Distinguish between increase and extension of demand
The terms "increase in demand" and "extension of demand" both relate to changes in the quantity of a product or service that consumers are willing to purchase, but they describe different phenomena. Here's how they differ:
### Increase in Demand
An increase in demand refers to a rightward shift of the entire demand curve. This shift means that at every price level, consumers are now willing to purchase more of the good or service than before.
**Causes of an Increase in Demand:**
1. **Income Increase:** Consumers have higher incomes and can afford to buy more.
2. **Preferences Change:** Consumers' tastes and preferences shift in favor of the good.
3. **Population Growth:** More consumers in the market increase overall demand.
4. **Substitute Prices Increase:** The price of substitute goods rises, making the good in question more attractive.
5. **Complement Prices Decrease:** The price of complementary goods falls, increasing the demand for the good.
6. **Expectations:** Consumers expect higher future prices, prompting them to buy more now.
**Diagram:**
```
Price
|
| D2
| /
| /
| /
| / D1
| /
| /
| /
|/__________________ Quantity
```
In this diagram:
- **D1** is the original demand curve.
- **D2** is the new demand curve after an increase in demand.
### Extension of Demand
An extension of demand refers to a movement along the demand curve due to a decrease in the price of the good or service. It means that at a lower price, consumers buy more of the good, but the demand curve itself does not shift.
**Causes of an Extension of Demand:**
1. **Price Decrease:** The primary cause is a reduction in the price of the good or service.
**Diagram:**
```
Price
|
| D
| /|
| / |
| / |
|/___|_________ Quantity
Q1 Q2
```
In this diagram:
- The demand curve **D** remains unchanged.
- A move from **Q1** to **Q2** shows an extension of demand due to a decrease in price.
### Comparison Table
| Aspect | Increase in Demand | Extension of Demand |
|--------------------------|------------------------------------|------------------------------------|
| Definition | Shift of the entire demand curve to the right | Movement along the existing demand curve |
| Causes | Changes in non-price factors (income, preferences, population, prices of related goods, etc.) | Decrease in the price of the good or service |
| Effect on Demand Curve | Demand curve shifts right | No shift; movement along the curve |
| Quantity Demanded | Increases at every price level | Increases due to lower price |
### Summary
- **Increase in Demand:** Occurs when non-price factors lead to a higher quantity demanded at all price levels, shifting the demand curve to the right.
- **Extension of Demand:** Occurs when a decrease in price leads to a higher quantity demanded, represented by a movement along the demand curve.
Understanding these differences is crucial for analyzing market behavior and predicting how changes in various factors will impact consumer demand.
