Demand curve and its movements

The determinants of demand

It is fairly obvious so far that the price of a good is a pretty strong determinant of its demand, but there are many other things that will affect demand too.

·        Real income.

·        The price of other goods.

·        Tastes and preferences.  Changing preferences will affect your demand for product regardless of its price.

·        Expectations of future prices.

·        Advertising.

·        Population.

·        Interest rates and credit conditions.

Movements along a demand curve

It is very important that you understand the difference shifts of and movements along demand curves. Examiners often test your understanding of this point in multiple-choice questions.

A movement along a demand curve only occurs when there is a change in the price of the good in question. Some textbooks call these movements extensions and contractions. In the diagram below (note that it is a straight-line sketch), when the price falls (from P2 to P1) there is a rise in demand (from Q2 to Q1), ceteris paribus.  When the price rises (from P₁ to P2) there is a fall in demand (from Q₁ to Q2), ceteris paribus. The movement along the curve is from point B to point C.