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Difficulty: MediumConcept and Law of Demand

A commercial bakery increases the retail price of a loaf of white bread from ₦500 to ₦700, causing households to purchase fewer loaves per week. Simultaneously, a national health campaign alters consumer preferences away from refined flour products. Which of the following correctly describes how these two events are represented on the demand curve for white bread?

  1. The price rise causes an upward movement along the existing demand curve, while the change in consumer preference causes a leftward shift of the entire demand curve.Answer
  2. B
    Both the price rise and the change in consumer preference cause the entire demand curve to shift leftward.
  3. C
    The price rise causes the entire demand curve to shift leftward, while the change in consumer preference causes a movement along the curve.
  4. D
    The price rise causes an upward movement along the demand curve, while the change in consumer preference increases competitive demand.

Answer

The price rise causes an upward movement along the existing demand curve, while the change in consumer preference causes a leftward shift of the entire demand curve.
Under the law of demand, a change in the price of a product causes a movement along its existing demand curve (a change in quantity demanded). In contrast, non-price determinants such as consumer tastes, income, or health awareness cause a shift of the entire demand curve (a change in demand). Therefore, the price increase leads to an upward movement along the curve, while the adverse preference change shifts the curve leftward.

Step-by-Step Solution

1
Analyze the impact of the price change (from ₦500 to ₦700).
A change in the price of the good itself, with non-price factors constant, results in a movement along the demand curve (a decrease in quantity demanded).
The law of demand establishes an inverse relationship between price and quantity demanded along a given demand curve.
2
Analyze the impact of the health campaign on consumer preferences.
A change in consumer tastes/preferences is a non-price determinant, causing a shift of the entire demand curve to the left (a decrease in demand).
Non-price factors alter the quantity demanded at every given price level, shifting the demand curve position.
3
Combine both effects to identify the correct graphical representation.
The price increase leads to an upward movement along the curve, while the negative preference shift moves the curve leftward.
Distinguishing between movement along a curve and a shift of the curve is a core requirement of demand analysis.

Key Concept

Distinction between Change in Quantity Demanded (Movement) and Change in Demand (Shift)
Estimated Time:1m 0s
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Topics

Concept and Law of Demand

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