Demand and quantity demanded

2008-07-11

in Economics

Spiral stairs beside the canal

One minor point: a lot of news coverage about energy economics confuses demand with quantity demanded. Demand is a function describing how much of a particular thing (say, oil) will be purchased at different prices. Because the quantity doesn’t change all that much when the price does, at least in the short term, this line is fairly steep when viewed on a graph using the y-axis to denote price and the x-axis to denote quantity. Quantity demanded, by contrast, is just one point on that line. At price X, people demand quantity Y. At price 2X, they demand a different quantity, based on the shape of the demand curve.

The most common error you see is statements like: “With prices at $4 a gallon, demand for gasoline has fallen” (it is the quantity demanded that has changed, in response to the change in price). An appropriate use of the term might be: “With the creation of an improved public transport system, demand for gasoline in Vancouver has fallen.” In the latter example, people demand a lower quantity of gasoline at all price levels, since a substitute for driving has become more appealing than before. In the transit example, the entire demand curve has shifted.

A more extensive explanation is available at Environmental Economics.

{ 2 comments… read them below or add one }

Hilary July 15, 2008 at 7:50 pm

i’ve taken those stairs

Milan July 16, 2008 at 12:26 am

As have I.

Leave a Comment

Previous post:

Next post: