What is a demand curve? The demand curve is a representation of the price and quantity demanded of a specific product, shown on a graph with price on the y-axis and quantity on the x-axis. Since both movements on the curve and shifts of the curve can occur, what better way to explain this than with a popular green drink: matcha.
First let’s go over movements on the demand curve. When a movement occurs, the demand curve itself does not change, however the equilibrium point does through a contraction or extension.
In a contraction, the equilibrium point moves up the curve because price is increased therefore quantity demanded decreases. For example, if your go-to matcha place suddenly raises the price of a latte from $4 to $6 you would be less likely to buy it. This is a contraction.
In an extension, the price decreases so quantity demanded increases. Going back to matcha, if your favourite matcha place decreases the price of the drink, people are more likely to buy it because it’s cheaper. These are both movements. One final point about movements is that they only happen because of a change in the price of a product, nothing else.
Next we can look at shifts of the demand curve. When a shift occurs, the demand curve itself changes by moving inwards or outwards, however it is always caused by a non-price determinant. This means it is not caused by changes in the price of the product and is instead caused by other factors such as changing trends and preferences. Talking in terms of matcha, if Gigi Hadid posts a photo of her matcha latte this would change consumer trends making more people want it too. The increase in quantity demanded was caused by trends changing, not by a change in price. Increase in quantity demanded is shown by the demand curve shifting outwards. In cases where the demand curve shifts inwards, imagine a hypothetical situation where suddenly influencers on social media are telling you matcha is unhealthy. Trends would then change, decreasing the quantity demanded for matcha because people no longer want it causing the demand curve to shift left.
Essentially, movements are when the curve stays the same but the point goes through an extension or contraction due to a change in price. Shifts are when the curve itself changes and moves left or right due to a non-price determinant. It is crucial to be able to tell the difference and understand key characteristics between both to be able to recognise if changes in demand are caused by price or other changes in consumer behavior.