While understanding the meaning and analysis of a demand curve in the study of Economics, it is also important to be able to make a distinction between the movement and shift of the demand curve. In this article, we will look at ways by which you can understand the difference between a movement along a demand curve and shift of the demand curve.
Movement along the Demand Curve and Shift of the Demand Curve
Every firm faces a certain demand curve for the goods it supplies. There are many factors that affect the demand and these effects can be seen by observing the changes in the demand curve. Broadly speaking, the factors can be categorized into two types:
(i) Change in demand
(ii) Change in the quantity demanded
Movement of the Demand Curve
When there is a change in the quantity demanded of a particular commodity, because of a change in price, with other factors remaining constant, there is a movement of the quantity demanded along the same curve.
The important aspect to remember is that other factors like the consumer’s income and tastes along with the prices of other goods, etc. remain constant and only the price of the commodity changes.
In such a scenario, the change in price affects the quantity demanded but the demand follows the same curve as before the price changes. This is Movement of the Demand Curve. The movement can occur either in an upward or downward direction along the demand curve.
We know that if all other factors remain constant, then an increase in the price of a commodity decreases its demand. Also, a decrease in the price increases the demand. So, what happens to the demand curve?
In Fig. 1 above, we can see that when the price of a commodity is OP, its demand is OM (provided other factors are constant). Now, let’s look at the effect of an increase and decrease in price on the demand:
- When the price increases from OP to OP”, the quantity demanded falls to OL. Also, the demand curve moves UPWARD.
- When the price decreases from OP to OP’, the quantity demanded rises to ON. Also, the demand curve moves DOWNWARD.
Therefore, we can see that a change in price, with other factors remaining constant moves the demand curve either up or down.
The shift of the Demand Curve
When there is a change in the quantity demanded of a particular commodity, at each possible price, due to a change in one or more other factors, the demand curve shifts. The important aspect to remember is that other factors like the consumer’s income and tastes along with the prices of other goods, etc., which were expected to remain constant, changed.
In such a scenario, the change in price, along with a change in one/more other factors, affects the quantity demanded. Therefore, the demand follows a different curve for every price change.
This is the Shift of the Demand Curve. The demand curve can shift either to the left or the right, depending on the factors affecting it.