The difference between a movement and a shift in the demand curve lies in the causing factors. The first occurs due to changes in its price. The second occurs due to changes in non-price factors such as consumer income, future price expectations, or consumer tastes and preferences.
Movement occurs along a curve, where quantity moves up and down on the same demand curve. On the other hand, a shift causes the curve to change position either to the right or to the left, changing any combination of price and quantity.
How to distinguish between a movement and a shift in the demand curve?
We can see the difference between a movement and a shift in the demand curve in three aspects:
- Causing factors
- Use of the term “change in quantity demanded” vs. “change in demand.”
- Change in price and quantity combination
Let’s discuss it one by one. And, in the end, I’ll also detail the various factors causing the demand curve to shift in separate subheadings.
Movements along the demand curve occur because the price of a good we are studying changes. As per the law of demand, quantity demanded is inversely proportional to price. An increase in price decreases the quantity demanded. Conversely, a decrease in price increases the quantity demanded.
Meanwhile, changes in non-price factors shift the demand curve to the right or to the left. An increase in demand shifts the curve to the right. The quantity increases for any given price level.
Meanwhile, a decrease in demand shifts the curve to the left. As a result, quantity decreases for any given price level.
Non-price factors can be consumer income. Other factors are the prices of related goods (substitutes and complementary goods), consumer tastes and preferences, and the number of consumers.
Use of the term “change in quantity demanded” vs. “change in demand.”
We use the term “change in quantity demanded” to denote the effect of a price change. Thus, an increase (decrease) in price causes the quantity demanded to decrease (increase) and occurs along the same curve.
Meanwhile, “changes in demand” occurred due to non-price factors. Take consumer income, for example. We say “a change in income causes a change in demand,” not the quantity demanded. And, these changes cause the curve to shift to the right or to the left.
Change in price and quantity combination
A change along the demand curve does not change the quantity for any given price level. Whenever the price of a good change, ceteris paribus, the quantity also changes, moving along the same demand curve. An increase in price causes the quantity demanded to decrease and move to the upper left on the curve. Conversely, if the price falls, the quantity demanded rises and moves to the lower right of the curve.
On the curve above, if the price falls from $30 to $24, the quantity demanded increases from 9 to 12 units. Thus, the combination of price and quantity moves from point A to point B along curve D1. However, because it occurs on the same curve, it does not cause the combination of price and quantity at any other point to change.
Meanwhile, a curve shift occurs if it produces a new curve. For example, if demand decreases, the curve shifts to the left. Conversely, if demand increases, the curve shifts to the right.
Now, assume the consumer’s income goes up. As a result, the curve shifts to the right, from curve D1 to curve D2.
The shift causes the combination of price and quantity to change from before. That’s because a change in quantity occurs at all prices. For example, at $30, demand increases from 9 to 12 units (from point A to point C). Likewise, it applies to other points on the curve. For example, for $24, demand increases from 12 units to 15 units. And, at $6, it increased from 21 units to 24 units.
An increase in income results in higher demand. Consumers have more dollars to spend. So, they can buy more for each price level.
What are the causes of the demand curve shifting?
Non-price factors refer to factors other than the price of the product we are examining. It could be:
- Consumer income
- Tastes and preferences
- Future price expectations
- Prices of related products (substitute and complementary products)
- Number of consumers
All of the above factors cause the demand curve to shift.
Normal goods. An increase in income pushes the demand for them up, shifting the demand curve to the right. Because consumers have more money, they can buy more. Conversely, a decrease in income reduces their demand, shifting the demand curve to the left. Long story short, the demand for normal goods has a positive relationship with income.
Inferior goods. Their demand has a negative relationship with income. Thus, as consumers’ incomes increase, their demand falls, shifting the curve to the left. Conversely, when incomes decrease, their demand increases, shifting the demand curve to the right.
Tastes and preferences
Taste and preferences explain to us why consumers prefer certain products over alternatives. As their tastes or preferences for a product change, so does their demand.
In general, when consumers prefer a product over its alternatives, it increases its demand, shifting its demand curve to the right. Otherwise, it makes demand decrease and shifts the curve to the left.
For example, innovative and environmentally friendly products attract many consumers to buy them. Apart from being influenced by the company’s promotions, their launch is also in line with consumer values. Consumers increasingly care about their health and their environment more than ever before. It changes their perspective and consumption behavior. Thus, products such as organic food and electric vehicles are all gaining popularity as consumer tastes and preferences change.
Future price expectations
Some consumers consider future prices to make purchasing decisions, whether to buy now or later. Such expectations are not described in the demand curve because they only describe the current price. Thus, the change in expectations causes a change in demand and shifts the curve.
When consumers expect prices to rise in the future, they will buy the product now. By doing so, they can avoid paying higher prices in the future. As a result, such behavior shifts the demand curve to the right.
Conversely, when consumers anticipate future price declines, they delay purchases. As a result, demand falls, shifting the curve to the left.
Prices of related goods
Related goods can be substitute goods or complementary goods. Let’s take Coca-Cola and Pepsi as examples of substitute goods. Both replace each other and fulfill our common need, soft drinks. When the price of Pepsi rises, some consumers turn to Coca-Cola, increasing its demand and shifting the curve to the right. Meanwhile, Pepsi’s demand curve moves to the left as its demand decreases.
In contrast, an increase in the price of Coca-Cola caused some consumers to turn to Pepsi. Consequently, the demand for Pepsi increases and shifts its curve to the right. Meanwhile, Coca-Cola’s demand curve shifts to the left as its demand decreases.
Meanwhile, the two products complement each other if we use them together. Take, for example, a tire where the complement is a car. If the price of a car increases, the demand for tires falls and shifts the curve to the left.
Conversely, if the price of a car falls, the demand for tires increases and shifts the curve to the right. Thus, although the price of tires remains unchanged, the increase in the price of cars reduces their demand, reducing the demand for tires.
Future income expectation
Current spending is not only affected by current income. But, it is also affected by future income expectations.
When consumers expect their income to rise in the future, it stimulates them to increase current consumption. The demand for the good increases and shifts the curve to the right. Such situations usually last as long as the economy is prosperous.
On the other hand, consumers will save more during a gloomy period, such as a recession. This is because they expect their income to be depressed in the future. Thus, although prices generally fall, they do not necessarily increase consumption. Instead, they consume less and save more. As a result, their demand decreases, shifting the curve to the left.
Number of consumers
This factor only applies to market demand, not individual demand. Thus, more consumers mean more demand for the product, shifting the curve to the right.
Conversely, fewer consumers mean less demand, shifting the curve to the left. When it comes to the product life cycle, this situation occurs at the decline stage. The number of consumers decreases as substitute products appear and divert consumer purchases.
What to read next
- Demand Curve: Types, How to Draw It From a Demand Function
- Reasons For a Downward-Sloping Demand Curve
- What is the difference between a movement and a shift in the demand curve?
- What is the Law of Demand? How does it work?
- Three Assumptions Underlying the Law of Demand
- What Are the Five Exceptions to the Law of Demand?
- What is the difference between a change in demand and a change in quantity demanded?
- Individual Demand: Definition, Its Curve, Determinants
- Market Demand: Definition, How to Calculate, Determinants
- What are the six non-price determinants of demand? Examples.
- What Are The Types of Demand?
- Demand in Economics: Meaning and Determinants