What lies behind a demand curve, and what makes the whole curve move?
The theory of demand: the law of demand, the demand curve, the difference between a movement along and a shift of the curve, and the non-price determinants of demand.
An SQA Higher Economics answer on the theory of demand, covering the law of demand and why the demand curve slopes down, the crucial difference between a movement along the curve and a shift of it, and the non-price determinants of demand such as income, the prices of substitutes and complements, tastes and expectations.
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What this key area is asking
The SQA wants you to know what demand is, why the demand curve slopes downward, and, above all, to separate a movement along the curve (caused only by the good's own price) from a shift of the curve (caused by any non-price determinant). You should be able to list and explain the determinants and apply them to real markets. Most marks are lost here by blurring movements and shifts, so be precise.
The law of demand and the demand curve
The law of demand states that, all else equal, as the price of a good rises the quantity demanded falls, and as the price falls the quantity demanded rises. This is why the demand curve slopes downward from left to right. Two reasons explain it. The income effect: a lower price means a consumer's money goes further, so real purchasing power rises and they can buy more. The substitution effect: when a good becomes cheaper relative to its substitutes, consumers switch towards it.
Movements along versus shifts of the demand curve
This is the single most examined distinction in the topic.
- A change in the good's own price causes a movement along the existing curve. A price fall gives an extension of demand (more bought); a price rise gives a contraction of demand (less bought). The curve stays in place.
- A change in any non-price determinant causes the whole curve to shift. A rightward shift means more is demanded at every price (an increase in demand); a leftward shift means less is demanded at every price (a decrease in demand).
The non-price determinants of demand
Two relationships matter most. Substitutes are goods used in place of one another (tea and coffee): if the price of coffee rises, demand for tea rises. Complements are goods used together (cars and petrol, printers and ink): if the price of petrol rises, demand for cars tends to fall. Recognising which goods are substitutes and which are complements lets you predict the direction of a demand shift, which is exactly what data-response questions test.
Worked example: predicting a demand shift
Why demand analysis matters
Demand is one half of every market. Combined with supply it determines price and quantity, and changes in the determinants explain why prices move. The discipline of separating movements from shifts is also what makes elasticity, price determination and market intervention possible to analyse, so getting it right here pays off across the whole microeconomics unit.
Try this
Q1. State whether each event causes a movement along, or a shift of, the demand curve for cinema tickets: (a) the ticket price falls; (b) average incomes rise; (c) the price of streaming subscriptions falls. [3 marks]
- Cue. (a) Movement along (own price). (b) Shift right (higher income, a normal good). (c) Shift left (streaming is a substitute, now cheaper, so demand for cinema falls).
Q2. Explain why a fall in the price of petrol might reduce the demand for cycles. [3 marks]
- Cue. Petrol and cars are complements; cheaper petrol lowers the cost of driving, raising demand for car travel; cycles are a substitute for car travel, so their demand falls, shifting the cycle demand curve left.
Exam-style practice questions
Practice questions written in the style of SQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
SQA Higher (style)4 marksExplain, using a diagram, the difference between a movement along a demand curve and a shift of the demand curve.Show worked answer →
Worth 4 marks. A correctly labelled diagram earns presentation marks; the explanation must tie each case to its cause.
Movement along the curve (about 2 marks). Draw a downward-sloping demand curve . A change in the good's own price moves the economy from one point on the same curve to another: a fall in price causes an extension (more demanded), a rise causes a contraction (less demanded). The curve itself does not move.
Shift of the curve (about 2 marks). Show a second curve to the right of . A change in a non-price determinant (higher income for a normal good, a dearer substitute, a cheaper complement, a change in tastes) shifts the whole curve: rightward means more demanded at every price, leftward means less. The key point examiners reward is that only the good's own price moves you along the curve; everything else shifts it.
SQA Higher (style)6 marksExplain three non-price factors that could increase the demand for new electric cars.Show worked answer →
Worth 6 marks. Three developed determinants, each linked to a rightward shift of demand, at roughly 2 marks each.
Income and complements (about 2 marks). As real incomes rise, demand for a normal good such as electric cars increases, shifting the curve right. A fall in the price of a key complement, such as cheaper home charging or electricity, also raises demand because the cost of using the car falls.
Substitutes and government policy (about 2 marks). A rise in the price of the substitute (petrol and diesel cars, or petrol itself) makes electric cars relatively cheaper, increasing their demand. Subsidies or grants act like a fall in price and raise quantity demanded.
Tastes and expectations (about 2 marks). A shift in tastes towards low-emission, environmentally friendly products raises demand, as does an expectation that prices will rise or that petrol cars will be banned, bringing future purchases forward. Each factor shifts the demand curve outward.
Related dot points
- The basic economic problem of scarcity and choice, opportunity cost, the factors of production, and the use of production possibility diagrams to model trade-offs.
An SQA Higher Economics answer on the basic economic problem, covering scarcity and choice, opportunity cost, the four factors of production and their rewards, and how a production possibility diagram models trade-offs, full employment, growth and the costs of unemployment.
- The theory of supply: the law of supply, the supply curve, the difference between a movement along and a shift of the curve, and the non-price determinants of supply.
An SQA Higher Economics answer on the theory of supply, covering the law of supply and why the supply curve slopes up, the difference between a movement along the curve and a shift, and the non-price determinants of supply such as costs of production, technology, taxes and subsidies, and the price of other goods.
- Elasticity: price elasticity of demand and its calculation and determinants, the link to total revenue, and price elasticity of supply, income elasticity and cross elasticity.
An SQA Higher Economics answer on elasticity, covering how to calculate price elasticity of demand and interpret it, the factors that make demand elastic or inelastic, the link between PED and total revenue, and price elasticity of supply, income elasticity and cross elasticity of demand.
- Markets and price determination: market equilibrium where demand meets supply, the effect of shifts in demand and supply on price and quantity, and the price mechanism as a way of allocating resources.
An SQA Higher Economics answer on price determination, covering market equilibrium where demand and supply meet, surpluses and shortages, how shifts in demand or supply change the equilibrium price and quantity, and the rationing, signalling and incentive functions of the price mechanism.
Sources & how we know this
- Higher Economics Course Specification — SQA (Qualifications Scotland) (2024)