Cambridge IGCSE Economics: Demand and supply: curves, movements and shifts (0455)

This study guide is aligned to the 2026 examination syllabus for Cambridge IGCSE Economics (0455), sections 2.3 (Demand) and 2.4 (Supply). The syllabus is not tiered, so all of it applies to every candidate. All markets, firms and figures are invented for practice, and prices are in currency units (cu). They are not real statistics.

Price determination (section 2.5) comes next in the course. Here you learn to draw, read and move each curve on its own. To see where this sits in the course, open the course hub at Cambridge IGCSE Economics or tick items off on the printable checklist. For wider background, see the allocation of resources overview. When you finish, use the revision notes, the practice set and try the diagnostics.

What you must be able to do

Section	Outcome
2.3.1	Define demand, then draw and read a demand diagram
2.3.2	Show price-led movements on a demand curve (extension, contraction)
2.3.3	Build market demand from individual demand by aggregation
2.3.4	Explain causes of shifts in demand (increase, decrease)
2.4.1	Define supply, then draw and read a supply diagram
2.4.2	Show price-led movements on a supply curve (extension, contraction)
2.4.3	Build market supply from individual supply by aggregation
2.4.4	Explain causes of shifts in supply (increase, decrease)

The syllabus asks for “appropriate terminology” and gives extension, contraction, increase and decrease as examples. The syllabus section does not print a fixed list of conditions of demand or supply, so the lists below are the standard ones used in teaching.

2.3.1 Demand and its diagram

Demand is how much of a good or service buyers are ready and able to purchase at each price over a stated period. “Able” matters: a wish with no money behind it is not demand.

A demand schedule lists prices and the quantity demanded at each. Here is the market for ice lollies at a beach kiosk row in Seaside Town S on a summer day (illustrative).

Price (cu)	1	2	3	4	5
Quantity demanded	25	20	15	10	5

To draw the curve, put price up the side (vertical axis) and quantity along the bottom (horizontal axis), plot each pair and join the points. Label the curve D.

Price (cu)
5 |    *
4 |        *
3 |            *
2 |                *
1 |                    *
  +------------------------
       5   10  15  20  25   Quantity per day

The curve slopes downward: a higher price means a lower quantity demanded. Why? A higher price makes the good dearer than substitutes, so some buyers switch. It also lowers real income, so buyers can afford less. And each extra unit usually gives less satisfaction than the last, so buyers pay less for extra units.

Reading the diagram: at 3 cu the quantity demanded is 15. The curve also tells you the price at which buyers will take a quantity: 10 lollies are demanded at 4 cu.

2.3.2 Movements along a demand curve

Only a change in the good’s own price slides you along the same curve. No other line moves.

• Price falls: extension of demand (quantity demanded rises).
• Price rises: contraction of demand (quantity demanded falls).

Worked example. The price of a lolly falls from 4 cu to 2 cu.

1. Read the quantity at 4 cu: 10. Read the quantity at 2 cu: 20.
2. Quantity demanded rises by 20 − 10 = 10, so this is an extension.
3. Percentage change = (20 − 10)/10 × 100 = +100%.

Check the reverse. If the price rises from 2 cu to 4 cu, quantity falls from 20 to 10. The percentage change is (10 − 20)/20 × 100 = −50%. The same ten lollies give different percentages because the starting point differs.

Careful wording: the demand curve does not move here. Say “extension of demand” or “increase in quantity demanded”. Do not say “increase in demand”.

2.3.3 Individual and market demand

Individual demand is one buyer’s demand. Market demand is the demand of all buyers in the market. You find it by aggregation: add the quantities demanded at each price. On a diagram this is a horizontal sum.

Price (cu)	Household A	Household B	Household C	Market
1	12	8	5	25
2	10	6	4	20
3	8	4	3	15
4	6	2	2	10
5	4	0	1	5

At 4 cu: 6 + 2 + 2 = 10. Household B buys nothing at 5 cu, so it adds zero at that price. The market curve lies to the right of every individual curve.

Worked example (shares). At 2 cu, Household B’s share of market demand is 6/20 × 100 = 30%. At 4 cu, Household C’s share is 2/10 × 100 = 20%.

Never add prices. Prices stay the same down the column; only quantities are added.

2.3.4 Conditions of demand and shifts

A shift of the whole curve happens when something other than the good’s own price changes. Buyers then want a different quantity at every price.

• Curve moves right: an increase in demand.
• Curve moves left: a decrease in demand.

Condition	Change	Effect on demand for the good
Income	Rises (normal good)	Increase
Income	Rises (inferior good)	Decrease
Price of a rival good (substitute)	Rises	Increase
Price of a good used alongside it (complement)	Rises	Decrease
Tastes, fashion, advertising	Move in favour	Increase
Population or number of buyers	Rises	Increase
Expectations	Buyers expect prices to rise soon	Increase now
Seasons, weather	Hot weather (ice lollies)	Increase

An inferior good is one that people buy less of as their income rises, such as a cheap own-brand product they swap for something better. A substitute can replace the good; a complement is used with it.

Worked example (increase). A heatwave and a new advert raise demand by 8 lollies at every price.

Price (cu)	1	2	3	4	5
Old demand	25	20	15	10	5
New demand	33	28	23	18	13

The new curve D1 lies to the right of D0. At 4 cu, demand has gone from 10 to 18.

Worked example (decrease). A health campaign cuts demand by 20% at every price. At 1 cu: 25 × 0.8 = 20. At 2 cu: 20 × 0.8 = 16. At 3 cu: 12. At 4 cu: 8. At 5 cu: 4. The curve shifts left.

Worked example (some buyers only). Only Household A’s income rises, so A buys 4 more at every price. Market demand rises by 4 at each price: 29, 24, 19, 14, 9. At 3 cu the increase is 4/15 × 100 = 26.7%. The market curve shifts right, but by less than if every household had gained.

Worked example (number of buyers). Suppose 200 identical households each buy 3 lollies at 2 cu, so market quantity is 600. The number of households rises 15% to 230. Market quantity at 2 cu becomes 230 × 3 = 690, an increase of 90. Demand has increased.

2.4.1 Supply and its diagram

Supply is how much of a good or service sellers are ready and able to put on the market at each price over a stated period. Here is the daily supply of loaves from three bakers, X, Y and Z, in Village V (illustrative).

Price (cu)	1	2	3	4	5
Baker X	0	4	8	12	16
Baker Y	0	2	6	10	14
Baker Z	0	4	6	8	10
Market supply	0	10	20	30	40

Use the same two axes, with price vertical and quantity horizontal. The supply curve, S, slopes upward.

Price (cu)
5 |                        *
4 |                  *
3 |            *
2 |      *
1 |
  +------------------------------------
         10    20    30    40   Quantity per day

Why upward? A higher price means higher revenue per unit, so producing is more profitable and existing firms want to sell more. Higher prices also let firms cover rising costs per unit as they expand, and attract new sellers. At 1 cu nobody supplies any, so the curve starts at 2 cu.

2.4.2 Movements along a supply curve

Only the good’s own price slides you along the same supply curve.

• Price rises: extension of supply.
• Price falls: contraction of supply.

Worked example. The price rises from 2 cu to 4 cu. Market supply rises from 10 to 30, so it extends by 20. Percentage change = (30 − 10)/10 × 100 = +200%. If the price falls back from 4 cu to 2 cu: (10 − 30)/30 × 100 = −66.7%.

2.4.3 Individual and market supply

Market supply is the sum of firms’ supplies at each price, as in the table above. At 5 cu: 16 + 14 + 10 = 40. At 5 cu, Baker Z supplies 10/40 × 100 = 25% of the market. At 3 cu, Baker X supplies 8/20 × 100 = 40%.

If a fourth baker, W, enters and supplies 3 loaves at every price from 2 cu up, market supply becomes 0, 13, 23, 33, 43. The number of sellers has risen, so supply has increased.

2.4.4 Conditions of supply and shifts

Supply shifts when something other than the good’s own price changes.

• Curve moves right: an increase in supply.
• Curve moves left: a decrease in supply.

Condition	Change	Effect on supply
Costs of production (wages, materials, energy, rent)	Fall	Increase
Costs of production	Rise	Decrease
Technology	Improves	Increase
Number of firms	Rises	Increase
Indirect tax	Imposed or raised	Decrease
Subsidy	Granted or raised	Increase
Weather, natural disasters	Good harvest / poor harvest	Increase / decrease
Price of other goods a firm could make	Rises	Decrease for this good

Worked example (increase). New ovens cut costs, so each baker supplies more. The market supplies 10 more at every price: 10, 20, 30, 40, 50. The curve shifts right.

Worked example (decrease). A rise in flour costs cuts supply by 20% at each price: 0, 8, 16, 24, 32. The curve shifts left.

Worked example (tax). A tax of 1 cu per loaf means bakers need 1 cu more per loaf to supply the same quantity. Before the tax, 20 loaves were supplied at 3 cu. After the tax, 20 loaves are supplied at 4 cu, since 4 cu − 1 cu = 3 cu reaches the bakers. At 5 cu, supply is 30 (the old 4 cu quantity), at 3 cu it is 10 and at 2 cu it is 0. The curve shifts up and left. A subsidy of 1 cu does the reverse.

Movement or shift? A method

1. Underline what changed. Is it the good’s own price?
2. Own price: it is a movement along the same curve. Say extension or contraction.
3. Anything else: decide whether it affects buyers (demand) or sellers (supply).
4. Name the direction: increase (right) or decrease (left).
5. Say what happens at every price and give the reason.

Chain of reasoning, supply. “A drought reduces wheat yields, so farmers can supply less at every price. The supply curve shifts left: a decrease in supply.” That is a shift because the price of wheat did not start the change.

Chain of reasoning, demand. “A rise in the price of train tickets makes bus travel relatively cheaper. Some commuters switch, so demand for bus travel increases at every price. The curve shifts right.”

Consider the limits of these arguments. Several things may change at once, so you may not know the net effect without sizes. An increase in income raises demand for a normal good but cuts demand for an inferior good. Supply may react slowly, for example when crops take months to grow.

Common errors

• Mixing “increase in demand” (a shift) with “extension of demand” (a movement).
• Shifting the demand curve when the good’s own price changes.
• Writing “price” as a cause of a shift. Own price causes a movement.
• Labelling axes the wrong way round, or forgetting to label the curves.
• Adding prices rather than quantities in aggregation.
• Treating a tax as an increase in supply: a tax raises costs and decreases supply.

Official syllabus

Syllabus document: Cambridge IGCSE Economics (0455), examination in 2026, version 2, sections 2.3 and 2.4. Publisher: Cambridge University Press & Assessment (Cambridge International Education).