Example - shifts and movements along a demand curveSyllabus: 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.
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*.
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)
(b) The market price of the product rises to P2. (change in the goodīs own price - Po)
(c) The price of a substitute good is reduced. (change in the price of other goods - Pz)
(d) The price of a good falls from P1 to P2. (Po)
(e) The real incomes of the buyers of this desirable product increase significantly. (Y)
(f) There is an increase in the population size and the size of the potential market. (P)
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?