Question

What causes a movement along the demand curve? What causes a movement along the supply curve?

Short answer

A movement along the demand curve is caused by a change in the price of the product or service, leading to a change in the quantity demanded while keeping all other factors constant. There are two types: extension (price decrease, quantity demanded increase) and contraction (price increase, quantity demanded decrease). A movement along the supply curve is also caused by a change in the price of the product or service, leading to a change in the quantity supplied while keeping all other factors constant. There are two types: expansion (price increase, quantity supplied increase) and contraction (price decrease, quantity supplied decrease).

Step-by-step solution

Introduction: Demand and Supply Curves

The demand curve is a graphical representation that demonstrates the quantity of a good or service that consumers are willing and able to purchase at various prices. The supply curve, on the other hand, represents the quantity of a good or service that producers are willing and able to sell at various prices. Both curves play a significant role in determining the equilibrium price and quantity in the market.

Movement along the Demand Curve

A movement along the demand curve occurs when there is a change in the price of the product or service, which leads to a change in the quantity demanded, while keeping all other external factors constant. In other words, for any given demand curve, the change in quantity demanded is the direct result of a change in price. There are two types of movement along the demand curve: 1. Extension: This occurs when the price of a product decreases, leading to an increase in the quantity demanded, as consumers can consume more for the same amount of money. The demand curve shows a downwards movement from a higher point to a lower point. 2. Contraction: This occurs when the price of a product increases, leading to a decrease in the quantity demanded, as consumers are less willing and able to purchase the product at a higher price. The demand curve shows an upwards movement from a lower point to a higher point.

Movement along the Supply Curve

A movement along the supply curve occurs when there is a change in the price of the product or service being sold, which leads to a change in the quantity supplied, while keeping all other external factors constant. In other words, for any given supply curve, the change in quantity supplied is the direct result of a change in price. There are two types of movement along the supply curve: 1. Expansion: This occurs when the price of a product increases, leading to an increase in the quantity supplied, as producers are more willing and able to sell the product at a higher price, increasing their profit margin. The supply curve shows an upwards movement from a lower point to a higher point. 2. Contraction: This occurs when the price of a product decreases, leading to a decrease in the quantity supplied, as producers are less willing and able to sell the product at a lower price, decreasing their profit margin. The supply curve shows a downwards movement from a higher point to a lower point. To summarize, movements along the demand curve are triggered by changes in price, affecting the quantity demanded. On the other hand, movements along the supply curve occur due to changes in price, affecting the quantity supplied. All other factors must be kept constant to observe these movements accurately.