Economic Law of Demand

Homework

Explain the meaning of the law of demand and using examples and diagrams distinguish between movements along and shifts of the Demand curve.

Demand is the amount of a particular good or service that a consumer is willing and able to buy at a given price ceteris paribus. The law of demand states that as the prices of a good or service increases the quantity demanded will decrease and vice versa, all other things being equal.

The difference between movements along the demand curve and a shift of the demand curve is based on the factors that cause the change. A movement along the demand curve is reflective of a change in price of good or service. When the price of the good changes then the quantity of the good demanded would change, that is, either increase or decrease, hence this is shown by a movement ALONG the curve. On the other hand a shift of the demand curve is cause by a change in one of the NON-Price determinants of demand such as income for example. A change in one of the non-price determinants of demand will cause a shift of the demand curve, that is, different quantities will be demanded at the same price and a new curve is formed.
For example with a normal good if income increases demand will shift to the right and at the same price more of the same product will be demanded. If income decreases the demand would shift to the left and at the same price less of the good would be