Question 1

Does a change in the product's own price shift the demand curve?

Accepted Answer

This is a common misconception. A change in the product's own price causes a 'movement along' the existing demand curve, which is referred to as a change in 'quantity demanded'. A 'shift' in the demand curve, which is a change in 'demand', is only caused by a change in a non-price factor, such as consumer income, advertising, or the price of a substitute good.

Question 2

If a firm increases supply, does that mean the price will automatically go up?

Accepted Answer

No, the opposite is typically true. An increase in supply, represented by a rightward shift of the supply curve, means that more is available at every price level. Assuming demand remains constant, this creates a surplus (excess supply) at the original price. To sell the extra stock, firms are forced to lower the price, leading to a new, lower equilibrium price and a higher equilibrium quantity.

Question 3

Is 'demand' the same as 'quantity demanded'?

Accepted Answer

In A-Level Business and Economics, these terms have precise and different meanings. 'Demand' refers to the entire relationship between various prices and the quantities consumers are willing to buy, represented by the whole demand curve. 'Quantity demanded' refers to one specific amount that consumers will buy at one specific price, represented by a single point on the demand curve. A change in price changes the quantity demanded; a change in a non-price factor changes demand.

Demand and supply

What you need to know

Demand and supply