Quantity Demanded
The overall amount of an item or service consumers need or want during a specific period, determined by the price of an item or service in a market, whether or not that market is in equilibrium.
What Is Quantity Demanded?
In economics, Quantity Demanded refers to the overall amount of an item or service consumers need or want during a specific period. It is determined by the price of an item or service in a market, whether or not that market is in equilibrium. Along with the consumer needs/demands, the customer should also be willing to pay.
The aggregate value of goods or services demanded by consumers during a given period is referred to as the quantity demanded ( QD ). The amount requested is determined by the market price of products or services.
The price of goods or services is inverse to the quantity required in economic terms. The entire amount of products and services consumers need or want and are ready to pay for overtime is known as the QD.
The price customers are charged for a good or service, regardless of whether that price is the market equilibrium price, is a crucial aspect of a demand curve.
The demand curve is the relationship between consumers' desired quantity of an item or service in the marketplace and its price. The elasticity of demand describes how demand changes concerning price.
The quantity requested changes as the buyer's requirements increase or decrease. The slope of the demand curve represents the same thing.
The demand curve, or simply the demand, is the connection between the quantity desired and the price. The elasticity of demand is the degree to which the amount demanded fluctuates as a function of price.
A demand curve is a graph that depicts the relationship between the number of products or services desired and the price of those goods or services in economics.
The X-axis represents the quantity demanded, while the Y-axis represents the price. The demand curve shows the rise in the amount required and a price increase when the points of intersection of price and demand are linked.
A change in the quantity demanded in response to a change in price will be reflected in a movement along the demand curve. The price elasticity of demand is the proportion in which the amount required changes in response to a change in price.
One of the essential aspects considered in the law of demand is the quantity demanded. The amount required is directly proportional to the price of the goods or services. However, other non-price elements influence the quantity desired in addition to the price.
It has an inverse relationship with the price of the commodity or service. Higher costs for goods or services lead to a decrease in demand.
Lower costs for goods or services lead to increased demand. As a result, in most circumstances, the price influences the amount demanded to increase or decrease.
Understanding Quantity Demanded
The quantity demanded can be explained with the help of the price elasticity of demand, the change in the demanded quantity, and the inverse relationship of price and demand.
These factors are discussed below.
Price and Demand Have an Inverse Relationship
The quantity that consumers demand is determined by the price of an item or service in a marketplace. Therefore, if non-price elements are taken out of the equation, a higher price leads to a lower amount demanded, whereas a lower price leads to a bigger QD.
As a result, according to the law of demand, the product's price and QD that the product have an inverse relationship. In an inverse relationship, higher prices lead to decreased quantity demand, whereas lower prices lead to higher quantity demand.
Change In Demanded Quantity
A shift in the quantity that is demanded relates to the amount of a product that customers are willing and able to purchase. Therefore, a change in the price causes a difference in the amount demanded.
Increase In Quantity Demanded
A decrease in the price of the product causes an increase in the amount demanded (and vice versa). A demand curve depicts the QD as well as any market price.
A movement along a demand curve represents a change in the QD. The elasticity of demand measures how much the amount wanted changes in response to a change in price and is proportional to the slope of the demand curve.
Price Elasticity Of Demand
The elasticity of demand is the proportion of change in the quantity desired as a function of price. The amount requested for a highly elastic commodity or service varies substantially at different price points.
On the other hand, an item or service that is inelastic has a QD that is largely constant across price points. Insulin is an example of an inelastic good. Those who require insulin demand the same amount regardless of price.
Quantity Demanded In Practice
Let's say that at $5 a hot dog, customers purchase two hot dogs daily; the quantity demanded is two. If merchants decide to raise the price of a hot dog to $6, customers will only buy one every day.
When the price climbs from $5 to $6, the amount demanded moves leftward from two to one on a graph. When the price of a hot dog falls from $5 to $4, however, clients desire three hot dogs: the number demanded goes rightward from two to three when the price drops from $5 to $4.
We can construct a demand curve linking the three spots by graphing these combinations of price and amount demanded.
Each combination of price and quantity desired is represented as a point on the downward-sloping line using a conventional demand curve, with the cost of hot dogs on the y-axis and the number of hot dogs on the x-axis.
This indicates that as the price falls, so does the quantity demanded. Any change in the amount sought is represented by a shift in the demand curve's point rather than a shift in the demand curve itself.
The demand curve effectively remains steady as long as customer preferences and other factors do not alter.
Price changes alter QD, whereas shifts in customer preferences vary the demand curve. For example, the demand curve for traditional cars would inevitably shift if environmentally conscious consumers switched from gas to electric cars.
Different Types of Demand
The different types of demands are discussed below.
No Demand
When a consumer is unaware of the good or service and has insufficient information, or when the consumer is apathetic, there is no demand.
To avoid such a demand, the company's marketing department should focus on promotional efforts and persuade potential customers to utilize the company's goods or services.
Differentiating the company's product by emphasizing its Unique Selling Proposition is a popular method for determining a good or service in a competitive market (USP).
Negative Demand
Negative demand exists when the market response to a good or service is negative. The features and benefits of the items or services offered are unknown to the customers.
The marketing department's mission is to determine why its product or service was rejected. As a result, a method to turn negative demand into buoyant demand is required.
Latent Demand
Some commodities or services cannot meet all of society's requirements and wants of the organization and community. This is known as latent demand. Latent demand always exists in an economy and should be viewed as a business opportunity.
A passenger in economy class on an airline, for example, fantasizes about flying in business or first class. As a result, latent demand is the difference between desire and affordability.
Seasonal Demand
Refers to when the demand for a product or service varies according to the season. Seasonal demands vary widely around the world. As a result, studying the various market sectors is critical to comprehending the demand pattern.
Service firms must analyze demand patterns to adapt their service offerings to changing demand. They must develop a mechanism to map demand changes, aiding demand cycle forecasting.
Price Demand
Refers to the demand for various amounts of a product or service that customers expect to acquire at a specific price and time, assuming that other factors like the pricing of similar commodities, consumer income, and consumer preferences remain constant.
The price of a product or service is inversely proportional to demand. When a product's or service's price rises, demand declines, and vice versa. As a result, price demand refers to the functional link between a product's or service's price and the QD.
Price demand can be expressed numerically as follows:
Where,
DA = f (PA)
- DA = Demand for Product.
- f = stands for function.
- PA = Product A's price
Income Demand
It's a demand for various amounts of a commodity or service that customers expect to acquire at different income levels, assuming that all other parameters remain constant.
Except for inferior goods, demand for a commodity or service rises with an increase in individual income. As a result, market and pay for standard products are directly proportional, whereas demand and pay for inferior goods are inversely proportional.
The following is a mathematical expression of the demand-income relationship:
DA = f (YA)
- DA = Commodity Demand,
- f = Function
- YA = Income of consumer A
Cross Demand
The term refers to the demand for varying quantities of a commodity or service whose demand is influenced by the price of related goods or services and the price of the entity or service itself.
Tea and coffee, for example, are often regarded interchangeably. As a result, when coffee prices rise, consumers turn to tea. As a result, the demand for tea rises. As a result, tea and coffee are considered to have a cross-demand.
Cross demand can be expressed mathematically as follows:
DA = f (PB)
- DA = Commodity Demand
- f = Function
- PB = the price of commodity B.
Market Demand And Individual Demand
Demand is classified according to the number of consumers in the market. Individual demand is the quantity of a commodity or service demanded by a single consumer at a specific price during a particular period.
Individual or family demand is, for example, the amount of sugar purchased in a month by an individual or household. The price of a product, the income of clients, and their likes and preferences all influence individual demand for that product.
Market demand, on the other hand, is the sum of all individual requests of all customers for a product over time at a specific price while all other parameters remain constant.
Sugar, for example, is consumed by four people (having a certain price). In a month, these four customers consume 30 kilos of sugar, 40 kilograms of sugar, 50 kilograms of sugar, and 60 kilograms of sugar, respectively.
As a result, the monthly market demand for sugar is 180 kilograms.
Joint Demand
The quantity demanded by two or more commodities or services consumed together and consequently required together is known as joint demand.
Cars and gasoline, for example, bread and butter, pens and refills, and so on, are commodities that are used and demanded together. Such commodities' demand fluctuates proportionally. For example, when the demand for automobiles increases, so does the need for gasoline.
In the event of combined demand, however, a rise in the price of one commodity causes a drop in demand for the other. In the example above, an increase in the price of vehicles causes a decrease in demand for both cars and gasoline.
Composite Demand
The demand for commodities or services with numerous uses for one product is known as composite demand. Steel demand, for example, is driven by its usage in cutlery, automobile bodies, pipelines, and cans, among other things.
When a commodity or service has composite demand, a change in price causes a significant shift in direction because the need for the thing or service varies depending on how it is used.
In the example above, if the price of steel rises, the cost of other steel-based items also rises. People may limit their usage of steel items in this situation.
Direct And Derived Demand
The demand for goods or services intended for final consumption is known as direct demand. This urge stems from a person's innate desire to consume a particular substance.
For example, food, shelter, clothing, and automobile demand is direct since it derives from consumers' biological, physical, and other human requirements.
Derived demand occurs when a product's demand is derived from the need for other products. The demand for cotton, for example, is generated from the demand for cotton fabrics.
Manufacturers' goods, such as raw materials, intermediate goods, and machines and equipment, are subject to derived demand. Aside from that, the order is derived from the factors of production (land, labor, capital, and enterprise).
The need for labor in constructing structures, for example, is a derived demand.
Formula Quantity Demanded
The equation can be written in terms of price elasticity of demand, defined as the ratio of change in need to change in price levels.
Quantity Demanded Price Elasticity= [Pi x (Qj – Qi)] / [Qi x (Pj – Pi)]
- Pi and Pj, respectively, represent the initial and ultimate prices of products and services
- Qi and Qj indicate the initial and final quantity of products and services needed, respectively
How Do You Calculate The Quantity Required?
- Step 1: Determine the initial amounts of demand.
- Step 2: Determine the initial quote price.
- Step 3: Finally, determine the final demand levels.
- Step 4: Finally, quote the final price based on the updated demand levels.
- Step 5: Next, determine how much the initial and final demand differs. Subtract the result from the original quantity.
- Step 6: Next, calculate the difference between the starting and final demand prices. Subtract the result from the starting price.
- Step 7: To calculate the price elasticity of the QD, divide the result from step 5 by step 6.
We can deduce that the quantity required by consumers is inelastic if the resulting value is less than 1. On the other hand, if the resultant value is greater than 1, we can suppose that the amount demanded by the consumer is elastic to price fluctuations.
Examples Quantity Demanded
Example 1
Determine the price elasticity of the quantity in demand. Let us take the example of 20,000 units of apartment demand and the rental price is quoted at $750. However, for 25,000 units of apartment demand, the rental price is quoted at $650.
Solution
Use the below-given data:
| Particulars | Amount |
|---|---|
| Initial price (Pi) | $750 |
| Initial QD (Qi) | 20,000 |
| Final price (Pj) | $650 |
| Final QD (Qj) | 25,000 |
Calculation of Change in Price
| Particulars | Amount |
|---|---|
| Initial price (Pi) | $750 |
| Initial QD (Qi) | 20,000 |
| Final price (Pj) | $650 |
| Final QD (Qj) | 25,000 |
| Change in price ( Pj - Pi ) | -$100 |
= $650-$750
= $-100
Calculation
| Particulars | Amount |
|---|---|
| Initial price (Pi) | $750 |
| Initial QD (Qi) | 20,000 |
| Final price (Pj) | $650 |
| Final QD (Qj) | 25,000 |
| Change in price (Pj - Pi) | -$100 |
| Change in QD (Qj- Qi) | 5,000 |
= $25000 - $20000
= 5000
Calculation of Price Elasticity can be done as follows:
Price elasticity of QD = ($750*500)/(20000*-$100) = -1.875
We can infer that the amount required is inelastic with price changes because the point elasticity of demand is smaller than 1. In addition, because there has been an increase in the inventory of apartment units, the price has dropped because consumers now have a choice of 25,000 apartments.
Example 2
Determine the QD elasticity. Take, for example, gasoline and diesel products. The demand for petrol and diesel as fuel has increased by 20%. As a result, the price has increased by 30% due to increased demand.
Solution
Use the below-given data:
| Particulars | Percentage |
|---|---|
| Change in price | 30% |
| Change in quantity | 20% |
Calculation of Price Elasticity can be done as follows:
Price Elasticity = 20%/30%
Price Elasticity will be as follows,
Price Elasticity = 67%
We can deduce that the amount requested for petrol and diesel products as fuel has an inelastic relationship with the level of prices quoted because the elasticity is less than one.
Demand Vs. Quantity demanded
| Basis | Demand | Quantity Demanded |
|---|---|---|
| Meaning | Demand is defined as the buyer's willingness to pay the price for an economic good or service, as well as his ability to do so. | Consumers desire an exact quantity (how much) of a commodity or service at a specific price, which is represented as the QD. |
| What exactly is it? | It lists the different volumes that can be purchased at different prices. | It refers to the real quantity of items desired at a certain price. |
| Change | Demand increases or decreases. | Demand expansion or contraction. |
| Reasons | Other than price considerations. | Price |
| Change measurement | The demand curve has shifted. | Changes in the demand curve (Movement along the demand curve). |
| Consequences of a price change, in reality. | There is no change in demand. | Demand for quantity has changed. |
Primary Factors affecting the demand for a commodity
The primary factors affecting the demand for a commodity are discussed below.
Price Of Commodity
The most important predictor of demand is the commodity price. In general, it is predicted that as the cost of the product falls, the QD of the commodity increases, and as the price rises, the amount wanted of the commodity decreases.
As a result, a commodity's price and the quantity demanded have an inverse relationship. The inverse relationship between a commodity's price and the amount that is demanded is known as the 'law of demand.'
Price demand, or simply demand, is the relationship between a commodity's price and the quantity required.
Prices Of Related Goods
Two forms of goods relationships are studied in economics. These are both complementary and substitutes for items.
Whether the associated goods are complementary or substitutes determines how their prices affect the price of the commodity under consideration.
Complementary items are those that are used together to fulfill a particular need, such as tea and sugar, a ball pen and refill, a car and gasoline, and so on.
Joint demand occurs when two or more goods are required simultaneously to satisfy a want. For example, the demand for complementary goods increases when the price of a commodity falls. If 'x' and 'y' are complementary commodities.
For example, as the price of gasoline falls, the demand for automobiles will rise. This occurs because the QD increases as the price of gasoline falls. Therefore, with more cars, a more significant amount of gasoline may be utilized.
The price of tea and the demand for sugar have a similar relationship. When the price of tea drops, the demand for sugar rises.
Substitutes, on the other hand, are items that can be used instead of one another. Tea and coffee, for example, or a scooter and a motorcycle.
The availability of alternative commodities (substitutes) to meet a particular demand distributes the overall market among several goods.
The greater the number of alternatives, the lower the demand for each one. Furthermore, the price of various items impacts the demand for their substitutes.
A drop in the price of a good causes a decrease in demand for its replacements, whereas an increase in the price of an item causes an increase in demand for its substitutes. Suppose the commodities' x's and 'z' are interchangeable. As the coffee cost rises, so does the need for tea, as consumers begin to drink more tea and less coffee.
To put it another way, tea is used instead of coffee. Furthermore, a price increase by Maruti Udyog will increase demand from competing manufacturers such as Daewoo Motors, Hyundai, TELCO, and others.
On the contrary, when the price of coffee falls, so does the demand for tea. As a result, we may see a direct link between a good's price and the need for its substitution.
Cross-demand refers to the relationship between the price of one commodity and the demand for another.
Income Of Consumer
The demand for goods is also influenced by the consumer's income, which is beyond management's control. As a result, his purchasing power improves as his income rises, allowing him to purchase more products.
As a result, the demand for commodities rises. As a result, an increase in income has a favorable impact on consumer demand. Income demand is the relationship between income and demand.
In general, people's earnings are proportional to their desires. As a result, the income demand curve slopes higher. Such items are referred to as everyday goods because they have a positive income effect, meaning that as income rises, so does the demand for them, and vice versa.
However, demand for certain products known as essentials is unrelated to wealth in any case.
An example of salt might be presented here. Salt demand does not rise or fall with income. Therefore, the graph depicting the relationship between consumer income and salt demand is vertical.
The gain in the consumer's income could potentially result in a decrease in the quantity requested of the goods. This is the situation with low-quality products. If a good's demand diminishes as the consumer's income rises, it is said to be an inferior good.
The income effect is negative, and there is an inverse link between income and demand for defective items. Examples include vegetable ghee, jaggery, coarse grains like bajra, and other low goods. Shows the income demand curve for an inferior good.
Such goods are distinguished from ordinary goods by changes in income while keeping the commodity's price constant.
The demand for a commodity may initially increase. However, demand remains constant or even decreases once a particular income level is reached. The Engel curve is named after a notable German statistician, Engel, who researched the relationship between income and consumption (demand).
Furthermore, the Engel expenditure curve is obtained by converting income to expenditure on the commodity.
Demand is influenced positively not only by increases in current income but also by the discounted worth of accumulated revenue from work or property in previous periods (wealth, W). This is known as the demand effect of real wealth.
If a consumer's marginal inclination to spend is high (and their marginal propensity to save is low), a big part of the new income will be spent on products, trim will be saved, and vice versa.
This change in propensity to consume (or saving behavior) affects commodity demand.
Furthermore, the household's income relative to his neighbor's income and purchase pattern might occasionally influence demand. As a result, when a neighbor incurs the expense, the home may spend more. The demonstration effect is what it's called.
Tastes And Preferences Of Consumers
The consumer's likes and preferences (both logical and irrational) are other significant aspects that influence the demand for a commodity in the market. In addition, tastes and preferences shift over time, affecting the demand for various items.
There is a higher demand for a product that consumers enjoy and prefer. In addition, consumer tastes and preferences may shift in response to changes in fashion or advertisements for various products.
This is the only factor of demand over which management has some control via advertising, product quality, and service, among other things. It is an advertisement that has significantly impacted Babool's toothpaste demand.
Films are frequently responsible for the establishment of fashion, which has an impact on demand for many existing products. Consumers can become habitual or habituated to the usage of certain things, and unless significant impetus is offered, they may not change their habits.
Changes in customs, conventions, and habits can influence consumer preferences. Unfortunately, these socio-psychological demand drivers frequently elude theoretical explanations.
On the other hand, demand for some things diminishes when they go out of style or when people's tastes and preferences no longer favor them.
Expectations About Future Prices
Consumers' expectations about future costs of items influence their demand, particularly for consumer durable goods, which may be postponed and preponed more easily than non-durable purchases.
Consumers tend to want more now if they expect prices of specific goods to rise soon for any reason.
As a result, demand for commodities whose prices are predicted to rise increases. For example, when the new budget is published in February, we generally see an increase in demand for televisions, refrigerators, and air conditioners due to fears of price increases.
If they predict prices to fall short, on the other hand, they will demand less of it now.
Furthermore, if consumers expect a substantial income in the future, they will boost their purchases now. As a result, the current demand for goods will increase.
On the other hand, due to lower predicted future income, retirees cut back on non-essential expenses.
Secondary factors affecting the demand for a commodity
The secondary factors affecting the demand for a commodity are discussed below.
Other Factors
Consumer demand is influenced by sociological characteristics such as educational background, social standing, marital status, age, and place of residence (urban or rural). In addition, climate and weather conditions have an impact on consumer demand.
Consumer demand is also influenced by advertising, sales promotion measures, and financing availability. Individual wants at varied prices are added together to get the market demand for a good. Three other elements have an impact.
Population Size And Regional Distribution
The greater the number of people who buy a product, the higher the market demand for it. As a result, a commodity's demand is proportional to the population, which is governed by birth and death rates.
Migration and immigration have an impact on the population. However, the demand is also influenced by population dispersion.
Population Composition
Higher children mean more demand for baby food, toys, biscuits, sweets, and other items. Similarly, as the population ages, spectacles, fake teeth, sticks, tonics, fruits, and other items will become increasingly popular.
The high proportion of young people in the population will increase the demand for cosmetics, sportswear, denim, and other items. Similarly, sex composition influences the need for a variety of goods.
Income Distribution
If income is divided equitably throughout the various social groups, everyone will be able to demand commodities. However, items purchased by relatively impoverished individuals, such as wheat, rice, and fans, will be in more demand.
However, if income is allocated unequally, most individuals will receive only a tiny share of the national income, limiting the demand for a commodity.
In this instance, most of the luxury demand will come from the wealthy. Furthermore, a more significant revenue will be saved in this instance (by rich people).
Researched and authored by Deeksha Pachauri | LinkedIn
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