Movement Along The Demand Curve

Example – shifts and movements along a demand curve

Syllabus: Distinguish between

movements along the demand

curve and shifts of the demand

curve.

• Draw diagrams to show

the difference between

movements along the demand

curve and shifts of the demand

curve.

You must be absolutely certain about what causes shifts and movements along a demand curve. Work carefully through the following example.

Just to be very clear – while the following focuses on what determines the position of the demand curve on the graph in IB answers

never use a demand curve on its own

a graph showing the demand curve shifting position without the supply curve is meaningless you need both to say what happens to price and quantity and therefore make conclusions.

Let�s do Some Economics

Example 1 – Movements along and shifts of a demand curve

The diagram below, Figure 1, represents the demand for a product at a point in time. The price then was P*.

Figure 1 Demand curve

Copy this onto another piece of paper, then sketch on this new diagram the effect of the following changes. Treat each change as a separate change – in other words menginjak each time from Figure 1. Once you have had a go at each one then follow the link below to check you got the change right.

(a) The firm launches a new, effective advertising campaign (change in tastes and fashion – Kaki langit)

Answer – change (a)

(b) The market price of the product rises to P2. (change in the good�s own price – Po)

Answer – change (b)

(c) The price of a substitute good is reduced. (change in the price of other goods – Pz)

Answer – part (c)

(d) The price of a good falls from P1 to P2. (Po)

Answer – part (d)

(e) The benaran incomes of the buyers of this desirable product increase significantly. (Y)

Answer – part (e)

(f) There is an increase in the population size and the size of the potential market. (P)

Answer – part (f)

These should not be difficult if you keep calm. Ask yourself three questions:

• Has a ‘ceteris paribus’ factor (or a non-price determinant of demand other than the price of the good itself) changed? If the answer is yes, then there is a shift of the whole curve.
• Will demand increase or decrease? This will determine if the shift is to the right or left – It can cause some people confusion if the demand curve is seen as shifting its position upwards or downwards – if the demand curve shifts downwards then demand has gone up (increased). Say what???? Yes check it out on a diagram. Therefore you need to think shift right (increase) and shift left (decrease) – with one exception and that is to do with supply and tax (more later).
• If the price has changed, will there be an
  extension (increase) or contraction (decrease)
  of demand?