2.1.5 Movements and shifts of the demand curve Notes

In the previous section we discussed how price and non-price determinants of demand have different effects on the demand curve:

1. Price causes movements along the curve
2. Non-price determinants causes shifts of the curve

Movements

A movement along the demand curve occurs when the price of the good or service changes, and this change affects the quantity demanded.

The figure above shows the demand curve for good $X$ at a price of $P_1$, with a quantity demanded of $Q_1$.

1. If the price decreases to $P_2$, the quantity demanded increases to $Q_2$, resulting in an increase in the quantity demanded (at $P_2$).
2. This leads to a movement along the curve from point $A$ to point $B$.

Conversely:

1. If the price rises to $P_3$, the quantity demanded decreases to $Q_3$, resulting in an decrease in the quantity demanded (at $P_3$).
2. This leads to a movement along the curve from point $A$ to point $C$.

Shifts

A shift of the demand curve, on the other hand, occurs when a non-price determinant of demand changes, altering the demand for the good or service at every price level.

The figure above shows the demand curves for a good. Initially, the demand curve is $D_1$, and the market operates at a price of $P_1$ with a quantity of $Q_1$.

1. If the demand increases at every price point (due to any non-price determinant), the curve shifts to the right.
2. This is represented by the shift from $D_1$ to $D_2$, where the new point $B$ corresponds to the same price $P_1$ but a higher quantity of the good ($Q_2$).

Conversely:

1. If the demand decreases at every price point (due to any non-price determinant), the curve shifts to the left.
2. This is represented by the shift from $D_1$ to $D_3$, where the new point $C$ corresponds to the same price $P_1$ but a lower quantity of the good ($Q_3$).