What is a demand curve?
The graphical representation of the relationship between the demand of the commodity and price of the commodity, at any given time, is known as the demand curve.
A demand curve can also be defined as the graphical representation of a demand schedule. A demand schedule is a tabular statement which represents the various quantity of the commodity that the consumers are ready to buy at every different price, at any given time.
In a graph, the price of the commodity is represented in the vertical axis (Y-axis) and the quantity demanded is represented on the horizontal axis (X-axis). A commodity’s price and its demand share inverse relationship. This means, higher the price of the commodity, lesser will be its demand and lower the price, higher will be the demand. Therefore, in a graph, demand curve makes a downward slope.
In the following figures, fig. I is an example of demand schedule and fig. II is its graphical illustration (demand curve).
|Fig. I: Demand schedule|
|Price of soda per bottle (in Rs.)||Quantity (bottles) demanded per day (*1000)|
Fig. II: Demand curve
Movement along a demand curve
The amount of quantity demanded by the consumer changes with the rise and fall in the price of the commodity if other determinants of demand remain constant. This alternation in demand, when shown in the graph, is known as movement along a demand curve.
Movement along a demand curve can also be understood as the variation in quantity demanded of the commodity with the change in its price, ceteris paribus.
There can be two types of movement in a demand curve – extension and contraction.
Extension in a demand curve is caused when the demand for a commodity rises due to fall in price. And, contraction in demand curve is caused when the demand for a commodity falls due to rise in price.
In the above fig. II, let us suppose Rs. 30 is the original price of the soda per bottle and 20,000 units are the original quantity of demand. When the price falls from Rs. 30 to Rs. 20, the amount of quantity demanded rises from 20,000 units to 30,000 units. With this change in demand, there is a movement in the demand curve from point B to point C which is known as an extension of the demand curve.
Similarly, when the price of the soda increases from Rs. 30 to Rs. 40, the demand for the soda falls from 20,000 units to 10,000 units. This time, there is a movement in the demand curve from point B to point A, and this movement is known as a contraction in the demand curve.
Shift in demand curve
The amount of commodity demanded by the consumers may change due to the effect of non-price factors as well. Non-price factors which influence demand for the commodity may be consumers’ income, the price of related goods, advertisement, climate and weather, the expectation of rise or fall in price in future, etc.
When the amount of commodity demanded changed due to non-price factors, there is no extension or contraction in the curve but the formation of the entirely new demand curve. As a result, demand curve shifts from its original position.
For an example, the demand for cold drinks in the market may increase substantially even at same price due to hot weather.
Fig. III: Shift in demand curve
The shift in demand curve is also of two types – rightward shift and leftward shift.
When the demand for a commodity increases at the same price due to favorable changes in non-price factors, the initial demand curve shifts towards the right, and there is a rightward shift in the demand curve. Similarly, when the demand for a commodity fails at same price due to unfavorable changes in non-price factors, the initial demand curve shifts towards left, and there is a leftward shift in the demand curve.
In the given fig. III, let us suppose, DD is the initial demand curve where P is the original price and Q is the original quantity of demand of a commodity. Due to favorable changes in non-price factors, the demand for the commodity in the market has increased from Q to Q2 amount at the same price. Thus, the demand curve has shifted rightwards and new demand curve D2D2 has formed.
Similarly, due to unfavorable changes in non-price factors, the demand for the commodity has fallen from Q to Q1 amount. Thus, a new demand curve D1D1 has formed at the left side of the initial curve.
Reasons for rightward shift of curve
- Increase in consumers’ income
- Increase in price of its substitute goods
- Decrease in price of its complementary goods
- Favorable change in taste and preference
- Expectation of rise in price of the commodity in future
- Increase in population
Reasons for leftward shift of curve
- Decrease in consumers’ income
- Decrease in price of its substitute goods
- Increase in price of its complementary goods
- Unfavorable changes in taste and preference
- Expectation of fall in price of the commodity in future
- Decrease in population