2.1 Demand and supply curves

Effective demand is the quantity of a good or service consumers are willing and able to purchase at a particular price and time. Desire alone is not demand if purchasing power or access is absent.

A demand schedule links price to quantities demanded, holding other relevant factors constant. Income, expectations, tastes and related-good prices can change demand at every price.

A student may want a laptop but becomes an effective demander only when they can pay or obtain finance at the stated price.

A social-media wish list measures desire, not necessarily effective demand; ability to pay and a chosen price matter.

An individual demand curve shows one consumer’s quantities demanded at different prices; a market demand curve sums the quantities demanded by all consumers at each price. The same horizontal summation applies to supply.

Market curves depend on the number and characteristics of buyers or sellers. A change in the population or firms can change the market curve even if each individual curve is unchanged.

At £2, three consumers demand 2, 1 and 4 units, so market demand is 7 units at £2.

Do not add prices vertically for ordinary market demand and supply; add quantities at the same price.

Demand is influenced by income, tastes and preferences, prices of substitutes and complements, expectations, population and other relevant conditions, as well as the good’s own price.

A change in own price causes movement along a fixed demand curve; a change in another determinant shifts the whole curve because quantity demanded changes at every price.

Higher income may shift demand for a normal good right, while a fall in the price of a complement such as printer ink can increase demand for printers.

“Demand increased” should not be used for a movement along the curve unless the context distinguishes demand from quantity demanded.

Supply is influenced by input costs, technology, taxes and subsidies, the number of firms, prices of related outputs, expectations and natural conditions, as well as the good’s own price.

A determinant that changes the amount firms are willing to sell at every price shifts supply. Lower costs or better technology usually shift supply right; higher costs shift it left.

A subsidy for solar panels lowers effective production cost and can shift their supply curve right; a rise in semiconductor prices can shift smartphone supply left.

A higher market price causes movement along supply, not necessarily a rightward supply shift.

A demand shift means consumers want a different quantity at every possible price. It is caused by a determinant such as income, tastes, expectations or a related good’s price, not by the good’s own price.

For a normal good, higher income usually shifts demand right; for an inferior good it may shift demand left. Use the good’s classification and the direction of the determinant.

If consumers expect petrol prices to rise next month, current demand may shift right as they buy more now, even though today’s petrol price is unchanged.

A right shift does not mean quantity demanded rises at only one price; it changes the whole relationship.

A supply shift means firms offer a different quantity at every price because production conditions changed. Technology, input costs, taxes, subsidies, weather, firm numbers and expectations are common causes.

A right shift represents greater supply at each price; a left shift represents less. The direction must follow the mechanism, not a memorised list.

A drought can shift agricultural supply left; a productivity-improving irrigation system can shift it right, though the final effect may depend on costs and scale.

A rise in the product’s own price is not by itself a supply shift; it is a movement along supply.

A movement along demand or supply follows a change in the good’s own price. A shift changes the entire curve because another determinant changes.

Ask two questions: did the product’s price change, and did willingness to buy or sell change at every price? The second indicates a shift.

A higher coffee price moves consumers up the same demand curve; a change in the price of tea, a substitute, shifts coffee demand.

Do not draw an arrow along a curve when the question changes income, costs, tastes or technology; those are shift factors.