Why do consumers buy less as price rises, and what else shifts the whole demand curve?
State the law of demand, explain the difference between a movement along and a shift of the demand curve, and identify the determinants of demand
A focused answer to the H2 Economics learning outcome on demand. The law of demand and its reasons, the crucial difference between a movement along and a shift of the curve, and the determinants that shift demand.
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What this dot point is asking
SEAB wants you to state the law of demand, explain why the demand curve slopes downward, distinguish a movement along the curve from a shift of the whole curve, and list the determinants that shift demand. The central insight, and the most common source of exam errors, is that a change in the good's own price moves you along the curve, while a change in anything else shifts it.
The answer
The law of demand
"Demand" here means effective demand: the desire for a good backed by the willingness and ability to pay, not mere want.
Why demand slopes downward
Two effects explain the negative relationship:
- Substitution effect. When a good's price rises, it becomes relatively more expensive than its substitutes, so consumers switch away from it, reducing quantity demanded.
- Income effect. A higher price reduces the real purchasing power of a given income, so consumers can afford less of the good.
These are reinforced by diminishing marginal utility: each extra unit gives less added satisfaction, so consumers will only buy more if the price falls.
Movement along versus shift of the curve
This distinction is essential and heavily tested:
- A change in the good's own price causes a movement along the curve. We call this a change in quantity demanded.
- A change in any other determinant shifts the whole curve. We call this a change in demand. A rightward shift is an increase in demand; a leftward shift is a decrease.
Determinants that shift demand
The main shifters, sometimes remembered as the non-price factors, are:
- Income. For a normal good, higher income raises demand; for an inferior good, higher income lowers demand.
- Prices of related goods. A rise in the price of a substitute raises demand for this good; a rise in the price of a complement lowers it.
- Tastes and preferences. Trends, advertising and seasons shift demand.
- Expectations. If consumers expect prices to rise, current demand rises.
- Population and its composition. A larger or differently structured population changes demand.
Examples in context
Example 1. Singapore's COE and car demand. When the Certificate of Entitlement premium (effectively part of the price of owning a car) rises, the quantity of cars demanded falls as buyers move up the demand curve. But a rise in incomes shifts the whole demand curve for cars rightward, which is one reason premiums have trended high in a prosperous, land-scarce city.
Example 2. Substitutes in transport. If train fares rise sharply, some commuters switch to buses, raising the demand for bus travel (a rightward shift of the bus demand curve caused by a related price). This shows a change in one good's price shifting the demand curve for its substitute.
Try this
Q1. State the law of demand. [2 marks]
- Cue. Other things equal, as the price of a good rises its quantity demanded falls, and as price falls quantity demanded rises.
Q2. Explain why a rise in income shifts the demand curve for a normal good. [2 marks]
- Cue. Income is a non-price determinant, so it shifts the whole curve; for a normal good, higher income raises demand at every price, shifting it rightward.
Q3. A good's price rises. Explain why this is a movement along, not a shift of, the demand curve. [3 marks]
- Cue. The price is the variable on the axis, so a change in it moves you along the existing curve to a new quantity demanded; only changes in other determinants shift the curve.
Exam-style practice questions
Practice questions written in the style of SEAB exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
Original10 marksExplain the law of demand, and distinguish clearly between a movement along the demand curve and a shift of the demand curve.Show worked answer →
A 10 mark question rewards the law, the reasons behind it, and a precise distinction between movement and shift.
- The law
- Other things equal, as the price of a good rises its quantity demanded falls, and as price falls quantity demanded rises. The demand curve therefore slopes downward.
- Why
- The income effect (a higher price reduces real purchasing power) and the substitution effect (consumers switch to relatively cheaper substitutes) both reduce quantity demanded as price rises. Diminishing marginal utility reinforces this.
- Movement versus shift
- A change in the good's own price causes a movement along the curve (a change in quantity demanded). A change in any other determinant (income, prices of related goods, tastes) shifts the whole curve (a change in demand).
Markers reward the ceteris paribus statement of the law, the income and substitution effects, and a clean separation of movement (own price) from shift (other determinants).
Original8 marksExplain, with examples, three determinants that would shift the demand curve for restaurant meals to the right.Show worked answer →
An 8 mark question rewards three correct demand shifters and a clear mechanism for each.
- Higher income
- Restaurant meals are a normal good, so a rise in consumer income raises demand at every price, shifting the curve right.
- A rise in the price of a substitute
- If the price of home-delivery meal kits rises, some consumers switch to restaurants, raising demand for restaurant meals.
- A change in tastes
- A dining-out trend or successful marketing raises consumers' preference for restaurant meals, shifting demand right.
Markers reward three distinct determinants (not three versions of the same one), the direction of the shift, and the mechanism linking each determinant to higher demand.
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