AQA GCSE Economics: Demand and supply: factors, curves, shifts and movements (8136)

This guide teaches sections 3.1.3.1 (demand for goods and services) and 3.1.3.2 (supply for goods and services) of the AQA specification for GCSE Economics (8136), first taught from September 2017. Both sit in 3.1.3, How prices are determined, which is part of Paper 1, How markets work. The specification states no tiers, so everything here applies to every candidate. Every firm, place and figure below is invented for illustration. Equilibrium, intermarket relationships and elasticity are separate sections of 3.1.3 and are not taught here.

Related pages: revision notes, practice questions, the course hub, the printable checklist and the free 10-minute diagnostics.

What this unit covers

Specification section	Skills you need
3.1.3.1	Say what demand means; explain the factors that influence demand; construct an individual demand curve from consumer data; tell a shift of the curve from a movement along it
3.1.3.2	Say what supply means; explain the factors that influence supply; construct an individual firm’s supply curve from production data; tell a shift of the curve from a movement along it

3.1.3.1 Demand

What demand means

Demand is how much of a good or service consumers are both willing and able to purchase at a particular price over a stated period. Both words matter. Wanting a sports car is not demand if you cannot pay for it. The period matters too: “ten cups a week” is a demand, “ten cups” is not.

The demand curve

A demand curve shows the quantity demanded at each price, with everything else held constant. Price goes on the upright axis and quantity on the base axis. The line falls from left to right, because dearer goods are bought in smaller amounts. Two reasons:

• At a higher price, consumers switch to cheaper alternatives.
• At a higher price, the same income buys less, so some people cut back or stop buying.

Constructing an individual demand curve from consumer data

Method

1. Draw two axes with an even scale from zero: price on the upright one, quantity on the base.
2. Plot one point for each row of the data: go along to the quantity and up to the price.
3. Join the points. Label the axes with units and label the curve D.

Worked example (Mira, a student buying coffee from a campus kiosk; invented data). Mira’s weekly purchases:

Price per cup (£)	1	2	3	4	5
Cups demanded per week	12	10	8	6	4

Plot (12, £1), (10, £2), (8, £3), (6, £4) and (4, £5) and join them. A rough sketch of the result:

Price (£)
5 | x
4 |    x
3 |       x
2 |          x
1 |              x
  +------------------ Quantity (cups per week)
    4  6  8  10 12

Reading the graph: at £3 Mira demands 8 cups. If the price rises from £3 to £4, her quantity demanded falls from 8 to 6. That is a change of 2 cups, or 2 / 8 × 100 = 25% fewer.

A market demand curve is built the same way from everyone’s data. At £2 Mira demands 10 cups, Joel 6 and Ana 4, so market demand is 10 + 6 + 4 = 20 cups. Add the quantities at each price, never the prices.

Factors influencing demand

Anything other than the price of the good itself can change demand. The specification does not give a list; these are the standard factors.

Factor	Change	Effect on demand
Income	Rise	Rises for most goods (normal goods)
Tastes, fashion, advertising	More favourable	Rises
Price of a substitute	Rises	Rises, as buyers switch over
Price of a complement	Rises	Falls, as the pair is used together
Population or the size of the group of buyers	Rises	Rises
Season or weather	Favourable	Rises (ice cream in a heatwave)
Expected future price	Expected to rise	Rises now, as buyers buy early
Cheaper or easier credit	Rises	Rises, especially for expensive goods

Chain of reasoning for one factor: the price of rice rises, so some households switch to potatoes, so demand for potatoes rises at every price and the whole curve moves right.

Shifts of, and movements along, the demand curve

• When the good’s own price alone changes, we move along the curve. Quantity demanded extends (price falls) or contracts (price rises).
• When anything else changes, the whole curve moves. Moving right is an increase in demand; moving left is a decrease in demand.

Worked example (Mira again). Mira starts a part-time job. Her income rise means she buys 4 more cups at every price:

Price (£)	1	2	3	4	5
Old demand	12	10	8	6	4
New demand	16	14	12	10	8

At £3 demand rises from 8 to 12 cups: (12 − 8) / 8 × 100 = a 50% increase in demand. Now suppose a rival kiosk opens and cuts its prices, so Mira buys 3 fewer cups at every price: the figures become 9, 7, 5, 3, 1 and the curve shifts left. At £3 that is a fall from 8 to 5 cups, or 37.5%.

3.1.3.2 Supply

What supply means

Supply means the amount that producers are both willing and able to offer for sale at a particular price over a stated period. A supply curve shows the quantity supplied at each price, everything else held constant. It slopes upward: a higher price means a higher quantity supplied. Two reasons:

• A higher price means more profit on each unit, which gives firms a reason to produce more.
• Producing extra units usually costs more per unit as resources become stretched, so only a higher price makes those extra units worth producing.

Constructing an individual firm’s supply curve from production data

A firm will supply a unit only if the price covers the cost of producing it. This gives a way to build a schedule from cost data.

Worked example (a small workshop making wooden stools; invented data). The cost of making each extra stool is:

Stool number	1	2	3	4	5	6
Cost of that stool (£)	30	35	42	50	60	72

At a price of £50, the workshop makes every stool whose cost is £50 or less: stools 1, 2, 3 and 4, so it supplies 4 stools. Repeating for each price:

Price (£)	35	42	50	60	72
Quantity supplied	2	3	4	5	6

Use the same axes as before, plot the pairs and join the points. The line slopes up from left to right. Label it S. If the data are given directly as prices and quantities, skip the cost step and plot them.

Factors influencing supply

Factor	Change	Result for supply
Production costs such as pay, materials, fuel and rent	Rise	Falls
Technology or productivity	Improves	Rises
Tax on production (for example an indirect tax)	Rises	Falls
Subsidy from government	Introduced	Rises
Number of firms	Rises	Rises
Weather and natural events (farm goods)	Favourable	Rises
Price of another good the firm could make	Rises	Falls for this good, as resources move
Expected future price	Expected to rise	May fall now, as firms hold stock back

Shifts of, and movements along, the supply curve

• When the good’s own price alone changes, we move along the curve. Quantity supplied extends (price rises) or contracts (price falls).
• When anything else changes, the curve moves. Moving right is an increase in supply; moving left is a decrease in supply.

Worked example (the workshop again). A pay rise adds £5 to the cost of every stool, so the costs become 35, 40, 47, 55, 65 and 77.

Price (£)	35	42	50	60	72
Old supply	2	3	4	5	6
New supply	1	2	3	4	5

At £50 supply falls from 4 to 3 stools, a decrease of 1 / 4 × 100 = 25%. The curve shifts left (or, equivalently, up).

A government subsidy of £10 a stool works the other way. The workshop now bears only £40 of the £50 cost of stool 4, so it will supply stool 4 at a price of £40 instead of £50. The curve shifts right (or down) by £10 at every quantity.

Common errors

• Saying “demand falls” after nothing but the good’s own price has changed. If the good’s own price rises, quantity demanded contracts: a movement along the curve.
• Shifting the curve for a change in the good’s own price. The only cause of a movement is its own price.
• Confusing the direction of a shift. Right means more at every price; left means less. Do not use “up” and “down” for demand unless you explain what you mean.
• Mixing up substitutes and complements. A rise in the price of a substitute raises demand; a rise in the price of a complement lowers it.
• Stating a factor without a chain. Write “costs fall, so firms can make more profit at each price, so supply rises”, not just “costs”.
• Leaving out axes, units or labels. Label price, quantity, D or S, and the units.

Official syllabus

This page follows the AQA GCSE Economics (8136) specification for first teaching in 2017, published by AQA, sections 3.1.3.1 and 3.1.3.2. Check the current specification at aqa.org.uk/8136.