Movements Along & Shifts of the Demand Curve

Movements along a demand curve

Movements along a demand curve

• If price is the only factor that changes (ceteris paribus), there will be a change in the quantity demanded (QD)

  • This change is shown by a movement along the demand curve

Diagram analysis

• An increase in price from £10 to £15 leads to a movement up the demand curve from point A to B

  • Due to the increase in price, the QD has fallen from 10 to 7 units

  • This movement is called a contraction in QD

• A decrease in price from £10 to £5 leads to a movement down the demand curve from point A to point C

  • Due to the decrease in price, the QD has increased from 10 to 15 units

  • This movement is called an extension in QD 

• The law of demand captures this fundamental relationship between price and QD

  • It states that there is an inverse relationship between price and QD

    • When the price rises the QD falls

    • When prices fall the QD rises

Shifts of the demand curve

Shifts of the demand curve

• There are numerous factors that will change the demand for a good/service, irrespective of the price level

• Collectively, these factors are called the conditions of demand and include

  • Changes in real income

  • Changes in consumer tastes and preferences

  • Changes in the price of related goods (substitutes and complements)

  • Changes in the number of consumers

  • Future price expectations

• Changes to each of the conditions of demand, shift the entire demand curve (as opposed to a movement along the demand curve)

• For example, if a firm increases their Instagram advertising, there will be an increase in demand as more consumers become aware of the product

  • This is a shift in demand from D to D₁

    • The price remains unchanged at £7 but the demand has increased from 15 to 25 units

Illustrating changes to the conditions of demand

Illustrating changes to the conditions of demand

1. A change in real income

• Real Income determines how many goods/services can be enjoyed by consumers

• In most cases, there is a direct relationship between income and demand for goods and services 

• If income increases

  • Demand increases and shifts right (D→D₁)

• If income decreases

  • Demand decreases and shifts left (D→D₂)

2. Change in consumer tastes and preferences

• If goods and services become more fashionable, then demand for them increases

• There is a direct relationship between changes in consumer preferences and demand

• If preference for a product increase

  • Demand increases and shifts right (D→D₁)

• If preference for a product decrease

  • Demand decreases and shifts left (D→D₂)

3. Improved advertising and branding

• If more money is spent on advertising or branding, then demand for goods and services will increase as more consumers become aware of the product

• There is a direct relationship between branding or advertising and demand

• If advertising or brand awareness of a product increases

  • Demand increases and shifts right (D→D₁)

• If advertising or brand awareness of a product decreases

  • Demand decreases and shifts left (D→D₂)

4. Changes in the prices of substitute goods

• Changes in the price of substitute goods will influence the demand for a product/service

• There is a direct relationship between the price of good A and demand for good B

  • For example, the price of a Sony 60" TV increases so the demand for LG 60" TV increases

• If the price of good A increases

  • Demand for good B increases and shifts right (D→D₁)

• If the price of good A decreases

  • Demand for good B decreases and shifts left (D→D₂)

5. Changes in the prices of complementary goods

• Changes in the price of complementary goods will influence the demand for a product or service

• There is an inverse relationship between the price of good A and demand for good B

  • For example, the price of printer ink increases so the demand for ink printers decreases

• If the price of good A increases

  • Demand for good B decreases and shifts left (D→D₂)

• If the price of good A decreases

  • Demand for good B increases and shifts right (D→D₁)

6. Changes in population size or distribution

• If the population size of a country changes over time, then demand for goods and services will also change

• There is a direct relationship between the changes in population size and demand

• Demand will also change if there is a change to the age distribution in a country, as different ages demand different goods and services

  • For example, an ageing population will buy more hearing aids

• If the population increases

  • Demand increases and shifts right (D→D₁)

• If the population decreases

  • Demand decreases and shifts left (D→D₂)