Question

a.Please explain what is the difference between a change in demand versus a change in quantity demanded?

b.Why is it so important to differentiate between these similar-sounding terms?

c.What role do elasticities play in the decisions that individuals and firms make?

d.Consider a product you recently purchased – please state the product, and explain if you feel its demand is elastic, or inelastic, and why.

Answer 1

a) In economics, there is not much difference between demand and quantity demanded, and the two are often used interchangeably. Demand denotes person's willingness and ability to make a purchase. On the other hand, quantity demanded is exact amount of a good a person buys at a specific price. Demand is quantities that are purchased at different prices, quantity demanded is amount of good purchased at a specific price.

b) In the basic law of demand, diagram where price is represented on vertical axis, and horizontal axis denotes quantity,change in demand is represented by shifting the demand curve, whereas quantity demanded is represented by movement along the demand curve.

c) In economics, the concept of elasticity is basically the responsiveness or sensitivity of the demand for a particular product to change in its price. Elasticity is majorly considered either with respect to price or income.

Price elasticity of demand: This refers to the change in quantity demanded of a product due to change in the price of the product. Example. A person goes to a movie twice a month when the ticket for the movie costs 8$. But when the price goes to 10$, the person goes to the movies just once a month

Income elasticity of demand: This refers to change in quantity demanded of a product due to change in income of the consumer. A person goes to a movie twice a month, when his monthly income is 5000$, but when he gets a promotion and now earns more, he will go to the movies more than twice a month.

Depending on the elasticity of the product, the pricing and purchasing decisions are made regarding the product. For example, products such as medicines are highly inelastic and necessities. Therefore, large increases in the prices of medicines are avoided.

d) I will give the example of a product of each type that is elastic and inelastic.

Elastic Product: A family decides to take a trip. However, they realize due to some reasons flight fares are exorbitantly high. Because of this the family decides to either postpone the trip or either looks for alternative means of travel. Since, the family quickly responded to change in the price of the flight tickets, that makes it an elastic product/service.

Inelastic Product: Food products are considered an inelastic products. Due to fall in price of bread, the consumption of bread is not increased just because its price is now less. Similarly, medicines are also inelastic products. Regardless, of change in price of medicines, its consumption is neither increased nor decreased.

It can be said that necessities such as food items, medicines etc are inelastic whereas luxury goods are elastic goods. Having said this, it is also to be noted that classification of goods into elastic and inelastic depends on several factors. Some of which being Income of the consumer, Availability of substitute etc.