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 the Demand Curve and Shift of the Demand Curve
1. Give examples of factors other than price that lead to a shift in the curve?
The various factors determining a shift in the curve are as follows.
1. Buyer’s Income: If the price remains constant and the income increases, the consumer can buy more goods. This results in a shift in the demand curve to the right.
2. Trends of Consumers: The market and buying trends change tremendously. For example, during the winter season, the demand for cold beverages decreases. No matter what the price is. It results in a leftward shift in the curve.
3. Future Price Expectations: In some scenarios, the customers feel that there will be inflation. Due to this, they end up stocking the goods. This leads to a rightward shift in the curve.
4. Potential Buyers: The demand increases invariably with an increase in customers. There are times when due to good promotion strategies, the demand shoots up for a particular product. This again leads to a rightward shift.
2. How does the graph change in the case of movement in the demand curve?
The movement in the demand curve happens due to a change in the prices. This leads to an upward and downward shift in the demand curve. This also happens because all other factors remain constant, leading to such changes.
3. Which factors affect the supply and demand in the economy?
The factors which affect the supply of goods are:
Capacity of production
Cost of production of goods including the labour and raw-materials
Number of competitors and their levels
Some fluctuating factors include weather, availability of raw materials, etc.
The factors which affect the demand for goods are:
Preferences of the consumers
Changes in the pricing of the complementary commodities
Substitutes that are available for the same product
4. What is the difference between increase in demand and decrease in demand?
Increase in Demand
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5. What are the factors that affect individual demand?
Factors that affect individual demand are as follows:
Individual demand is influenced by a variety of factors.
Prices of connected goods have changed (substitutes and complements)
Changes in disposable income, the amount of which is linked to the demand elasticity of income.
Taste and preference changes. In the short term, tastes and preferences are thought to be fixed. For the aggregation of individual demand curves to produce market demand, the assumption of fixed preferences is required.
Expectations have shifted.
6. Define Demand curve?
In economics, a demand curve displays the relationship between a commodity's price (the y-axis) and the quantity of that commodity demanded at that price (the x-axis). Demand curves can be used to represent the price-quantity connection for a single consumer (an individual demand curve) or for all consumers in a given market (a market demand curve) (a market demand curve).
Demand curves are commonly considered to slope down due to the law of demand, which states that as the price of most things rises, so does the amount demanded.
7. Give reasons for the rightward shift of curve and leftward shift of curve?
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8. What do you understand about the law of supply and demand?
According to the rule of demand, purchasers will demand less of an economic good at greater prices.
Suppliers will supply more of an economic good at higher prices, according to the law of supply..
The interaction of these two rules determines the real market prices and amount of items exchanged on a market.
Several independent factors can influence the form of market supply and demand, altering both market pricing and volumes.