Shift of the Demand Curve and Movement Along the Demand Curve
Demand is the quantity of a good or service that consumers will and are capable to buy at a certain price and certain time period. The law of demand states ‘as the price of a product falls, the quantity demanded of the product will usually increase’ if all other things remain equal and constant. In all actuality, demand curves are exactly what they are called: curves. However, to simplify analysis, economists draw them as straight lines on a graph with price on the vertical axis and quantity demanded on the horizontal axis.
A demand curve can be affected in many ways. The
demand curve can shift when the worth of a product is under question by the
consumer. When more of a product is demanded at every price the curve shifts to
the right. This product is thought to be worth more. That means when less of a
product is demanded at every price the curve shift to the left. This product is
thought to be worth less. The demand curve can also shift because of other
factors such as income, the size of a population, changes in the age structure
of the population, changes in income distribution, government policy changes,
and seasonal changes.
Imagine this graph represents the popular UGG boot.
This type of boot is so widely desired that consumers are willing to pay higher
prices. Therefore, the demand curve shifts to the right because more of the
product is demanded at every price.
A movement along the product’s demand curve can occur
as well. Movements are undergone because of a change in price of a product
whereas shifts are related to any other determinants of demand. When the price
of a product falls there may be a greater quantity of it demanded. This means
if the price of a product rises, the opposite will happen: there will be a
lesser quantity of it demanded.
Determinants of Demand
The determinants of demand are used to explain the movements of a demand curve of any product. One determinant is income. However, to understand the way income may impact a product’s demand curve, we must know that there are two types of goods: normal and inferior goods. When a person’s income increases, the demand for normal goods will also increase causing a shift to the right of the good’s demand curve. The size of the shift, though, will vary depending on the good. General commodities (bread, etc.) will have curves that only shift a little bit while luxury goods (designer clothes, etc.) will have a more significant shift. When a person’s income increases, the demand for inferior goods will decrease causing a shift to the left of the demand curve. This is because inferior goods are of lower quality and non-brand name. As a person’s income goes up, they will start buying products that are of better quality.
The price of related goods is another determinant. There are three types of relationships between products; they may be substitutes for each other, complements to each other, or simply unrelated. Substitute goods can replace each other, and so a price decrease in one product will most likely lead to a decrease in demand for the other causing a shift to the left of its demand curve. For example, if Pizza Hut lowers their prices, many people will not want Domino’s pizza any more. Complement goods can be used together, so if the price of one good increases, the demand for the other will decrease causing a shift to the right. For example, if ice cream becomes more expensive, the demand for ice cream toppings will go down. Unrelated goods have no effect upon the demand of the other. If the price of light bulbs goes up, the demand for paper clips will not change.
Tastes and preferences of consumers is another determinant of demand that is very difficult to model. Still, it is known that an increase in preference for one product will lead to its demand curve to shift to the right and vice versa. Another determinant is the size of the population. As the size of the population grows, the demand for most products will also grow, hence a shift to the right of the demand curves. This relationship is similar for changes in age structure of the population. If there is an increase in percentage of babies, the demand for carriages would increase (a shift to the right of its demand curve) while the demand for wheelchairs for the elderly may decrease (a shift to the left). When there are changes in the income distribution where the poor become better off and the rich a bit worse off, there may be an increase in demand for basic goods causing a shift to the right of their demand curves. Government policy changes also have an effect on some products’ demand curves. For example, if taxes go up people will not have as much money to spend. The last determinant is seasonal changes. If summers become longer and winters shorter, there will be a fall in demand of coats and jackets and an increase in demand for shorts and t-shirts.
If the demand for bicycles increases, it is possible there could have been a drop in prices or an increase in popularity of bikes. Let’s say there is a choice between roller blades and bikes, and the price of roller blades sky rockets. That would mean the demand for bicycles, the substitute good, would increase because roller-blades are too expensive. The graph below shows the demand curve of bicycles in this situation. The curve shifts to the right while there would be just a movement along the demand curve for roller blades.
If bicycles become more popular due to the consumers’ tastes and preferences, the demand curve will also shift to the right. This is because people now prefer bikes and they are demanding more at every price. The graph below shows how the demand curve would shift whether the people are in favor or not in favor of the good, but in this case the people are in favor of bicycles so the demand curve would shift to the right.
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