Supply and Demand Terminology

Course Outline

Supply and Demand Terminology

What is the difference between a change in demand and a change in the quantity demanded? The terminology can be confusing — but we’ll provide some clarity in this video. In short, a change in demand refers to a shift in the demand curve — caused by a number of factors such as income, population, etc. A change in quantity demanded refers to a movement along a fixed demand curve — caused by a change in price.

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We're almost finished covering demand, supply, and equilibrium. We just need to wrap up one loose end.

 

Unfortunately, economists use similar terms for two things which are quite different. A change in demand versus a change in the quantity demanded. We're sorry about the confusing terminology but, alas, that's the way it is. Fortunately, you're already familiar with these differences, we just need to point them out. Let's get going.
 

A change in demand refers to a shift in the demand curve. As we know, a change in demand, a shift in the demand curve, is caused by one of the shifters -- income, population, changes in the prices of substitutes, and compliments and so forth. A change in quantity demanded refers to a movement along a fixed demand curve. And that's caused by a change in price. Let's illustrate with the model.

 

Begin on the left with a change in demand, in this case, an increase in demand. The increase in demand shifts the entire demand curve to the right or up and leads, as we know, to a higher price and quantity exchanged. No problem. Now, let's look at a change in the quantity demanded on the right.

 

Suppose, for example, that the supply increases. Now, notice that an increased supply increases the quantity demanded from QE1 to QE2. That's an increase in the quantity demanded. In the first case on the left, we have an increase in demand, the entire demand curve shifts out. In the second case on the right, we have an increase in the quantity demanded. That is a movement along a fixed demand curve caused by a shift, in this case, in the supply curve. Well, if you guess that the next thing that we're going to do is to show the difference between a change in supply and a change in the quantity supplied, you'd be right. Let's do that now.

 

A change in supply refers to a shift in the entire supply curve caused, as we know, by a change in costs such as a change in technology or input prices and so forth. A change in the quantity supplied refers to a movement along a fixed supply curve caused by a change in the price. Okay, let's go to the model.

 

On the left we begin with a change in supply, in this case, an increase in supply that shifts the entire supply curve down into the right, thereby, generating a lower price and greater quantity bought and sold. Now, on the right, suppose that the demand increases. Notice that the increase in demand increases the quantity supplied from QE1 to QE2 along a fixed supply curve. The supply hasn't changed, the supply curve hasn't moved, so the supply is the same but the quantity supplied has increased.

 

Again, on the left, we have a change in supply, the entire supply curve shifts. On the right, we have a change in the quantity supplied a movement along a fixed supply curve caused, in this case, by an increase in demand. That's it. The terminology is a little bit tricky but if you follow the curves closely, you won't get confused. Next up, elasticity.

 

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