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Fundamentals of Microeconomics >

Movement and Shift in the Demand Curve

Movement and Shift in the Demand Curve

In this lesson, we look into the exciting world of demand curves. It's not that scary at all. Actually, it's going to be a lot of fun when we make the point with a metaphor in which we go out, put up the lemonade stand, and head out into a sweltering summer day, ready to get started!

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Suppose, for example, that you begin to sell your lemonade at $2 a glass. Business is okay but nothing special. So you lower the price to $1. And all of a sudden, everyone and their dog wants to buy your lemonade. It’s a lemonade central! Now here's the amazing thing: not one blessed thing about your fantastic lemonade or the people buying it changed. Not a thing changed, except the price. It's almost as if you're careening down a waterslide, with the water now lemonade, and splashing down at some new place on your demand curve.

This sensational marvel where there is an increase in quantity demanded of your lemonade due to the change in price is what we call movement along the demand curve.

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But let's say you get greedy and jack up the price to $3. Now fewer people want your overpriced lemonade. This time, you move up the curve to a point where the price is higher but fewer are buying.

Remember, as we move along the curve, we are holding everything else constant. Economists refer to this as ceteris paribus which is just a fancy way of saying all other things being equal.

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Shifting the Curve: When Life Gives You Lemons. or Takes Them Away

Now this is just a slight twist. Suppose news came out that lemonade was the new superfood. Actually, let's be honest, it means you could get a superpower by drinking it. Anyway, now everybody wants lemonade at any price! You don't just move along your curve; instead, the whole curve shifts right, as demand increased at all prices.

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What if, however, a rumor starts to spread that your lemonade causes teeth to fall out? Yikes! Even while keeping prices the same, people will demand less and less lemonade at every price. The whole curve shifts to the left. Bummer!

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What Else Can Shift the Curve?

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There is the possibility of your demand curve doing the cha-cha for many shapes.
 

  • The residents of your city suddenly all receive pay raises. People at every income level are more willing to pay for more lemonade. The demand curve for lemonade, therefore, shifts to the right. Shift out along the curve. But what happens if a recession takes place? A shift to the left, baby.​

  • Remember the big bubble tea craze? If everybody in town says it is time to drink lemonade because it is the hit, your curve shifts to the right. But if your drinks just get out of fashion, it is a left shift.​

  • Other drinks in town. If the price of your competitor's iced tea skyrockets, more people might switch from it to your lemonade (right shift). But what if the price of those cute little paper umbrellas you put in the glasses goes up instead, making your lemonade more expensive to produce? You might sell less (left shift).​

  • Glass ball economics: If consumers expect the price of lemonade to increase tomorrow, they may hoard lemonade today (shift to the right). However, if consumers foresee a future sale, they may not purchase many lemons (shift to the left).

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Let's try to dive deeper into the wild world of demand shifters using the coolest summer business ever - your very own lemonade empire!
 

Income Invasion!

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Imagine this: Your neighbor just landed a huge promotion. Cha-ching! Now, they start exchanging their water bottles for your fancy organic lavender lemonade every single day. But oh no, what if there's a pay cut across the whole town? Your plain ol' lemon juice may start looking like liquid gold to a few. See how income can make your demand curve do the cha-cha?

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Trend Tsunami!

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BAM! A TikTok star makes your lemonade recipe go viral. Now, everyone and their grandma wants a sip of that sweet, sweet nectar you're selling. Your demand curve? It's skyrocketing up faster than the view count for a cat video! But don't forget, trends can fizzle out too. One day it is lemonade; one day it will be boba tea. Keep your eyes open!

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The Substitute Shuffle!

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Hold on to your lemons! The price at the soda shop next door just doubled. Huh? Your lemonade stand is now the hottest spot in town! Everybody is dumping their cola for your citrus blast. That, my friend, is substitutes making your demand curve do the boogie to the right!

Complementary Chaos!

You've got a brilliant idea: team up with the local bakery to offer a "cookies and lemonade" combo. They slash the price of their cookies, and—BAM!—your lemonade flies off the shelves. Why? Well, nothing goes better with a cool lemonade than a warm cookie. Complementary goods are like the dynamic duo of economics!

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Future Frenzy!

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Breaking news: Meteorologists predict the hottest summer in 50 years! What happens? Everybody rushes to your stand, buying gallons of lemonade before the heat wave arrives. They are preparing for a future when your lemonade will become more valuable than gold. Watch that demand curve shift to the right!

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And there you have it! When only price changes, you're just trotting along your existing demand curve. When other factors come into play, you're doing shifting the demand curve, shifting either left or right.

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Understanding all of this stuff is not just for acing econ tests. It helps you figure out why people buy more or less of something—whether it's lemonade, the latest techy thing, or whatever. Next time you're purchasing or running your own business, lemonade related or not, you're going to be able to put on your econ detective hat and really figure out what's going with supply and demand.

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Well, now, go on and conquer the economic world one glass of lemonade at a time!

 

Conclusions

 

  • When the quantity demand for the good or service changes due to a change in price and all other factors are held in constant, there is movement along the demand curve.

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  • When the quantity demand for the good or service changes due to factors such as taste, income, market, expectations, or related goods, then there is a shift in the demand curve. 

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Guide Questions

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  • What is the difference between a movement along the demand curve and a shift in the demand curve?

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  • What factors can cause a demand curve to shift to the right or left?

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  • How does a change in the price of a substitute or complementary good affect the demand curve for a particular product?

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  • Can you provide an example of a real-world event that might cause a shift in the demand curve for a product?

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  • How does consumer expectation about future prices influence the current demand curve for a product?

References

Henderson, D. R. (2024). Demand. Econlib. https://www.econlib.org/library/Enc/Demand.html

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IntroBooks. (2019). Law of Supply and Demand. Can Akdeniz.

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Stigler, G. J. (1966). The Theory of Price. Macmillan.

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University of Minnesota Libraries. (2016). 3.1 Demand. https://open.lib.umn.edu/principleseconomics/chapter/3-1-demand/

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University of Southern Philippines Foundation. (2023). Law of Demand. University of Southern Philippines Foundation. https://www.studocu.com/ph/document/university-of-southern-philippines-foundation/business-administration/law-of-demand-lecture/47974063

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