Posted by Anjali Kaur on Jul 31, 2020

Change in Demand and Change in Quantity Demanded

The above-mentioned terms look similar. Isn’t it? But they are different from each other, and I know that students find them to be very confusing. Let me help you understand the concept of change in demand and change in quantity demanded simply and most easily so that it gets stored in your mind permanently. Let’s learn.

What is ‘Change in Demand’? Or

What do we mean by ‘Shift in Demand’?

Change in demand is popularly known by Shift in Demand. Can you recall the law of demand? The Law of demand states that there exists an inverse relationship between price and quantity demanded, keeping other things constant. Now, what are the ‘other things that are kept constant’ to make the law of demand valid? It is the income of the consumer, price of related goods, tastes and preferences, and future expectations.

So, when we say change in demand, it is caused by:

  • The income of the consumers (I- Inferior goods and N- Normal goods)
  • The price of related goods (S- Substitute goods and C – Complimentary goods)
  • Tastes and preferences
  • Future expectations

Tips:

1) Change in demand = Shift in demand, both are 3 words and means the same.

2) ‘TIER’ causes a shift in demand. Where,

T – Taste, and preferences,

I – Income of the consumers,

E – Expectations for the future,

R – Related goods prices, and

Change in the income of the consumers

The income of consumers depends on the types of goods they consume. It includes normal goods which are of nice quality, and people consume more of it, with the increase in their income. The second one is, inferior goods; which are of poor quality, and people prefer less when their income increases.

If the income of the consumer increases, the demand for normal goods will shift towards the right, indicating an increase in demand. Similarly, if the income of the consumer decreases, the demand for the inferior goods will shift towards the right, indicating an increase in demand. Read the bold words for easy understanding. As shown below, the demand curve is shifting to the right in both of the above cases:

Change in Demand due to Change in Income

Now, if the income of the consumers decreases, the demand for normal goods will shift towards the left (Remember, ‘left’ is like ‘less’) indicating a decrease in demand. Similarly, if the income of the consumer increases, the demand for inferior goods will shift towards the left, indicating a decrease in demand. Read the bold words for easy understanding. As shown below, the demand curve is shifting to the left (that is, less) in the above cases mentioned:

Change in Demand due to Change in Income

Change in the prices of related goods

Prices of related goods include substitute goods, which can replace each other and complementary goods, which are consumed together.

Substitute Goods

If the price of a substitute good increases, for example, in the case of soft drinks like Coke and Pepsi are considered to be substitute goods. If the price of Pepsi increases, people increase the demand for Coke (assuming coke price remained the same). Read bold words for easy understanding. As shown below, the demand curve for the coke shifts to the right:

Increase in Demand of a substitute good

Similarly, if the price of Pepsi decreases, people decrease the demand for coke. Read bold words and take a look at the shift in the demand curve below.

Decrease in Demand of a substitute good

So, substitute goods have a positive or direct impact on each other in case of demand. As the price of 1 substitute goods increases, the demand or its substitute increases and vice versa.

Complementary Goods

If the price of complementary goods increases, the demand for its complementary goods decreases. Why? Because they are consumed together. For example, in the case of ‘pen and ink,’ these are complementary goods as they are used together. If the price of a pen increases, the demand for its ink will decrease, the demand curve shifts to the left (indicating less). As shown below:

Decrease in Demand of a Complementary Good

If the price of a pen decreases, the demand for its ink will increase, and the demand curve will shift to the right (indicating an increase in demand). As shown below:

Increase in Demand of a Complementary Good

So, complementary goods have an inverse relationship with each other in case of demand. If the price of 1 complementary goods increases, the demand for its complementary good decreases and vice-versa.

Tastes and Preferences

Tastes and preferences are dependent on consumers’ choices or habits. If a consumer likes a particular brand of cereal, then the demand for that cereal will increase, indicating a rightward shift in the demand curve for cereal. If the consumer dislikes a particular brand of biscuits, then the demand curve for the biscuits will shift the left, indicating a decrease in demand for biscuits.

Future Expectations

If the consumers expect that the price of a particular commodity will increase in the future, the consumer will increase its demand at the present, causing the demand curve to shift to the right. Similarly, if a consumer expects that the price of let’s say gold will fall in the future, the demand for the gold will decrease in the present, causing the demand curve to shift to the left.

What is ‘Change in Quantity demanded’? Or

What do we mean by ‘Movement along the demand curve’?

Change in quantity demanded is known by movement along the demand curve. The change in quantity demanded is caused only due to a change in the price of a commodity, keeping other factors (TIER) constant. In short, movement along the demand curve is an exact image of the law of demand.

If the price of a commodity increases, the quantity demanded decreases, ceteris Paribus. As shown below, if the price of apple increases from 3 to 6, the quantity demanded falls from 10 to 8, and the consumer moves from point B to A. This movement or the fall in quantity demanded is known by a contraction in quantity demanded.

Contraction in Quantity Demanded

If the price of a commodity decreases, the quantity demanded increases, ceteris Paribus. As shown below, if the price decreases from 7 to 5, the quantity demanded increases from 11 to 15, and the consumer moves from point A to B. This movement from A to B or the increase in quantity demanded is known as the expansion or extension in quantity demanded

Expansion in Quantity Demand

Tip:

Change in quantity demanded = Movement along (the) demand curve, these are 4 long words.

This happens only due to the price of a commodity, and it is of two types; (i) contraction means fall in quantity demanded and (ii) expansion means a rise in quantity demanded.

I hope this clarifies the meaning of change in demand and change in quantity demanded.

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