Random Fact

The combined (federal, state, local) top corporate income tax rate in the United States is 39.2%. It's the highest in the world. The top rate in Japan is 38%. The top rate in Switzerland is 22%. The top rate in Brazil is 25%. The top rate in Mexico is 30%. The top rate in Canada is 34% (http://www.huffingtonpost.com/2012/03/30/us-corporate-tax-rate_n_1392310.html).

Section 11: Demand versus Quantity Demanded and Supply versus Quantity Supplied PDF Print E-mail
Macroeconomics - Unit 2

The Difference Between Demand and Quantity Demanded

 

We learned in an earlier section that as the price of a product increases, the amount purchased by buyers decreases. This illustrates the law of demand. In a more recent section, we noticed that as demand increases, the price of a product increases. When you look at these two statements together, it may appear confusing and contradictory. However, the two statements are both valid. It is merely a matter of what causes what, and which is the cause and which is the effect. To understand the difference more clearly, we need to study the difference between demand and quantity demanded.

 

Quantity Demanded

If the market price of a product decreases, then the quantity demanded increases, and vice versa. For example, when the price of strawberries decreases (when they are in season and the supply is higher - see graph below), then more people will purchases strawberries (the quantity demanded increases). A quantity demanded change is illustrated in a graph by a movement along the demand curve. In the graph below we are moving along the demand curve from the first intersection point (Q = 800 and P = $3.99) to the second intersection point (Q = 1,000 and P = $2.99).


Demand

When one or more of the six demand determinants listed in Section 6 changes, then demand changes. For example, when buyers' incomes increase, the demand (not quantity demanded) for a normal product increases. Or when the price of a substitute product decreases, then the demand for the product in question decreases. Or when the number of buyers increases, the demand increases, and the price of the product increases. An increase in demand is illustrated in a graph by a rightward shift in the demand curve.

The following graph illustrates an increase in demand:

 

fig279x


In the graph above, demand increases as D1 shifts to D2. Quantity supplied increases in the above case as the equilibrium point shifts along the supply curve from point A to point B.

The Difference Between Supply and Quantity Supplied

The distinction between supply and quantity supplied is similar to the difference between demand and quantity demanded.

Quantity Supplied

If the market price of a product increases, then the quantity supplied increases, and vice versa. For example, when housing prices increase (when the demand for houses has been strong), then more people will want to sell their house (quantity supplied increases). A quantity supplied change is illustrated in a graph by a movement along the supply curve. In the graph below we are moving along the supply curve from the first intersection point (Q = 496 and P = $350,000) to the second intersection point (Q = 578 and P = $420,000).

Supply

When one or more of the four supply determinants listed in Section 8 changes, then supply changes. For example, when technology advances, or the cost of production decreases, supply increases. An increase in supply is illustrated in a graph by a rightward shift in the supply curve.

The following graph illustrates an increase in supply and an increase in quantity demanded.

 

fig2109x

The above diagram illustrates that supply increases as S1 shifts to S2, and quantity demanded increases as the equilibrium point shifts along the demand curve from point A to point B.

Last Updated on Wednesday, 11 December 2013 09:07