CDS (II) 2021 General Knowledge · Question 47 of 120

Correct — A, Change in its price. A demand curve is drawn with the commodity's own price on one axis and the quantity demanded on the other, and everything else — income, the prices of other goods, tastes, the number of buyers, expectations — is held fixed while it is drawn. So a change in the commodity's own price cannot move the curve; it can only move the buyer to a different point on the same curve. That is what movement along the demand curve means, and textbooks give the two directions their own names: a fall in price produces an extension of demand down the curve, a rise produces a contraction up it. Every other item on the list is one of the things held constant while the curve was drawn, so a change in any of them redraws the curve at a new position — a shift, not a movement.

• (b)Change in price of the other commodities — Shifts the curve. The price of a substitute or a complement is one of the conditions held constant; if tea becomes dearer the whole demand curve for coffee moves right, because more coffee is now wanted at every coffee price.
• (c)Change in income of the consumer — Shifts the curve. Income is held constant when the curve is drawn, so a change in it moves demand outward for a normal good and inward for an inferior one.
• (d)Change in tastes and preferences of consumers — Shifts the curve. Tastes and preferences are the classic other-things-equal assumption; when they change, the quantity demanded at each unchanged price changes with them.

The distinction between a movement along a curve and a shift of the curve is the first analytical habit an economics course teaches, and it follows entirely from what the axes measure. Only the variables on the axes can produce movement along the curve; every other determinant sits in the background of the drawing and can only relocate it.

The reliable test is to ask whether the change alters the quantity wanted at an unchanged price. A price cut does not — it simply asks a different question of the same schedule. A pay rise does, and so does a fashion. The same logic applies to the supply curve, where the good's own price produces extension or contraction while input costs, technology and taxes shift the whole curve. Candidates lose this mark by reading movement and shift as loose synonyms; in the vocabulary of the subject they are opposites.

• A demand curve plots quantity demanded against the commodity's own price, holding all other determinants constant.
• A change in the commodity's own price causes movement along the curve — extension when price falls, contraction when it rises.
• A change in income, in the prices of related goods, in tastes, in the number of buyers or in expectations shifts the whole curve.
• A rightward shift is an increase in demand; a leftward shift is a decrease in demand.
• The same distinction applies on the supply side, where input prices, technology and taxes shift the curve.

• Treating movement and shift as interchangeable words for a change in demand.
• Forgetting that the price of other goods shifts the curve even though it is a price.
• Assuming a rightward shift always means a higher price; it depends on the supply curve it meets.

As a one-line conceptual item asking what causes movement or shift, or with a numerical example of two goods and a price change.

• practice — not a real PYQ

  A rightward shift of the demand curve for a commodity would normally follow from

  • (a)a fall in the price of that commodity
  • (b)a rise in consumers' income, the commodity being normal
  • (c)a rise in the price of that commodity
  • (d)an improvement in the technology used to produce it

  Answer(b) a rise in consumers' income, the commodity being normal — own-price changes move a point along the curve, and technology shifts supply, not demand.

• practice — not a real PYQ

  A fall in the price of a commodity leading to a larger quantity being bought is described as

  • (a)an increase in demand
  • (b)an extension of demand
  • (c)a decrease in demand
  • (d)a shift of the demand curve

  Answer(b) an extension of demand — the buyer moves down the same curve; an increase in demand means the whole curve has moved right.