What causes a movement along the demand curve and what causes shifts in the demand curve? Explain.
It is important to understand the difference between the movement along the demand curve and the shift in the demand curve. Though both are cause due the variations or changes caused in the variables constituting the demand function. The demand function can be depicted as follows:
Qd = f (Po, Pc, Ps, Yd, T, A, Cr, R, E, N, 0)
Movement along the Demand Curve.
The movement along the demand curve takes place because of the changes in the price, which further changes because the changes in the quantity demanded. As price changes, people buy more or less along a given demand curve. As demand curve depicts the relationship between price and quantity demanded at different prices. While plotting the demand graph, price is measured along the vertical axis and the quantity demanded is measured along the horizontal axis. Any change in own price causes a movement along the curve.
The information that is depicted in the form of a graph can be presented in a compact form in the form of a table, which provides for easy comparisons. There is no shift, which is caused in the demand curve, as the quantity demanded varies which is measured with the movement along the demand curve.,
In simple words, the movement along the demand curve takes place when there are changes in the quantity demanded because of the change in prices, other determinants remaining constant. That is, only change in the price causes the movement along the demand curve, other variables is held constant.
As in the above figure a rise in price from P1 to P2 results in a fall in quantity demanded from Q1 to Q2, that is a move from B to Ao So it can be said that demand moves along the demand curve as the price of the product varies.
Shift in the Demand Curve.
The shift in the demand curve takes place when there are changes in the other variables that have a bearing on the demand for the product except price. That is, keeping price constant, the shift in the demand curve takes place on the basis of changes in other Variables such as, changing incomes, changing tastes and preferences of consumers, changes in other prices, changes in consumer expectations and the changes in the number of consumers in the market, etc. These variables, which cause the demand ,curve to shift, are also known as shift variables.
As shown in the below figure, if the demand curve shifts to the right, there is increase in demand. That is, a move in the demand curve, from D1D1 to D2D2 refers to increase in the demand of the product at a particular price.
Thus, the price remains constant at Rs15/unit however due to changes in the other factors the demand curve shifts from 6 units to 13 units.
On the other hand if the demand curve shifts to the left it is referred to as decrease in the demand curve. As in the below figure, the demand curve shifts from D1D1 to D2D2, though the price is the same, but there may be changes in other factors let’s say tastes and preferences or any. As depicted in the below figure, with the price remaining constant at Rs 14/unit, the demand curve shifts from D1D1 at 17units to D2D2 at 6 units due to changes in the other variables.
Thus, the movement along the demand curve takes place due to changes in the price, keeping other variables constant. And the shift in the-demand curve takes place due to changes in other variables except price.