Demand

— Economics · AS Level · Microeconomics —

★ Exam Tip: Typical 8-mark essay: "Explain the factors which will affect the demand for a product". Marks split: AO1 Knowledge → 3m · AO2 Application → 3m · AO3 Evaluation → 2m.

Answer plan (sir's skeleton): ① Define Demand ② Define Law of Demand ③ Factors affecting demand + diagram (Income, Direct Tax, Prices of Related Goods, Advertisement, Changes in Population, Changes in Consumer Taste/Pattern) ④ Evaluation

1. What is Demand?

Definition: Demand = the willingness and ability of a consumer to purchase a good or service.

Effective Demand: demand backed by sufficient income and sufficient ability / resources to purchase a good or service.

Note: On the board the written line says "either sufficient income or sufficient resources". The idea is that wanting something is not enough — you must actually be able to pay for it (purchasing power). Willingness alone = just a wish.

★ Game of Relationship

	Positive (+ve)	Negative (−ve)
Curve	Upward sloping	Downward sloping
y, x move	y↑ x↑ y↓ x↓	y↑ x↓ y↓ x↑
Direction	same direction	opposite direction

+ve relationship → upward sloping curve

−ve relationship → downward sloping curve

Remember: +ve → upward · −ve → downward. Draw the curve according to the relationship, not by habit.

Diagrams are made on the basis of the relationship: positive → upward sloping curve, negative → downward sloping curve.
None of the diagrams must start from the origin.
A curve can touch the Y-axis but not the X-axis.

2. Law of Demand

Law of Demand → consumer perspective. It shows a negative relationship between Price and Quantity Demanded.

Price ↑ ⇒ Quantity Demanded ↓ (contracts)
Price ↓ ⇒ Quantity Demanded ↑ (extends)
(−ve relationship ⇒ downward sloping demand curve)

Price(P) = independent variable (Y-axis) · Quantity demanded (Q) = dependent variable (X-axis).

Why? — fixed income / budget of $100:

Price ↑$10 → 10 units$20 → 5 units ↓

Price ↓$10 → 10 units$5 → 20 units ↑

With a fixed budget, a higher price lets you buy fewer units.

★ Steps to make the diagram

P↑ → Qd contracts (a→b) · P↓ → Qd extends (a→c)

Trick: Price changes ⇒ movement along the curve. Price ↑/↓ = rise/fall; Qd = contract/extend (decrease/increase).

Labels: P = independent (price, rise/fall) · Q = dependent (qty demanded, contract/extend ⇒ decrease/increase) · points a, b, c on curve D(−ve).

★ Diagram Explanation

An increase in price from P to P₁ will contract quantity demanded from Q to Q₁, causing movement from point 'a' to 'b'.

A decrease in price from P to P₂ will extend quantity demanded from Q to Q₂, causing movement from point 'a' to 'c'.

Thus the diagram represents a negative relationship between Price and Quantity Demanded.

3. Factors Affecting Demand (other than Price)

Also called: other factors · non-price factors. Price = constant. They cause demand to increase/decrease → a shift of the demand curve (rightwards / leftwards).

other factors ⇒ SHIFT of the curve (price constant)

Price → movement along the curve

Other factors → shift in the demand curve

Six factors (sir's list): ① Income ② Direct Tax ③ Prices of Related Goods ④ Advertisement ⑤ Changes in Population ⑥ Changes in Consumer Taste / Pattern

① Income

Income → represents purchasing power of an individual. Income ↑ ⇒ Demand ↑ · Income ↓ ⇒ Demand ↓ (for normal goods). It splits goods into two types:

Normal Goods	Inferior Goods
High quality	Low quality
Branded	Unbranded / not branded
Expensive	Cheap
e.g. Apple / Rolex	e.g. Nokia / Casio
Y↑ ⇒ DNG ↑ Y↓ ⇒ DNG ↓	Y↑ ⇒ DIG ↓ Y↓ ⇒ DIG ↑

Y = income · DNG = demand for normal goods · DIG = demand for inferior goods. Example pair: Private ⓥⓢ Public transport (richer → private car ↑, public transport ↓).

Careful: inferior goods move opposite to income — income ↑ means demand for inferior goods falls.

② Direct Tax

Direct tax → a direct burden on an individual's income. Two types:

Income Tax	Corporation Tax
based on salary	based on company profits

★ FMP Academy (sir's examples):

① FMP → Director → company profits → corporation tax

② FMP → Economics teacher → salary → income tax

Nominal Income = income before deduction of tax. Disposable Income (DI) = income after deduction of tax → people either save or spend it.

Yr 1 — tax 10%N.I. = 100,000 × 10%Income tax = $10,000DI = 100,000 − 10,000DI = $90,000

Yr 2 — tax 20%N.I. = 100,000 × 20%I.T. = $20,000DI = 100,000 − 20,000DI = $80,000

Direct tax ↑ ⇒ DI ↓ ⇒ Purchasing power ↓ ⇒ Demand ↓ (⇒ leftward shift)

Yr 1 — tax 10%I.T. = $10,000DI = $90,000

Yr 2 — tax 5% (2nd version)N.I. = 100,000 × 5%I.T. = $5,000DI = 100,000 − 5,000 = $95,000

Note: The teacher re-did this example on a later board page with a 5% tax in Yr 2, while the "Direct tax ↑ → DI ↓ → … → L. shift" chain stayed on the right. That chain only fits a tax rise (the 20% case). With a tax fall (5%), DI ↑ ⇒ purchasing power ↑ ⇒ demand ↑ ⇒ rightward shift.

③ Prices of Related Goods

Substitute Good	Complementary Good
Alternative · Option can be used in place of another good e.g. Coke / Pepsi	Jointly demanded good demanded together at the same time e.g. Car / Petrol
Price of Coke ↑ ⇒ QD of Coke ↓ ⇒ Demand for Pepsi ↑	Price of Car ↑ ⇒ QD of Car ↓ ⇒ Demand for Petrol ↓

Sir's numbers (substitutes):

Coke $10 → $15 while Pepsi stays $10 ⇒ Coke is now dearer ⇒ consumers switch to Pepsi.

substitute: Coke price ↑ ⇒ Pepsi D shifts RIGHT

complement: Car price ↑ ⇒ Petrol D shifts LEFT

④ Advertisement

Advertisement = marketing, branding / promotion of your product. Advertisement ↑ ⇒ Demand ↑ · Advertisement ↓ ⇒ Demand ↓.

Informative Adv	Persuasive Adv
gives information	to persuade
features of the product negative externalities	attract consumers use of celebrity
e.g. "Smoking Kills!!"	e.g. P.S.L.

Demerit good → harmful for society → negative externalities (e.g. cigarettes / alcohol).
Merit good → beneficial for society → positive externalities (e.g. education / healthcare).

Who advertises? What is the aim?

Demerit good + private sector advertising → aim = increase demand of the product.
Demerit good + public sector (govt) advertising → aim = decrease demand of the product.
Merit good + public sector advertising → aim = increase demand of the product.

⑤ Changes in Population

Population ↑ ⇒ Demand ↑ · Population ↓ ⇒ Demand ↓ (more/fewer buyers in the market).

⑥ Changes in Consumer Taste / Pattern

Board heading only — fashion, trends and preferences change what people want ⇒ demand shifts. (Taste for the good ↑ ⇒ demand ↑; taste ↓ ⇒ demand ↓.)

4. Change in Quantity Demanded vs Change in Demand

Changes in Quantity Demanded	Changes in Demand
due to changes in Price	due to changes in Other Factors
Contraction / Extension in QD	Increase / Decrease in Demand
Movement along the demand curve	Shift in the demand curve
Other factors = constant	Prices = constant

P↑ → Qd contracts (a→b) · P↓ → Qd extends (a→c)

Shift in curve (changes in demand)

In words: Changes in quantity demanded is due to changes in prices, keeping all other factors constant — it causes movement along the demand curve. Changes in demand is due to changes in other factors, keeping prices constant — it causes a shift in the demand curve.

Ceterus paribus (ceteris paribus) = keeping one factor into consideration and all other factors constant.
Price → ✓ for movement / ✗ for shift | Other factors → ✗ for movement / ✓ for shift.

5. Individual and Market Demand

Male customers (500 at $10) + Female customers (400 at $10) = 900 at $10 on the market curve D_M+F.

Market demand = the horizontal summation of all individual demand curves; found by adding demand of all individuals at each price level.
Example: a cinema charges $10 per ticket; males demand 500/week, females 400/week ⇒ market demand = 900 tickets/week at $10.

Individual vs market price: A change in one individual's demand does not affect market price — he just buys more/less at the same price. But if demand for the whole product in the market rises → shortage → a signal to producers → they raise prices and increase profits.

6. Model Answer — "Explain the factors which will affect demand" (8)

Note: The board question names an MP3 player but the teacher wrote the model answer for chocolate (dark vs white chocolate). The structure works for any product — just swap the example.

Q1 (8)Essay · AO1 K 3m · AO2 A 3m · AO3 E 2m

Para 1 — Define + intro (AO1)

Demand = willingness and ability of a consumer to purchase a good or service.
Law of Demand → consumer perspective: price ↑ ⇒ quantity demanded contracts; price ↓ ⇒ quantity demanded extends ⇒ negative relationship between price and QD ⇒ downward sloping demand curve.
Factors affecting demand = other / non-price factors: cause demand to increase or decrease ⇒ a shift in the demand curve, keeping prices constant.
Many factors affect demand for chocolate: Income, Direct Tax, Prices of Related Goods, Advertisement, etc.

Para 2 — Income (AO1 + AO2 application)

First factor = Income, represents purchasing power; goods split into normal (high quality, branded, expensive) and inferior (low quality, not branded, cheap).
e.g. Dark chocolate (normal) and white chocolate (inferior).
Income ↑ ⇒ demand for dark chocolate ↑, demand for white chocolate ↓ ⇒ rightwards shift in demand for dark chocolate (D → D₁), as shown in Diagram no. 1.

Diagram no. 1 — right shift D→D₁ (income ↑) · left shift D→D₂ (adv. says chocolate harmful)

Para 3 — Advertisement (AO2 application)

Another factor = advertisement: marketing, branding and promotion of your product; informative / persuasive.
Informative adv = giving information about your product, e.g. government says chocolate is harmful for health ⇒ demand for chocolate ↓.
⇒ leftwards shift in demand for chocolate from D to D₂, as shown in Diagram no. 1.

Para 4 — Conclusion + Evaluation (AO3, 2m)

To conclude, there are also other factors (e.g. changes in taste/patterns and changes in population) that can affect demand for chocolate.
However, income is undetermined (uncertain) as it varies with the economic condition of the country, and it is difficult to shift from normal good to inferior good.

7. Quick Recap — Full Cheat-Sheet

✓ Demand — everything on one page

Demand = willingness + ability of a consumer to buy a good/service · Effective demand = backed by sufficient income / resources.
Relationships: +ve ⇒ upward slope, same direction (y↑x↑) · −ve ⇒ downward slope, opposite direction (y↑x↓).
Law of Demand: P↑ ⇒ Qd↓ (contract) · P↓ ⇒ Qd↑ (extend) ⇒ −ve relationship, downward demand curve D(−ve).
Diagram steps: axis → label → curve → old P/Q/point → new P/Q/point. Curve needn't start at origin; can touch Y-axis, not X-axis.
Price ⇒ movement along curve (contraction/extension) · Other factors ⇒ shift (increase = right, decrease = left).
6 factors: Income · Direct tax · Related goods · Advertisement · Population · Taste/pattern.
Income: normal goods Y↑D↑ · inferior goods Y↑D↓ (opposite).
Direct tax ↑ ⇒ DI ↓ ⇒ purchasing power ↓ ⇒ demand ↓ (left shift); income tax = salary, corporation tax = company profits; DI = N.I. − tax.
Related goods: substitute (Coke/Pepsi) P of one ↑ ⇒ D of other ↑ · complement (Car/Petrol) P of one ↑ ⇒ D of other ↓.
Advertisement: informative (info, "Smoking Kills") vs persuasive (celebrity, PSL); demerit + private ⇒ ↑D, demerit + public ⇒ ↓D, merit + public ⇒ ↑D.
Population ↑ ⇒ D↑ · ↓ ⇒ D↓.
Market demand = horizontal sum of individual demands (e.g. 500 + 400 = 900 at $10).
8-mark essay: Define demand (K) → define law (K) → factors + diagram (A) → evaluation (E).