What is the term for the effect which a price change has on real income and therefore on the quantity demanded of a product?

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.

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Terms in this set (21)

All of the following except one is demand. Which is the exception?

A. The quantities which consumers are willing and able to buy for. Of time at various prices be.
B. The relationship between various prices and quantities demanded for a product see.
C. A hypothetical construct which expresses the desire and ability to purchase not us at a single price over a range of prices D.
D. The quantities which consumers want to buy

What is meant by the term change in the quantity demanded?

The change in the quantity which results from a price change and implies a movement along the demand curve

What is meant by the term ceteris paribus?

other things being equal

What is the term for income measured by the amount of goods and services which it can buy?

real income

What is the term for the total demand for a product by all consumers?

market demand

What is the income effect?

The effect of a price change on real income and therefore on the quantity demanded of a product

What is the substitution effect?

The substitution of one product for another as a result of a change in their relative prices

Which of the following is explained by the combination of the substitution effect and the income effect?

downward sloping demand curve's

What is the term for a change in the amount that a producer is willing and able to make available as a result of a price change?

change in the quantity supplied

What is the effect of an increase in the price of a product?

an increase in the quantity supplied

What is the equilibrium price?

The price at which the quantity demanded equals the quantity supplied.

If the price of a product does not change immediately which of the following will cause an initial surplus of a product?

A decrease in the demand or an increase in the supply.

What is the name of those products whose demand will increase as a result of an increase in income?

normal products

What is the term for those products whose demand will decrease as a result of an increase in income and will increase as a result of a decrease in income?

inferior products

What is the term for those products which tend to be purchased jointly and who's the man's therefore are related?

complementary products

Which of the following pairs of products are complements

A. automobile and steals
B. steel and oil
C. bread and flour
D. cameras and films
D. flour and wheat

What is the relationship between pizzas and hamburgers?

they are substitute products

What is the effect of consumers expecting that the future price of a product will increase?

it will cause an increase in demand

What is the effect on a product if there is an increase in the price of the substitute product?

it will cause an increase in demand

What is the effect of a decrease in the supply of a product?

it will cause a decrease in supply

What is the effect of an improvement in technology?

it will cause an increase in supply

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What is the effect of a change in price on quantity demanded?

What is meant by the term change in quantity demanded?