Quantity Demanded and Price
We are interested in studying the relationship between the quantity
demanded of a product and that product’s price. We therefore hold all
other influences constant and ask, “How will the quantity demanded of a
product change as its own price changes?”
A basic economic hypothesis is that the price of a product and the quantity demanded are
related negatively, other things being equal. That is, the lower the price, the higher the
quantity demanded; the higher the price, the lower the quantity demanded.The great British economist Alfred Marshall (1842–1924) called this
fundamental relation the “law of demand.” In Chapter 6 , we will derive
the law of demand as a prediction that follows from more basic
assumptions about the behaviour of individual consumers. For now, let’s
simply explore why this relationship seems reasonable.
Products are used to satisfy desires and needs, and there is almost always
more than one product that will satisfy any desire or need. Hunger may
be alleviated by eating meat or vegetables; a desire for green vegetables
can be satisfied by broccoli or spinach. The desire for a vacation may be
satisfied by a trip to the ocean or to the mountains; the need to get there
may be satisfied by different airlines, a bus, a car, or a train. For any
general desire or need, there are almost always many different products
that will satisfy it.
1