Movement along Demand Curve and Shifts of Demand Curve
➦ The demand curve is a graphic representation of a demand schedule. It is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at any given price.
➦ Demand curves are used to estimate behaviors in competitive markets and are often combined with supply curves to estimate the equilibrium price and the equilibrium quantity of that market.
➦ Movement along the demand curve and shifts of the demand curve are fundamental concepts in economics that describe how changes in various factors affect the quantity demanded of a good or service and, consequently, its price and the overall market equilibrium.
Movement along the Demand Curve:
➨ This concept refers to changes in the quantity demanded of a good or service due to a change in its price, while all other factors remain constant (ceteris paribus).
➨ When the price of a product decreases, the quantity demanded usually increases, and when the price increases, the quantity demanded typically decreases.
➨ This relationship is known as the law of demand, which states that, all else being equal, there is an inverse relationship between price and quantity demanded.
For example: if the price of a coffee latte decreases from $5 to $4, and the quantity demanded increases from 100 lattes per day to 120 lattes per day, this represents a movement along the demand curve. |
Shifts of the Demand Curve:
➨ Shifts of the demand curve occur when factors other than price influence the quantity demanded at each price level.
➨ These factors include changes in consumer preferences, income, the prices of related goods (substitutes and complements), population, and expectations about the future.
➨ Shifts can either be to the right (increase in demand) or to the left (decrease in demand) of the original demand curve.
a. Increase in Demand (Shift to the Right):
➨ Factors that can increase demand include higher consumer income, a positive change in consumer preferences, increased advertising, or an increase in the population.
➨ An increase in demand leads to a higher quantity demanded at each price level, which means people are willing to buy more of the product at any given price.
➨ This shift results in a new equilibrium with a higher price and quantity traded.
b. Decrease in Demand (Shift to the Left):
➨ Factors that can decrease demand include a decrease in consumer income, negative changes in consumer preferences, decreased advertising, or a decrease in the population.
➨ A decrease in demand leads to a lower quantity demanded at each price level, which means people are willing to buy less of the product at any given price.
➨ This shift results in a new equilibrium with a lower price and quantity traded.
Movement Along Demand Curve (Change In Quantity Demanded) |
Shift Of Demand Curve (Change In Demand) |
Movement Along Demand Curve is the change in quantity demanded for a good due to change in the price of the same good. | Shift Of Demand Curve is the change in demand for a well due to change in factors other than price. |
Extension of demand occurs when demand for a quantity increases with the fall in price. This is the case of rightward movement along the same demand curve. | An increase in demand occurs when demand increases with the change in factors other than price. This is the case of a rightward shift in the demand curve. |
Contraction of demand occurs when demand for a quantity decreases with the rise in price. This is the case of leftward movement along the same demand curve. | A decrease in demand occurs when demand decreases with the change in factors other than price. This is the case of the leftward shift in the demand curve. |
Movement Along Demand Curve is expressed by the different points on the same demand curve. | Shift Of Demand Curve is expressed by the shift in the entire demand curve either rightwards or leftward.
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References
- Movement along the Demand Curve and Shift of the Demand Curve. (2019, December 2). Toppr-guides. https://www.toppr.com/guides/business-economics/theory-of-demand/movement-along-the-demand-curve-and-shift-of-the-demand-curve/
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