Distinguish between expansion and increase in demand.
Movement along a demand curve : It refers to change in quantity demanded due to change in price in the same demand schedule. When price falls, then quantity demanded increases causing movement down the demand curve. In the following diagram 1, movement from point A to B on demand curve d1 , implies that quantity demanded increases due to fall in price. This is called expansion of demand or increase in quantity demanded or movement along the demand curve.
On the other hand, in diagram 2, movement from point E to point F on demand curve d2, implies decline in quantity demanded due to an increase in price. This is called contraction of demand or decrease in quantity demanded or movement along the same demand curve.
Shift of demand curve / change in demand: It refers to increase or decrease in demand at the same price due to change in other determinants of the demand curve. In such a case a shift takes place in the demand curve. An increases in demand takes place due to following reasons:
- When consumer income rises;
- The fashion for a good increases, or
- Tastes and preferences become more favorable for the good,
- Prices of the substitutes of the good in question have risen,
- Propensity to consume of the people has increased,
- Owing to the increase in population and as a result of expansion of the market, the number of consumers of the good has increased.