Contraction of Demand:
Demand curve shifts upwards with an increase in demand. Similarly, when demand decreases, it shifts downwards left of the initial demand curve. This is shown in the below diagram:
Extension of Demand: If the price decreases from P1 to P2, then the demand increases (rises) from Q1 to Q. This growth of the demand is called Extension of Demand. For example, if the prices of Hilsha fish falls in the local markets due to a higher yield or for government regulation on their exports to other countries, their local demand automatically increases. Now even poor can afford and enjoy delicious fish also.
Contraction of Demand: If the price increases from P1 to P3, then the demand decreases from Q1 to Q3. This fall of the demand is called Contraction of Demand. For example, if the prices of mangoes rise then their demand in the market decreases. It is because, with the higher prices of mangoes, the ordinary people can’t afford to buy with their limited income. As a result, the demand for mangoes automatically falls down.
In the above diagram the quantity demanded and price of a commodity are shown along OX and OY axes respectively. DD is the initial demand curve. D1 D1 is the new demand curve drawn on the basis of an increase in demand due to the changes in other factors. When demand is D1D1, the quantity demanded increases. On the other hand, demand curve D2D2 shows a decrease in demand due to the changes in the other factors. It may be noted that increase in demand is shown by a new demand curve. Similarly decrease in demand is denoted with the help of a new demand curve drawn to the left side of the initial demand curve.