The difference between an increase in demand and an increase in quantity demanded is a key concept in economics that hinges on what causes each to change. Here’s a breakdown of each term:
1. Increase in Demand
- Definition: An increase in demand means that, at every price level, more of a good or service is desired by consumers.
- Cause: It is caused by factors other than the price of the good itself, such as changes in consumer income, preferences, or the prices of related goods (like substitutes or complements).
- Effect on Demand Curve: This shift causes the entire demand curve to move rightward, indicating a higher quantity demanded at each price.
2. Increase in Quantity Demanded
- Definition: An increase in quantity demanded refers to consumers buying more of a good due to a decrease in its price, assuming all other factors remain constant.
- Cause: It is driven solely by a change in the price of the good or service itself, with other factors unchanged.
- Effect on Demand Curve: This does not shift the demand curve. Instead, it results in a movement along the demand curve, moving to a new point that corresponds to a lower price and a higher quantity demanded.
Example to Illustrate
If the price of coffee drops from $4 to $3, and more people buy it as a result, this is an increase in quantity demanded. However, if a new trend makes coffee more popular regardless of price, or if people’s incomes increase, leading them to buy more coffee at all prices, this is an increase in demand.
In summary, an increase in demand shifts the entire demand curve, while an increase in quantity demanded is a movement along the same demand curve due to a price change.