An algebraic expression which shows the relationship between demand for a commodity and its various determinants that affect this quantity is known as demand function. For its proper understanding, you have to know about theory of demand. These are of two types:
1. Individual Demand Function
It refers to the quantities of a commodity which are demanded by an individual at various prices, his income, prices of related goods and tastes. It is expressed as:
D = f(P)
2. Market Demand Function
It is the basis of demand theory. But it is the function that is main interest to managers. It refers to the total demand for a good or service of all the buyers taken together. It may be expressed mathematically.
Dx = f (Px, Pr, M, T, A, U)
Where, Dx = Quantity demanded for commodity x
f = Functional relation
Px = Price of commodity x
Pr = Prices of related commodities, i.e ., substitutes and complementary
M = Money income of the consumer
T = Taste of the consumer
A = Advertisement effect
U = Unknown variables
Economists mean the entire functional relationship. This means the whole range of price quantity relationship and not just the quantity demanded at a given price per unit of time. It is expressed above is really just a listing of variables that affect the demand. It must be made explicit and clear for use in managerial decision-making. The industry must have reasonably good knowledge and information about it formulates effective long-run planning decisions and short-run operating decisions.
What is Demand Function With Example?
A demand function is a mathematical function that describes the relationship between the price of a good and the quantity of the good that consumers are willing and able to purchase. For example, the demand function for apples might be Q = 100 – 2P, where Q is the number of apples (in millions) and P is the price of apples (in dollars).
What are the Properties of Demand Function?
Properties of a demand function:
1. The demand function is always downward sloping.
2. It shows the functional relationship between quantity demanded and price.
3. The demand function is linear when plotted on a graph.
4. It is a mathematical function.
What are the 3 Concepts of Demand?
The three concepts of demand are quantity demanded, demand schedule, and the law of demand.
1. The quantity demanded is the amount of a good that consumers can purchase at a given price.
2. The demand schedule is a table that shows the quantity demanded at different prices.
3. The law of demand forecasting is the principle that all else being equal, the quantity demanded of a good falls when the price of the good rises.