Question

Does a change in price lead to a movement along the demand curve or a shift in the demand curve? Draw diagram to illustrate answer.

Answer 1

The change in demand or variation in demand means a change in demand for a commodity due to a change in price as well as a change in other factors than price. Variation of demand due to change in price will lead to an extension in demand and contraction in demand. Meanwhile, change in demand due to changes in factors other than price has lead to an increase in demand and a decrease in demand.

1. Variation of demand (change in price )

a) Extension of demand.

           Here in the extension of demand, it refers to other things remaining the same as the price falls, demand it tends to increase.

Price	Quantity Demanded
4	1
3	2
2	3
1	4

b) Contraction of demand.

Contraction of demand means, other things remaining the same, an increase in price leads to a fall in demand.

Price	Quantity Demanded
1	5
2	4
3	3
4	2
5	1

(2) Change in demand due to changes in factors other than price.

An increase or decrease in demand refers to a change in demand due to the change in factors like taste, preference, fashion except instead of price.

1. Increase in demand.

increase in demand refers when there is more demand even at the same price or the same demand at more price.

It has two ways,

i)Same price more demand

When the price of a commodity is Rs 50 per unit demand is 1 unit, now if the price remains the same that is Rs 50 but the demand increases to 2 units, and later to 3 units reason behind it is factors other than price.

Price	Demand
50	1
50	2
50	3

ii)More price same demand

When the price of a commodity is Rs 70 per unit then the quantity demand is 5 units. Now as price increases to Rs 80 or to any amount the quantity demanded remains the same it is due to the influence of other factors.

Price	Demand
70	5
80	5
90	5

In Fig 3, DD is the original demand curve. When the price of a commodity is OP₁ the consumer is at point x₁.now due to change in factors other than price the demand curve will shift to D¹D¹. therefore new demand curve indicates that the price being the same, the demand for a commodity increases from OX₁ to OX_2.

b) Decrease in demand.

It occurs when there exists less demand at the same price and the same demand even at less price. It decreases in two ways.

i.) Same price, less demand.

when the price of a commodity is Rs 70, its quantity demand is 3 units. If the price remains the same, the demand tends to decline to 2 units, and further to 1 unit it is called a decrease in demand it occurs due to the change in factors.

Price	Demand
7	3
7	2
7	1

ii) Less price the same demand

When the price is Rs 50 per unit quantity demand is 3 units further when the price decreases the quantity demand remains the same.

Price	Demand
50	3
40	3
30	3

In Fig 4, DD is the original demand curve. When the price of a commodity is OP₂ the demand for a commodity is OX₁.Now suppose due to change on factors, the demand curve shifts to D¹D¹ which indicates the situation of a decrease in price. The demand curve indicates the fact that demand decreases to OX₂ at the same price of OP_2.