Shifts in the demand curve
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The demand curve is drawn on the assumption that only price has changed and everything else has remained the same. This is an important assumption to note. In reality many factors are changing at the same time, but if we are to analyse the factors causing a change in the market, we first need to isolate each of the factors. This assumption, known as 'ceteris paribus' or 'other things being equal' enables us to do this.
Having completed this session you should know and understand that:
1. Effective demand is the quantity of a good that would be bought at each and every price over a period of time.
2. It combines the desire for the good with an ability and willingness to pay for it.
3. Demand has several determinants, e.g. own price, price of other goods, real income, changes in tastes and fashion, season and population.
4. A change in price results in a movement along an existing demand curve.
5. A change in any other factor, apart from price, will cause the entire demand curve to shift.