Demand function

How different factors effects the demands

1. Demand and Demand Function By Abhijeet Singh chawra MBA (SEM I) cmat 2017-19 Dms, jnvu, jodhpur

2. Demand In general terms ‘Demand’ means desire, need , want or requirement of a commodity. So Demand is an economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service. Holding all other factors(such as price of related goods, income, tastes and preferences, advertising etc.) constant, an increase in the price of a good or service will decrease demand, and vice versa.

3. For instance- Everyone might have willingness to buy “Mercedes-S Class” but only a few have the ability to pay for it, a few have the purchasing power. Thus, everyone cannot be said to have a demand for the car “Mercedes-S Class”.

4. D emand F unction Demand Function is a mathematical function showing relationship between the quantity demanded of a commodity and the factors influencing demand. A Demand Function expresses quantity demanded as a function of product price The relation between price and quantity demanded per period of time, when all other factor that affects consumer demand are held constant, is called a demand function

5. What is Quantity Demanded? Quantity demanded Is a term used in economics to describe the total amount of goods or services demanded at any given point in time. It depends on the price of a good or service in the marketplace, regardless of whether that market is in equilibrium.

6. Quantities of a commodity which the consumers buy at a particular price It is a flow concept Quantity demanded>Quantity available for sale Quantity demanded = F(Price) Other determinants are assumed to be constant Higher the price, lower will be the quantity demanded.

7. Quantity Demanded Qd = f ( bP , cM , dPR, eT, fPe , gN) b, c, d, e, f and g are slope parameters P = Price of the goods or services M = Consumers Income PR = Price of related goods or services T = Taste pattern of consumers Pe = Expected price of the goods in some future period N = Number of Consumers in the market

8. A Demand function can be expressed in a most general form as the equation Qd = a – bP Where Qd is quantity demanded a is intercept b is slope (b = Δ Qd / Δ P)

9. Factors Affecting Demand Function P = Price of the goods or services Qd = (a, bP , cM, dPR , eT, fPe, gN) There is an inverse relation between the Quality demanded

10. Here the slope is negative i.e. b is negative

11. Factors Affecting Demand Function M = Consumers Income Qd = (a, bP , cM , dPR, eT, fPe, gN) Direct for normal goods (c is + ve ) Inverse for inferior goods (c is –ve)

12. PR = Price of related goods or services Qd = (a, bP , cM, dPR , eT, fPe, gN) Direct for substitutes (d is +ve) Inverse for complements (d is -ve)

13. T = Taste pattern of consumers Qd = (a, bP , cM, dPR, eT , fPe, gN) It has the direct relation (e is +ve ) Pe = Expected price of the goods in some future period Qd = (a, bP, cM, dPR, eT, fPe , gN) It has the direct relation (f is +ve)

14. N = Number of Consumers in the market Qd = (a, bP , cM, dPR, eT, fPe, gN ) It has the direct relation (g is +ve)

15. Variable Relation to Qd Sign of Slope Parameter P Inverse b = Q d / P is negative M Direct for normal goods Inverse for inferior goods c = Q d / M is positive c = Q d / M is negative P R Direct for substitutes Inverse for complements d = Q d / P R is positive d = Q d / P R is negative T Direct e = Q d / T is positive P e Direct f = Q d / P e is positive N Direct g = Q d / N is positive Factors Affecting Demand Function

16. Thank You