A movement along a demand curve is caused by the product’s own price changing. A shift is caused by something else changing while the price stays where it was.
This lesson sits inside price mechanism with more than one change, which is part of demand and supply. The lesson uses one fictional product so that only the cause changes.
How do you decide which one it is?
Ask two questions in order. First: what changed? Second: is that thing the price of this same product?
If the price of this product is the change, it is a movement along the curve. If the change is anything else, such as income, taste or the price of another product, the curve itself shifts.
Worked example: one product, two situations
A fictional shop in a town sells reusable steel water bottles. The demand schedule is below.
| Price per bottle | Quantity demanded per week |
|---|---|
| RM10 | 80 |
| RM12 | 60 |
| RM14 | 40 |
Situation A. The shop raises the price from RM10 to RM12. Nothing else in the town has changed.
The question “what changed?” gives the price of the bottles themselves. So this is a movement along the same demand curve, from 80 to 60 bottles. The fall of 20 bottles is a contraction in demand, not a decrease in demand.
Situation B. The price stays at RM10, but the town council runs a school campaign against plastic bottles. At RM10, buyers now want 100 bottles instead of 80.
The price did not change. Something else changed buyers’ tastes. So the whole curve shifts to the right, and at every price buyers want 20 more bottles. This is an increase in demand.
| Situation A | Situation B | |
|---|---|---|
| What changed | Own price, RM10 to RM12 | Tastes, because of a campaign |
| Curve | Same curve | New curve, shifted right |
| Term | Contraction in demand | Increase in demand |
| Quantity at RM10 | 80 (unchanged) | 100 |
The mistake that costs marks
A common answer to Situation A is “demand decreases because the price rises”. The arithmetic is right, but the term is wrong, and the diagram then shows the curve shifting left, which is also wrong.
A better answer says that the higher price reduces the quantity demanded, which is a movement up the demand curve to a smaller quantity. The curve itself stays where it is, because the buyers’ tastes and incomes are unchanged.
The word “demand” names the whole curve. The phrase “quantity demanded” names one point on it. Keeping those two apart removes most of the confusion.
Steps to use in a question
- Underline the thing that changes in the situation.
- Write the product it belongs to.
- If it is the price of the product the question asks about, choose movement along the curve.
- If it is another determinant, choose a shift and decide the direction: more demanded at every price is right, less is left.
- Only then draw or describe the arrow.
Check yourself
Using the same bottle schedule, a school lowers the price of bottles in its co-op from RM14 to RM10 by using a bulk purchase. Separately, the town’s average income falls and buyers want 10 fewer bottles at every price. Name the change in each case and give the quantities demanded at RM10 and RM14 before and after.
Answer
The bulk purchase lowers the price of the same product, so it is a movement along the curve (an extension in demand): quantity demanded goes from 40 at RM14 to 80 at RM10.
The fall in income changes a determinant, so demand shifts left (a decrease in demand). At every price, 10 fewer are demanded: 70 at RM10 instead of 80, 50 at RM12 instead of 60 and 30 at RM14 instead of 40.
The two are separate events. The first does not change the schedule. The second does.
What to study next
The next skill is to link each stated cause to the correct curve, using linking a stated determinant to the correct curve before drawing an arrow. Test yourself with the supply-demand diagram reasoning explorer.
If a teacher checking your wording would help, see online one-to-one Economics tuition.