Demand: the demand curve, utility and shifts

Demand and the demand curve

Demand is the quantity of a good or service that consumers are willing and able to buy at each price over a given period of time. 'Able' matters: wanting a car is not demand unless you can pay.

Diagram in words: price (P) on the vertical axis, quantity (Q) on the horizontal axis. The demand curve (D) slopes downwards from left to right: as price falls, quantity demanded rises.

• A change in the good's own price causes a movement along the curve: an extension (price falls, quantity demanded rises) or a contraction (price rises, quantity demanded falls).
• A change in any other factor causes a shift of the whole curve: right (increase in demand) or left (decrease).

Diminishing marginal utility

Utility is the satisfaction from consumption. Marginal utility is the extra satisfaction from consuming one more unit. The law of diminishing marginal utility says marginal utility falls as more units are consumed: the first drink on a hot day gives great satisfaction, the fifth much less.

A rational consumer buys another unit only if its marginal utility is worth at least the price. Because each extra unit gives less satisfaction, the consumer will only buy more if the price falls. This explains why an individual's demand curve slopes downwards.

Causes of a shift

Demand shifts right (D1 to D2) when, at every price, more is demanded. The specification lists:

• Price of substitutes: a rise in the price of tea shifts demand for coffee right.
• Price of complements: a rise in the price of printers shifts demand for ink cartridges left.
• Changes in real income: higher real income shifts demand right for normal goods and left for inferior goods (for example the cheapest own-brand food).
• Tastes and preferences: fashion, health information.
• Size and age structure of the population: more people raise demand; an ageing population raises demand for healthcare and lowers it for children's goods.
• Advertising: aims to raise demand and make it less price sensitive.

Memory aid for exams: always say which way the curve shifts and what happens to equilibrium price and quantity.

Exam technique: drawing demand diagrams

For full marks in a 4-mark 'draw' question: label the axes P and Q, label original curves D1 and S, show the shift with an arrow to D2, and mark the original and new equilibrium prices and quantities (P1, Q1, P2, Q2) on the axes. A Pearson WEC11 mark scheme gave 1 knowledge mark for correctly labelled axes and curves and 3 application marks for the shift and the two equilibria.

Worked example

The price of petrol rises sharply. Explain the effect on the demand for large cars, which use a lot of fuel.

1. Petrol and cars are complements: they are used together.
2. Running a large car becomes more expensive.
3. At every price of cars, fewer people want large cars: demand shifts left from D1 to D2.
4. With supply unchanged, the equilibrium price and quantity of large cars fall.

Answer: Demand for large cars shifts left; price and quantity of large cars fall.

Check yourself

1. A fall in the price of bananas, other things equal, causes
   • a rightward shift of the demand curve for bananas
   • an extension of demand along the demand curve for bananas
   • a leftward shift of the demand curve for bananas
   • a contraction of demand for bananas
   Show answer

   an extension of demand along the demand curve for bananas. A change in the good's own price moves along the curve.

2. Tea and coffee are substitutes. A rise in the price of tea will
   • shift the demand curve for coffee to the left
   • cause a movement along the coffee demand curve
   • shift the supply curve of coffee to the right
   • shift the demand curve for coffee to the right
   Show answer

   shift the demand curve for coffee to the right. Some tea drinkers switch to coffee, so more coffee is demanded at every price.

3. Games consoles and games are complements. A fall in the price of consoles will
   • decrease demand for games
   • increase demand for games
   • leave demand for games unchanged
   • decrease the supply of games
   Show answer

   increase demand for games. More consoles are bought, so more games are wanted at each price.

4. Real incomes rise. Demand for an inferior good will
   • shift to the right
   • stay the same
   • shift to the left
   • become perfectly elastic
   Show answer

   shift to the left. Consumers switch to better alternatives as incomes rise.

5. The law of diminishing marginal utility explains why
   • a consumer's demand curve slopes downwards
   • supply curves slope upwards
   • the PPF is bowed outwards
   • money is a store of value
   Show answer

   a consumer's demand curve slopes downwards. Each extra unit gives less satisfaction, so consumers buy more only at lower prices.

6. A country's population is ageing. Demand for which product is most likely to shift right?
   • Baby clothes
   • School uniforms
   • Care home places
   • Children's toys
   Show answer

   Care home places. Older people need more care services.

7. Explain how diminishing marginal utility leads to a downward-sloping demand curve.
   Show answer

   Each extra unit consumed gives less additional satisfaction (marginal utility falls). A consumer will only buy an extra unit if the price is no higher than the value of that extra satisfaction, so more is bought only at lower prices.. Marginal utility falls, so willingness to pay for extra units falls.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics specification (2018)

Last updated 8 November 2026. Spotted a mistake? Tell us.