Introduction to Economics Essay Example | Topics and Well Written Essays - 1500 words

Introduction to Economics - Essay Example This relationship can be illustrated graphically using demand curves. As such, this essay seeks to describe the differences between shifts in demand and movements along the demand curve. It also seeks to explain the factors which can shift the demand curve and why they cause the demand curve to shift. Basically, a demand curve is a curve that shows that the number of units the market will buy in a given period at different prices that might be charged (Kotler &Armstrong, 2004). This curve is downward sloping graph and change in the demand curve can be in the form of movement along the demand curve and shift in the demand curve. Price variable is the main factor that determines the demand of a particular good or service (Benassy, 1988). Thus, the law of demand states that the higher the price, the lower the demand of the goods. This means that few people will buy products that have a high price and more people will be willing to buy products if the price is low. As a result, when pric e changes, there will be movement along the demand curve as illustrated in Figure 1 below. ... For instance, at point C, the quantity of products (Q3) demanded is high because the price (P1) is low. On the other hand, the quantity of products demanded (Q1) is lower because the price (P1) is higher. It can therefore be said that there is a strong relationship between the price of the product and its demand. As such, the movement along the demand curve can be downwards or upwards. According to (Graves & Sexton, 2006), a change in a demand shifting variable such as income will result in a parallel shift in the demand curve. A shift in the demand curve is mainly caused by the other non price variables such as income as well as changing tastes among the consumers. This means that the demand of a particular product can shift even if the price remains the same. For instance, if the income for consumers who buy food from fast food restaurants increase, there will also likely to be a shift in demand given that the majority of them will now be able to afford the food offered. In this ca se, the demand curve will shift to the right which shows that there has been an increase in demand even though the price remains the same. If their income decreases, then the demand curve will shift to the right. Changing consumer tastes can also cause a shift in the demand curve. For instance, regardless of the price, the demand of smart phones is growing considerably during the current period given that the customers seek to derive valuable benefits from the products offered. Smart phones have multimedia functions that are desired by the customers. The demand curve shifts to the right. Figure 2 below illustrates the shift in the demand curve for beer. Figure 2 Source: http://www.investopedia.com/university/economics/economics3.asp In this graph, it can be seen that