What Is The Difference Between A Shift Along A Demand Curve And A Shift Of A Demand Curve
What is the difference between a movement along and shift of the demand curve? Please discuss with reference to DVDs.
The basic difference between a move along a demand curve and a change in the curve is that the former is caused by a change in price while the latter is not. A move along the curve results in a different quantity demanded at a different price. A change in demand means that a different quantity will be demanded at a given price than was demanded before the change in demand occurred.
Let us look at this with regard to the DVD of a particular movie. Let us say the price is now $15. But then the price drops to $10. All other things being equal, more people will buy the DVD at the lower price. This is a movement along a given demand curve. There has been no change in how many people would buy the DVD at $15. Instead, the price has changed, causing a change in how many people will buy.
Now let us look at how the curve could move. Let us say the DVD is selling for $15 but then the star of the movie commits a ghastly crime in real life. His popularity plummets and many fewer people want to buy the movie. In this case the price can remain at $15 but many fewer people will buy the DVD. This is an instance in which the demand has actually changed.
The difference between a movement along a demand curve and a shift of demand curve is in why thy occur. A movement along the demand curve is a simple change in the price of the good. For example if a DVD costs $1 and then drops to $0.50, the point on the curve has now moved towards the lower right. Shifts in the demand curve are caused by 5 things:
-Change in the price of related goods; the price of related goods affects the demand for a certain product. There are two types of related goods, substiture and complementary goods. For example, if the price of Blu-ray discs rose, assuming that DVD's and Blu-ray discs can substitute eachother, the demand for DVD would increase because less people will want to buy the more expensive Blu-ray discs. Another example, if the price of dvd players rose, the demand for DVDs would fall because it now costs more for consumers to use DVDs.
-Change in income of consumers; self-explanatory, if a consumer has more money, they will consume more. However, in the real world, consumers may lose income but still keep the same level of comsuption.
-Change in consumer expectations; also self-explanatory, if a newspaper reports that some DVDs may be faulty, the demand for DVDs will fall because consumers expect less.
-Change in consumer preferences; also self-explanatory, if consumers prefer Blu-ray discs to DVDs they will buy more BLu-ray discs and less DVDs.
-Change in the number of consumers; also self-explanatory, if there are more consumers, there will be more consumption and more demand.
Not to confuse you, but shifts in demand will cause shifts in the price level in a free market, no government or producers price floors or ceilings in place. An increase in demand will cause an increase in the price of the product
So in conclusion, movements along the curve are caused by changes in price while shifts are caused by the 5 reasons above.
Source: awesome knowledge of econ