The Demand Curve4
Movement along the demand curve:5
Difference between movement or shifts along the demand curve6
Shifts in the demand curve:6
Factors that causes the demand curve to shift8
Price of the good:8
Price of related goods:8
Individual taste and preferences:9
Law of supply9
Movement along and shifts in supply curve10
Movement along the supply curve11
Shifts in the supply curve11
Factors that causes the supply curve to shift13
Price of the product:13
Resource supplies and production costs:13
Tax or subsidy:13
Expectations of prices in future:14
Price of other goods:14
Number of producers in the market:14
The market is an amazing instrument, it enables people who have never met and who know nothing about each other to interact and do business. Supply & demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy.
Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.
Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The connection between price and how much of a good or service is supplied to the market is known as the supply relationship.
In this report we will see analyze the factors that causes the demand and supply curve to shift and what causes movements along both these curves.
Both the supply curve and the demand curve can experience movements and shifts cause by price and other external factors that will be discussed below.
The Demand Curve
The above figure shows the demand relationship with the help of the demand curve. We can see that at point A when the price is highest at P1 quantity demanded is lowest at Q1. As price decreases from P1 to P2 and P3, the quantity demanded increases to Q2 and Q3 respectively as shown at the point B and C. The graph illustrates the demand relationship that explains that as P increases the demand at points (A, B and C) in the market decreases hence the Q decreases. This demonstrates a downward slope. We know that, the quantity demanded of a good usually is a strong function of its price. Demand is illustrated by the demand curve and the demand schedule. The term quantity demanded refers to a point on a demand curve. (O'Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall)
Movement along the demand curve:
A movement along a demand curve is defined as a change in the quantity demanded due to changes in the price of a good will result in a movement along the demand curve. For instance, a fall in the price of apples from P1 to P2 causes an increase in the quantity demanded from Q1 to Q2. http://www.bized.co.uk/virtual/vla/theories
In other words, a movement occurs when a change in the quantity demanded is caused only by a change in price, and vice versa.
Difference between movement or shifts along the demand curve
Changes in demand for a commodity can be shown through the demand curve in two ways namely:
-Movement along the demand curve.
-Shifts of the demand curve.
The change in the demand of a commodity due to change in its price leads to moving the demand curve upward or downward depending upon the change in price. When the price rises, the demand falls. And when the price falls the demand for that commodity rises leading to movement in the demand curve. Shift in the demand curve...