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Home Theory of Demand Movement Vs Shifts of Demand Curve

Movement Vs Shifts of Demand Curve:

 

Changes in demand for a commodity can be shown through the demand curve in two ways:

 

(1) Movement Along the Demand Curve and (2) Shifts of the Demand Curve.

    

(1) Movement Along the Demand Curve:

 

Demand is a multivariable function. If income and other determinants of demand such as tastes of the consumers, changes in prices of related goods, income distribution, etc., remain constant and there is a change only in price of the commodity, then we move along the same demand curve.

 

In this case, the demand curve remains unchanged. When, as a result of change in price, the quantity demanded increases or decreases, it is technically called extension and contraction in demand.

 

The demand curve, which represents various price quantity has a negative slope. Whenever there is a change in the quantity demanded of a good due to change, in its price, there is a movement from one point price quantity combination to another on the

same demand curve. Such a movement from one point price quantity combination to another along the same demand curve is shown in figure (4.3).

 

Diagram/Figure:

 

 

Here the price of a commodity falls from $8 to $2. As a result, therefore, the quantity demanded increases from 100 units to 400 units per unit of time. There is extension in demand by 300 units. This movement is from one point price quantity combination (a) to another point (b) along a given demand curve. On the other hand, if the price of a good rises from $2 to $8, there is contraction in demand by 300 units.

 

We, thus, see that as a result of change in the price of a good, the consumer moves along the given demand curve. The demand curve remains the same and does not change its position. The movement along the demand curve is designated as change in quantity demanded.

 

(2) Shifts in Demand Curve:

 

Demand, as we know, is determined by many factors. When there is a change in demand due to one or more than one factors other than price, results in the shift of demand curve.

 

For example, if the level of income in community rises, other factors remaining the same, the demand for the goods increases. Consumers demand more goods at each price per period of me (rise or Increase in demand). The demand curve shifts upward from he original demand curve indicating that consumers at each price purchase more units of commodity per unit of time.

 

If there is a fall in the disposable income of the consumers or rise in the prices of close substitute of a good or decline in consumer taste or non-availability of good on credit, etc, etc., there is a reduction in demand (fall or decrease in demand). The fall or decrease in demand shifts the demand curve from the original demand curve to the left. The lower demand curve shows that consumers are able and willing to buy less of the good at each price than before.

 

Schedule:

                 

Pdx  ($)

Qdx

Rise in Qdx

Fall in Qdx

12

100

300

50

6

250

500

200

4

500

600

300

 

Diagram/Figure:

 

 

In this figure, (4.4) the original demand curve is DD/.

 

At a price of $12 per unit, consumers purchase 100 units. When price falls to$4 per unit, the quantity demanded increases to 500 units per unit of time. Let us assume now that level of income increases in a community. Now consumers demand 300 units of the commodity at price of $12 per unit and 600 at price of $4 per unit.

 

As a result, there is an upward shift of the demand curve DD2. In case the community income falls, there is then decrease in demand at price of $12 per unit. The quantity demanded of a good falls to 50 units. It is 300 units at price of $4 unit per period of time. There is a downward shift of the demand to the left of the original demand curve.

 

Summing Up: 

 

(i) Extension in demand is due to reduction in price.

 

(ii) Increase in demand occurs due to changes in factors other than price.

 

(iii) Contraction in demand is the result of a rise in the price commodity.

 

(iv) A decrease in demand follows a change in factors other than price.

 

(v) Changes in demand both increase and decrease are represent shifts in the demand curve.

 

(vi) Changes in the quantity demanded are represented by move along the same demand curve.

Relevant Articles:

Meanings of Demand
Law of Demand
Individual's and Market Demand for a Commodity
Movement Vs Shifts of Demand Curve
Non Price Factors or Shifts Factors Causing Changes in Demand
Slope of the Demand Curve
 

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Rent
Wages
Interest
Profits
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance
History of Money

 

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