CDS (II) 2020 General Knowledge · Question 34 of 120

Correct — A, price of a commodity falls. A change in the good's own price moves the buyer along the existing demand curve; it does not shift the curve. The curve is drawn with quantity demanded on one axis and that same price on the other, so every point on it already answers the question 'how much would be bought at this price?'. Cut the price and you simply read off a point lower and to the right of where you were. A shift happens only when something outside the price-quantity pair changes and the whole schedule has to be redrawn — income, tastes, the number of buyers, the price of a substitute or complement, or expectations about future prices. That is why the other three options all shift the curve and this one does not.

• (b)consumers want to buy more at any given price — This is the definition of a rightward shift. More is wanted at every price, so a new curve has to be drawn to the right of the old one.
• (c)average income rises — Income is not on either axis. For a normal good, higher income raises demand at every price and shifts the curve right; for an inferior good it shifts left. Either way the curve moves.
• (d)population grows — More buyers means more quantity demanded at every price, so the market demand curve shifts right. Market demand is the horizontal sum of individual demands, and the number of individuals has changed.

Demand is a whole schedule, not a single number. The demand curve plots quantity demanded against the good's own price, holding everything else constant. Movement along the curve — extension or contraction of demand — is caused by a change in that own price. A shift of the curve — increase or decrease in demand — is caused by a change in one of the held-constant factors: income, tastes and preferences, prices of related goods, the number of consumers, and expectations.

The question is worded negatively and that is where marks are lost. It asks when a shift will not happen, so the answer is the one determinant that lives on the diagram's own axis. A quick test in the exam hall: ask whether the variable named appears on either axis. Price does, so it produces movement along; income, population and 'wanting more at any price' do not, so they produce shifts. The same distinction turns up on the supply side, where a change in the good's own price moves you along the supply curve while input costs and technology shift it.

• Change in the good's own price causes movement along the demand curve, called extension or contraction of demand.
• Change in any other determinant shifts the curve, called an increase or decrease in demand.
• The shift factors are income, tastes and preferences, prices of substitutes and complements, number of buyers, and expectations.
• For a normal good a rise in income shifts demand right; for an inferior good it shifts demand left.
• Market demand is the horizontal summation of individual demand curves, which is why population enters as a shift factor.

• Treating a price change as a demand change — the phrase 'demand rose because prices fell' is loose talk, not economics.
• Forgetting that for an inferior good higher income shifts demand to the left.
• Confusing a change in quantity demanded with a change in demand when reading a statements-type question.

As a one-line pick asking which factor moves you along the curve rather than shifting it, or as a matching item pairing each determinant with 'shift' or 'movement'.

• practice — not a real PYQ

  A fall in the price of tea, other things remaining equal, will cause the demand curve for coffee to

  • (a)shift to the left
  • (b)shift to the right
  • (c)remain unchanged, with movement along it
  • (d)become perfectly inelastic

  Answer(a) shift to the left — tea and coffee are substitutes, so cheaper tea reduces the quantity of coffee wanted at every coffee price.

• practice — not a real PYQ

  An increase in the income of consumers will shift the demand curve for an inferior good

  • (a)to the right
  • (b)to the left
  • (c)not at all
  • (d)vertically upward

  Answer(b) to the left — by definition, less of an inferior good is bought at every price as income rises.