What is the difference between a movement along a demand or supply curve and a shift of one of these curves? Why is it important to distinguish between the two? What mistake might a businessperson make if he or she failed to make this distinction?
A movement along the demand or supply curve is mainly influenced by one of two variables: price and quantity. For instance, try to think of your own demands for cars; If the price of a Porsche falls you are more likely to buy it, whereas before the drop in price you were hesitating. Hence, the drop in price led to increase in demand and this is reflected by a movement on the curve. From a supplier point of view, when the price decreases, he would want to supply less as he would be making less profits; this is represented by a downward movement on the supply curve.
As for the shift of the demand or supply curve, such event would happen as a result of change in external variables (non-price determinants). Non-price determinants of demand are those things that will cause demand to change at any given price or even if prices remain the same. In other words, the things whose changes might cause consumers to buy more or less of a good even if the good's own price remained unchanged. Some of the most important factors are the prices of related goods (both substitutes and complements), income, population, and expectations. For instance, expected cold weather in Kuwait would affect the demand on heaters to increase, which shall lead to an increase in the price and the quantity supplied of the heaters (ceteris paribus).
As for external variables that would lead to a shift in supply, these could be input prices (prices of raw material of a manufacturer), technology (decrease in cost of unit), expectations (on future prices), natural and social factors (natural disasters).
It is very important to differentiate between a movement on the demand/supply curve and a shift of the curve; a misinterpretation could lead to mistaken...