The law of demand states that keeping all other things constant, an increase in the price of any good reduces its demand and the lower the price of the good, people will be more inclined to buy that product. Therefore, price and quantity demanded are inversely related. It may be noted that theoretically when we represent a demand curve, we assume a specific population and a specific time period on which the demand curve is relevant.
But, why reduction in price raises demand?
Because a reduction in price impels the consumers to substitute the cheaper commodity for other goods. This is known as Substitution Effect. Also, at a lower price our real income increases which in turn impels us to buy more of every commodity. This is known as Income Effect.
Explaining the difference between change in demand and change in quantity demanded:
When we say ‘demand’ we refer to the whole demand curve and when we say an ‘ increase in demand’ we refer to a shift of the entire demand curve to a new position. On the other hand, to indicate a single point on a demand curve, we speak of the ‘quantity bought’ or the ‘the quantity demanded’ at a particular price.
So, a movement along the same demand curve refers to a change in the quantity demanded as price changes. It does not represent any change in the position of the demand curve.
In reality we must distinguish between an increase in demand – by which it is meant that the entire curve is shifted to the right and upward as more is now bought at same price. Whereas with an increase in the quantity demanded it is meant of moving to a lower price on the same demand curve.