates a movement down the curve as price falls.
Illustrative Example
Consider the market for bread. The table below shows how quantity demanded changes as the price changes, assuming all other factors remain constant.
Price of Bread (\$P\$)
Quantity Demanded (\$Q_d\$)
$2.00
100 loaves
$1.50
150 loaves
$1.00
200 loaves
From the table we see:
When the price falls from \$2.00 to \$1.00, the quantity demanded rises from 100 to 200 loaves.
This change is represented by a movement down the existing demand curve, not by a shift of the curve.
Steps to Draw the Diagram
Draw a set of axes with price (\$P\$) on the vertical axis and quantity demanded (\$Q_d\$) on the horizontal axis.
Sketch a downward‑sloping line to represent the demand curve (label it D).
Mark point A at (\$P = 2.00\$, \$Qd = 100\$) and point B at (\$P = 1.00\$, \$Qd = 200\$).
Draw an arrow from A to B to show the movement along the curve as price falls.
Label the arrow “Movement along D (price change).”
Distinguishing Movements from Shifts
Use the following checklist to decide whether a change is a movement along the demand curve or a shift of the curve:
Price change of the good itself? – Movement along the curve.
Change in income, tastes, price of substitutes/complements, expectations, or number of buyers? – Shift of the entire demand curve.
Practice Question
Suppose the price of coffee falls from \$3.00 to \$2.00 per cup. Quantity demanded rises from 80 cups to 120 cups. Explain, using a diagram, whether this represents a movement along the demand curve or a shift, and why.
Answer Outline
Identify the change: price of coffee (the good itself) has fallen.
Conclude that the change is a movement down the existing demand curve.
In the diagram, plot the two points (3.00, 80) and (2.00, 120) on the same curve D and draw an arrow from the higher‑price point to the lower‑price point.
State that no non‑price determinants have changed, so the curve does not shift.