In previous session we discussed the shifts in demand curve. We know that quantity of a good demanded by the consumer is affected or decided by several factors which includes the price of the good itself, price of the related goods i.e., price of substitute and complementary goods, income of the consumer and taste & preferences of the consumer.
In order to study the movements in demand curve due to change in factors, we need to divide these factors in two categories; the first includes only price and the second category includes all factors other than price. So we study the movement in demand curve due price separately. But why?
The answer to this question is itself the demand curve and its derivation. The demand curve is derived from the demand function. And demand function is the function which relates the quantity of a good demanded by a consumer with the price of that good itself. Demand function shows what change in demand would be seen as the price of the good changes.
As we know basically as the price of the good decreases, the demand for the product will increase and if the price of the good increases, the demand for the product would decrease. So at lower level the consumers are ready to buy more quantity of a good as compared to higher levels of price where they reduce their consumption.
What matters is the reason of change in demand which decides what will be the change in the demand curve. The change in the demand curve can be of two ways; either the demand curve shifts or there is a movement along the demand curve. In previous session, we have already discussed how the change in factors other than price leads to a shift in demand curve because the price has not changed but other factors have resulted in alteration in the quantity of a good demanded. So at the same prices, now the consumer is demanding either more or less quantity of a good which means demand curve will need to represent new quantity at same prices hence shifting to the rightward in case the demand increases or shifting leftward in case the demand decreases.
But in case the price of the product itself has changed then as the demand curve itself represents price of the good on vertical axis, there will be simply a movement along the demand curve. Because the Demand curve already represents price and quantity i.e., Demand Curve represents what will be the quantity demanded by the consumer at each price point. So any change in price point, will lead to a different point on the demand curve showing the changed quantity on the same Demand Curve. Hence we say, change in prices of the good itself will result in movement along the Demand Curve.
Shift in the Demand Curve vs. Movement Along the Demand Curve
Now as we have discussed in detail what is the shift in demand curve and what is the movement along the demand curve, it is important to understand the graphical implications of the same. Any change in quantity demanded for a good caused by factors other than price will result in shift in the demand curve. Because there will be a new quantity demanded for a good at same price points, hence needed to show by a different demand curve itself. Now the shift can be two directional; either to the leftward or to the rightward.
Here we can see, in the graph above on the left hand side, there is a shift in the demand curve leftward as the demand for the product decreased due to change in factors other than price. In the graph on the right hand side, there is shift in the demand curve rightward as the demand for the product has increases due to change in factors other than price. Now we will see in the below graph the movement along the demand curve.
Here we can see, in the graph above on the left hand side, there is a shift in the demand curve leftward as the demand for the product decreased due to change in factors other than price. In the graph on the right hand side, there is shift in the demand curve rightward as the demand for the product has increases due to change in factors other than price. Now we will see in the below graph the movement along the demand curve.
In the above graph we can see, as demand curve itself directly shows the change in quantity demanded due to change in price, the changed demand will be directly reflected by the same demand curve simultaneously reflecting the new price, but the price point will be different. So there will be a movement along the demand curve to reflect the change in quantity demanded.
Conclusion
In this session, we discussed the type of changes in Demand Curve due to changes in factors determining the quantity of a good demanded by the consumer. Demand curve either shifts leftward or rightward or there is a movement along the demand curve. The type of change in turn depends on the factors behind the change in quantity demanded. If factors other than price have led the change in quantity demanded, then there will be shift in demand curve depending upon increase or decrease in quantity. But if the factor leading the change in quantity demanded is the price of the product itself, then there will be a movement along the demand curve to reflect the change i.e., change in quantity demanded.
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