What is Quantity Demanded?

Quantity demanded is a term that is often used in economic situations to identify the number of products that are required at a specific time. The price of the goods or services typically have an impact on the number of units that are actually demanded. In some instances, contracts between suppliers and buyers include pricing matrices that provide buyers with lower unit prices in exchange for ordering higher quantities of specified goods or services.

In some cases, quantity demanded is structured as a means of allowing for aggregated demand. That is, in order for a buyer to receive a lower price per unit ordered, it is necessary to purchase a minimum quantity within a specified period of time. For example, if a client wishes to obtain a lower rate per minute on teleconferencing services, he or she may commit to utilizing a minimum number of conference call minutes over a specific period, such as one calendar year. In exchange for agreeing to use that minimum number of call minutes within that period, the client receives a reduced rate up front. Should the client fail to actually use the minimum number of minutes by the end of the period, he or she may be assessed an additional fee that effectively offsets the discount extended under the terms of the contract.

More commonly, quantity demanded is used to describe the number of units of a good or service that is ordered on the front end and paid for in advance. In this scenario, there is no accumulation or aggregation of units over a period of time. The client places a single order up front for whatever number of units is needed to receive the best price. That order is processed, delivered, and invoiced. The assumption is that if the buyer can afford to purchase more units and claim a discount on the order, both parties benefit from the exchange. The buyer receives more product for the same amount of money, while the seller moves more product, making it possible to earn profits through volume sales.

With quantity demanded, the idea is to find the point at which the ability of the buyer to pay is matched with generating the highest demand for the product as possible. When this type of balance between the supply and demand occurs, allowing for the impact of price on the ability of the buyer to make purchases, there is a good chance that the seller can remain in business for a long time. This is particularly true if there are relatively few competitors in the marketplace, or if the discounted price is difficult for the direct competitors to match and still earn a reasonable profit for their efforts. Without this balance, the calculation of quantity demanded may indicate that the seller will need to rethink its operating and production processes if there is a chance of remaining in business.