Movement vs Shift in Demand Curve
The graph, which represents the relationship between the price of a certain commodity and its quantity that consumers are able and willing to purchase at a particular price, is known as the demand curve in economics. It is a graphic illustration of a demand schedule. The demand curve is actually used to assess the behavior in a competitive market and is, therefore, combined with a supply curve to estimate the equilibrium quantity and the equilibrium price of the market.
Characteristics of a Demand Curve
The demand curve is drawn with quantity on the x-axis or horizontal axis, and price on Y-axis or vertical axis. It usually moves downward from left to right and is said to have a negative association. The negative slope is also known as a law of demand, which shows that consumers will buy more of the product and services as their prices fall. The demand curve is usually related to the marginal utility curve because the price an individual is willing to pay for a certain commodity depends on the utility. Nevertheless, the demand is directly dependent on a consumer’s income while utility is not. Thus, it may change indirectly due to the change in demand for other products and services.
What is a Shift in the Demand Curve and a Movement along the Demand Curve?
It is important for consumers to understand that demand curve can either shift entirely, or experience movement along its curve. So, one should know when the shift and movement occurs in a demand curve. Demand shows multivariable functions. If determinants of demand, such as income, change in prices of related goods, taste of the consumer and income distribution remain constant, but only the price of a commodity changes, then a movement along the demand curve is observed. In such a case, the demand curve continues to remain unchanged. And when the quantity demanded by the consumers increase or decrease as a result of change in price, it is technically known as the extension and contraction in demand.
On the other hand, when there is a change in demand due to one or more factors other than price, it results in a shift of the demand curve. For example, if the overall level of income increases while other factors remain the same, the demand for goods automatically increases. Consumers tend to demand more at each price per period of time and as a result, the demand curve shifts in an upward direction from the original demand curve indicating that consumers buy more units of commodity per unit of time at each price.
Difference between the Shift in a Demand Curve and the Movement along a Demand Curve
The difference between the shift in a demand curve and the movement along a demand curve lies in the factors due to which they occur. Movement along the demand curve occurs due to the change in price while the shift in the demand curve is caused by five factors. Following are the factors that cause a movement and shift in the demand curve:
Price of a Commodity
As already discussed, the movement in a demand curve occurs due to a simple change in the price of goods. This may usually occur because of the changes in supply conditions. The factors that affect the demand are assumed to be held constant. Therefore, a change in the price of a commodity leads to a movement along the demand curve and is referred to as a change in quantity demanded.
Income of Consumers
In order to understand how a change in the income of a consumer causes a shift in the demand curve, let’s take an example of the ice cream. The demand curve for ice cream represents how much ice cream people are willing to purchase at any given price while keeping other factors constant beyond price that influence the buying decision of a consumer. If something happens to alter the quantity demanded at a given price, a shift in a demand curve occurs.
It is obvious that if an individual has more money, he will purchase more. But, how the demand for ice cream will be affected if unemployment increases? Most likely, a decline in the demand will be observed because of lower income. Lower income means that a person has less to spend, so he is likely to spend less on most of the goods. Change in the level of income of the consumers causes a shift in the demand curve because according to this example, the buyer would not want to buy a large quantity of ice cream at any given price due to his lower purchasing power.
Expectation of Consumers
A change in the expectation of the consumer is another factor that causes the demand curve to shift. For example, if consumers will expect to earn higher income next month, they may be willing to spend more of their current savings purchasing the ice cream. Also, if they believe that the price of an ice cream would drop tomorrow; they will be reluctant to purchase it at today’s price. This ultimately causes a shift in the demand curve.
Price of Related Goods
A change in the price of related goods affects the demand for a certain product and causes a demand curve to shift. There are two kinds of related goods, complementary and substitute goods. When the demand of one good reduces due to the fall in a price of another good, the two goods are known as substitutes. Whereas, when the demand for one good increases due to fall in a price of another good, the two goods are known as complements. The examples of substitute goods are sweatshirts, cinema tickets and DVD rentals. And the examples of complements are computers and software, petrol and cars, bread and cheese, and bacon and eggs.
If the price of Popsicle falls, the law of demand says that people will purchase more popsicles as compared to ice creams because they have the same characteristics and satisfy similar desires of consumers. Therefore, a change in the price of related goods causes a shift in the demand curve rather than a movement along the demand curve because this factor externally affects the demand curve.
The most obvious determinant of demand is the consumer preference and a change in a consumer preference causes a shift in the demand curve. If people like ice cream, they purchase more of it. With the passage of time, economists have become more interested in explaining consumer preferences and taste. The development in neuroscience has made it more evident as to why people make decisions and this has come into the realm of economics, which helps economists examine what happens when the preferences of consumers change.
The Size of the Population and its Structure
A large population size, keeping other things equal, shows a higher demand for all goods and services. Therefore, more consumer base means there will be more consumption and more demand, which will externally affect the demand curve and hence, will cause it to shift. Moreover, changes in the way a consumer population is structured also leave an impact on the demand. For example, goods and services required by elderly in European countries, where there is more ageing population, will increase the demand of those goods and services as a result.