An Important Subtlety in Demand Theory
Let’s get it right once and for all. Demand and quantity demanded are not the
same concepts, and a change in demand is different from a change in quantity
demanded. There are many subtleties in economics, but the difference
between demand and quantity demanded and the difference between a change
in demand and a change in quantity demanded require particular attention
since they are quagmires for the general public seeking to understand a bit of
economics, and pitfalls for beginning and even more advanced students who
want to make a serious study of economics.
Let us first deal with demand and quantity demanded. The difference between
demand and quantity demanded is not just a matter of semantics. There is, in
fact, a real difference. Demand is a relationship between price and quantity
demanded. It refers to a whole range of prices with the various quantities
associated with them. Quantity demanded, on the other hand, is just one
quantity that will be bought at some specific price.
A demand schedule can be used to illustrate the difference. Consider the
following table showing a relationship between the price of an item and the
quantity demanded.
| Price ($) | Quantity Demanded |
| 10 | 60 |
| 9 | 70 |
| 8 | 80 |
| 7 | 90 |
| 6 | 100 |
The entire table, a demand schedule, represents demand. But quantity
demanded is represented by any of the numbers in the right hand column. For
example, 70 is the quantity that will be demanded at a price of $9, and 100 is
the quantity that will be demanded at a price of $6. It is therefore incorrect to
say that at a price of $8, the demand is 80.
A demand curve can also be used to illustrate the difference between demand
and quantity demanded. Consider the following diagram.
The entire curve represents demand whereas quantity demanded is
represented by a point such as A on the demand curve.
Let us now consider the difference between a change in demand and a change
in quantity demanded. A change in demand means that a different quantity is
bought at any given price because of a change in a determinant of demand
such as income, price of related good, expectations, population, etc. Note that
a change in the price of the item being considered will not change the demand for
the item.
A change in quantity demanded means that a different quantity of an item is
demanded as the price of the item changes.
Graphically, a change in demand is illustrated by a shift of the entire demand
curve, either to the right for an increase in demand as shown in the following
diagram, from DD to D1D1, or to the left.
A change in quantity demanded is illustrated graphically by a movement along
a given demand curve as shown as a movement from point A to point B on
demand curve DD in the diagram below.
If the difference between demand and quantity demanded is not recognized,
then one could make the following erroneous statement without realizing the
error:
“An increase in the demand for an item will cause the price of the item to rise.
But the increase in the price of the item will cause the demand to fall, which, in
turn, will reduce the price. So the effect of an increase in demand on price is
indeterminate.”
Let us examine the statement carefully. Economists assert that an increase in
demand, other things being equal, will cause the price to rise. They know that if
demand increases while some other variable changes (a fall in income, for
example), then the price may not rise. Then comes the unpardonable: “But the
increase in the price of the item will cause the demand to fall, ….” An increase
in the price of an item causes quantity demanded (not demand) to fall. In
conclusion, we know for sure that other things being equal, an increase in
demand will cause the price to increase. You can take that to the bank.
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