Sunday, August 21, 2011

Quantity Demand vs Demand: Explained Through Example

Economists often use the terms “quantity demand” vs “demand”, and sometimes it is easy to mix up the two, so in the following blog-post, I intend to differentiate the two through an explanation and graph. While it is hard to understand the difference between the two by definition alone, I will explain through an example. Let’s take the perfectly competitive market for oranges, and assume each type of a given orange originally costs one dollar.

Scenario one: All of a sudden, a study come out saying that if you eat an orange a week, you will add 10 healthy years to the end of your life. clearly, the demand for this product will increase. Now, for the same orange, you would expect to pay more than a dollar. Or, you would expect to get a fraction of an orange in return for the dollar. Basically, you are willing to pay more, and, as a result, the demand curve shifts to the right. This shift in demand caused a shift in the whole line. As scene in the “ health research” example, a change in demand can be caused by preferences and tastes, and it can also be caused by expectations.


* There's a shift in the demand point, and the demand line *
Scenario two: The manufacturing cost increases for a company, and, as a result, the price changes. The supplier can now produce less, and the supply curve shifts to the left. Consumers still demand the same amount (quantity demanded goes down).


*There's a shift in the demand point, but not the demand line*

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