Technical Problem 5

Using a graph, explain carefully the difference between a movement along a demand
curve and a shift in the demand curve.

i) A Movement along a Demand Curve

A movement along the demand curve is caused by a change in price. The quantity
demanded changes because the price changes. An increase in price, P1 to P2 causes a
change in quantity demand from Q2 to Q1. Other things being equal more will be
demanded at lower prices than at higher prices.

For example, as shown on the graph above, at P the quantity demanded will be Q. If
the price rises to P1 the quantity demanded will fall to Q1. The opposite is also true. If
the price falls, the quantity demanded will rise. There is usually an inverse
relationship between price and quantity demanded. Usually at a higher price less will
be demanded.

ii) A Shift In The Demand Curve

A shift in the demand curve is caused by a change in one or more of the determinants
of demand. There is a change in demand. There is a greater quantity demanded at
every price if the curve shifts right and a lesser quantity demanded at every price if
the curve shifts left. Determinants of demand include such things as income level,
tastes, prices of complements, etc.

For example, as shown on the graph above, if one of the determinants of demand
changes-lets say income increases - then the demand curve will shift right as is
shown above from D to D1. At price P on D the quantity demanded is Q. At the same
price on D1 the quantity demanded is Q1. More is being demanded at every price when
the demand curve shifts right. Determinants of demand can shift a demand curve right
as is shown above and this shows an increase in demand with more demanded at
every price. Determinants of demand can also shift a curve left and this shows a
decrease in demand with less quantity demanded at every price.