Diagrams that illustrate shifts of a demand curve

Allocation of Resources – Demand

Objective

To be able to draw and explain diagrams that illustrate shifts of a demand curve, and to distinguish these from movements along the demand curve.

1. Definition of demand (verbatim syllabus wording)

Note:

• The phrase “quantity demanded” refers to the specific amount bought at a given price – a single point on the curve.
• “Demand” refers to the whole relationship between price and quantity demanded – the entire curve.

2. Individual vs. market demand

• Individual demand: the relationship for one consumer.
• Market demand: the horizontal summation of all individual demand curves in a given market. It is the market‑demand curve that is drawn in exam diagrams.

3. The demand curve – basic concepts

The market‑demand curve shows the relationship between the price of a good (P) and the quantity demanded (Q_d), holding all non‑price determinants constant (ceteris paribus).

Functional form (ceteris paribus):

\(Qd = f(P,\;Y,\;T,\;Ps,\;P_c,\;E,\;N)\)

• Y = consumer income
• T = tastes and preferences
• P_s = price of substitute goods
• P_c = price of complementary goods
• E = expectations of future price or future income (see footnote*)
• N = number of buyers

The curve is downward‑sloping because it is derived from the law of demand: when price falls, the quantity demanded rises, and vice‑versa.

4. Determinants of demand (non‑price factors)

The Cambridge IGCSE syllabus lists six determinants. They are shown below in a compact table that mirrors the syllabus layout.

*The symbol E in the functional form covers both expectations of future price and expectations of future income, as required by the syllabus.

5. Movements along the demand curve

• Occur only when the price of the good itself changes, with all other determinants held constant.
• Illustrated by moving from one point to another on the *same* demand curve (e.g., from point A to point B).
• Exam language:

  • “Increase in quantity demanded” – price falls.
  • “Decrease in quantity demanded” – price rises.
  • Never use “increase in demand” when referring to a price change alone.

6. Diagrammatic illustration of demand shifts

6.1 Basic demand curve (no shift)

Draw a single downward‑sloping line labelled D. Axes: vertical = “Price (P)”, horizontal = “Quantity demanded (Q)”. Mark a point A on the curve to represent a specific price‑quantity pair.

6.2 Increase in demand – right‑hand shift

Typical command: “Draw a diagram showing how an increase in consumer income for a normal good shifts the demand curve.”

1. Sketch the original curve D₁ and a supply curve S (if the question asks for the new equilibrium).
2. Draw a second curve D₂ parallel to the right of D₁.
3. Label the original equilibrium E₁ (intersection of D₁ and S) and the new equilibrium E₂ (intersection of D₂ and S).
4. Indicate the rise in price (P₂) and quantity (Q₂) compared with the original (P₁, Q₁).

6.3 Decrease in demand – left‑hand shift

Command example: “Show the effect of a fall in consumer confidence on the demand for a good.”

1. Draw the original demand curve D₁ and supply curve S, meeting at E₁.
2. Draw a new curve D₂ parallel to the left of D₁.
3. Mark the new equilibrium E₂ with lower price (P₂) and lower quantity (Q₂).

6.4 Movement along the demand curve (price change only)

Command example: “Illustrate the effect of a fall in price on the quantity demanded.”

1. Draw a single demand curve D and a supply curve S.
2. Mark the original equilibrium E₁ (P₁, Q₁).
3. Show a lower price P₂ on the vertical axis, draw a horizontal line to intersect D at point B, then up to S to locate the new equilibrium E₂ (P₂, Q₂).
4. Use an arrow from A to B to indicate movement along the demand curve.

7. Step‑by‑step guide for drawing demand‑shift diagrams in an exam

1. Label the axes: vertical “Price (P)”, horizontal “Quantity demanded (Q)”.
2. Draw the initial market‑demand curve (D₁) as a smooth downward‑sloping line.
3. If required, draw the supply curve (S) – an upward‑sloping line.
4. Identify the determinant that is changing and decide whether it causes a right‑hand or left‑hand shift.
5. Draw the new demand curve (D₂) parallel to D₁ on the appropriate side.
6. Mark the original equilibrium (E₁) and the new equilibrium (E₂) where each demand curve meets S.
7. Label the price and quantity at both equilibria (P₁, Q₁ and P₂, Q₂). Use arrows to show the direction of the shift.
8. Write a brief caption linking the determinant to the observed shift (e.g., “Higher income → right‑ward shift of demand”).

8. Quick checklist for Paper 2 structured‑question tasks

• State the definition of demand using the exact syllabus wording.
• Identify the determinant given in the question.
• State whether the good is normal or inferior (if income is the determinant).
• State the direction of the shift (right = increase, left = decrease).
• Draw a clear, labelled diagram showing the original and new demand curves, the supply curve (if required), and the two equilibrium points.
• Explain the economic reasoning behind the shift (e.g., “Higher future price expectations make consumers buy now”).
• Use the correct terminology: “increase in demand” vs. “increase in quantity demanded”.

9. Price elasticity of demand (PED) – key terms required by the syllabus

While PED is not the focus of this topic, exam questions sometimes ask you to comment on the shape of the demand curve. Remember the following descriptors:

• Perfectly inelastic demand – vertical demand curve; quantity demanded does not change when price changes.
• Inelastic demand – steep downward‑sloping curve; |PED| < 1.
• Unitary elastic demand – curve such that a 1 % change in price leads to a 1 % change in quantity; |PED| = 1.
• Elastic demand – flatter curve; |PED| > 1.
• Perfectly elastic demand – horizontal demand curve; consumers will buy any quantity at one price but none at any other price.

10. Summary of determinants and direction of shift

11. Conclusion

Understanding the distinction between a shift of the demand curve (caused by any non‑price determinant) and a movement along the curve (caused solely by a change in the good’s own price) is essential for success in the Cambridge IGCSE Economics exam. Master the terminology, the six determinants, and the diagrammatic conventions, and you will be able to answer both short‑answer and structured‑question tasks with confidence.