Demand Function and Equation

 

Demand Function

Demand function is an algebraic expression that shows the functional relationship between the demand for a commodity and its various determinants affecting it. This includes income and price along with other determining factors.

It can be expressed as:

Dx=f(Px, Y, Pr, T, A, P,D,E…)

Dx= Demand for commodity X

Px= Price of Commodity X

Y=Income of Consumer

Pr=Price of the related goods

T=Taste and preference of the consumer

A=Advertisement

P=Population and it’s composition

D=Distribution of Income

E=Expectation of the Consumer

Types of Demand Function:

a.      Individual Demand Function

Individual demand function refers to the functional relationship between demand made by an individual consumer and the factors affecting the individual demand. It shows how demand made by an individual in the market is related to its determinants.

Mathematically, individual demand function can be expressed as,

Dx= f (Px, Pr, Y, T, F)

Where,

Dx= Demand for commodity x;

Px= Price of the given commodity x;

Pr= Price of related goods;

Y= Income of the individual consumer;

T= Tastes and preferences;

F= Expectation of change in price in the future.

b.     Market Demand Function

Market demand function refers to the functional relationship between market demand and the factors affecting market demand. Market demand is affected by all the factors that affect an individual demand. In addition to this, it is also affected by size and composition of population, season and weather conditions, and distribution of income.

Mathematically, market demand function can be expressed as,

Dx= f (Px, Pr, Y, T, F, Po, S, D)

Where,

Dx= Demand for commodity x;

Px= Price of the given commodity x;

Pr= Price of related goods;

Y= Income of the individual consumer;

T= Tastes and preferences;

F= Expectation of change in price in the future;

Po= Size and composition of population;

S= Season and weather;

D= Distribution of income.