Is the extent to which a change in price causes a change in the quantity demanded?

Practice the vocabulary words from the lesson.

1. If we make more money we will purchase more of these kinds of goods.
   Answer: Normal good

2. When our income decreases we purchase more of these goods because it is more cost effective.
   Answer: Inferior good

3. A measure of responsiveness that tells us how a dependent variable such as quantity responds to a change in an independent variable such as price.
   Answer: Elasticity

4. The extent to which a change in price causes a change in the quantity demanded.
   Answer: Demanded elasticity

5. When a given change in price causes a relatively larger change in quantity demanded.
   Answer: Elastic

6. A given change in price causes a relatively smaller change in the quantity demanded.
   Answer: Inelastic

7. A given change in price causes a proportional change in quantity demanded.
   Answer: Unit elastic

What Is Quantity Demanded?

Quantity demanded is a term used in economics to describe the total amount of a good or service that consumers demand over a given interval of time. It depends on the price of a good or service in a marketplace, regardless of whether that market is in equilibrium.

The relationship between the quantity demanded and the price is known as the demand curve, or simply the demand. The degree to which the quantity demanded changes with respect to price is called the elasticity of demand.

Key Takeaways

• In economics, quantity demanded refers to the total amount of a good or service that consumers demand over a given period of time.
• Quantity demanded depends on the price of a good or service in a marketplace.
• The price of a product and the quantity demand for that product have an inverse relationship, according to the law of demand.

Quantity Demanded

Understanding Quantity Demanded

Inverse Relationship of Price and Demand

The price of a good or service in a marketplace determines the quantity that consumers demand. Assuming that non-price factors are removed from the equation, a higher price results in a lower quantity demanded and a lower price results in higher quantity demanded. Thus, the price of a product and the quantity demanded for that product have an inverse relationship, as stated in the law of demand.

An inverse relationship means that higher prices result in lower quantity demand and lower prices result in higher quantity demand.

Change in Quantity Demanded

A change in quantity demanded refers to a change in the specific quantity of a product that buyers are willing and able to buy. This change in quantity demanded is caused by a change in the price.

Increase in Quantity Demanded

An increase in quantity demanded is caused by a decrease in the price of the product (and vice versa). A demand curve illustrates the quantity demanded and any price offered on the market. A change in quantity demanded is represented as a movement along a demand curve. The proportion that quantity demanded changes relative to a change in price is known as the elasticity of demand and is related to the slope of the demand curve.

An Example of Quantity Demanded

Say, for example, at the price of $5 per hot dog, consumers buy two hot dogs per day; the quantity demanded is two. If vendors decide to increase the price of a hot dog to $6, then consumers only purchase one hot dog per day. On a graph, the quantity demanded moves leftward from two to one when the price rises from $5 to $6. If, however, the price of a hot dog decreases to $4, then customers want to consume three hot dogs: the quantity demanded moves rightward from two to three when the price falls from $5 to $4. 

By graphing these combinations of price and quantity demanded, we can construct a demand curve connecting the three points.

Using a standard demand curve, each combination of price and quantity demanded is depicted as a point on the downward sloping line, with the price of hot dogs on the y-axis and the quantity of hot dogs on the x-axis. This means that as price decreases, the quantity demanded increases. Any change or movement to quantity demanded is involved as a movement of the point along the demand curve and not a shift in the demand curve itself. As long as consumers' preferences and other factors don't change, the demand curve effectively remains static.

Price changes change the quantity demanded; changes in consumer preferences change the demand curve. If, for example, environmentally conscious consumers switch from gas cars to electric cars, the demand curve for traditional cars would inherently shift.

Price Elasticity of Demand

The proportion to which the quantity demanded changes with respect to price is called elasticity of demand. A good or service that is highly elastic means the quantity demanded varies widely at different price points.

Conversely, a good or service that is inelastic is one with a quantity demanded that remains relatively static at varying price points. An example of an inelastic good is insulin. Regardless of price point, those who need insulin demand it at the same amount.

What Affects Quantity Demanded?

Quantity demanded is affected by the price of the product. If the price goes up, the demand will go down. If the price goes down, demand will go up. Price and demand are inversely related in this way.

Does Quantity Demanded Only Apply to Physical Goods?

No. Quantity demanded can apply to service products as well. For example, if a photographer offers family portrait sessions for a lower price, they should book more sessions. If they price them higher, they will book fewer sessions.

What Is the Difference Between Demand and Quantity Demanded?

Demand and quantity demanded both pertain to purchasing but in different ways. Demand is just how many of an item a consumer is willing to buy—the sheer quantity. Quantity demanded is how many things a consumer will purchase at a specific price. Quantity demanded is a more detailed metric. Graphed out, demand is the entirety of the demand curve, whereas quantity demanded is a single point.

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