The Allocation of Resources - Demand: Movements Along the Demand Curve

This section focuses on understanding how changes in the price of a good affect the quantity demanded, and how this is visually represented using a demand curve. We will explore movements along the demand curve, which occur due to changes in the price of the good itself.

Understanding the Demand Curve

The demand curve shows the inverse relationship between the price of a good and the quantity demanded. Generally, as the price of a good increases, the quantity demanded decreases, and vice versa. This is based on the law of demand.

A typical demand curve is downward sloping, reflecting this inverse relationship.

Movements Along the Demand Curve

When the price of a good changes, the quantity demanded changes as well. This change is represented by a movement along the existing demand curve. It's important to distinguish this from a shift of the entire demand curve, which occurs due to factors other than price (e.g., changes in income, tastes, or prices of related goods).

Price (P)	Quantity Demanded (Q)
$10	100 units
$9	110 units
$8	120 units

The table above illustrates a simple demand curve. As the price decreases from $10 to $8, the quantity demanded increases from 100 units to 120 units. This is a movement along the demand curve.

Illustrative Diagram

Example Scenarios

• Price Decrease: If the price of a product decreases, consumers will be willing and able to buy a larger quantity. This is shown by moving to the right along the demand curve. For example, if the price of apples falls from $1 per apple to $0.75 per apple, the quantity demanded will likely increase.
• Price Increase: If the price of a product increases, consumers will be willing and able to buy a smaller quantity. This is shown by moving to the left along the demand curve. For example, if the price of coffee increases from $3 to $4 per cup, the quantity demanded will likely decrease.

Mathematical Representation

The relationship between price and quantity demanded is often represented by a demand function:

$$Q = f(P)$$

Where:

• Q represents the quantity demanded.
• P represents the price.
• f() represents the demand function, which describes the relationship between price and quantity demanded.

A simple linear demand function might be expressed as:

$$Q = a - bP$$

Where 'a' and 'b' are constants. 'b' represents the slope of the demand curve (the change in quantity demanded for a unit change in price).

Impact of Movements Along the Demand Curve

Movements along the demand curve result in a change in the quantity demanded, but not a change in the overall demand for the product. The demand curve itself remains in the same position. These movements are a fundamental aspect of how markets respond to changes in price.