Business Studies: Diagrams

Increase in Demand

An increase in demand will shift the demand curve for a good to the right resulting in a higher equilibrium quantity and a higher equilibrium price in the market.

A shift in the demand curve will be caused by a change in one of the determinants of demand (other than price). These determinants include the level of income, the price of other goods (substitutes and complements), tastes and perhaps factors like advertising. A shift to the right means an increase in demand.

Decrease in Demand

If there is a fall in demand in the market then the demand curve will shift to the left and the equilibrium price and output will fall.


If the market is in perfect competition, then the firms will be "price-takers". If there is a fall in demand they will then take the new lower market price and charge that.

Decrease in Aggregate Demand

If there is a decrease in aggregate demand then the equilibrium level of output will tend to fall. Here it falls from Q1 to Q2.

Aggregate demand is made up of consumption, investment, government expenditure and net exports. A decrease in any one of these components will shift the aggregate demand curve to the left and have the effect shown on the diagram.

Increase in Aggregate Demand

If there is an increase in the level of aggregate demand then the curve will shift to the right.



Aggregate demand is made up of consumption, investment, government expenditure and net exports. The curve will shift to the right if there is an increase in any of these components. The increase will usually lead to an increase in output in the economy, but may also lead to an increase in the price level.