Published by Patrick Mutisya · 14 days ago
Students will be able to draw a demand diagram and interpret its features, including movements along the curve, shifts of the curve, and the economic meaning of price elasticity.
• A movement from (P₁, Q₁) to (P₂, Q₂) along the same curve represents a change in the quantity demanded caused by a change in the price of the good itself.
• A shift of the entire curve from D to D′ represents a change in demand caused by a factor other than the good’s own price (e.g., income, tastes, prices of related goods).
• The slope of the demand curve reflects the rate at which quantity demanded responds to price changes. A steeper slope indicates less responsiveness (inelastic demand), while a flatter slope indicates greater responsiveness (elastic demand).
• The price elasticity of demand can be expressed as
\$\varepsilon_{d} = \frac{\% \Delta Q}{\% \Delta P} = \frac{\Delta Q / Q}{\Delta P / P}\$
where \$|\varepsilon{d}| > 1\$ denotes elastic demand, \$|\varepsilon{d}| < 1\$ denotes inelastic demand, and \$|\varepsilon_{d}| = 1\$ denotes unit‑elastic demand.
| Determinant | Effect on Demand Curve | Typical Reason for Shift |
|---|---|---|
| Consumer income | Rightward (increase) for normal goods; leftward (decrease) for inferior goods | Higher disposable income raises demand for normal goods |
| Prices of related goods | Rightward if price of a substitute rises; leftward if price of a complement rises | Substitutes become relatively more attractive |
| Tastes and preferences | Rightward for more popular goods; leftward for less popular goods | Advertising, trends, health information |
| Expectations of future price | Rightward if consumers expect higher future prices; leftward if they expect lower future prices | Anticipated price changes affect current buying decisions |
| Number of buyers | Rightward if population grows; leftward if it declines | Demographic changes |