Moving along The Curve - Versus - Shifting the curve - .wmv

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