Demand

Demand is the quantity of a good consumers are willing and able to buy at a given price, in a given period. Both words in "willing and able" earn marks: wanting a Ferrari is not demand unless you can pay for one.

The law of demand is that as price falls, quantity demanded rises. Two reasons explain it. A lower price makes the good affordable to more people, and it makes the good better value against its substitutes, so buyers switch to it.

A demand curve plots that relationship. It slopes downwards from left to right, with price on the vertical axis and quantity on the horizontal — a convention that is the reverse of what maths would suggest, and one that costs marks when the axes are drawn the wrong way round.

Individual demand is one consumer's demand. Market demand is the total of every consumer's demand at each price, so it is found by adding across the individuals price by price. Exam questions give a table of individual demands and ask for the market figure, which is simply the sum of that row.

This is the distinction the whole sub-topic turns on, and the one most often got wrong.

A movement along the demand curve happens when the price of the good itself changes. The curve does not move; the quantity demanded slides up or down the same line. That is all a price change ever does.

A shift of the demand curve happens when anything other than the good's own price changes. A different quantity is now demanded at every price, so the whole curve moves — right for an increase in demand, left for a decrease.

The consequences of a shift are what the specification asks you to analyse, and they follow from 2.4. A rightward shift in demand raises both equilibrium price and equilibrium quantity: consumers pay more, and producers sell more and earn higher revenue. A leftward shift lowers both. Saying only that "the curve moves right" is a description; saying what happens to price, quantity, consumers and producers is the analysis.

Price elasticity of demand (PED) measures how much quantity demanded responds to a change in price.

PED = percentage change in quantity demanded ÷ percentage change in price

The answer is negative, because price and quantity move in opposite directions, and the convention at GCSE is to ignore the minus sign and read the number.

• Greater than 1 — elastic: quantity responds strongly • Less than 1 — inelastic: quantity barely responds • Exactly 1 — unit elastic: they change by the same percentage

Why elasticity matters is the part the specification asks you to evaluate, and it is genuinely useful.

For producers, it decides whether a price rise increases or reduces revenue. If demand is inelastic, raising price raises revenue, because quantity falls by proportionately less. If demand is elastic, raising price lowers revenue, because too many buyers leave. That single rule answers most pricing questions.

For consumers, inelastic demand means being exposed. If you cannot easily go without a good and there is no substitute, a price rise takes a real bite out of your income and there is little you can do — which is why rises in the price of fuel or energy cause so much difficulty.

For the government, it explains which goods are taxed. Taxing an inelastic good like fuel or tobacco raises a lot of revenue, because people keep buying it. But that same inelasticity means the tax does not reduce consumption very much, so a tax intended to change behaviour works far less well than a tax intended to raise money.