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okay now let's talk about the difference between
moving along the curve
verses shifting the curve
just to give you an example
previously we have studied
the demand curve
which is a downward sloping one
it represents the negative relationship between price and quantity demanded
that is as the price gets lower
people tend to demand more quantity from the market
but to understand the difference between
moving along the demand curve
versus
shifting the whole demand curve
we need to do some mathematics
but don't be scared
it is just a little mathematics
so here we go
in mathematics
you should have a very good understanding about a function
just like this diagram shows you
on the horizontal axis
we have an independent variable x
and on the vertical axis
we have the dependent variable y
which is a function of x
in the middle there is a downward sloping curve
and that represents the relationship between x and y
in particular
if we are given a value in x
such as x a
then we should be able to find
the corresponding value in y
according to the downward sloping curve
in this case
that is y a
now let's change a little bit
we actually flip around the axes
so this time
on the vertical axis
we have the independent variable x
on the horizontal axis
we have the dependent variable y
why do I do that
actually that is the convention we use in economics
if we go back to the demand curve
you should notice that
the independent variable price
is actually on the vertical axis
and the dependent variable
quality demanded
which is a function of price
is actually on the horizontal axis
now lets add more flavors to this
instead of having only one independent variable
this time
we are going to have two independent variables x
and w
y again is the dependent variable
but now
it's a function
of both x and w
ideally
if we want to represent relationships among the three variables
we should draw a three-dimensional graph
here I only show the three axes
but you can imagine
there is a fairly complicated shape in the 3D space
that represents the relationships
let's go back
to the example of demand again
the dependent variable quantity demanded
now is a function of two independent variables
the first one is again price
the second one is
income
if we want to represent
the relationships among price income
and quantity demanded
ideally
we should draw a three-dimensional graph
however
as you have learnt before
quantity demanded
is depending on many factors
not only price income
but also
substitutes
complements
preference
and expectation
the problem is
if the number of variables
is more than three
and we still want to represent each variable
by a separate axis
it's not even visualizable
so how should we
represent
the change in other factors
by using still a two-dimensional graph
the answer
is to shift the curves
before we go to shifting the curve
let's talk about moving along the curve first
here the situation
is that
we're going to change price only
and ceteris paribus
ceteris paribus means
all other factors
such as income
price of substitutes
price of complements
will stay the same
in other words
by excluding the impact
from other factors
the only one factor
that can influence the quality demanded
is price
so it is straightforward
to see the two-dimensional diagram price
versus quantity demanded
is sufficient
to analyze the impact
in particular
if price decreases
from 5 to 2
quantity demanded
will increase
from 8 to 20
now the question is
how can we describe the consequence
by changing factors
other than price
in the same price versus quantity two-dimensional diagram
how can we show situations such as
there is a change in prices of complements
or substitutes
or there is a change in people's income and wealth
the solution is of course
to shift the curves
here is an example
when income increases
to show this impact in the
price versus quantity two dimensional diagram
we need to shift the demand curve
that is
to shift
from the black demand curve
to the red demand curve
why this makes sense
if we draw
a horizontal line at the price level of p one
according to the old
demand curve
the quantity demanded should be q one
but according to the new
demand curve
the quantity demanded should be q two
clearly when income increases
people should demand more quantity from the market
and that is comfirmed
by doing this kind of
exercise
okay
so that is the difference between moving along the curve
versus shifting the curve