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The demand curve slopes downwards because of the income effect and the substitution effect. Free GCSE AQA Economics notes and 13 questions answered.
Drawing and Interpreting Demand Curves is part of How prices are determined in GCSE AQA Economics.
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The demand curve slopes downwards because of the income effect and the substitution effect. Free GCSE AQA Economics notes and 13 questions answered.
Use this lesson to stay inside How prices are determined while connecting the detail back to the wider How markets work topic.
Read the core explanations from Drawing and Interpreting Demand Curves before testing yourself from memory.
In the previous lesson, we learned what demand is and the factors that influence it. Now we need to put that knowledge onto a graph. A demand curve is simply a visual way of showing how much of a product consumers want to buy at different prices. It is one of the most important diagrams in economics, and you will need to draw and interpret them throughout your GCSE course.
Before we draw one, let's be clear about the axes. In economics, we ALWAYS put price on the vertical (y) axis and quantity on the horizontal (x) axis. This is a convention that every economics student must follow -- get it wrong in an exam and you will lose marks. Remember: P for price goes on the side that Points upward.
Let's work through a real example. Imagine we survey students at a school about how many chocolate bars they would buy per week at different prices. Here is the data we collect:
| Price per chocolate bar (£) | Quantity demanded per week |
|---|---|
| 0.50 | 100 |
| 0.75 | 80 |
| 1.00 | 60 |
| 1.25 | 40 |
| 1.50 | 25 |
| 2.00 | 10 |
Notice the pattern: as price increases, quantity demanded decreases. At 50p, students want to buy 100 bars per week. At £2.00, they only want 10. This is the law of demand in action. Now let's plot this data on a graph.
Each point on the graph represents one row from our data table. When we connect the points, we get a downward-sloping line -- this is our demand curve, labelled 'D'. The curve clearly shows that higher prices lead to lower quantity demanded.
This might seem obvious -- of course people buy less when prices go up! But economists identify two specific reasons why:
1. The income effect: When the price of a good rises, consumers' real income (their purchasing power) falls. They can afford less with the same amount of money. For example, if your weekly budget is £10 and chocolate bars rise from £1 to £2 each, you can now only afford 5 instead of 10. The price rise has effectively made you poorer.
2. The substitution effect: When the price of a good rises, it becomes relatively more expensive compared to alternatives. Consumers switch to cheaper substitutes. If chocolate bars rise to £2 but crisps stay at £1, you might buy crisps instead. You substitute away from the more expensive product.
This is the single most important distinction in this lesson, and one of the most common mistakes students make in exams. There are two very different things that can happen to a demand curve, and you must never confuse them:
The golden rule: If the PRICE of the good changes, you move ALONG the existing curve. If ANYTHING ELSE changes (income, tastes, substitutes, complements, population, advertising, expectations), the whole curve SHIFTS. Write this rule on a sticky note and put it on your revision wall -- it will save you marks in the exam.
| Feature | Movement Along the Curve | Shift of the Curve |
|---|---|---|
| Caused by | A change in the price of the good itself | A change in a non-price factor |
| What happens to the curve | You move from one point to another on the SAME curve | The ENTIRE curve moves left or right |
| Correct terminology | Extension (price falls) or contraction (price rises) of demand | Increase (shift right) or decrease (shift left) in demand |
| Example | Tesco reduces the price of milk from £1.30 to £1.10 -- quantity demanded increases | A health report says milk is good for bones -- demand increases at every price |
| On a diagram | Arrow along the curve | Arrow showing whole curve moving, new curve labelled D1 |
Let's go back to our chocolate bar example. Suppose the school introduces a healthy eating campaign and students' tastes shift away from chocolate. Even at 50p, they now only want 70 bars instead of 100. The ENTIRE demand curve has shifted to the left -- at every price, fewer chocolate bars are demanded. We label the new curve D1 (to the left of the original D).
Now suppose instead that the price of chocolate bars simply rises from £1.00 to £1.50. Students still have the same tastes -- chocolate is just more expensive. Quantity demanded falls from 60 to 25. This is a movement ALONG the same demand curve, not a shift.
Worked example: Drawing a Demand Curve from Data
The table below shows the demand for cinema tickets in a local town. Price (£) | Quantity demanded per month £5 | 800 £7 | 600 £9 | 400 £11 | 200 £13 | 50 Using the data, draw a demand curve on a correctly labelled diagram. (4 marks)
Method: Plot the data points on a correctly labelled set of axes and join them with a smooth curve.
Answer: A correctly drawn demand curve with price (£) on the vertical axis, quantity demanded per month on the horizontal axis, all five data points accurately plotted, points connected with a smooth downward-sloping line, and the curve labelled 'D'.
Worked example: Identifying Shifts vs Movements
The UK housing market has seen significant changes in recent years. For each of the following events, explain whether it would cause a movement along the demand curve for houses or a shift of the demand curve. In each case, explain your reasoning. (a) The Bank of England raises interest rates, increasing mortgage costs. (2 marks) (b) A rise in average UK wages. (2 marks) (c) Estate agents reduce house prices to attract buyers. (2 marks)
Method: Apply the golden rule: price change = movement along; non-price factor change = shift.
Answer: (a) Shift left -- interest rates affect ability to pay (non-price factor). (b) Shift right -- income is a non-price factor; houses are a normal good. (c) Movement along (extension) -- the price of the good itself has changed.
When you draw a shift in demand on a diagram, follow these steps:
For an increase in demand (shift right): Draw the original demand curve and label it D. Then draw a new curve to the RIGHT of D, with the same slope, and label it D1. Use an arrow to show the direction of the shift. At any given price, the quantity demanded on D1 is greater than on D.
For a decrease in demand (shift left): Draw the original demand curve D. Then draw a new curve to the LEFT of D, with the same slope, and label it D1. Again, use an arrow. At any given price, the quantity demanded on D1 is less than on D.
Top tip: always draw both curves with a ruler if possible, make them clearly separate (not overlapping), and always label them. A neat, well-labelled diagram can earn you up to 4 marks on its own in some questions.
| Common Mistake | Why It Is Wrong | What You Should Do Instead |
|---|---|---|
| Saying 'demand has shifted' when price changes | A price change causes a movement along the curve, not a shift. The curve only shifts when a non-price factor changes. | Use 'quantity demanded has changed' for price changes. Use 'demand has increased/decreased' for shifts. |
| Putting price on the x-axis | Economics convention always places price on the y-axis. This is different from science, where the independent variable goes on the x-axis. | Always: Price (y-axis, vertical), Quantity (x-axis, horizontal). |
| Drawing the demand curve sloping upwards | Demand curves slope downwards because of the law of demand (higher price = lower quantity demanded). An upward slope is a supply curve. | Remember: Demand goes Down (both start with D). Supply Slopes upward (both start with S). |
| Forgetting to label curves D and D1 | Without labels, the examiner cannot tell which is the original and which is the new curve. You will lose marks. | Always label the original curve D and the new curve D1. Add arrows showing the direction of shift. |
| Using 'increase in quantity demanded' and 'increase in demand' interchangeably | These mean different things! 'Increase in quantity demanded' = movement along (price fell). 'Increase in demand' = shift right (non-price factor). | Be precise with terminology. The examiner is looking for you to use the correct term for each situation. |
Let's apply what we have learned to a real UK market. Consider the demand for streaming services like Netflix.
Movement along: In 2023, Netflix introduced a cheaper ad-supported tier at £4.99/month. This lower price led to an increase in quantity demanded -- more people subscribed at the lower price point. This is a movement along the demand curve (extension of demand).
Shift right: During the COVID-19 lockdowns in 2020-2021, demand for streaming services surged. This was not because prices fell -- it was because consumer preferences changed (people were stuck at home and wanted entertainment). The entire demand curve shifted right: at every price, more people wanted to subscribe.
Shift left: As lockdowns ended and people returned to cinemas, pubs, and social activities, some demand for streaming shifted back. This was a leftward shift caused by changing preferences and the availability of substitutes (going out).
Here are the essential points to remember for your exam:
1. Always label your axes: Price (£) on the y-axis, Quantity on the x-axis.
2. The demand curve slopes downwards because of the income effect and substitution effect.
3. Price change = movement along. Everything else = shift.
4. Use correct terminology: 'extension/contraction of demand' for movements; 'increase/decrease in demand' for shifts.
5. Always label curves D and D1, and use arrows to show direction of change.
6. In written answers, state the factor, explain the mechanism, and link it to the demand curve diagram.
Published by Revise Right. Use the official specification reference to check the requirements for your course. Content updated: 2026-03-24.
Move to the related lessons or back to the topic page when you need the wider sequence before exam-style practice.
The demand curve slopes downwards because of the income effect and the substitution effect. When a good's price rises, consumers' real income falls, so a £10 budget buys 5 chocolate bars at £2 instead of 10 at £1, and the good becomes relatively more expensive, so consumers switch to cheaper substitutes such as crisps.
To draw a demand curve, label the vertical axis Price (£) and the horizontal axis quantity demanded, plot each row of the data as one point, join the points with a smooth line sloping downwards from left to right, and label the curve D. Price always goes on the vertical axis in economics.
A demand schedule is a table showing the quantity demanded at different prices, which can be plotted as a demand curve. For chocolate bars at a school, quantity demanded falls from 100 a week at 50p to 10 a week at £2.00, the law of demand in action.
An extension of demand is a movement down the demand curve to a higher quantity, caused by a fall in the good's own price, while a contraction of demand is a movement up the curve to a lower quantity, caused by a price rise. The curve itself does not move; only non-price factors shift it.
A rise in interest rates shifts the demand curve for houses to the left, because higher mortgage costs reduce consumers' ability to pay. It is not a change in the price of houses themselves, so it causes a shift rather than a movement along the curve: at every house price, fewer people can afford to buy.
An increase in quantity demanded is a movement along the demand curve caused by a fall in the good's own price. An increase in demand is a shift of the whole curve to the right caused by a non-price factor, such as income or tastes, so more is demanded at every price.
The income effect is one reason the demand curve slopes downwards: when a good's price rises, consumers' real income, their purchasing power, falls, so they can afford less. With a £10 weekly budget, a rise in chocolate bars from £1 to £2 means only 5 can be bought instead of 10.
The substitution effect is the switch consumers make to cheaper alternatives when a good's price rises, because it becomes relatively more expensive. If chocolate bars rise to £2 but crisps stay at £1, consumers might buy crisps instead, substituting away from the more expensive product.
A demand curve is a graph showing the relationship between the price of a good, on the vertical axis, and the quantity demanded, on the horizontal axis, over a given time period. It slopes downwards from left to right, reflecting the law of demand, and is labelled D.
A shift in demand is shown by drawing the original curve D and a new curve D1 with the same slope, to the right for an increase or to the left for a decrease, with an arrow showing the direction of the shift. At any given price, quantity demanded on D1 differs from D.
A rise in average UK wages shifts the demand curve for houses to the right, because houses are a normal good and more people are willing and able to buy at every price. However, estate agents reducing house prices causes a movement along the curve, an extension of demand.
COVID-19 lockdowns in 2020-2021 shifted the demand curve for streaming services to the right, because consumer preferences changed while people were stuck at home, not because prices fell. As lockdowns ended and people returned to cinemas and pubs, some demand shifted back to the left.
Netflix's cheaper ad-supported tier at £4.99 a month caused a movement along the demand curve, an extension of demand, because the lower price itself increased the quantity demanded. Only a change in a non-price factor shifts the whole curve.