A demand shift is not the final quantity sold.
YED and XED can help describe how income or another good's price shifts demand. The percentage demand change refers to a given own price. After the shift, equilibrium own price and traded quantity may change as buyers and sellers respond. Combine the demand estimate with supply conditions before predicting sales or revenue. Multiplying an elasticity by a percentage change is a conditional approximation unless the question defines that response exactly; larger changes or several simultaneous influences may require more information. Do not add estimates mechanically when their assumptions or percentage bases differ.
- Demand at a given price
- YED/XED describes a shift measured with the good's own price held fixed.
- Market equilibrium
- Supply and own-price adjustment determine final traded quantity.
- Estimate limits
- A predicted percentage may be an exact response specified in the question or an approximation for a small change. An estimate alone does not guarantee the result.
From coefficient to conclusion
Stage one
Identify the income or related-price change and use the relevant estimate to describe demand at an unchanged own price.
Stage two
Combine the new demand with supply; identify shortage/surplus at the old price and adjustment to a new equilibrium.
Stage three
Use final price and traded quantity for revenue; do not substitute the old-price demand quantity automatically.
Several changes
When income, related prices and own price all change, label each channel. A simple sum requires a stated approximation/model, not just several coefficients.
Worked example: Why an 8% demand increase need not mean 8% more sales
At an initial price of $10, demand and supply are both 100 units per week. An income change is specified to increase demand at that price by 8%. Available supply is fixed at 100 units for this week, represented by a vertical supply curve. Prices can adjust.
- At the old $10 price, quantity demanded becomes 108 while quantity supplied remains 100. There is a shortage of 8 units.
- Price rises until quantity demanded contracts along the new demand curve to 100. Final quantity sold remains 100 because this week's supply is fixed.
- The higher own price reduces quantity demanded from 108 at the old price to 100 at the new equilibrium. The demand curve remains to the right of its original position.
- If supply could expand, some adjustment would instead occur through greater quantity. The demand estimate alone cannot tell us that division or the precise new price.
Watch out for this
An 8% increase in demand at a given price guarantees 8% higher equilibrium sales.
The price and supply response matter. With fixed quantity supplied, the adjustment can occur entirely through price.
Check your understanding
YED predicts increased demand at each own price, but available market supply is fixed this week. With flexible prices, what is the supported outcome?
- Price and quantity must both rise by the same percentage as demand.
- Demand must shift back left because supply is fixed.
- Price rises and the quantity sold stays fixed, assuming a downward-sloping demand curve.