Determinants of Demand versus Quantity Demanded
- Distinguish a shift of demand from a movement along the demand curve
- Identify the determinants that shift demand and predict the direction
- Classify goods as substitutes, complements, normal or inferior from a shift
One cause moves you along; everything else shifts the curve
A change in the good's own price produces a movement along the demand curve — a change in quantity demanded. A change in anything else produces a shift of the whole curve — a change in demand. The distinction sounds pedantic until you notice that half the multiple-choice items in this unit test nothing else.
Related goods, and what the direction tells you
Substitutes are goods used instead of each other: a rise in the price of one raises demand for the other. Complements are used together: a rise in the price of one lowers demand for the other. So the direction of the response identifies the relationship, and the exam uses this both ways — telling you the relationship and asking the direction, or giving the direction and asking the relationship.
Normal, inferior and the income test
For a normal good, rising income raises demand. For an inferior good, rising income lowers demand — bus travel, instant noodles, store-brand goods — because consumers can now afford something they prefer. This means the direction of a demand shift after an income change reveals which type the good is, and a recession raises demand for inferior goods, which surprises students who expect all demand to fall.
For each, state whether demand for coffee shifts and in which direction, or whether quantity demanded moves: (a) the price of coffee falls; (b) the price of tea rises; (c) the price of milk rises; (d) a study reports health benefits of coffee; (e) consumers expect coffee prices to rise next month.
- 1.(a) Own price — movement along the curve, quantity demanded rises. No shift.
- 2.(b) Tea is a substitute, so its higher price shifts coffee demand right.
- 3.(c) Milk is a complement, so its higher price shifts coffee demand left.
- 4.(d) Tastes shift toward coffee: demand right.
- 5.(e) Expectation of a future rise pulls purchases forward: demand right now.
"Demand rose" and "quantity demanded rose" are different statements. The first means the curve moved; the second may mean only that the price fell. Free-response rubrics distinguish them, and using the wrong one can lose the point even when the graph is right.
The price of gasoline rises sharply. The effect on the demand for large trucks is that demand:
During a recession, demand for a particular brand of instant noodles rises. This indicates the noodles are:
Which causes a movement along the demand curve for apples rather than a shift?
On any supply-and-demand free response, name the determinant explicitly — "the price of the substitute rose, so demand shifts right" — rather than just drawing the arrow. The named determinant is usually its own point.
Answer the 3 checkpoints as you read.
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