Change in Quantity Demanded
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Definition of a Change in Quantity Demanded:
A
change in the quantity demanded is the change in the number of units consumers are willing to purchase that results from a change in the price of that good or service.
Detailed Explanation:
The law of demand tells us that a change in the price will result in a change in the quantity demanded of a good or service. When sellers increase their price, consumers normally reduce the quantity they purchase. Conversely, when sellers have a sale it is to attract buyers and sell more. A change in the quantity demanded is illustrated by movement along the demand curve.
It is important to distinguish between a change in the quantity demanded and a change in demand. Many variables can change the demand for a product. These include: a change in income, a change in the price of related products, the number of buyers, future expectations, or a change in tastes. Let's use an example of babysitting and theater tickets to illustrate the relationship and differences between a change in demand and a change in the quantity demanded by using the graphs below.
The Smith's love the theater and are thrilled to learn the local theater recently dropped its price from $40 to $25 per ticket. The Smith's demand curve shows us that they would increase the quantity of tickets they purchase from four to ten per season. This increase in the quantity demanded is illustrated by a movement along the demand curve from point A to point B.
The Smiths have a three year old daughter and use Jane to babysit when they attend plays. Their demand for Jane's services just increased as a result of the drop in ticket prices. Theater tickets and babysitting are complements. Note that the demand for Jane's babysitting has increased even though she has not changed her price. In fact, the demand for her services increased at all prices. This increase in demand is illustrated by a rightward shift in the demand curve for babysitting from Demand curve A to Demand curve B.
The impact a price change will have on total revenues depends on the item's price elasticity of demand. How severely is the change in the quantity demanded impacted by a change in the price? Revenues will decrease following an increase in the price if the product has an elastic demand. The added revenues generated per unit sold are less than the revenues lost from the drop in the quantity demanded. Conversely, revenues will increase following an increase in the price if the product has an inelastic demand because the added revenues generated from each sale will be greater than the revenues lost from diminished sales.
Dig Deeper With These Free Lessons:
Demand – The Consumer's Perspective
Changes in Demand –
When Consumer Tastes Change
Price Elasticity of Demand –
How Consumers Respond to Price Changes
Supply and Demand –
Producers and Consumers Reach Agreement
Changes in Supply –
When Producer Costs Change
