Question

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

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

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

• 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

1. Changes in quantity demanded can be measured by the movement of demand curve, while changes in demand are measured by shifts in demand curve. The terms, change in quantity demanded refers to expansion or contraction of demand, while change in demand means increase or decrease in demand. Change in demand means change in demand due to the factors of demand other than price whereas Change in quantity demanded means change in the quantity purchased due to change in the price of a product .

2. The terms sounds similar that doesn't mean they have the same concept or definition. Similar-sounding terms are more important to be defined otherwise it could lead to a bad understanding of the all other concepts which relates to it.

3. When an individual makes a decision, elasticity depend on the necessity of a good. If the price for salt rises, it is less elastic(i.e. inelastic) because due to the increase in the price of salt the consumption of salt cannot be reduced. But if the price of a luxury good rises say car then its highly elastic because people would reduce its consumption.

Price elasticity of demand plays important role in determining the prices of the joint products. If the business does not decrease the price, then demand will be less. By setting a high price for cotton (inelastic product) and low price for cotton seeds (elastic product), the business can maximize its revenue.

4. Though i love cold drinks(especially coca-cola), so i will explain by taking this example. The demand for soda (Coca-Cola or Mountain Dew) is very elastic because there are similar products in the market. This means that a small variation in price could produce a large change in the demand, which comes from the competition that exists in the soda market. Then due to the increasing price i will buy pepsi.