Demand Function

Published On : 2020-10-07

DEMAND FUNCTION/ FACTOR AFFECTING DEMAND CURVE

Demand Function: It is the functional relationship between demand and determinates of demand.
Individual Demand Function:
Dx = f(Px,Pr,T,Y,E)
Dx= Demand for good X
f = function of
Px = Price of own commodity: It is the most important determinant of demand for any good as price is inversely related to demand of the commodity. As the price rises, demand for the commodity decreases.

Pr= Price of related goods: Demand for a commodity of effected by price of related goods as well. Related goods are of two types

Substitute goods: These goods can be used in place of each other, e.g. tea & coffee. An increase in price of substitute gives rise to the demand for given commodity, e.g. rise in price of tea gives rise in demand of coffee.

Complementary goods: These goods are used together to fulfill the want, e.g. Car & Petrol. An increase in the price of complementary good leads to a decrease in demand for a given commodity, e.g. rise in price of car leads to decrease in demand for petrol.
T= Taste & Preference: Taste and preference directly effects demand for a commodity, it includes, fashion, climate etc.
Y= Income of the consumer: Generally income is directly related to the demand for a commodity. Demand rises with rise in income in case of normal goods.
E= Expected Price in Future: If the price of the commodity has a tendency to rise in future its demand in present will increase.

Market Demand Function:
Dx = f(Px,Pr,T,Y,E,N,Yd)
Dx= Demand for good X
f = function of
Px = Price of own commodity: It is the most important determinant of demand for any good as price is inversely related to demand of the commodity. As the price rises, demand for the commodity decreases.

Pr= Price of related goods: Demand for a commodity of effected by price of related goods as well.

Related goods are of two types
Substitute goods: These goods can be used in place of each other, e.g. tea & coffee. An increase in price of substitute gives rise to the demand for given commodity, e.g. rise in price of tea gives rise in demand of coffee.
Complementary goods: These goods are used together to fulfill the want, e.g. Car & Petrol. An increase in the price of complementary good leads to a decrease in demand for a given commodity, e.g. rise in price of car leads to decrease in demand for petrol.


T= Taste & Preference: Taste and preference directly effects demand for a commodity, it includes, fashion, climate etc.

Y= Income of the consumer: Generally income is directly related to the demand for a commodity. Demand rises with rise in income in case of normal goods.

E= Expected Price in Future: If the price of the commodity has a tendency to rise in future its demand in present will increase.

N= Population size: Market demand is determined with size of population. An increase in size of population rises the demand for a commodity and vice-versa.

Yd= Income distribution: If income in the country is equal then the market demand will be more and vice-versa.

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