Movements along a curve versus shifts of a curve

Overview

Extension and a contraction of supply.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   Explain the difference between a change in quantity demanded and a change in demand.

   Model answer

   A change in quantity demanded is caused by a change in the price of the good itself and is shown as a movement from one point to another along an unchanged demand curve. A change in demand is caused by any other factor, such as income or the price of a substitute, and is shown as a shift of the whole curve to a new position. The first changes how much is bought at a changed price; the second changes how much is bought at every price.

2. 2

   Why does a change in the price of a good never shift its own demand curve?

   Model answer

   The demand curve is drawn as the relationship between the price of the good and the quantity demanded, holding everything else constant. The effect of the good's own price is therefore already built into the shape of the curve. Reading off a different price simply means reading a different point on the same curve, so nothing shifts. If a price change also shifted the curve, the curve would have no fixed meaning.

3. 3

   The price of coffee falls and more coffee is bought. Is this a movement or a shift, and why?

   Model answer

   It is a movement along the demand curve for coffee, specifically an extension of demand, because the cause is a change in coffee's own price. The relationship between price and quantity demanded has not altered; the market has simply moved down the existing curve to a lower price and a higher quantity.

4. 4

   The price of tea rises and more coffee is bought. Is this a movement or a shift, and why?

   Model answer

   It is a rightward shift of the demand curve for coffee. The cause lies outside the coffee market: tea is a substitute, so its higher price makes coffee relatively more attractive at every possible coffee price. Since the change is not caused by coffee's own price, more coffee is now demanded at each price and the whole curve moves.

5. 5

   Distinguish between an extension and a contraction of supply.

   Model answer

   An extension of supply is an increase in quantity supplied caused by a rise in the good's own price, shown as an upward movement along the supply curve. A contraction of supply is a fall in quantity supplied caused by a fall in the good's own price, shown as a downward movement along the same curve. Neither involves the curve moving.

6. 6

   A new machine halves the cost of producing a good and output rises. Explain why this is not an extension of supply.

   Model answer

   An extension of supply requires the good's own price to have risen, but here the price has not changed; the cost of production has. Lower costs mean producers are willing to supply more at every price, which is a rightward shift of the supply curve. The market will then move along the demand curve to a lower price and higher quantity, so a movement does occur, but it is a movement along demand caused by a shift of supply.

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