Using Appropriate Diagrams and Examples, Distinguish Between an Increase in Demand and an Increase in the Quantity Demanded. Why Is This Distinction Important?
Essay Preview: Using Appropriate Diagrams and Examples, Distinguish Between an Increase in Demand and an Increase in the Quantity Demanded. Why Is This Distinction Important?
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As you can see above, Graph 1 shows a change in demand whereas Graph 2 shows a change in quantity demanded. We can roughly see the differences just by looking at both the graphs.
As we know a change in quantity demanded can only be caused by a change in price level. Change in quantity causes a movement along the demand curve whether it is upward or downward motion. Only a change in the price of the good itself can cause a change in quantity demanded and hence causes a movement along the demand curve. When price level decreases from P1 to P2 as shown in the graph 2 above, quantity demanded increases shown by a shift from Q1 to Q2 which will cause an expansion of demand from point A to point B. For example, a burger stall is selling hamburgers at RM4 each. Lets assume from the graph that P1 is RM4 and the seller decides to decrease the price of each hamburger to RM2 which is represented by P2. Quantity demanded for his hamburgers has increased from 100 to 200 represented by Q1 and Q2 representatively in the graph. This results in an expansion of demand for his hamburgers.
Whereas a change in demand can be caused by many factors such as price of related goods, income, preference or consumer taste, number of buyers, expectation of future price, population, advertising and weather. The demand curve will shift rightward from D1 to D2 when there is a change in demand as shown in the graph 1. For example, if income increases, the demand for iPhone will also increase as people have more money to spend and able to purchase it. This will result in a rightward shift of the demand curve. Another example would be when theres an increase in number of buyers for iPhone, there will also be an increase in the demand curve which will also result in a rightward shift of the demand curve.
The distinction between an increase in demand and an increase in the quantity demanded is important because it brings about causes and effects. The demand curve together with the supply curve is used to explain and also analyze the markets equilibrium. If we do not know the difference then we may use it wrongly and it will cause the market to be unstable and be in state of disequilibrium. For example, when a demand determinant changes, the change causes a shift in the demand curve. Then the change in demand will cause either a shortage or surplus in the market and this will cause the market to be in a state of disequilibrium. There will be a change in the price of the good which is caused by the shortage or in other cases a surplus. Quantity demanded will also change when the price of goods changes. Lastly, the change in quantity demanded will solve the shortage or surplus problem and restore the market back to equilibrium. In general, the demand determinants which cause a change in demand are the source of instability and disequilibrium in the market whereas the change in price which causes a change in quantity demanded is the way of restoring