Demand Function
A demand function represents the relationship between the quantity of a good or service demanded and the factors that influence it, such as price, income, and consumer preferences. It is typically expressed as an equation and helps businesses understand how changes in these factors affect consumer demand for their products or services. By analyzing the demand function, businesses can make informed decisions about pricing, production, and marketing strategies.
6 Key excerpts on "Demand Function"
eBook - ePubIntermediate Microeconomics
Neoclassical and Factually-oriented Models
- Lester O. Bumas(Author)
- 2015(Publication Date)
- Routledge(Publisher)
...Technological progress may dramatically change the way a product is made and its cost of production and supply, but that will not change the demand for it. A related matter is that demand and supply are generally, but not always, independent of each other. This creates the need to analyze each separately and in isolation from the other. There are few things as disheartening to instructors than finding students asked to confront demand-side issues slipping their analysis into the realm of supply and vice versa. Demand The Demand Function is defined as: Demand is the quantity of a product per unit of time, Q D willingly purchased at various prices, P, all other variables held constant. Note that the D in Q D is a superscript which identifies the quantity variable as associated with demand. Superscripts are used to identify variables particularly if subscripts are set aside for time tags, as P 96 for the price in 1996. If time tags are not used, subscripts are usually used for identification purposes. Standard Specifications of Demand and Supply Functions Several matters specified with regard to demand and supply functions warrant attention. (1) The variable “quantity” is generally shorthand for quantity per unit of time. Saying that 60,000 bushels of wheat will be purchased at a price of $4 per bushel just makes no sense. Will this quantity be purchased per hour, day, week, month, or year? The unit of time must be specified. (2) Demand and supply must refer to a standardized or homogeneous product or factor of production. The same supply function, for example, cannot refer to both the most rudimentary Chevy and the most sophisticated Cadillac. (3) In its basic form the quantities supplied and demanded are functions of price alone. This is because all other relevant variables are held constant—making them shift parameters. (4) Basic demand and supply functions are static...
eBook - ePub- J. Bridge, J. C. Dodds(Authors)
- 2018(Publication Date)
- Routledge(Publisher)
...5 Demand Analysis 5-1 Introduction We have stressed in our discussion of the objectives of firms, that although profit may not be the only goal of business enterprise, it is nevertheless the most vital goal if the firm is to survive. As such the decision maker must take notice of the effects of a proposed course of action on both the costs and revenues of the firm. In Chapter 4 we studied the cost conditions of the firm in some detail and we must now explore the revenue function. It is a basic premise of traditional economic theory that the firm's total revenue function and Demand Function are known to its decision makers so that it is assumed the firm has the available information on the relationship between its total revenue and the quantity of goods and services it sells; or looking at the matter another way, the quantity that consumers will purchase at alternative prices. The conventional approach is to examine models of individual behaviour and then to analyse the aggregate behaviour in the market. Our present task is to develop an understanding of the factors which influence the sales of a product and to establish a framework for measuring and estimating the influence of each factor. In consequence we shall examine individual consumer behaviour only briefly. Our main focus of interest is clearly directed at the firm in the market and principally we shall concern ourselves with short run analysis with the firm's existing line of products through its usual distribution channels. We recognise that firms are generally multi-product but we do not discuss changes in product-mix * as these are more appropriately dealt with in the context of corporate planning. 5-2 The Theory of Demand — Standard Economic Analysis We argued in Chapter 1 that the individual consumer was presumed to wish to maximise his total utility or satisfaction subject to a budget constraint...
eBook - ePub- Andrew Barkley, Paul W. Barkley(Authors)
- 2016(Publication Date)
- Routledge(Publisher)
...This topic is further explored in Chapter 16. 9.4.5 Population Although the list could be expanded, population is the final determinant of demand mentioned here. Population growth has a direct and important impact on consumption. More people will buy more goods, particularly necessities such as food. The result is similar to an increase in income in low-income nations. If the population of Ethiopia increases, then Ethiopia’s demand for wheat will increase: if the population of Ethiopia increases, the country’s demand for food will rise. The last few pages have dealt with the determinants of demand. Chapter 10 uses much of this information to explain how markets operate. The supply and demand curves from Chapter 8 and this chapter merge into one graph, to aid the study of the interaction between producers and consumers. 9.5 Summary Demand is the consumer willingness and ability to pay for a good. The demand curve is a function connecting all combinations of prices and quantities consumed for a good, ceteris paribus. The demand schedule presents information on price and quantities purchased. The market demand curve is the horizontal summation of all individual demand curves. The law of demand states that the quantity of a good demanded varies inversely with the price of a good, ceteris paribus. The price elasticity of demand relates how responsive quantity demanded is to changes in price [E d = %ΔQ d /%ΔP]. An inelastic demand curve is one where a percentage change in price results in a relatively smaller percentage change in quantity demanded (|E d | < 1). An elastic demand is one where a percentage change in price results in a larger percentage change in quantity demanded (|E d | > 1)...
eBook - ePub- Milton Friedman(Author)
- 2017(Publication Date)
- Routledge(Publisher)
...Similarly, tastes and preferences are also regarded as fixed. This Walrasian Demand Function may, as already suggested, be regarded as a limiting form of a function like that of equation 1. It is clear, however, that its value is for a very different purpose. It is an extremely useful abstract conception to bring out the logic of the interrelation of the price system; it cannot be used to analyze a concrete problem. To return to the demand curve with which we are primarily concerned, let us concentrate attention on the variables whose precise treatment raises the most difficult problems: the price of the commodity in question, the average price of all other commodities, and money income. If we concentrate on these variables, we can write equation 1 as: remembering that the variables we have omitted are to have given values. Equation 3 gives the impression that the quantity of x demanded is to be regarded as a function of three separate and independent variables. However, this is not the case. The demand curve is primarily used to analyze relations among parts of the economic system, to analyze the influence of changes in the “real” underlying circumstances. If all of the variables in the parenthesis (p x, I, P 0) were multiplied by a common factor, this would not change any of the “real” possibilities open to the consumer; it would simply involve a change in units, e.g., the substitution of “penny” for “dollar.” Consequently, it seems appropriate to regard the right-hand side of equation 3 as a homogeneous function of zero degree in p x, I, and P 0 ; i.e., a function that has the property that where λ is any arbitrary number...
eBook - ePub- Tom Craig, David Campbell(Authors)
- 2012(Publication Date)
- Routledge(Publisher)
...The Market System Supply and Demand DOI: 10.4324/9780080454603-17 Learning Objectives After studying this chapter, students should be able to describe: the features and determinants of demand; what is meant by the demand schedule and the demand curve; the features and determinants of supply; what is meant by the supply schedule and the supply curve; the mechanisms of price determination and disequilibrium; the principles of price and income elasticities of demand; the principles of cross elasticity of demand; the features of factor markets, particularly the labour market. 17.1 Demand Demand and Effective Demand Whenever we express an interest in purchasing a good or service, we are indicating a demand. Note though, that it is possible to demand a product without actually buying it. You may demand a new motorcar, but for various reasons (e.g. poverty), you are unable to express your demand in the form of a purchase. It is for this reason that economists distinguish desire for a product with its effective demand. Producers of goods and services are less concerned with how badly you desire their products, and more with how many you will actually buy and at what price. Effective demand, as distinct from demand, has three components: the actual quantity demanded of a good or service, the time period over which the quantity is demanded, the price at which the quantity will be demanded over the time period. Effective demand thus takes into account the customer’s ability to buy, not just the desire – however intense that may be. We may say, therefore, that the total demand for product A is 10,000 units a month if the price is 45 pennies per unit. Thus all three components must be in place before the demand can be said to be effective. The Determinants of Demand In seeking to answer the question why the demand for a product is as it is, we must explore the reasons behind consumer choices...
eBook - ePubEconomics for Investment Decision Makers
Micro, Macro, and International Economics
- Christopher D. Piros, Jerald E. Pinto(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
...CHAPTER 2 DEMAND AND SUPPLY ANALYSIS: CONSUMER DEMAND Richard V. Eastin Gary L. Arbogast, CFA LEARNING OUTCOMES After completing this chapter, you will be able to do the following: Describe consumer choice theory and utility theory. Describe the use of indifference curves, opportunity sets, and budget constraints in decision making. Calculate and interpret a budget constraint. Determine a consumer’s equilibrium bundle of goods based on utility analysis. Compare substitution and income effects. Distinguish between normal goods and inferior goods, and explain Giffen goods and Veblen goods in this context. 1. INTRODUCTION By now it should be clear that economists are model builders. In the previous chapter, we examined one of their most fundamental models, the model of demand and supply. And as we have seen, models begin with simplifying assumptions and then find the implications that can then be compared to real-world observations as a test of the model’s usefulness. In the model of demand and supply, we assumed the existence of a demand curve and a supply curve, as well as their respective negative and positive slopes. That simple model yielded some very powerful implications about how markets work, but we can delve even more deeply to explore the underpinnings of demand and supply. In this chapter, we examine the theory of the consumer as a way of understanding where consumer demand curves originate. In a subsequent chapter, the origins of the supply curve are sought in presenting the theory of the firm. This chapter is organized as follows: Section 2 describes consumer choice theory in more detail. Section 3 introduces utility theory, a building block of consumer choice theory that provides a quantitative model for a consumer’s preferences and tastes. Section 4 surveys budget constraints and opportunity sets. Section 5 covers the determination of the consumer’s bundle of goods and how that may change in response to changes in income and prices...
