Question

What is the difference between a shift in the demand curve and movement along the demand curve? Choose a product to use as an example and describe something specific that might cause its demand to shift. Also explain something specific that might cause movement to another point on the same demand curve.

Answer 1

A movement along the demand curve occurs when a change in quantity demanded is caused only by a change in price, and vice versa. A shift in a demand curve occurs when a good's quantity demanded changes even though price remains the same.

Change in quantity demanded is the movement along the demand curve, whereas, change in demand is the shift in the demand curve due to change in determinants of demand.

       Factors causing shift in the demand curve:

i. Size of the market: Demand will change or shift if the number of consumers for the product increases. The demand curve will shift to the right.

ii. Income of the consumers: Changes in income shifts the demand curve. Increases in income increases the demand for normal goods and decreases in income increase the demand for inferior goods. The demand curve will shift to the right.

iii. Increase in the price of related goods. If the price of substitute goods falls, then there is a shift in the demand. If price of large cars increase, then the demand for small cars will increase. Demand curve will shift to the right for small cars. In case of complements, as an example, if the price of gasoline increases demand for cars will fall. The demand curve for cars will shift to the left

iv. Tastes and preferences of consumers. Demand will depend upon the tastes and preferences of consumers. If there is a preference for health foods, then the demand curve for health foods will shift to the right.

v. Expectations: If the consumers expect the prices to fall in the future, then demand curve

will shift to the left.

Market for luxury cars.

An increase in consumer income will shift the demand curve for luxury cars to the right ( increase). This is an example of shift in the demand curve.

A decrease in the price of luxury cars will cause a movement along the demand curve, thus increasing the quantity demanded.