Figure 2 : Reduction in Price

However, as we have explained in the last section of this article, there are a number of determinants of demand other than price, and the question remains as to what effect they will have on the Demand Curve if they change ?

Shifts in the Demand Curve

Instead of a movement along the demand curve, a change in a determinant such as income will in fact shift the demand curve in total.

This, again, is best portrayed through use of a Demand curve diagram, figure 3. Here Income has risen, thus enabling more people to purchase the good at its current price, therefore increasing the level of demand, from (Q1) to (Q2), for the product at the price (P1). This increase in demand is represented in our diagram by shifting the entire demand curve to the right, as shown in figure 3.

Figure 3 : Rise in Income

If, on the other hand, Income levels where to fall, demand for a good at its current price would decrease, as less people where now able to purchase the product. To represent this behaviour in a Demand Curve Diagram, the entire curve must be shifted to the left, as shown in figure 4.

Figure 4 : Fall in Income

In our example we have considered, Normal Goods, however in the case of Inferior Goods, we would see the reverse, in that a significant rise in Income levels would decrease demand for such goods, shifting the demand curve to the left. Whilst a fall in Income levels, would see demand for such goods increase, shifting the demand curve to the right.

In order to enable us to differentiate between movement along the demand curve and shifts in demand, we refer to a movement along the demand curve, generated by a change in price of the good, as a change in the quantity demanded. Whilst a shift in demand, generated by a factor other than price, is termed as a change in demand.