Supply and Demand > Quantity Supplied and Demanded



Movements and Shifts

It is important to understand the difference between demand and quantity demanded, and conversely, supply and quantity supplied, as misunderstanding can lead to fundamental errors in the application of economic theory.

Demand refers to the overall demand for a good or service and "shifts" only when there is a change in income, taste, or in the demand for substitutes and/or complements. Quantity demanded refers to a specific quantity of a good or service consumers are willing to purchase at a given price.

Changes in demand, therefore, are represented by "shifts" to the left or right of the original demand curve whereas change in quantity demanded are represented by "movement" along the demand curve.

Supply refers to the overall availability of goods or services at all prices and is subjected to a variety of influencing factors including: the cost of inputs, the amounts of goods in competitive or substitutive supply, and unforeseen events which impact production.

Changes in supply, for these reasons, are represented by "shifts" in supply to either the right or left of the original supply curve.

Quantity supplied, however, represents the quantity of a good or service producers are willing to produce at a given price.

Changes in price impact quantity supplied and these changes are represented in "movement" along a supply curve.

Above images compiled for those downloaded 6/18/05 from http://www.netmba.com

Examples

Consider the following: When "bell-bottom" pants went out of style in the 70s, the demand curve for bell-bottoms SHIFTED to the left, or more towards "zero", because people no longer wished to purchase these pants at any price. If, however, the price of bell-bottoms was increased, and all other factors remained unchanged, the quantity demanded of bell-bottoms at this price would decrease and be represented by MOVEMENT along the demand curve because there is an inverse relationship between price and quantity demanded.

On the other hand, if there was an increase in the price of labor, or wages, the supply curve for bell bottoms would SHIFT to the left, or more towards "zero" because the cost of inputs had increased. If the price of bell-bottoms, however, increased, producers would be willing to produce more bell bottoms because there is a positive relationship between price and quantity supplied. This would be represented by MOVEMENT along the supply curve.

Understanding the Difference

 |  Jeannie Galindo  |  Last Modified 12 March, 2009  |