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Demand Curve
The graphical representation of the
relationship between the demand of the commodity and price of the commodity, at
any given time, is known as the demand curve.
A demand curve can also be defined as the graphical
representation of a demand schedule. A demand schedule is a tabular statement
which represents the various quantity of the commodity that the consumers are
ready to buy at every different price, at any given time.
In a graph, the price of the commodity is represented in the
vertical axis (Y-axis) and the quantity demanded is represented on the
horizontal axis (X-axis). A commodity’s price and its demand share inverse
relationship. This means, higher the price of the commodity, lesser will be its
demand and lower the price, higher will be the demand. Therefore, in a graph,
demand curve makes a downward slope.
In the following figures, fig. I is an example of demand
schedule and fig. II is its graphical illustration (demand curve).
|
Fig.
I: Demand schedule |
|
|
Price of soda per bottle (in Rs.) |
Quantity (bottles) demanded per day (*1000) |
|
10 |
40 |
|
20 |
30 |
|
30 |
20 |
|
40 |
10 |
Fig. II: Demand curve
Movement along
a demand curve
It is caused by the change in price of the commodity, whilst
other things remaining same.
The amount of quantity demanded by the consumer changes with the
rise and fall in the price of the commodity if other determinants of demand
remain constant. This alternation in demand, when shown in the graph, is known
as movement along a demand curve.
Movement along a demand curve can also be understood as the
variation in quantity demanded of the commodity with the change in its price,
ceteris paribus.
There is no new demand curve is drawn.
There can be two types of movement in a demand curve – extension
and contraction.
Extension in a demand curve is caused when the demand for a
commodity rises due to fall in price. And, contraction in demand curve is
caused when the demand for a commodity falls due to rise in price.
In the above fig. II, let us suppose Rs. 30 is the original price
of the soda per bottle and 20,000 units are the original quantity of demand.
When the price falls from Rs. 30 to Rs. 20, the amount of quantity demanded
rises from 20,000 units to 30,000 units. With this change in demand, there is a
movement in the demand curve from point B to point C which is known as an
extension of the demand curve.
Similarly, when the price of the soda increases from Rs. 30 to Rs. 40, the demand for the soda falls from 20,000 units to 10,000 units. This time, there is a movement in the demand curve from point B to point A, and this movement is known as a contraction in the demand curve.
Shift in demand curve
The amount of commodity demanded by the consumers may change due
to the effect of non-price factors as well. Non-price factors which influence
demand for the commodity may be consumers’ income, the price of related goods,
advertisement, climate and weather, the expectation of rise or fall in price in
future, etc.
When the amount of commodity demanded changed due to non-price
factors, there is no extension or contraction in the curve but the formation of
the entirely new demand curve. As a result, demand curve shifts from its
original position.
For an example, the demand for cold drinks in the market may
increase substantially even at same price due to hot weather.
Fig. III: Shift in demand curve
The shift in demand curve is also of two types – rightward shift
and leftward shift.
When the demand for a commodity increases at
the same price due to favorable changes in non-price factors, the initial
demand curve shifts towards the right, and there is a rightward shift in the
demand curve. Similarly, when the demand for a commodity fails at same price
due to unfavorable changes in non-price factors, the initial demand curve
shifts towards left, and there is a leftward shift in the demand curve.
In the given fig. III, let us suppose, DD is
the initial demand curve where P is the original price and Q is the original
quantity of demand of a commodity. Due to favorable changes in non-price
factors, the demand for the commodity in the market has increased from Q to Q2 amount
at the same price. Thus, the demand curve has shifted rightwards and new demand
curve D2D2 has formed.
Similarly, due to unfavorable changes in
non-price factors, the demand for the commodity has fallen from Q to Q1 amount.
Thus, a new demand curve D1D1 has formed at the left
side of the initial curve.
Reasons for
rightward shift of curve
§ Increase
in consumers’ income
§ Increase
in price of its substitute goods
§ Decrease
in price of its complementary goods
§ Favorable
change in taste and preference
§ Expectation
of rise in price of the commodity in future
§ Increase
in population
Reasons for
leftward shift of curve
§ Decrease
in consumers’ income
§ Decrease
in price of its substitute goods
§ Increase
in price of its complementary goods
§ Unfavorable
changes in taste and preference
§ Expectation
of fall in price of the commodity in future
Adopted from: https://www.businesstopia.net/economics/micro/demand-curve-movement-shift
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