Quantity Demanded
The total amount of goods and services that consumers need or want and are willing to pay for over a given time
What is Quantity Demanded?
Quantity demanded is the total amount of goods and services that consumers need or want and are willing to pay for over a given time. The important factor in a demand curve is the price consumers are charged for a good or service, irrespective of whether that is the market equilibrium price.
The relationship between the quantity demanded of a good or service in the marketplace by consumers, and its price is called the demand curve. When demand changes in relation to price, it is called the elasticity of demand.
Change in Quantity Demanded
If a buyer is willing to buy more or less quantity of a specific good or service, the marketplace will experience a change in the quantity demanded. A price increase or decrease is the main reason for a change in the number of goods and services.
A graphical representation of the relationship between price and quantity is displayed on the demand curve, and the change in demand is a movement along the demand curve. The formula to calculate the relative change is y = mx + c, where mx = gradient of the slope * value on the x-axis, and c = intercept on the y-axis.
Inverse Price Relationship
The quantity demanded by consumers will determine the price of goods and services. The relationship between quantity and price can be understood from the demand curve. If the quantity demanded moves from Quantity 1 to Quantity 2, then the price paid for the good or service moves from price 1 to price 2.
Hence, the price of a good or service and the quantity demanded demonstrates an inverse relationship, and the inverse relationship between the two factors is the law of demand.
Price Elasticity of Demand
The change in the amount of quantity demanded concerning price is called the elasticity of demand. When a good or service is highly elastic, the quantity demanded of the good or service varies widely at different price points. For example, a 5% increase in price will lead to a 20% decrease in demand for the good or service.
On the other hand, an inelastic good or service is when the quantity demanded is relatively static at varying price points. For example, when the price of bread – a necessity – increases, the demand does not change in relation to the price.
Different Types of Demand
1. No Demand
No Demand is where the consumer is unaware and has inadequate information about the good or service, or the consumer is indifferent. To prevent such a type of demand, the company’s marketing department should emphasize promotional campaigns and persuade potential customers to use the company’s goods or services.
A popular strategy used to differentiate a good or service in a competing market is to differentiate the company’s offering through emphasizing their Unique Selling Proposition (USP).
2. Negative Demand
Negative Demand is present when the market response to a good or service is negative. It means that consumers are not aware of the features and benefits of the good or service offered. It is the marketing department’s goal to understand the reason for the rejection of their good or service. Therefore, a strategy is needed to transform the negative demand into positive demand.
3. Latent Demand
Latent Demand is when it is not possible for certain goods or services to address all the needs and wants of society. In an economy, latent demand exists at any given time, and it should be looked at as a business opportunity.
For example, a passenger traveling in an economy class on an airplane dreams of traveling in business or first class. Hence, latent demand is a gap between desirability and affordability.
4. Seasonal Demand
Seasonal Demand is when a good or service does not have a year-round demand but fluctuates according to the season. All over the world, seasonal demands are diverse. Therefore, it is important to understand the demand pattern by studying the different segments of the market.
It is important for service organizations to study demand patterns, as service companies need to keep up their service offerings to the change in demand. They must create a system to map demand fluctuations, which helps them predict the demand cycle.
More Resources
CFI offers the Capital Markets & Securities Analyst (CMSA®) certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:
