The economy continually keeps changing, and so does the demand in the current market. Every business and even the industries keep a record of how this demand changes. The factors affecting it cause fluctuations in the market. For better analysis and understanding, usually, a demand curve is created. However, what is a demand curve, and how does it help? Is there any difference between the movement and shift along the demand curve? Let us have a better insight into what it exactly is.
What is the Demand Curve?
It is defined as the graphical representation between the demand and price of commodities and how the graph transforms with a change in their values. The demand curve comes as a result of the law of demand and the law of supply.
According to the law of demand, with increases in prices, the demand decreases. If put in mathematical terms, demand is an inverse of prices.
According to the law of supply, with an increase in prices, the quantity supply also increases.
Both these laws help in understanding the interaction of market prices with the demand for goods and their supply. It is not just the price and quantity that affect the demand curve but there are also several other impactful factors.
Movement and Shift along the Demand Curve
For all the supplies that a company provides, there are changes in the demand curves; but based on what factors does this happen? You can expect the changes in the demand curve based on the following two factors.
This leads to the movement and shift along the demand curve. What is the difference between the two? How does it affect the curve?
Movement in the Demand Curve
Are you wondering what causes a movement along the demand curve?
Movement along the demand curve happens because of the change in the price of commodities. This further affects the quantity demanded. All other factors remain unchanged. Under such a scenario, the graph moves along the Y-axis, as the price is plotted against it. At the same time, the other axis remains constant.
So, in such a scenario, with an increase in price, the demand decreases, and with a decrease in price, the demand increases.
The movement happens in a contraction and expansion format. Consider the following example.
Contraction of the curve: For instance, if the price increases from $10 to $12 for a commodity, then the supply decreases from 100 to 80. This is called a contraction of the demand curve.
Expansion of the curve: For instance, if the price decreases from $10 to $8 for a commodity, then the supply increases from 100 to 120. This is called an expansion of the demand curve.
There is no shift in the position of the curve, just an increase or decrease in the slope.
Then, what causes a shift in the demand curve?
Shift in the Demand Curve
This happens when there is a change in any other factor apart from the price. It could be due to the quantity, consumer income, or several other factors on which the demand curve is based. Under this, even the price can vary. This leads to left or right shift in the demand curve.
The factors leading to a shift in the curve are as follows.
Increase in demand quantity of the products due to popularity
Increase in the price of a competitive good
A rise in the income of consumers
It leads to a shift in the demand curve, depending on the factors.
A movement and shift can also occur in the same curve over a longer time period. Initially, an increase in price for a certain commodity could lead to a movement in the curve. However, with time, it could lead to a shift in the same curve, depending on other factors.