When an increase in the price of a good leads to an increase in the quantity demanded for another the two goods are?

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.

Video transcript

We've talked a little bit about the law of demand which tells us all else equal, if we raise the price of a product, then the quantity demanded for that product will go down. Common sense. If we lower the price, than the quantity demanded will go up, and we'll see a few special cases for this. But what I want to do in this video is focus on these other things that we've been holding equal, the things that allow us to make this statement, that allow us to move along this curve, and think about if we were to change one of those things, that we were otherwise considering equal, how does that change the actual curve? How does that actually change the whole quantity demanded price relationship? And so the first of these that I will focus on, the first is the price of competing products. So if you assume that the price of-- actually I shouldn't say competing products, I'll say the price of related products, because we'll see that they're not competing. The price of related products is one of the things that we're assuming is constant when we, it's beheld equal when we show this relationship. We're assuming that these other things aren't changing. Now, what would happen if these things changed? Well, imagine we have, say, other ebooks-- books is price-- price goes up. The price of other ebooks go up. So what will that do to our price quantity demanded relationship? If other ebooks prices go up, now all of a sudden, my ebook, regardless of what price point we're at, at any of the price points, my ebook is going to look more desirable. At $2, it's more likely that people will want it, because the other stuff's more expensive. At $4 more people will want it, at $6 more people will want it, $8 more people will want it, at $10 more people will want it. So if this were to happen, that would actually shift the entire demand curve to the right. So it would start to look something like this. That is scenario one. And these other ebooks, we can call them substitutes for my product. So this right over here, these other ebooks, these are substitutes. People might say, oh, you know, that other book looks kind of comparable, if one is more expensive or one is cheaper, maybe I'll read one or the other. So in order to make this statement, in order to stay along this curve, we have to assume that this thing is constant. If this thing changes, this is going to move the curve. If other ebooks prices go up, it'll probably shift our curve to the right. If other ebooks prices go down, that will shift our entire curve to the left. So this is actually changing our demand. It's changing our whole relationship. So it's shifting demand to the right. So let me write that. So this is going to shift demand. So the entire relationship, demand, to the right. I really want to make sure that you have this point clear. When we hold everything else equal, we're moving along a given demand curve. We're essentially saying the demand, the price quantity demanded relationship, is held constant, and we can pick a price and we'll get a certain quantity demanded. We're moving along the curve. If we change one of those things, we might actually shift the curve. We'll actually change this demand schedule, which will change this curve. Now, there other related products, they don't just have to be substitutes. So, for example, let's think about scenario two. Or maybe the price of a Kindle goes up. Let me write this this way. Kindle's price goes up. Now, the Kindle is not a substitute. People don't either buy an ebook or they won't either buy my ebook or a Kindle. Kindle is a compliment. You actually need a Kindle or an iPad or something like it in order to consume my ebook. So this right over here is a complement. So if a complement's price becomes more expensive, and this is one of the things people might use to buy my book, then it would actually, for any given price, lower the quantity demanded. So in this situation, if my book is $2, since fewer people are going to have Kindles, or since maybe they used some of their money already to buy the Kindle, they're going to have less to buy my book or just fewer people will have the Kindle, for any given price is going to lower the quantity demanded. And so it'll essentially will shift, it'll change the entire demand curve will shift the demand curve to the left. So this right over here is scenario two. And you could imagine the other way, if the Kindle's price went down, then that would shift my demand curve to the right. If the price of substitutes went down, then that would shift my entire curve to the left. So you can think about all the scenarios, and actually I encourage you to. Think about drawing yourself, think about for products, that could be an ebook or could be some other type of product, and think about what would happen. Well, one, think about what the related products are, the substitutes and potentially complements, and then think about what happen as those prices change. And always keep in mind the difference between demand, which is this entire relationship, the entire curve that we can move along if we hold everything else equal and only change price, and quantity demanded, which is a particular quantity for our particular price holding everything else equal.

What happens to the quantity demanded when price increases?

Does an increase in price lead to an increase in demand?

When a rise in the price of one good leads to a lower quantity consumed of another good the two goods are?

What are the goods called when an increase in the price of one leads to an increase in the quantity demanded of the other?