Movements Along & Shifts of the Demand Curve (Cambridge International IGCSE Economics)

Movements along a demand curve

Spec point — "Movements along a demand curve: Causes of extensions and contractions in demand; Illustrating movements along a demand curve"

Movements along a demand curve

• If price is the only factor that changes (ceteris paribus), there will be a change in the quantity demanded (QD)

  • This change is shown by a movement along the demand curve

A demand curve showing a contraction in quantity demanded (QD) as prices increase and an extension in quantity demanded (QD) as prices decrease

Diagram analysis

• An increase in price from £10 to £15 leads to a movement up the demand curve from point A to B

  • Due to the increase in price, the QD has fallen from 10 to 7 units
  • This movement is called a contraction in QD

• A decrease in price from £10 to £5 leads to a movement down the demand curve from point A to point C

  • Due to the decrease in price, the QD has increased from 10 to 15 units
  • This movement is called an extension in QD

• The law of demand captures this fundamental relationship between price and QD

  • It states that there is an inverse relationship between price and QD

    • When the price rises the QD falls
    • When prices fall the QD rises

Shifts of the demand curve

Spec point — "Shifts of the demand curve; Causes of decreases and increases in demand;"

Shifts of the demand curve

• There are numerous factors that will change the demand for a good/service, irrespective of the price level

• Collectively, these factors are called the conditions of demand and include

  • Changes in real income
  • Changes in consumer tastes and preferences
  • Changes in the price of related goods (substitutes and complements)
  • Changes in the number of consumers
  • Future price expectations

• Changes to each of the conditions of demand, shift the entire demand curve (as opposed to a movement along the demand curve)

A graph that shows how changes to any of the conditions of demand shifts the entire demand curve left or right, irrespective of the price level

• For example, if a firm increases their Instagram advertising, there will be an increase in demand as more consumers become aware of the product

  • This is a shift in demand from D to D₁

    • The price remains unchanged at £7 but the demand has increased from 15 to 25 units

Exam Hint The difference between a movement along the demand curve and a shift in demand is essential to understand. You will be repeatedly examined on this and it is important that you use the correct language to show that you understand the difference between a change in quantity demanded and a change in demand.

When price changes (ceteris paribus), there is a movement along the demand curve resulting in a change to quantity demanded. When a condition of demand changes, there is a shift of the entire demand curve, resulting in a change to demand.

Illustrating changes to the conditions of demand

Spec point — Illustrating shifts of a demand curve

1. A change in real income

• Real Income determines how many goods/services can be enjoyed by consumers
• In most cases, there is a direct relationship between income and demand for goods and services

A graph that shows how changes to any of the conditions of demand shifts the entire demand curve left or right, irrespective of the price level

• If income increases

  • Demand increases and shifts right (D→D₁)

• If income decreases

  • Demand decreases and shifts left (D→D₂)

2. Change in consumer tastes and preferences

• If goods and services become more fashionable, then demand for them increases
• There is a direct relationship between changes in consumer preferences and demand

A graph that shows how changes to any of the conditions of demand shifts the entire demand curve left or right, irrespective of the price level

• If preference for a product increase

  • Demand increases and shifts right (D→D₁)

• If preference for a product decrease

  • Demand decreases and shifts left (D→D₂)

3. Improved advertising and branding

• If more money is spent on advertising or branding, then demand for goods and services will increase as more consumers become aware of the product
• There is a direct relationship between branding or advertising and demand

A graph that shows how changes to any of the conditions of demand shifts the entire demand curve left or right, irrespective of the price level

• If advertising or brand awareness of a product increases

  • Demand increases and shifts right (D→D₁)

• If advertising or brand awareness of a product decreases

  • Demand decreases and shifts left (D→D₂)

4. Changes in the prices of substitute goods

• Changes in the price of substitute goods will influence the demand for a product/service

• There is a direct relationship between the price of good A and demand for good B

  • For example, the price of a Sony 60" TV increases so the demand for LG 60" TV increases

A graph that shows how changes to any of the conditions of demand shifts the entire demand curve left or right, irrespective of the price level

• If the price of good A increases

  • Demand for good B increases and shifts right (D→D₁)

• If the price of good A decreases

  • Demand for good B decreases and shifts left (D→D₂)

5. Changes in the prices of complementary goods

• Changes in the price of complementary goods will influence the demand for a product or service

• There is an inverse relationship between the price of good A and demand for good B

  • For example, the price of printer ink increases so the demand for ink printers decreases

A graph that shows how changes to any of the conditions of demand shifts the entire demand curve left or right, irrespective of the price level

• If the price of good A increases

  • Demand for good B decreases and shifts left (D→D₂)

• If the price of good A decreases

  • Demand for good B increases and shifts right (D→D₁)

6. Changes in population size or distribution

• If the population size of a country changes over time, then demand for goods and services will also change

• There is a direct relationship between the changes in population size and demand

• Demand will also change if there is a change to the age distribution in a country, as different ages demand different goods and services

  • For example, an ageing population will buy more hearing aids

A graph that shows how changes to any of the conditions of demand shifts the entire demand curve left or right, irrespective of the price level

• If the population increases

  • Demand increases and shifts right (D→D₁)

• If the population decreases

  • Demand decreases and shifts left (D→D₂)