Distinguish between movement along a demand curve and shift in the demand curve.
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
Movement from point A to B on demand curve do 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
Movement from point E to point F on demand curve 42, 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’s income rises,
- The fashion for a good increases, or
- Tastes and preferences become more favorable for me good,
- Prices of the substitutes of the good in question have risen,
- Propensity to consume of the people has increased, or
- Owing to the increase in population and as a result of expansion of the market, the number of consumers of the good has increased.
On the hand, a decrease in the demand may occur due to the opposite set of factors :
- When the income of the consumers have fallen,
- The good has gone out of fashion, or
- Tastes of the people for a commodity have declined,
- The prices of substitutes have fallen,
- The prices of the complements have risen, or
- The propensity to consume of the people have declined..An increase and decrease in the demand curve is shown in the following two diagrams respectively.