Does a change in price lead to a movement along the demand curve or to a shift in the demand curve Explain your answers with the help of graph?

A graphical representation of how many units of a good or service will be purchased at each possible price

What is a Demand Curve?

The demand curve is a line graph utilized in economics, that shows how many units of a good or service will be purchased at various prices. The price is plotted on the vertical (Y) axis while the quantity is plotted on the horizontal (X) axis.

Demand curves are used to determine the relationship between price and quantity, and follow the law of demand, which states that the quantity demanded will decrease as the price increases. In addition, demand curves are commonly combined with supply curves to determine the equilibrium price and equilibrium quantity of the market.

Does a change in price lead to a movement along the demand curve or to a shift in the demand curve Explain your answers with the help of graph?

Drawing a Demand Curve

The demand curve is based on the demand schedule. The demand schedule shows exactly how many units of a good or service will be purchased at various price points.

For example, below is the demand schedule for high-quality organic bread:

Does a change in price lead to a movement along the demand curve or to a shift in the demand curve Explain your answers with the help of graph?

It is important to note that as the price decreases, the quantity demanded increases. The relationship follows the law of demand. Intuitively, if the price for a good or service is lower, there is a higher demand for it.

From the demand schedule above, the graph can be created:

Does a change in price lead to a movement along the demand curve or to a shift in the demand curve Explain your answers with the help of graph?

Through the demand curve, the relationship between price and quantity demanded is clearly illustrated. As the price for notebooks decreases, the demand for notebooks increases.

Shifts in the Curve

Shifts in the demand curve are strictly affected by consumer interest. Several factors can lead to a shift in the curve, for example:

1. Changes in income levels

If the good is a normal good, higher income levels lead to an outward shift of the demand curve while lower income levels lead to an inward shift. When income is increased, the demand for normal goods or services will increase.

2. Changes in the market’s size

A growing market results in an outward shift of the demand curve while a shrinking market results in an inward shift. A larger market size results from more consumers. Therefore, the demand (due to more consumers) will increase.

3. Changes in the price of related goods and services

When the price of complementary goods decreases, the demand curve will shift outwards. Alternatively, if the price of complementary goods increases, the curve will shift inwards. The opposite is true for substitute goods. For example, if the price for peanut butter goes down significantly, the demand for its complementary good – jelly – increases.

Example of a Shift in the Demand Curve

Recall the demand schedule for high-quality organic bread:

Does a change in price lead to a movement along the demand curve or to a shift in the demand curve Explain your answers with the help of graph?

Assume that the price of a complementary good – peanut butter – decreases. How would this affect the demand curve for high-quality organic bread?

Since peanut butter is a complementary good to high-quality organic bread, a decrease in the price of peanut butter would increase the quantity demanded of high-quality organic bread. When consumers buy peanut butter, organic bread is also bought (hence, complementary). If the price of peanut butter decreases, then more consumers purchase peanut butter. Therefore, consumers would also purchase more high-quality organic bread as it is a complement to peanut butter.

Does a change in price lead to a movement along the demand curve or to a shift in the demand curve Explain your answers with the help of graph?

Does a change in price lead to a movement along the demand curve or to a shift in the demand curve Explain your answers with the help of graph?

We can see from the chart above that a decrease in the price of a complementary good would increase the quantity demanded of high-quality organic bread.

Movements Along the Demand Curve

Changes in price cause movements along the demand curve. Following the original demand schedule for high-quality organic bread, assume the price is set at P = $6. At this price, the quantity demanded would be 2000.

Does a change in price lead to a movement along the demand curve or to a shift in the demand curve Explain your answers with the help of graph?

If the price were to change from P = $6 to P = $4, it would cause a movement along the demand curve, as the new quantity demanded would be 3000.

Does a change in price lead to a movement along the demand curve or to a shift in the demand curve Explain your answers with the help of graph?

Other Resources

CFI is a leading provider of financial certifications and analyst training. To continue learning and advancing your career, these additional CFI resources will be helpful:

  • Free Economics for Capital Markets Course
  • Law of Supply
  • Invisible Hand
  • Economies of Scale
  • Consumer Surplus Formula

Does a price of change lead to a movement along the demand curve or a shift in the demand curve?

A change in the price of a good or service causes a movement along a specific demand curve, and it typically leads to some change in the quantity demanded, but it does not shift the demand curve.

Does a change in price lead to a movement along the demand curve or a shift in the demand curve quizlet?

A movement along the demand curve is caused by a change in PRICE of the good or service. A shift in the demand curve is caused by a change in any non-price determinant of demand. The curve can shift to the right or left. the tendency for the quantity supplied of a good in a market to increase as its price rises.

Does price cause movement along the demand curve?

When the price of a product changes it will result in a movement along either a demand or supply curve.

How does a change in price affect the demand curve?

If the price goes up, the quantity demanded goes down (but demand itself stays the same). If the price decreases, quantity demanded increases. This is the Law of Demand. On a graph, an inverse relationship is represented by a downward sloping line from left to right.