Movement and Shifts in Demand

Change in quantity demanded due to a change in price is called as a movement along a demand curve. It measures the effect of a change in price while other factors influencing demand are taken as constant. In Fig a decrease in price from P to P₂. leads to an expansion of quantity demanded from Q to Q₂ and an increase in price to P₁ results in contraction of demand to Q₁. 

Changes in non-price determinants (price remaining constant) result in changes in demand, that is, shift in the demand. In the Fig. 3.4 (b) the demand, curve shifts to the right from D to D₁. with an increase in demand. An increase in income, rise in price of substitutes, increase in population" decrease in price of complements, change in tastes in favour of a good and advertising increase the demand of a good. Leftwards shift in the demand curve from D to D₂ indicates a decrease in demand. This is due to a decrease in income, a fall in price of substitutes, decrease in prime population, a rise in price of complements and change in tastes against the good.

A comparison between the two concepts is done in Fig 3.5. The increase in quantity demanded from OQ to OQ₁ can be attributed to (a) a decrease in price from P to P₁ along the demand curve D₁ and (b) an increase in demand due to a shift in demand from D₁ to D₂. In the second case, the price is constant at P while other factors like increase in income, increase in prime population etc., lead to an upward shift in demand curve. 

In the former case demand expands by partly foregoing some amount of revenue (since TR = P × Q). On the other hand, shift in demand leads only to an increase in revenue. But it should be noted that, increase in demand due to advertising and sales promotion techniques is possible only with additional cost. Managers should try to increase demand with the latter method by taking additional cost into account. 

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