Is the quantity of a good or service that consumers are willing and able to buy?
BeginnerThe Law of Demand states that there is an indirect relationship between the price of a good or service and the quantity of that good or service that consumers are willing and able to buy. In other words, as the price of an item increases, buyers are less willing and able to buy it and vice versa. The law of demand explains how consumers usually respond to price changes. Remember – quantity responds to price, not the other way around! A
change in price leads to a decrease in quantity demanded only. Factors that change overall demand are dealt with in Concept 19 – Determinants of Demand. When graphed, the law of demand is shown by a downward sloping demand curve like the one seen in Graph 17-1. Show
 Intermediate
Demand for a product requires willingness and ability to pay. Ability to pay is simple arithmetic. As the price of a good or service increases, a buyer’s ability to buy the same quantity decreases, even if the buyer still really wants it. If a cupcake costs $2 and you have $10, you can buy five cupcakes. If the price rises to $4 and you still have $10, you can only buy two. Willingness to buy something is slightly more complicated. One aspect of your willingness to buy is how much satisfaction you think the good or service will bring you. As you consume more units of the same good (like cupcakes), your additional satisfaction with each new unit decreases, and you will be less willing to spend the same amount of money for it. Please see Concept 5: Marginal Cost and Marginal Benefit for further explanation. Additionally, your willingness to buy something is affected by opportunity cost. In the cupcake example above, spending $2 on a cupcake is okay with many people because most $2 items give you about the same satisfaction. You’re not giving up anything too significant to get the cupcake. If the price of a cupcake becomes $10, however, there is potentially a much higher opportunity cost. You might be sacrificing an entire pizza for a single cupcake! You can spend $10 in more ways and on items that may bring more satisfaction, so your willingness to spend $10 on a single cupcake is lower. Thus, the quantity you demand is lower. Advanced
Like supply, demand can be elastic or inelastic. Elastic demand refers to a price or price range where a relatively small change in price leads to a relatively large change in quantity demanded. This is usually the case for products that have many substitutes or are not necessities. Inelastic demand refers to a situation where even with a large change in price, consumers purchase roughly the same quantity. Medicine, utilities, and – to some extent – gasoline are examples of this. Even when gas prices go up 15-20% people do not drive 15-20% less. Demand for Goods and ServicesEconomists use the term demand to refer to the amount of some good or service consumers are willing and able to purchase at each price. Demand is based on needs and wants—a consumer may be able to differentiate between a need and a want, but from an economist’s perspective, they are the same thing. Demand is also based on ability to pay. If you can’t pay for it, you have no effective demand. What a buyer pays for a unit of the specific good or service is called the price. The total number of units purchased at that price is called the quantity demanded. A rise in the price of a good or service almost always decreases the quantity of that good or service demanded. Conversely, a fall in price will increase the quantity demanded. When the price of a gallon of gasoline goes up, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this inverse relationship between price and quantity demanded the law of demand. The law of demand assumes that all other variables that affect demand are held constant. An example from the market for gasoline can be shown in the form of a table or a graph. (Refer back to “Reading: Creating and Interpreting Graphs” in module 0 if you need a refresher on graphs.) A table that shows the quantity demanded at each price, such as Table 1, is called a demand schedule. Price in this case is measured in dollars per gallon of gasoline. The quantity demanded is measured in millions of gallons over some time period (for example, per day or per year) and over some geographic area (like a state or a country). Table 1. Price and Quantity Demanded of Gasoline
A demand curve shows the relationship between price and quantity demanded on a graph like Figure 1, below, with quantity on the horizontal axis and the price per gallon on the vertical axis. Note that this is an exception to the normal rule in mathematics that the independent variable (x) goes on the horizontal axis and the dependent variable (y) goes on the vertical. Economics is different from math! Figure 1. A Demand Curve for Gasoline The demand schedule (Table 1) shows that as price rises, quantity demanded decreases, and vice versa. These points can then be graphed, and the line connecting them is the demand curve (shown by line D in the graph, above). The downward slope of the demand curve again illustrates the law of demand—the inverse relationship between prices and quantity demanded. The demand schedule shown by Table 1 and the demand curve shown by the graph in Figure 1 are two ways of describing the same relationship between price and quantity demanded. Demand curves will look somewhat different for each product. They may appear relatively steep or flat, or they may be straight or curved. Nearly all demand curves share the fundamental similarity that they slope down from left to right. In this way, demand curves embody the law of demand: As the price increases, the quantity demanded decreases, and conversely, as the price decreases, the quantity demanded increases. Demand vs. Quantity DemandedIn economic terminology, demand is not the same as quantity demanded. When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. In short, demand refers to the curve and quantity demanded refers to the (specific) point on the curve. The Law of Demand VideoThe law of demand states that, other things being equal,
Ceteris paribus means “other things being equal.” Is the quantity of a good or service that consumers are willing and able to buy at a particular price?Economists use the term demand to refer to the amount of some good or service consumers are willing and able to purchase at each price. Demand is based on needs and wants—a consumer may be able to differentiate between a need and a want, but from an economist's perspective they are the same thing.
Is the amount of a good or service consumers are willing and able to buy a various possible prices during a specified time period is?Demand-a schedule or a curve showing the various amounts of a product consumers are willing and able to buy at each of a series of possible prices during a specified period of time. Quantity Demanded-the amount of a good that consumers choose to buy at a particular price.
Is the quantity that the consumers are willing to buy?The quantity demanded is the amount of a good that consumers want to buy at a given price, holding constant all other factors that influence purchases.
Is the quantity of a good or service that producers are willing and able to sell at various prices?Economists define supply as the quantity of a good or service that producers are willing and able to offer for sale at each possible price during a given time period.
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