Quantity Demanded: Definition, How It Works, and Example

What Is Quantity Demanded?

Quantity demanded is a term used in economics to describe the total amount of a good or service that consumers demand over a given interval of time. It depends on the price of a good or service in a marketplace regardless of whether that market is in equilibrium.

The relationship between the quantity demanded and the price is known as the demand curve or simply the demand. The degree to which the quantity demanded changes with respect to price is referred to as the elasticity of demand.

Understanding Quantity Demanded

The price of a good or service in a marketplace determines the quantity that consumers demand.

Inverse Relationship of Price and Demand

A higher price results in a lower quantity demanded and a lower price results in a higher quantity demanded assuming that non-price factors are removed from the equation. The price of a product and the quantity demanded for that product have an inverse relationship as stated in the law of demand.

Change in Quantity Demanded

A change in quantity demanded refers to a change in the specific quantity of a product that buyers are willing and able to buy. This change in quantity demanded is caused by a change in price.

Increase in Quantity Demanded

An increase in quantity demanded is caused by a decrease in the price of the product and vice versa. A demand curve illustrates the quantity demanded and any price offered on the market. A change in quantity demanded is represented as a movement along a demand curve. The proportion that quantity demanded changes relative to a change in price is known as the elasticity of demand. It's related to the slope of the demand curve.

An Example of Quantity Demanded

Say that consumers buy two hot dogs per day at a price of $5 per hot dog. The quantity demanded is two. Then consumers only purchase one hot dog per day when vendors decide to increase the price of a hot dog to $6. The quantity demanded moves left on a graph from two to one when the price rises from $5 to $6.

But customers want to consume three hot dogs if the price decreases to $4 each. The quantity demanded moves rightward from two to three when the price falls from $5 to $4. We can construct a demand curve connecting the three points by graphing these combinations of price and quantity demanded,

Each combination of price and quantity demanded is depicted as a point on a downward-sloping line using a standard demand curve. The price of hot dogs appears on a y-axis and the quantity of hot dogs is on an x-axis indicating that the quantity demanded increases as price decreases. Any change or movement to quantity demanded is involved as a movement of the point along the demand curve and not a shift in the demand curve itself.

Price changes affect the quantity demanded. Changes in consumer preferences change the demand curve. The demand curve for traditional cars would inherently shift if environmentally conscious consumers switch from gas cars to electric cars.

Price Elasticity of Demand

The proportion to which the quantity demanded changes with respect to price is called elasticity of demand. A good or service that's highly elastic indicates that the quantity demanded varies widely at different price points.

A good or service that's inelastic is one with a quantity demanded that remains relatively static at varying price points. Insulin is an example of an inelastic good. Those who need insulin demand it at the same amount regardless of price point.

The Bottom Line

Quantity demanded is the amount of goods or services that consumers demand over a measurement of time. It depends on a product’s price. The relationship between the two is often referred to as the demand curve. A good or service can be inelastic if it’s immune to demand because consumers demand it regardless of its price.

As with so many other economic factors, the repercussions trickle down to consumers and their wallets.