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Table of Contents

  1. Topic pack - Microeconomics - introduction
  2. 1.1 Competitive Markets: Demand and Supply
  3. 1.1 Competitive Markets: Demand and Supply - notes
    1. The nature of markets
    2. Types of markets
    3. Market structure
    4. Spectrum of competition
    5. Demand
    6. The law of demand
    7. Individual and market demand
    8. Non-price determinants of demand
    9. Movements along the demand curve
    10. Shifts in the demand curve
    11. Example - shifts and movements along a demand curve
    12. Exceptions to the normal law of demand
    13. Linear demand functions
    14. Linear demand functions - example
    15. The law of supply
    16. Non-price determinants of supply
    17. Movements along the supply curve
    18. Shifts in the supply curve
    19. Shifts and moves of supply curve
    20. The real supply curve?
    21. Linear supply functions
    22. Linear supply functions - example
    23. Market equilibrium
    24. Market equilibrium - notes
    25. Excess demand and excess supply
    26. Example 1 - the market for DVD players
    27. Example 2 - the market for fish
    28. Applications of demand and supply
    29. Calculating market equilibrium
    30. Calculating equilibrium - example
    31. Scarcity and choice
    32. Choice and opportunity cost
    33. Price signalling
    34. Market efficiency - consumer surplus
    35. Market efficiency - producer surplus
    36. Allocative efficiency
  4. 1.1 Competitive markets - questions
  5. 1.1 Competitive markets - simulations and activities
  6. 1.2 Elasticities
  7. 1.2 Elasticities - notes
  8. Section 1.2 Elasticities - questions
  9. Section 1.2 Elasticities - simulations and activities
  10. 1.3 Government intervention
  11. 1.3 Government Intervention - notes
  12. 1.3 Government intervention - questions
  13. 1.3 Government intervention - simulations and activities
  14. 1.4 Market failure
  15. 1.4 Market failure - notes
  16. Section 1.4 Market failure - questions
  17. Section 1.4 Market failure - simulations and activities
  18. 1.5 Theory of the firm
  19. 1.5 Theory of the firm - notes (HL only)
  20. Section 1.5 Theory of the firm - questions
  21. Section 1.5 Theory of the firm - simulations and activities
  22. Print View

Example - shifts and movements along a demand curve

Syllabus: Distinguish between movements along the demand curve and shifts of the demand
• 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.

Letīs 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 start 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 - T)

Answer - change (a)

(b) The market price of the product rises to P2. (change in the goodīs 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 real 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?