Reference no: EM131198470

Changes in price dictate movements along demand curves. When a decrease in demand or the quality demanded occurs it’s a safe bet that its correlated to a price increase, which in turn leads to a resultant surplus of that particular commodity in the marketplace because decreased demand means less of that commodity being sold. On the other hand, a price decrease usually leads to an increase in the demand for a particular commodity, or an increase in sales, which in turn leads to a shortage of that commodity in the marketplace.

To shift the demand curve itself, changes need to occur in other aspects of the market beyond simply a change in the price of a commodity. For example, an increase in incomes mean the consumers have more disposable income. With more disposable income, demand for commodities will increase, and results in a shift of the demand curve itself. In this example the demand curve would shift right. On the opposite side of the coin, cost increases due to production or losses in efficiency may decrease the side of supply, shifting the demand curve to the left.

Analogous to shifts in the demand curve, shifts along a supply curve occur when prices change as well. When the cost to produce a commodity increases, supply drops and the supply curve shifts to the left. If the cost of production drops, and supply increases, the supply curve shifts to the right as demand develops.

Pharmaceutical supply and demand is an easy way to understand these concepts.

Drug demand increases: Price decrease, supplies decrease.

Drug demand decreases: Price increase, supplies increase.

Drug supply increases: Production costs drop, demand drops.

Drug supply decreases: Production costs increase, demand increases.

"But where and how do movements and shifts occur in the above?"