Page 28 - DECO101_MICRO_ECONOMICS_ENGLISH

Unit 2: Demand Analysis

Notes
Figure 2.3: Movement along a Demand Curve
P
D

Q 3
P 3
Q
1
P 1
Price
Q 2
P 2
D
Q
D 1 D 2
Quantity

Example: You must have noticed the increase in demand for cold drinks during the
month of summer. This leads to an increase in price cold drinks. This action is followed by
reports that the rising price of typical consumer’s purchases of cold drinks. They have switched
to cheaper substitutes. The two actions appear contradictory and they refer to different things.

The first describes a shift in the demand curve, the second refers to a movement along a demand
curve in response to a change in price.
An increase in price of cold drinks has been caused by an increased demand for cold drinks. This
is shift in demand curve for cold drinks. The demand curve shifts to the right indicating more
cold drinks demanded at each price. Next, less cold drinks are being bought because they have
become more expensive. This refers to a movement along a given demand curve and refl ects
a change between two specifi c quantities being bought, one before the price rise and one after
it. Some important factors that cause a shift in the demand curve need to be discussed here the
general rule for the shift in the demand curve is “Any change will shift the demand curve to the
right if it increase the amount that households wish to buy, other things remaining equal. It will
shift the demand curve to the left if it decreases the amount that households wish to buy, other
things remaining constant or equal.”
1. A Change in testes in favour of a product shift the demand curve to the right that households
with to buy, other. More will be demanded at each price.

2. Goods that can be used in place of another good are called SUBSTITUTES, e.g., a bus ride
substitutes for a train ride, ball pens for fountain pens. A rise in the price of substitutes for
a product shifts the demand curve for the product to the right. More will be demanded at
each price.
3. Complements are products that tend to be used jointly, e.g., cars and gasoline, hamburgers
and french fires, tapes and tape players. Complementary goods are consumed together,

so a price fall in one will increase the demand for both products. A fall in price of one will
shift the products demand curve to the right. More will be demanded at each price.
4. A change in the distribution of income will case an increase in demand for products
brought most by households whose incomes increase and a decrease in the demand for
products bought most by households whose incomes decrease.
5. Household’s tastes and preferences in favour of product shift the demand curve to the
right. More will be demanded at each price.

6. Rise in consumer’s income shifts the demand curve to the right.

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