Demand and supply: shifts versus movements
Learning goals
After this page, you can:
- Classify an event as a movement along a curve or a shift of a curve.
- List the five things that shift demand and the three things that shift supply.
- Classify two goods as substitutes or complements from how one good’s price affects the other’s demand.
The idea
A campus coffee cart sells fewer cups this week. There are two possible stories. Story one: the cart raised its price. Story two: a new café opened across the quad. The sales report looks the same in both cases. But the right response is opposite. This page gives you the words to tell the two stories apart.
A demand curve answers one question: at each possible price, how much do buyers want? Price goes on the vertical axis. Quantity goes on the horizontal axis. The curve slopes down: a lower price means buyers want more.
There are only two kinds of change.
1. The good’s own price changes. Nothing else moves. Buyers slide to a different point on the same curve. This is a movement along the curve. The correct sentence is “quantity demanded fell,” not “demand fell.”
2. Anything else changes. Incomes rise, a rival cuts its price, winter arrives, a product goes viral. Now buyers want a different amount at every price. The whole curve moves. This is a shift. Now you may say “demand fell” (shift left) or “demand rose” (shift right).
Why be careful with the words? Because the two call for different actions. If quantity fell because you raised the price, you know the cause and you control it. If quantity fell at an unchanged price, something in the market moved. Your next job is to find out what.
What shifts demand (five things)
- Income. For most goods — normal goods — higher income shifts demand right. For a few — inferior goods, such as instant noodles or bus rides — higher income shifts demand left, because people trade up.
- Prices of related goods. If a higher price of good B raises demand for good A, the two are substitutes (coffee and tea; Uber and Lyft). If a higher price of B lowers demand for A, they are complements (cars and gasoline; printers and ink). Substitutes are used instead of each other. Complements are used together.
- Tastes and information. A health study, a celebrity, a product recall.
- Expectations. If buyers expect prices to rise next month, they buy now.
- Number of buyers. A new dorm next to the coffee cart; a competitor closing.
What shifts supply (three things)
- Input costs. Cheaper crude oil shifts the supply of plastic right. A higher minimum wage shifts the supply of restaurant meals left.
- Technology. Better methods mean more output at each price: supply shifts right.
- Number of sellers, and anything that changes it: regulation, licensing, weather for farmers.
Notice what is not on either list: the good’s own price. That is always a movement, never a shift.
Adding up buyers. Market demand at a price is the sum of what each buyer wants at that price. At $10, Jenna wants 2 movies a week, Sam wants 3, and Jordan wants 8. The market quantity demanded at $10 is 2 + 3 + 8 = 13.
Own price changes → movement along the curve. Anything else changes → the curve shifts.
Try it
Move one slider at a time. Try these:
- Shift demand right. Then reset it and shift supply left. Both raise the price. What is different about quantity?
- Shift supply right. Which way does the price go?
- Can you make price and quantity both fall with one slider?
Worked example
Problem. A city has one indoor climbing gym. For each event, say: demand shift (which way), supply shift (which way), or movement along a curve.
| Event | Answer | Why |
|---|---|---|
| A second gym opens nearby | Demand shifts left | A substitute appeared, so fewer climbers want this gym at every price |
| Student incomes rise after a campus wage increase | Demand shifts right | Climbing is a normal good |
| The gym raises its own day-pass price by $3 | Movement along demand | The gym’s own price changed |
| A viral video praises the gym | Demand shifts right | Tastes and information changed |
| The gym’s rent goes up | Supply shifts left | An input cost rose |
One more: a frost in Florida. A frost destroys a third of the orange crop. What happens in the market for orange juice?
Step 1. Who is hit directly? Growers — the sellers. So this is a supply shock.
Step 2. Less juice can be supplied at every price. Supply shifts left.
Step 3. The new crossing point is up and to the left: price rises, quantity falls.
The trap. Do not also move demand. If a news story says “people buy less juice because it got expensive,” that is a movement along the demand curve. Step 3 already includes it.
Check yourself
A city raises bus fares by 20% and ridership falls 8%. Which statement is correct?
Own price → movement. Anything else → shift.
Streaming subscriptions and home internet are used together. If internet prices rise sharply, what happens in the market for streaming subscriptions?
Complement’s price up → your demand shifts left.
A new robotic process cuts the cost of making solar panels by 30%. In the market for solar panels:
Input costs and technology shift supply.
At $12 a month, Ana wants 1 subscription, Ben wants 0, and Chloe wants 2. Market quantity demanded at $12 from these three is:
Market demand = horizontal sum of individual demands.
Which of these would NOT shift the demand curve for a Keuka-area pizza shop?
Own price is the one thing that is never a shifter.
Video
Video coming soon.