Extension of Demand and Contraction of Demand refer to changes in the quantity demanded of a good or service due to a change in its price, assuming other factors remain constant. These concepts are rooted in the law of demand, which states that, ceteris paribus, as the price of a good decreases, the quantity demanded increases, and vice versa. Both terms describe movements along the same demand curve, not shifts of the curve.
Extension of Demand
- Definition: An increase in the quantity demanded of a good or service due to a decrease in its price.
- Movement: Movement downward along the demand curve (from a higher price to a lower price).
- Cause: The price of the good or service falls, making it more affordable, so consumers buy more.
- Example: If the price of a cup of coffee drops from $5 to $3, and consumers buy more cups as a result, this is an extension of demand.
- Graphical Representation: On a demand curve (price on the y-axis, quantity on the x-axis), you move from a point higher on the curve to a point lower down, increasing the quantity demanded.
Contraction of Demand
- Definition: A decrease in the quantity demanded of a good or service due to an increase in its price.
- Movement: Movement upward along the demand curve (from a lower price to a higher price).
- Cause: The price of the good or service rises, making it less affordable, so consumers buy less.
- Example: If the price of a cup of coffee rises from $3 to $5, and consumers buy fewer cups as a result, this is a contraction of demand.
- Graphical Representation: On a demand curve, you move from a point lower on the curve to a point higher up, decreasing the quantity demanded.
Key Differences
| Aspect | Extension of Demand | Contraction of Demand |
|---|---|---|
| Price Change | Price decreases | Price increases |
| Quantity Demanded | Increases | Decreases |
| Movement on Curve | Downward along the demand curve | Upward along the demand curve |
| Cause | Good becomes more affordable | Good becomes less affordable |
| Example | Buy more coffee at $3 instead of $5 | Buy less coffee at $5 instead of $3 |
Important Notes
- Both extension and contraction occur due to a change in the price of the good itself, not due to changes in other factors like income, tastes, or prices of other goods. Changes in those factors would cause a shift of the demand curve (increase or decrease in demand), not a movement along it.
- These concepts assume all other factors affecting demand (e.g., consumer preferences, income, prices of substitutes or complements) remain constant.
If you’d like a chart to visualize the demand curve with extension and contraction, let me know, and I can provide one!
