This paper examines the fundamental concepts of supply and demand, focusing on the distinction between movements along a curve and shifts of a curve. Drawing on core principles of managerial and introductory economics, the paper defines demand, supply, and market equilibrium before explaining how various factors — including consumer income, technology, and substitute goods — trigger curve shifts. Graphical representations accompany each explanation. The paper then applies these concepts to five real-world scenarios: Halloween costume pricing, post-September 11 airline ticket demand, the substitution effect between Coors Light and Bud Light, declining natural gas prices, and rising chicken wing prices during the Super Bowl.
This study guide is drawn from PaperDue's library of 130,000+ paper examples across 47 subjects.
Demand is, in basic terms, the quantity of a certain product or good that consumers are able and willing to purchase at the prevailing price (Hirschey, 2008). A product's market demand function relates its aggregate quantity demanded to the various parameters — including price — that influence that quantity (Hirschey, 2008). The demand curve is an expression of "the relation between the price charged for a product and the quantity demanded, holding constant the effects of all other variables" (Hirschey, 2008, p. 137).
When it comes to supply, the term refers to the quantity of a product that sellers are able and willing to bring to the market under the prevailing economic conditions (Hirschey, 2008). A supply curve, therefore, is an expression of the relation between the quantity supplied and the price charged, ceteris paribus (Taylor & Weerapana, 2011). Equilibrium is achieved "when the quantity demanded and the quantity supplied is in perfect balance at a given price" (Hirschey, 2008, p. 137).
Shifts and movements disrupt market equilibrium, resulting in new equilibrium quantities and prices (Taylor & Weerapana, 2011). A shift in one curve automatically causes a movement in the other. According to Hirschey, "a movement along the demand curve occurs when the quantity demanded changes as a result of a change in price" only (Hirschey, 2008). A movement along the demand curve, therefore, traces out the impacts that different prices have on the quantity demanded (Taylor & Weerapana, 2011). A shift of the demand curve takes place when the quantity demanded of a product changes as a result of changes in factors other than its price (Hirschey, 2008). Shifts in the demand curve can be caused by changes in consumer incomes, population, consumer tastes and preferences, the prices of substitutes and complements, and future price expectations (Wessels, 2006).
A movement along the supply curve occurs when the quantity supplied changes as a result of a price change (Wessels, 2006). A shift of the supply curve, on the other hand, occurs when the quantity supplied changes due to a change in factors other than price (Wessels, 2006). Shifts in the supply curve can result from changes in the levels of technology, input prices, the number of firms, the prices of substitute and joint products, and future price expectations.
Fig. 1 — Initial Equilibrium
At the initial equilibrium point E, the equilibrium price Pe and equilibrium quantity Qe are determined by the intersection of the demand curve (Dd) and the supply curve (Ss).
Fig. 2 — Shift of the Demand Curve / Movement along the Supply Curve (Increase in Demand)
Factors such as increased consumer incomes, increased population, increased prices of substitutes, and expectations of future inflation tend to increase demand, causing the demand curve to shift outward (to the right), as illustrated in Fig. 2. The quantity demanded increases due to the shift, and so does the price, resulting in the new equilibrium E1. The segment E0–E1 represents the movement along the supply curve.
Fig. 3 — Decrease in Demand
If the aforementioned factors decrease instead, demand falls and the demand curve shifts to the left (Fig. 3). E1 becomes the new equilibrium point, with P1 and Q1 as the new equilibrium price and quantity, respectively.
Fig. 4 — Shift of the Supply Curve / Movement along the Demand Curve (Increase in Supply)
Factors that cause an increase in supply result in an outward shift of the supply curve, as shown in Fig. 4. The segment E0–E1 represents the movement along the demand curve caused by this shift.
Fig. 5 — Decrease in Supply
Factors that decrease supply shift the supply curve inward, as shown in Fig. 5. The demand and supply behavior illustrated in these figures can be used to analyze the real-world consumer scenarios discussed in the sections that follow.
In the days before Halloween, there is an increase in the quantity of Halloween costumes demanded. This increase in demand is induced by the seasonal effect of Halloween. As a result of the increased demand, prices of Halloween costumes rise, in line with the law of demand. The supply of Halloween costumes, however, remains more or less constant, since the factors that influence supply have not changed. There is, therefore, an outward shift in the demand curve, because the increase in demand is attributed to the Halloween seasonal effect — a non-price factor — and it is this increased demand that causes the price increase. This constitutes a shift of the demand curve, not a movement along it.
Graphically, the demand curve shifts from Dd0 to Dd1 while the supply curve Ss0 remains unchanged. The equilibrium price rises from P0 to P1, and the equilibrium quantity increases from Q0 to Q1.
"Post-9/11 travel demand increases airline ticket prices"
"Price drop in substitute shifts rival brand demand"
"Technology improvements increase supply, lowering prices"
"Super Bowl demand spike raises chicken wing prices"
Always verify citation format against your institution’s current style guide requirements.