Firstly, always remember this concept right into your honours year because demand and supply

curves are always used to explain economic concepts, the basic understanding always remains the
same.

[1] A change in the price of a good is always indicated by a movement ALONG the curve. The curve
(either demand or supply) remains the same(does not shift).

[2] A change in the actual demand or supply of good is indicated by a SHIFT in the in the curve itself
either leftwards or rightwards.

Look at the figure above, and focus on demand curve D and supply curve S. The curves intersect at
P* and Qd (Quantity demanded) and Qs (Quantity supplied) is equal (market equilibrium) at Q*
(total Qd is equal to total Qs).

If the price drops to PC, the Qd ↑ to Q(d), indicating only a movement ALONG the demand curve,
total demand for the good has remained unchanged indicted by the same demand curve D
remaining unchanged. However at the lower price you choose to consume more of the good.
Look at the first figure and focus on curve D and curve S. They intersect at price P, which yields an
equilibrium quantity of Q. Now, if for some reason the firm selling the good develops a new
advertising campaign to promote the product, or for some reason a substitute goods price increases
making this good seem more affordable; anything that makes the actual demand for this good
increase other than the price (price changes excluded) will cause a shift of the demand curve
rightwards [up], intersecting the unchanged supply curve [S] at an increased price of P1 at the
increased Qd of Q1.

A decline in demand (maybe a harmful ingredient is discovered in the product) will cause the curve
to shift leftwards [down], and thus decrease the price and Qd of the good.

Similarly, with changes in supply. Many firms undertake research and development (R&D) to
improve the productive efficiency of producing and manufacturing goods. Sometimes these
efficiency gains allow the firm to produce more of the good at the same cost or sometimes less. This
gain in efficiency results in an increased supply of the good, causing a rightward [down] shift in the
supply curve; causing the price of the good to decline as there is more of the good available.

The second figure shows the alternative, whereby possibly the production cost increased or there
were labour strikes causing wages to increase and thus the cost of production to rise, resulting in the
supply of the good decreasing, indicated by the leftward [up]shift of the supply curve S to S1. The
decrease in supply causes a rise in the price from P to P1 and thus a decline in Qd from Q to Q1.

This concept becomes useful when analysing the effects of substitute and complimentary goods.
Let’s look at an example, Chicken and Fish are substitute goods. If the price of chicken increases the
demand for chicken will decrease and cause an increase in the demand for Fish, because the price of
Fish has remained unchanged thus more affordable relative to Chicken.

Now, from the discussion above the change in price of chicken will cause a decline in Qd of Chicken
indicated by a movement ALONG the demand curve. Why, because the PRICE of chicken has
changed.

Now, looking at the market for FISH. The increase in price of Chicken has caused the ACTUAL
demand for Fish to increase, meaning the demand curve for Fish has SHIFTED right.

Questions below are from a previous years EXAM,

Look at the key words: Q10 …cause a shift…

When you see shift you know price is not correct... therefore answer 2 is correct, because a change
in price of coffee would cause a shift along the curve NOT the curve itself.

Q11: …decrease in cost of production…

Price is not mentioned therefore you know that only a shift can occur. Answer is 4, cost of
production decreases causing actual supply to increase.

That clarifies shifts in the demand and supply curves.

Now, using the same example of Chicken and Fish to explain ceteris paribus.

Ceteris Paribus is an important tool in Economics used to isolate specific effects in a market. For
instance, in the example above we saw that a change in price of Chicken caused a shift in demand
for Fish. If we wanted to isolate the market for Fish and the effect of price changes we use the term
ceteris paribus to indicate that in the time period used to analyse this specific market, any other
changes within the market (e.g. change in the price of Chicken) that would affect the market
conditions in the Fish market, are kept constant (unchanged).