Chapter 3: Demand and Supply

Part 3.2 – Demand Curves, Movements and Shifts in Demand

By Dr. Anthony Fok

Understanding the Demand Curve

Now that we understand the Law of Demand, the next step is learning how economists represent demand graphically.

One of the most common reasons students lose marks in A-Level Economics is not because they misunderstand the concept of demand, but because they incorrectly interpret or draw the demand curve.

Fortunately, this is a skill that becomes straightforward once the underlying logic is understood.

The Demand Schedule

A demand schedule is a table showing the quantity of a good consumers are willing and able to buy at different prices, assuming all other factors remain constant.

Consider the following example for cups of coffee sold each day.

Notice the clear inverse relationship.

As the price falls from S$8 to S$3, consumers purchase progressively more coffee.

This pattern illustrates the Law of Demand.

The Demand Curve

When the data from the demand schedule is plotted on a graph, it forms the demand curve.

The graph has:

• Price on the vertical (Y) axis.
• Quantity Demanded on the horizontal (X) axis.

The demand curve slopes downward from left to right because lower prices encourage consumers to purchase larger quantities.

Although students often focus on memorising the shape of the curve, it is far more important to understand why the curve slopes downward.

Always explain the economic reasoning behind the diagram.

Movement Along the Demand Curve

One of the most heavily tested concepts in Cambridge examinations is the distinction between:

• a movement along the demand curve, and
• a shift of the demand curve.

These are not the same.

A movement along the demand curve occurs only when the price of the good itself changes, while all other determinants remain unchanged.

There are two possible movements.

Extension of Demand

When the price of a product falls, consumers purchase a larger quantity.

This movement downward along the same demand curve is known as an extension of demand.

Example

Suppose the price of movie tickets decreases from S$18 to S$12.

More consumers decide to watch movies.

Quantity demanded increases.

The demand curve itself does not move.

Only the position on the existing curve changes.

Contraction of Demand

When the price of a product increases, consumers purchase a smaller quantity.

This movement upward along the same demand curve is known as a contraction of demand.

Example

Suppose the price of durians rises sharply because of poor harvest conditions.

Some consumers buy fewer durians or postpone their purchases.

Again, the demand curve does not shift.

Only the quantity demanded changes because of the change in price.

Common Examination Mistake

Many students incorrectly write:

“Demand increased because price fell.”

Strictly speaking, this is inaccurate.

The correct explanation is:

“Quantity demanded increased due to a fall in price.”

Demand itself has not increased.

The demand curve has remained unchanged.

Only the quantity demanded has changed.

Using precise terminology demonstrates a stronger understanding of Economics.

What Causes Demand to Change?

A change in demand occurs when factors other than the price of the good itself change.

These factors are known as the determinants of demand.

When any of these determinants changes, the entire demand curve shifts.

A rightward shift indicates an increase in demand.

A leftward shift indicates a decrease in demand.

Rightward Shift of the Demand Curve

A rightward shift means consumers are willing and able to purchase more at every possible price.

Even if the price remains unchanged, demand increases.

This often occurs because of:

• rising incomes,
• successful advertising,
• changing consumer preferences,
• population growth.

Leftward Shift of the Demand Curve

A leftward shift means consumers purchase less at every possible price.

Possible reasons include:

• falling incomes,
• negative publicity,
• changing tastes,
• declining population.

Notice that the price of the product has not changed.

Instead, another determinant has influenced consumer behaviour.

The Seven Determinants of Demand

Students should be familiar with the major determinants tested in A-Level Economics.

1. Consumer Income

Income is one of the most significant influences on demand.

Normal Goods

Demand increases as income increases.

Examples include:

• overseas holidays,
• restaurant meals,
• electronics,
• branded clothing.

Inferior Goods

Demand decreases as income rises because consumers switch to higher-quality alternatives.

Examples may include:

• instant noodles,
• lower-quality generic products,
• second-hand goods in certain contexts.

Whether a good is normal or inferior depends on consumer behaviour rather than the product itself.

2. Consumer Tastes and Preferences

Fashion trends, health awareness and lifestyle changes can significantly influence demand.

Singapore Example

Growing health consciousness has increased demand for healthier food options and sugar-free beverages.

Businesses often adjust their product offerings in response to these changing preferences.

3. Prices of Related Goods

Related goods are classified into two categories.

Substitute Goods

Substitutes satisfy similar needs.

Examples include:

• Coca-Cola and Pepsi,
• Grab and taxis,
• Butter and margarine.

If the price of one substitute rises, demand for the other generally increases.

Complementary Goods

Complements are consumed together.

Examples include:

• Cars and petrol,
• Printers and ink cartridges,
• Coffee machines and coffee capsules.

If the price of one complement increases significantly, demand for the related product may decrease.

4. Population Size

An increase in population generally increases market demand because there are more consumers.

Conversely, a declining population may reduce demand for many goods and services.

5. Advertising and Marketing

Successful advertising can strengthen brand recognition and increase consumer demand.

However, advertising does not always succeed.

Ultimately, consumers decide whether marketing changes their purchasing behaviour.

6. Expectations of Future Prices

Consumers sometimes alter current purchases based on future expectations.

Example

If buyers expect smartphone prices to increase next month, some may purchase immediately.

Current demand therefore increases.

Similarly, if consumers expect prices to fall, they may postpone purchases.

7. Seasonal Factors

Demand often fluctuates according to the time of year.

Examples include:

• Mooncakes during the Mid-Autumn Festival.
• Christmas decorations in December.
• Airline tickets during school holidays.
• Raincoats during prolonged wet weather.

Seasonal demand illustrates how consumer behaviour changes over time.

Singapore Case Study

Demand for hotel rooms in Singapore often increases during major international events such as the Formula One Singapore Grand Prix.

Even if hotels maintain the same room prices initially, more tourists wish to visit Singapore.

This causes the demand curve for hotel accommodation to shift to the right.

As demand increases, market prices often rise if supply cannot expand quickly.

This example demonstrates how events and consumer expectations can influence demand independently of the original room price.

Dr. Anthony Fok’s Exam Tip

Whenever you analyse a demand question, ask yourself one simple question:

Has the price of the product changed?

If the answer is yes, you are dealing with a movement along the demand curve.

If the answer is no, another determinant has changed, resulting in a shift of the demand curve.

This simple habit helps students avoid one of the most common examination errors.

Common Student Mistake

❌ “Demand increased because the price fell.”

✅ Better answer:

“A fall in price caused an extension of quantity demanded, represented by a movement down the existing demand curve.”

❌ “Demand shifted because price increased.”

✅ Better answer:

“A rise in price causes a contraction in quantity demanded, represented by a movement up the existing demand curve.”

Precise terminology is rewarded in Cambridge examinations.

Quick Revision Checklist

By the end of this section, you should be able to:

• Draw a demand curve accurately.
• Explain why it slopes downward.
• Distinguish between a movement and a shift.
• Define extension and contraction of demand.
• Identify the seven determinants of demand.
• Apply demand analysis to real-world Singapore examples.

Mastering these concepts is essential before moving on to supply and market equilibrium.

Coming Up in Part 3.3

In the next section, we will examine:

• What is supply?
• The Law of Supply.
• Supply schedules.
• Supply curves.
• Movements along the supply curve.
• Shifts in supply.
• Determinants of supply.
• Singapore examples.
• Examination techniques.