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.

Change in demand indicates that 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

 


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