Change in Demand / Shifts in Demand curve

-

 

 Learning Contents:                                                            

·            Increase in  Demand

·            Decrease in  Demand  

Introduction

As studied in previous post related to the determinants of demand that states, it is not only the price which cause changes in the demand for the commodity but in the real world there also exist other factors such as the income of the consumer, price of related goods, taste and preferences of the consumer, etc. that affect  the demand for the commodity.

Demand for a commodity changes due to change in other factors keeping the price constant. In other words, when demand for commodity increases or decreases due to change in other factors or determinants of demand, other than the own price of the commodity is called as 'shifts in the demand curve'.

Shifts in the demand curve are also known as change in demand. Such shifts in the demand curve may be either increase in demand (rightward/ Forward shift) or decrease in demand (Leftward/Backward shift).Hence,, the shifts in demand are classified into two types:

1. Increase in Demand:

When demand for commodity increases due to change in other factors keeping the price constant is called an increase in demand. It is a situation where a consumer purchases more commodity at the same price. An increase in demand is indicated by a rightward or forward shift in the demand curve.

Causes of Increase in demand

(Factors leading to a rightward or forward shift in Demand Curve)

1.      Increased income of the consumer.

2.      Price of substitute goods increases.

3.      Price of complementary goods falls

4.      When consumer develops positive or favorable tastes and preferences for a commodity.

5.      When price of a commodity is expected to rise in the future.


                   Table 1.1-Increase in Demand

Price

(₹)

 

Quantity

Demand

(Units)

20

30

20

40

                  Figure 1.1- Increase in Demand


Explanation:

From the above table 1.1, we see that when the price of the commodity is ₹ 20, the consumer initially purchases its 30 units. Further, the consumer also increases the consumption of the commodity and buys now 40 units of it at the same price i.e. ₹ 20. It might be due to an increase in the consumer’s income, favorable taste and preferences for a commodity, or other such factors. Looking at figure 1.1 shows an increase in demand; D1 is the initial demand curve shows the quantity demand is 30 units when the price of a commodity is ₹ 20. Further, the demand curve shifts rightward from D1 to D2 shows 40 units of a commodity are now purchased at the same price. Therefore, an increase in demand is indicated by a rightward or forward shift in the demand curve From D1 to D2.

 

2. Decrease in Demand:

When demand for a commodity decreases due to the change in other factors keeping the price constant is called a decrease in demand. It is a situation where a consumer purchases less commodity at the same price. Decrease in demand is indicated by a leftward or backward shift in demand curve.

Causes of Decrease in Demand

(Factors leading to a leftward or backward shift in Demand Curve)

1.      Decreased income of the consumer.

2.      Price of substitute goods decreases.

3.      Price of complementary goods rises.

4.      When consumer develops negative or unfavorable taste and preferences for a commodity.

5.      When price of a commodity is expected to fall in the future.

                  Table 1.2-Decrease in Demand

Price

(₹)

 

Quantity

Demand

(Units)

20

40

20

30

             
             Figure  1.2-Decrease in Demand




Explanation:

From the above table 1.2, we see that when the price of a commodity is ₹ 20, the consumer initially purchases its 40 units. Further, consumer decreases the consumption of the commodity and buys 30 units of it at the same price i.e. ₹ 20. It might be due to fall in the consumer’s income, unfavorable taste, and preferences for a commodity, or other such factors. Looking at figure 1.2 shows the decrease in demand; D1 is the initial demand curve that shows the initial quantity demand of 40 units when the price of a commodity is ₹ 20. Further, the demand curve shifts leftward from D1 to D2 showing 30 units of a commodity are now purchased at the same price. Therefore, a decrease in demand is indicated by a backward or leftward shift in the demand curve from D1 to D2.


Topic Review:

Multiple choice questions based on the above topic

(Choose the correct answer)

1. Shift in demand curve means:

a. fall in demand due to rise in own price of the commodity.

b. rise in demand due to fall in own price of the commodity.

c. change in demand due to factors other than own price of the commodity.

d. none of these.

2. Increase in quantity demanded is, graphically, represented by:

a. A leftward shift in the demand curve.

b. A rightward shift in the demand curve.

c. A movement up and to the left along a demand curve.

d. A movement down and to the right along a demand curve.

 

3. Which of the following will not decrease the demand for a commodity?

a. Price of a substitute decreases.

b. Price of complementary goods increases.

c. Commodity’s price increases.

d. Income falls and the good is normal.

4. When we say demand increases, we mean that there is a

a. movement to the right along a demand curve.

b. movement to the left along a demand curve.

c. leftward shift of the demand curve.

d. rightward shift of the demand curve.

5. Which of the following are the reasons of forward shift in demand curve?

 a. Increase in income of the consumer.

 b. Increase in the price of substitutes.

c. Decrease in the price of complementary goods.

d. All of these.

 

6. Decrease in quantity demanded is, graphically, represented by:

a. A leftward shift in the demand curve.

b. A rightward shift in the demand curve.

c. A movement up and to the left along a demand curve.

d. A movement down and to the right along a demand curve.

7. The demand curve shifts its location because of

a. Change in taste and preferences of the consumer

b. Change in the income of the consumer

c. Change in the price of related goods

d. All the above

              

                                    Answer Key

1.c

2.b

3.c

4.d

5.d

6. a

7. d

 


Thanks & please share with your friends  

Comment if you have any questions.


Comments

Post a Comment

Popular posts from this blog

SHIFTS & ROTATIONS IN PRODUCTION POSSIBILITY CURVE

-
Image
    Learning Contents:                                                                Shifts   in   PPC  Rotations in PPC Change in Production Possibility Curve (Shifting/Rotation) The change in the Production Possibility curve can be of two types:  Shift in PPC: PPC will shift when there is a change in productive capacity (resources or technology) with respect to both the goods. Rotation of PPC: PPC will rotate when there is a change in productive capacity (resources or technology) with respect to only one good. Shifts in PPC:   The shift in PPC can either be rightward or backward. These shifts bring about a change in the production of both goods in an economy. The shifts in PPC are of two types: Rightward shift in PPC: Rightward shift in PPC occurs when the resources are increased or technology is improved for the production of both goods that means we can produce more of both the goods. Accordingly, PPC shifts to the right from Initial PPC (AB) to Final PPC (CD).   Re
Read more »500

Income Elasticity: Luxury Goods, Necessity Goods, and Inferior Goods.

-
Image
  Learning Contents:                                                               ·         Understanding Income Elasticity with respect of luxury goods, necessity goods and inferior goods. The demand for a commodity not only depends on the price of a commodity but also the income level of the consumer. It is a general understanding that a consumer usually prefers to spend more when his income rises and less when his income falls. Sometimes, we might also experience a fall in the demand of certain goods and services even when income rises. Therefore, income elasticity varies with respect to different types of goods and services. The income elasticity measures the percentage change in quantity demanded as a result of percentage change in the income of the consumer. The formula of income elasticity of demand is, The income elasticity measures the demand’s sensitivity or responsiveness to the change in income.   In simple words, it measures to what extent demand changes as a result o
Read more »500

CONSUMER’S PREFERENCES AND INDIFFERENCE MAP

-
Image
    Learning Contents:                                                               ·          Understanding Consumer preferences and Indifference curve. ·          Understanding Indifference Map. Introduction: The concept of the indifference map is based upon the concept of consumer preferences. So, it is important to first understand the concept of consumer preferences. Consumer’s Preferences: Preferences indicate individual tastes, likings, etc. that determine the amount of pleasure, happiness people get from the consumption of the goods and services and measured by the utility of various bundles or combinations of goods. It allows the consumers to rank these bundles of goods according to the levels of utility it provides them. Note that preferences are independent of income and prices. The ability to purchase goods does not determine a consumer’s likes or dislikes. One can have a preference for Rolex watches over Titan but only have the financial means to wear a titan
Read more »500