Movement and Shift in Demand Curve

In this post you will come to know about Movement and Shift in Demand Curve and what are the causes of movement and shift.When quantity demanded of a commodity changes due to a change in its own price, keeping other factors constant, it is known as change in quantity demanded. It is graphically expressed as a movement along the same demand curve.There can be either a downward movement (Expansion in demand) or an upward movement (Contraction in demand) along the same demand curve. 

Let us understand the movement along the demand curve.

1) Expansion in Demand is shown by downward movement from A to B. Quantity Demanded rises from OQ to OQ1 due to fall in price from OP to OP1.

2) Contraction in Demand is shown by an upward movement from A to C. Quantity demanded falls from OQ to OQ2 due to rise in price from OP to OP2.         OQ quantity is demanded at a price of OP. Change in price leads to an upward or downward movement along the same demand curve.

Upward Movement:When price rises to OP2, quantity demanded falls to OQ2 (known as  contraction in demand) leading to an upward movement from A to C along the same demand curve DD.

Downward Movement:On the other hand, fall in price from OP to OP1 leads to an increase in quantity demanded from OQ to OQ1 (known as expansion in demand), resulting in a downward movement from A to B along the same demand curve DD.

Let us now understand the meaning of Expansion and Contraction in demand.

Expansion in Demand:

Expansion in demand refers to a rise in the quantity demanded due to a fall in the price of commodity, other factors remaining constant.

 1) It leads to a downward movement along the same demand curve.                                        
2) It is also known as ‘Extension in Demand’ or ‘Increase in Quantity Demanded’. As seen in the given schedule and diagram, the quantity demanded rises from 100 units to 150 units with a fall in the price from Rs. 20 to Rs. 15, resulting in a downward movement from A to B along the same demand curve DD.

Price (Rs)	Demand(Units)
20	100
15	150

Contraction in Demand:

Contraction in demand refers to a fall in the quantity demanded due to a rise in the price of commodity, other factors remaining constant.

1) It leads to an upward movement along the same demand curve.  

2)It is also known as ‘Decrease in Quantity Demanded’. As seen in the given schedule and diagram, the quantity demanded falls from 100 units to 70 units with a rise in the price from Rs. 20 to Rs. 25, resulting in an upward movement from A to B along the same demand curve DD.

Price (Rs)	Demand(Units)
20	100
25	70

Shift in Demand Curve (Change in Demand)

Demand curve is drawn to show the relationship between price and quantity demanded of a commodity, assuming all other factors being constant. However, other factors are bound to change sooner or later. A change in one of ‘other factors’ shifts the demand curve. For example, suppose income of a consumer increases. Now, the consumer may increase the demand for the product, even though the price has not changed. Such increase in demand of any product, whose price has not changed, cannot be represented by the original demand curve. It will shift the demand curve.

When the demand of a commodity changes due to change in any factor other than the own price of the commodity, it is known as change in demand. It is expressed as a shift in the demand curve.

Various Reasons for Shift in Demand Curve:

(i) Change in price of substitute goods,               

(ii) Change in price of complementary goods,

(iii) Change in income of consumers,

(iv) Change in tastes and preferences,

(v) Expectation of change in price in future,

(vi) Change in population,

(vii) Change in distribution of income,

(viii) Change in season and weather.

Let us understand the concept of shift in demand curve with the help of diagram.

1.) Increase in Demand is shown by rightward shift in demand curve from DD to D1D1. Demand rises from OQ to OQ1 due to favourable change in other factors at the same price OP

2.) Decrease in Demand is shown by leftward shift in demand curve from DD to D2D2. Demand falls from OQ to OQ2 due to unfavourable change in other factors at the same price OP

Demand for the commodity is OQ at a price of OP. Change in other factors leads to a rightward or leftward shift in the demand curve:

1. Rightward Shift:

When demand rises from OQ to OQ1 (known as increase in demand) at the same price of OP, it leads to a rightward shift in demand curve from DD to D1D1.

2. Leftward Shift:

On the other hand, fall in demand from OQ to OQ2 (known as decrease in demand) at the same price of OP, leads to a leftward shift in demand curve from DD to D2D2

Let us now understand the meaning of Increase and Decrease in demand.

Increase in Demand:

Increase in Demand refers to a rise in the demand of a commodity caused due to any factor other than the own price of the commodity. In this case, demand rises at the same price or demand remains same even at higher price. For example, suppose a research reveals that people who regularly eat green vegetables live longer. This will raise the demand for green vegetables even at the same price and it will shift the demand curve of vegetables towards right.

Increase in demand leads to a rightward shift in the demand curve.

Price (Rs)	Demand(Units)
20	100
20	150

As seen in the given schedule and diagram, demand rises from 100 units to 150 units at the same price of Rs. 20, resulting in a rightward shift in the demand curve from DD to D1D1.

Decrease in Demand:

Decrease in Demand refers to a fall in the demand of a commodity caused due to any factor other than the own price of the commodity. In this case, demand falls at the same price or demand remains same even at lower price. It leads to a leftward shift in the demand curve.

As seen in given schedule and diagram, demand falls from 100 units to 70 units at same price of Rs. 20, resulting in a leftward shift in the demand curve from DD to D₁D₁.

Price (Rs)	Demand(Units)
20	100
20	70

In this post you will come to know about "The law of demand".It states that price and quantity demand of any good and service are inversely related to each other keeping other factors constant (cetris peribus). When the price of a product increases, the demand for the given product will fall.

 Assumptions

(i) There is no change in the tastes and preferences of the consumer.

(ii) The income of the consumer remains constant.

(iii) There is no change in customs.

(iv) The commodity to be used should not confer distinction on the consumer.

(v) There should not be any substitutes of the commodity.

(vi) There should not be any change in the prices of other products.

(vii) There should not be any possibility of change in the price of the product being used.

(viii)There should not be any change in the quality of the product.

(ix) The habits of the consumers should remain unchanged. Given these conditions, the law of demand operates. If there is change even in one of these conditions, it will stop operating and

(x) There is no expectation of change in price in the future.

Exceptions to the Law of Demand

In certain cases, the demand curve slopes up from left to right, i.e., it has a positive slope. Under certain circumstances, consumers buy more when the price of a commodity rises, and less when price falls. Many causes are attributed to an upward sloping demand curve.

(i) War:

If shortage is feared in anticipation of war, people may start buying for building stocks or for hoarding even when the price rises.

(ii) Depression:

During a depression, the prices of commodities are very low and the demand for them is also less. This is because of the lack of purchasing power with consumers.

(iii) Giffen Goods:

A ‘Giffen good’ is a special variety of inferior good. Sir Robert Giffen of Scotland observed in the 19th century (1840s) that poor people spent the major portion of their income on a staple item, viz., potato. If the price of this good rises they will become so poor that they will be found to spend less on other items and buy more potatoes in order to get a minimum diet and keep themselves alive.

For such goods, the demand curve will be upward sloping.

(iv) Demonstration Effect:

If consumers are affected by the principle of conspicuous consumption or demonstration effect, they will like to buy more of those commodities which confer distinction on the possessor, when their prices rise. On the other hand, with the fall in the prices of such articles, their demand falls, as is the case with diamonds.

(v) Ignorance Effect:

Consumers buy more at a higher price under the influence of the “ignorance effect”, where a commodity may be mistaken for some other commodity, due to deceptive packing, label, etc.

(vi) Speculation:

 Speculation is one of the important exceptions to the downward sloping demand curve. According to him, the law of demand does not apply to the demand in a campaign between groups of speculators. When a group unloads a great quantity of a thing on to the market, the price falls and the other group begins buying it. When it has raised the price of the thing, it arranges to sell a great deal quietly. Thus when price rises, demand also increases.

(vii) Necessities of Life:

Normally, the law of demand does not apply on necessities of life such as food, cloth,medicine etc. Even the price of these goods increases, the consumer does not reduce their demand. Rather, he purchases them even the prices of these goods increase often by reducing the demand for comfortable goods. This is also a reason that the demand curve slopes upwards to the right.

Snob Appeal or Veblen Good:

People sometimes buy certain commodities like diamonds at high prices not due to their intrinsic worth but for a different reason. The basic object is to display their riches to the other members of the community to which they themselves belong.It act as a status symbol good.This is known as ‘snob appeal’, which induces people to purchase items of conspicuous consumption. Such a commodity is also known as Veblen good (named after the economist Thorstein Veblen) whose demand rises when its price rises.This is a genuine exception to the law of demand. The demand curve for such an item will be upward sloping.Thus if, the price of diamond falls, people will buy less of it. In a word, purchasers value diamonds and other costly items because of their prices and because of the psychic satisfaction that they derive from it.

Highly Essential Good:

Finally, in case of certain highly essential items such as life- saving drugs, people buy a fixed quantity at all possible price. The requirement of medicine will lead the consumer to buy it at higher price no by how much price it get increased.

DEMAND

 In this post the concept of demand is discussed. Demand is the quantity of a commodity or a service that consumer are willing and able to buy at various prices over a given period of time.It refer to a consumer's desire and willingness to pay a price for a specific good or service.So the definition of demand highlight four essential elements of demand -

1) Quantity of commodity 2)Willingness to buy 3)Price of a commodity 4)Period of time.

Determinants of Demand(Individual Demand)

1. Price of the Given Commodity:

It is the most important factor affecting demand for the given commodity. Generally, there exists an inverse relationship between price and quantity demanded. It means, as price increases, quantity demanded falls due to decrease in the satisfaction level of consumers.For example, If price of given commodity (say, tea) increases, its quantity demanded will fall as satisfaction derived from tea will fall due to rise in its price.Demand (D) is a function of price (P) and can be expressed as: D = f (P). The inverse relationship between price and demand, known as ‘Law of Demand’.

2. Price of Related Goods:

Demand for the given commodity is also affected by change in prices of the related goods. Related goods are of two types:

(i) Substitute Goods:

Substitute goods are those goods which can be used in place of one another for satisfaction of a particular want, like tea and coffee. An increase in the price of substitute leads to an increase in the demand for given commodity and vice-versa. For example, if price of a substitute good (say, coffee) increases, then demand for given commodity (say, tea) will rise as tea will become relatively cheaper in comparison to coffee. So, demand for a given commodity is directly affected by change in price of substitute goods.Example are:

1. Tea and Coffee 2. Coke and Pepsi 3. Pen and Pencil 4. CD and DVD 5. Ink pen and Ball Pen 6. Rice and Wheat

(ii) Complementary Goods:

Complementary goods are those goods which are used together to satisfy a particular want, like tea and sugar. An increase in the price of complementary good leads to a decrease in the demand for given commodity and vice-versa. For example, if price of a complementary good (say, sugar) increases, then demand for given commodity (say, tea) will fall as it will be relatively costlier to use both the goods together. So, demand for a given commodity is inversely affected by change in price of complementary goods.Examples are:1. Tea and Sugar 2. Pen and Ink 3. Car and Petrol 4. Bread and Butter 5. Pen and Refill 6. Brick and Cement.

3. Income of the Consumer:

Demand for a commodity is also affected by income of the consumer. However, the effect of change in income on demand depends on the nature of the commodity under consideration.

i.) If the given commodity is a normal good, then an increase in income leads to rise in its demand, while a decrease in income reduces the demand.

ii.) If the given commodity is an inferior good, then an increase in income reduces the demand, while a decrease in income leads to rise in demand.Example:Suppose, income of a consumer increases. As a result, the consumer reduces consumption of toned milk and increases consumption of full cream milk. In this case, ‘Toned Milk’ is an inferior good for the consumer and ‘Full Cream Milk’ is a normal good. 

4. Tastes and Preferences:

Tastes and preferences of the consumer directly influence the demand for a commodity. They include changes in fashion, customs, habits, etc. If a commodity is in fashion or is preferred by the consumers, then demand for such a commodity rises. On the other hand, demand for a commodity falls, if the consumers have no taste for that commodity.

5. Expectation of Change in the Price in Future:

If the price of a certain commodity is expected to increase in near future, then people will buy more of that commodity than what they normally buy. There exists a direct relationship between expectation of change in the prices in future and change in demand in the current period. For example, if the price of petrol is expected to rise in future, its present demand will increase.

Determinants of Market Demand

1)Distribution of National Income: 

The national income is one of the basic determinants of the market demand for a product, such as the higher the national income, the higher the demand for all the normal goods. Apart from its level, the distribution pattern of the national income also determines the overall demand for a product. Such as, if the national income is unevenly distributed, i.e., the majority of the population falls under the low-income groups, then the market demand for the inferior goods will be more than the other category goods

2)Population of the Country: 

The population of the country also determines the total domestic demand for a product of mass consumption. For a given level of per capita income, tastes and preferences, price, income, etc., the larger the size of the population the larger the demand for a product and vice-versa

3) Season and Weather :

The seasonal and weather conditions also affect the market demand for a commodity.For example, during winter demand for woollen clothes and jacket increases whereas market demand for raincoat and umbrellas increases during rainy season.

Properties of Indifference Curve

1) Convex to the Origin : It is convex to the origin because of law of diminishing MRS.MRS decline because of law of diminishing marginal utility.If the consumer consume more and more of X, his marginal utility from X keeps on declining and he is willing to give up less and less of Y for X.Therefore it is convex to origin.

2) Slope Downwards : It means that as a consumer consume more of one good,he/she must consume less of other good.It happen because if the consumer decide to have more units of one good, he/she will have to reduce the number of units of another good.So that total utility remain constant.

3) Indifference Curves can neither touch nor Intersect each other: No two Indifference Curves can intersect or cut each other.As two IC cannot represent the same level of satisfaction, they cannot intersect each other.It means,only one indifference curve will pass through a given point on indifference map.

In this the satisfaction from point C and point B on IC1 will be same.Similarly point C and A on IC2 also give the same level of satisfaction.It means, points A and B should also give same level of satisfaction.However this is not possible as A and B lie on different IC i.e., IC1 and IC2 and represent different level of satisfaction.


4)Higher indifference curve represent higher level of satisfaction:

A higher indifference curves to the right of another represents a higher level of satisfaction and preferable combination of the two goods. consider the indifference curves IC1 and IC2 and combination S and (R&Q) respectively on them.The IC2 will give high satisfaction on any point i.e., R and Q will provide same level of satisfaction.


5)An indifference curve cannot touch either axis: If it touches X-axis the consumer will be having OM quantity of good X and none of Y. Similarly, if an indifference curve IC2 touch the У-axis at L the consumer will have only OL of Y good and no amount of X. Such curves are in contradiction to the assumption that the consumer buys two goods in combinations.

So these are the basic properties of an Indifference Curve.