Quantity Demanded
Demand is the relationship between price and quantity demanded. What is quantity demanded? The quantity demanded of a good or service is the amount people are willing to purchase at a particular price and a particular time period.
Let’s talk iPhones. Say that the iPhone is priced at $1000. The amount of iPhones that the people will buy at $1000 is say 100. Thus, 100 is the quantity demanded. Easy? Cool.
Quantity demanded ≠ Quantity bought
Quantity demanded of a good or service is not the amount actually bought. If we demand more than what we have already made, it’s called excess demand or a shortage. Think of a world with a 100 people and all of them wanting an iPhone but Apple only made 20. There’s a shortage of 80. If we demand less than what we have already made, it’s called excess supply. In our world of 100 people, since all of them want iPhones and we have 80 Android phones, that’s a surplus of 80 Android phones (no offense Android fans, just highlighting an example).
Demand, how do I change thee?
So how does one affect the demand of a good or a service? Here’s a list
- price of the good or service
If the iPhone costed $1,000,000, only the millionaires, billionaires and gazillionaires can afford it and there aren’t many millionaires, billionaires and gazillionaires on this planet.
- prices of related goods or services
If the iPhone costed $1 but the phone service with the data plan costed $1,000,000, again, not many people can afford it and probably would look to buy other phones.
If the iPhone costed $1,000,000 but all of a sudden, everyone received a pay raise of $500,000,000. Suddenly, everyone can afford the iPhone and it’s likely more people will buy it now that they can afford it.
- expected future prices
- population
- preferences
Moving along
When do we move along that demand curve? Only when the price of the good or service changes and everything else remains the same. When everything else changes, that means we’re shifting the demand curve. You’re not allowed to move along the demand curve unless the price changes ok?
The Big Shift
When demand decreases, demand moves to the left. When demand increases, demand moves to the right. Yup. You got it.