Demand schedule for cut jeans

Price	The quantity demanded
$400	200
$350	500
$300	800
$225	1200
$175	1600
$100	2400
$50	3000

Since the quantity demanded is greater at a lower price the demand curve shifts to the right. On the other hand, decreased demand causes the curve to shift to the left because at a higher price the quantity demanded is less.

The key point is to distinguish between demand and the quantity demanded.

• Demand refers to how much of a product or service is desired by buyers.

• The quantity demanded is the amount of a product that people are willing to buy at a certain price.

The difference is subtle but important. If the demand of ice cream goes up in summer it is because consumptive demand has truly increased, clearly it is hot. In this case the business can most likely raise prices without suffering a cut in sales. This is a change in the quantity demanded. In winter the business incurs a sales fall at the same price. The only way out of increasing sales is to reduce the price. As a result of a cut in price the increased sales of ice cream means that consumer demand has artificially been manipulated. In reality, actual demand is low but extra efforts have to be made to increase sales. This leads to a change in demand.

Economists distinguish two different ways that the quantity of purchases of a product can change.

• According to the law of demand a change in price results in a change in the quantity demanded, that is, more will be purchased but only at a lower price. Thus, the only thing that can change the quantity demanded is a change in the market price, all the non-price determinants remaining the same.

• When one of the non-price factors changes there will be a change in demand, the good’s price being equal.

All of the non-price determinants (changes in the size of the market, income of the average consumer, population size, the prices and availability of related goods, consumer preferences) are directly related to consumers. In other words, at any given price, consumers will be willing and able to purchase either more or less of a product that depends on its price.

To understand better the theory of supply and demand it is necessary to know how much buyers and sellers respond to price changes. This responsiveness is called elasticity.

Elasticity varies among products because some products may be more essential to the consumer. A good or service is considered to be highly elastic if a slight change in price leads to a sharp change in the quantity demanded. A price increase of a product or service that isn’t considered a necessity will discourage more consumers to buy this product or service. On the other hand, an inelastic good or service is one in which changes in price bring about only modest changes in the quantity demanded, if any at all. Products that are necessities are more insensitive to price changes because consumers will continue buying these products despite a price rise. It is known as the price elasticity of demand.