Precision in the Terms

There is something that is known as demanded amount and which is very important, this means the amount a person would choose depending on their income and preferences. On the contrast, when an economist uses the word, demand, they are referring to the total range of quantities that a person with some preferences and a given income demands at the different and possible prices.

To better understand the difference between these two concepts, it is important to understand that economists divide all the things that could affect the demanded amount into two different categories, which are: the price, and then everything else.

Prices have an inverse relation with the demanded amount. In other words, the higher the price, people demand less.

Amongst other factors that affect he demanded amounts are the likes and preferences people have. For example in some cases it does not matter how much the price of a certain product goes down, if people or someone does not like it, they will not buy it. However, there will be other people that do like certain things so much that they will continue buying a good even if the price goes up significantly.

It does not matter how much it costs to get something, since the people that like a certain product or good will always have a demand that is higher than that of others. Since this is true for all the possible prices, we can say that these types of people would have higher demand than others.

Another important factor is the income. As a person becomes wealthier, the buying of certain goods that you have always liked increases and now that you are able to buy it in greater quantity. These are called normal goods. On the other hand, this does reduce the buying of the goods you used to buy when you did not have as much money and had to buy things that were cheaper instead of buying what you really wanted. A good example of this are cars, new cars are nominal goods, whereas an older or used car or those that hardly work are inferior goods.

Given the complexity of such variables such as preferences and income, why do economists insist in dividing only two groups, the price and all the rest, when in fact all everything could influence on the demanded amount? Well in fact, there are two reasons for this:

  • They want to focus on the prices.
  • When you move the concept of demand on a curve and create a curve of demand, the prices have a very different affect from the other variables.

The law of demand states that, if all other factors stay the same, the higher the price of a good, the fewer people will demand that good. In other words, the higher the price, the lower the quantity demanded. The quantity of a good that buyers acquire at a higher price is less since as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will as you would expect, stay away from buying a product that will force them to give up the consumption of something else they give more importance to.

The demand graph is a graphic depiction of a demand table, which is a table that expresses the relationship between price and quantity demanded of a good. With price on the vertical axis and quantity on the horizontal, the demand curve usually slopes downward from left to right, reflecting higher quantity demanded at inferior prices.