Quantity Demanded

What is the Quantity Demanded?

The quantity demanded can be referred to as the intent that the consumers display for acquiring a specific amount of goods and service. It also depends on the price quoted for the products and services in the marketplace and does not rely on market equilibrium.

The demand curveDemand CurveDemand Curve is a graphical representation of the relationship between the prices of goods and demand quantity and is usually inversely proportionate. That means higher the price, lower the demand. It determines the law of demand i.e. as the price increases, demand decreases keeping all other things equal.read more describes the relationship between the quantity demanded and the corresponding price of the goods and services. The elasticity of demand describes the effects of changes in the levels of quantity with respect to the price. In order to drive the demand for goods and services, the seller of the goods and services has to ensure that he quotes a price that is both competitive and lucrative in nature.

There is an inverse relationship between the quantity demanded and the price of goods and services. The seller should offer a number of products and services which makes buyer interested and willing to take and buy. If there is an increase in demand, then there is a decrease in the price of products and services and vice versa.

Quantity-Demanded-Formula

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Quantity Demanded Formula

The equation can be expressed in terms of price elasticity of demand as the ratio of change in the demand level of prices to the change in the levels of price.

Price Elasticity on Quantity Demanded = [Pi x (Qj – Qi)] / [Qi x (Pj – Pi)]

Here,

  • The Initial and final prices of goods and services are represented by Pi and Pj respectively.
  • The Initial and final quantity demanded of goods and services are represented by Qi and Qj respectively.

How to Calculate Quantity Demanded?

Step 1: Firstly, determine the initial levels of demand.

Step 2: Next, Determine the initial price quoted.

Step 3: Next, Determine the final levels of demand.

Step 4: Next, Quote the final price corresponding to the new levels of demand

Step 5: Next, determine the difference between the initial and final demand. Divide the resulting value from the initial quantity

Step 6: Next, determine the difference between the initial price and final price of demand. Divide the resulting value with the initial price.

Step 7: Next, divide the resulting value from step 5 with step 6 to arrive at the price elasticity of the quantity demanded.

If the resulting value is below 1 then it could be inferred that the quantity demanded by consumers is inelastic. If the resulting value is more than 1 then it could be inferred that the quantity demanded by the consumer is elastic to the changes in the price levels.

Examples

You can download this Quantity Demanded Formula Excel Template here – Quantity Demanded Formula Excel Template

Example #1

Let us take the example of  20,000 units of apartment demand, the rental price is quoted at $750. However, for 25,000 units of apartment demand, the rental price is quoted at $650. Determine the price elasticity of the quantity in demand.

Solution

Use the below-given data:

Quantity Demanded Formula Example 1

Calculation of Change in Price

Example 1.1
  • =$650-$750
  • =$-100

Calculation

Quantity Demanded Formula Example 1.2
  • =$25000-$20000
  • =5000

Calculation of Price Elasticity can be done as follows:

Example 1.2
  • =($750*500)/(20000*-$100)

Price Elasticity on Quantity Demanded will be as follows,

Quantity Demanded Formula Example 1.3

Since the point elasticity of demand is less than 1, therefore it could be inferred that the quantity demanded is inelastic with the changes in price. Since there has been an enhancement in the inventory of the apartment units, the price has deteriorated as consumers have the option to choose from 25,000 units.

Example #2

Let us take the example of petrol and diesel products. There is a percentage increase of 20 percent in the demand for petrol and diesel as fuel. Citing demand, the price has appreciated by 30 percent. Determine the elasticity of the quantity demanded.

Solution

Use the below-given data:

Quantity Demanded Formula Example 2

Calculation of Price Elasticity can be done as follows:

Example 2.1
  • =20%/30%

Price Elasticity will be as follows,

Quantity Demanded Formula Example 2.2
  • Price Elasticity = 67%

Since the elasticity below 1, it could be inferred that the quantity demanded petrol and diesel products as fuel have an inelastic relationship with the level of prices quoted.

Relevance and Use

The quantity demanded helps the seller to determine the right and competitive price that he should quote to the consumer. This enhances the sales of the seller and helps the seller to achieve desired levels of growth and income. In short, it helps the seller to formulate a comprehensive pricing policy.

To have a comprehensive pricing policy in place, price elasticity with respect to the quantity should be employed. This helps the buyer to produce the right quantity to be sold and at a right price thereby curbing wastage of resources and at the time same time catering the consumer’s demand. This ensures that the seller is able to maintain and boost its overall levels of profitabilityProfitabilityProfitability refers to a company's ability to generate revenue and maximize profit above its expenditure and operational costs. It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company's performance.read more.

Additionally, for corresponding levels of quantity demanded, the seller can record the price that he offers to the buyer. He can then plot a demand curve out of the sample so made by the seller. If there is a change in the levels, a similar effect could be seen and illustrated from the demand curve.

Adding to the above point, it is to be noted that the price elasticity is expressed as the slope of the plotted demand curve.

Recommended Articles

This has been a guide to Quantity Demanded and its definition. Here we learn the formula to calculate quantity demanded in terms of price elasticity along with practical examples and downloadable excel sheet. You can learn more from the following articles –

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