The Demand Curve and Shift of the Demand Curve
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.
A change in the Demand for goods.
A change in the number of goods.
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 10to12 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 10to8 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
Seasonal factors
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.
FAQs on Movement Along vs. Shift in the Demand Curve
1. What is the main difference between a movement along a demand curve and a shift in the demand curve?
The main difference lies in the cause. A movement along the demand curve is caused exclusively by a change in the price of the good itself, leading to a change in quantity demanded. In contrast, a shift in the demand curve is caused by changes in factors other than price, such as consumer income, tastes, or the price of related goods.
2. What is meant by an 'extension' and 'contraction' of demand?
Extension and contraction refer to movements along the demand curve. An extension of demand occurs when the quantity demanded increases due to a fall in the product's price. A contraction of demand occurs when the quantity demanded decreases due to a rise in the product's price. Both happen on the same demand curve.
3. What are the key factors that can cause the entire demand curve to shift?
A shift in the demand curve, also called a change in demand, is caused by factors other than price. The most common factors are:
- Changes in a consumer's income.
- Changes in consumer tastes and preferences.
- The price of related goods (both substitutes and complements).
- Consumer expectations about future prices or income.
- The total number of buyers in the market.
4. Can you give a real-world example of a movement versus a shift for a product like a smartphone?
Certainly. Here is a simple example:
- Movement: If a popular smartphone model's price is cut by 20% for a festival sale, and sales increase as a result, this is a movement along the demand curve. The desire for the phone didn't change, but the lower price prompted more purchases.
- Shift: If a major competitor goes out of business, consumers now have fewer choices. This could increase the demand for the remaining smartphone model at all price points, causing a rightward shift of its demand curve.
5. Why does a change in income cause a shift, but a change in price only causes a movement?
This is because a demand curve is drawn with the assumption of ceteris paribus, meaning 'all other things held constant'. The curve shows the direct relationship between a product's price and the quantity demanded, assuming factors like income are fixed. If income changes, this core assumption is broken, and a new demand curve (a shift) is needed to show the new relationship at all price levels.
6. How do you show an 'increase in demand' versus an 'increase in quantity demanded' on a graph?
This is a crucial distinction. An 'increase in quantity demanded' is shown as a downward movement from one point to another along the same demand curve. An 'increase in demand' is represented by drawing an entirely new demand curve to the right of the original one.
7. How might a business owner react differently to a shift in demand versus a movement along the demand curve?
A business owner sees these two events very differently. A movement along the curve is usually a result of their own pricing strategy (e.g., offering a discount). A shift in the curve signals a broader market change. A rightward shift might encourage them to increase production, while a leftward shift is a red flag that demand is falling for reasons beyond just price, requiring a change in marketing or product strategy.
