India was the 20th largest exporter in the world this past year ($307.2 billion). It was the 12th largest importer in the world ($475.3 billion) (CIA World Fact Book).
|Section 11: Demand versus Quantity Demanded and Supply versus Quantity Supplied|
|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.
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).
The following graph illustrates an increase in demand:
The distinction between supply and quantity supplied is similar to the difference between demand and quantity demanded.
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).
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.
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 Monday, 24 December 2012 11:03|