Please Share the below Post
Rate this post

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

(1) Movement along the demand curve.

(2) Shifts of the demand curve.

(1) Movement along the Demand Curve with Diagram:

Definition and Explanation:

Demand is a multi variable 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 only change in price of that 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 prices, the 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 of price-quantity combination to another point on the same demand curve. Such a movement from one point, price-quantity combination to another point along the same demand curve is shown in following diagram (4.3).

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 with Schedule and Diagram:

Definition and Explanation:

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 shifts of the 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 time (rise or increase in demand). The demand curve shifts upward from the 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., 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 goods at each price than before.


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

At a price of $12 per unit, consumer purchases 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 movement along the same demand curve.