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Tutorial Topic: What is movement and shift In demand curve, Factors that cause a shift in demand, Shift and Movement along Demand Curve – Answered
Table of Contents
- 1 Movement and Shift In Demand Curve
- 2 Shift and Movement along Demand Curve
- 3 Factors that cause a demand curve shifts
Movement and Shift In Demand Curve
Movement In Demand Curve
Movement in the demand curve is when the commodity experience change in both the quantity demanded and price, causing the curve to move in a specific direction.
Shift In Demand Curve
The shift in the demand curve is when, the price of the commodity remains constant, but there is a change in quantity demanded due to some other factors, causing the curve to shift to a particular side.
Shift and Movement along Demand Curve
In economics, change in quantity demanded and change in demand are two different concepts.
Change in quantity demanded refers to change in the quantity purchased due to rise or fall in product prices while other factors are constant.
- It can be measured by the movement along the demand curve.
- The terms, change in quantity demanded refers to expansion or contraction of demand.
Change in demand refers to increase or decrease in demand for a product due to various determinants of demand other than price (in this case, price is constant).
- It is measured by shifts in the demand curve.
- The terms, change in demand means to increase or decrease in demand.
Expansion and Contraction of Demand
The change in the quantity demanded of a product with change in its price, while other factors are at constant, is called expansion or contraction of demand.
Expansion and contraction are represented by the movement along the same demand curve. Let us discuss the expansion and contraction of demand as follows:
Expansion or extension of demand
Expansion or extension of demand: It is an increase in the demand of a commodity due to decrease in its prices, while other factors are constant.
For example, in Table 2.1, when the price of eggs falls from 60 per dozen to 50 per dozen, its quantity demanded rises from 6 dozens to 9 dozens by individual A. Therefore, the demand for eggs is expanded or extended.
Contraction of demand
Contraction of demand: It is a decrease in the demand of a commodity due to increase in its price, while other factors remain unchanged.
For example, in Table 2.1, when the price of eggs rises from 60 per dozen to 80 per dozen, its quantity demanded falls from 6 dozens to 2 dozens by individual A. Therefore, the demand for eggs is contracted.
In the demand curve, when the price of commodity X is OP1, quantity demanded is OQ1. If the price of commodity X decreases to OP2, the quantity demanded increases to OQ2.
The movement of the demand curve from A1 to A2 in the downward direction is called the extension of the demand curve.
On the other hand, if the price of the commodity X rises from OP1 to OP3, the quantity demanded of commodity X falls from OQ1 to OQ3. This movement along the demand curve in the upward direction is called the contraction of demand.
Increase and decrease in demand
Increase and decrease in demand takes place due to changes in other factors, such as change in income, distribution of income, change in consumer’s tastes and preferences, change in the price of related goods. In this case, the price factor remains unchanged.
Increase in demand
Increase in demand refers to the rise in demand for a product at a specific price,
Decrease in demand
Decrease in demand is the fall in demand for a product at a given price.
When other factors change, the demand curve changes its position which is referred to as a shift along the demand curve, which is shown in Figure 2.11:
Demand curve D2 is the original demand curve of commodity X. At price OP2, the demand is OQ2 units of commodity X.
When the consumer’s income decreases owing to high income tax, he/she is able to purchase only OQ1 unit of commodity X at the same price OP2. Therefore, the demand curve, D2 shifts downwards to D1.
Similarly, when the consumer’s disposable income increases due to a reduction in taxes, he/she is able to purchase OQ3 units of commodity X at the price OP2. Therefore, the demand curve, D2 shifts upwards to D3. Such changes in the position of the demand curve from its original position are referred to as a shift in the demand curve.
Factors that cause a demand curve shifts
There are several factors that cause a demand curve shifts. Some of them are given as follows:
- A fall in consumers’ income due to which they can purchase fewer units of a commodity (income effect).
- A fall in the price of a related commodity due to which consumers prefer to purchase the substitute commodity (substitution effect).
- Changes in the tastes and preferences of consumers due to which they may replace the original commodity with a new one.
- Increase in the price of complementary goods due to which consumers can afford to buy fewer units of the original commodity.
- Change in fashion, season, technology, or quality due to which consumers may purchase fewer units of the original commodity.
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