Demand Function
A demand function [Dn], states the relationship between the demand for a product and its various determinants.
Dn = f (Pn, Pr, I, T, E H,G)
Where
Dn = demand for a particular commodity ‘n’
f = functional relation between the demand for commodity ’n’ and the the factors affecting this demand
Pn = Price of the commodity
Pr = Price of all related commodity
I = Income
T = The Taste of consumer
E = Future expectations
H = size of the Population
G = Government’s policy
Define
- Price Demand:
Price demand refers to different quantities of a commodity, demanded at different prices.
- Income Demand :
The functional relationship between the demand for a commodity and the level of income of the consumer, is known as income demand.
The income demand shows how much quantity of a commodity a consumer will buy at different levels of his income.
- Cross Demand :
The functional relationship between the price of a commodity and the demand for some other related commodity is known as cross demand or cross price effect.
Law of Demand
Question : State the law of demand with two assumptions. Briefly discuss two exception to the law of demand.
Question : Explain the law of demand with the help of a diagram and schedule. Give two reasons why the slopes downwards to the right.
Question : State the law of demand and illustrate it with the help of a demand curve. What are the exceptions tomthe law of demand ?
Law of Demand
- Statement of the law
The law of demand states that, other things remaining equal, the quantity demanded of a commodity increases when its price falls and decreases when its price rises.
Thus, the law of demand indicates an inverse relationship between the price and the quantity demanded of a commodity.
- Assumptions :
The law of demand is based on the following main assumptions :
- There should be no change in the income of the consumer.
- Prices of the related commodity should remain unchanged.
- The commodity should be a normal commodity.
- The distribution of income should not change.
- There should be no change in the taste and preferences of the consumers.
- The size of the population should not change.
Illustration of the law
Two ways:
1. Numerically (in the form of table) = Demand Schedule
2. Graphically = Demand Curve
1. Demand Schedule
The numerical ways of showing the relationship between the price of a commodity and its quantity demanded is known as demand Schedule.
The demand schedule is a tabular statement that shows different quantities of a commodity, demanded at different prices during a particular period of time.
1. Individual Demand Schedule
2.Market Demand Schedule
1. Individual Demand Schedule:
Individual demand schedule is the table which shows different quantities of a commodity, that would be demanded at different prices, by a single household (consumer) during a given period of time.
Example : The quantity of apples that a single household (A) , would demand at five different prices are -
Individual Demand Schedule for Apples -
2.Market Demand Schedule
Market demand schedule is a table which shows different quantities of a commodity that all the consumers are willing to purchase at different prices during a particular period of time.
It is composed of the demand schedules of all individuals purchasing that commodity.
It can be obtained by adding up the quantities purchased at different prices by all the households in the market.
Demand schedule is a convenient way to illustrate the law of demand .
Both the individual demand schedule and market demand schedule indicate that the quantity demanded of a commodity increases when its price falls and decreases when its price rises.
Demand Curve
The Demand Curve is a graphical presentation of the Law of Demand.
A demand Schedule is converted into a demand curve, when we plot various Price — Quantity combination graphically.
Thus the graphical presentation of demand schedule is a demand curve.
Definition :
The curve showing different quantities of a commodity demanded at different alternative prices during a particular period of time.
Types of Demand Curve
There are 2 types of demand curves -
- Individual Demand Curve
- Market Demand Curve
A demand curve is a convenient way of showing the relationship between the price and the quantity demanded of a commodity.
A single point on the demand curve shows a single Price — Quantity relation.
The whole demand curve shows the complete relationship between the price and quantity demanded.
The demand curve is drawn on the assumption that all the other things remain constant or unchanged , means on the assumption of ceteris paribus order. (Ceteris Paribus order means all the other things remains constant).
1.Individual Demand Curve :
The demand curve that shows different quantities of the commodity which a single consumer is willing to buy at different price during a particular period of time.
Individual Demand Schedule of Apples:
Individual Demand Curve of Apples :
Individual Demand Curve
When prices of apples are plotted on vertical axis (Y) and quantities on horizontal axis (X), a curve DD’ is obtained.
Points a, b, c and d shows four different price — quantity combinations.
The curve DD’ slopes downward which indicate an inverse relationship between price and quantity.
Market Demand Curve
Market Demand curve is a curve that represent different quantities of goods which all the consumers in the market are willing to purchase at different prices during a particular period of time.
It is the horizontal curve summation of the demand curves of all the households.
Market demand schedule for Apples :
Market Demand Schedule for Apples
Market demand Curve for Apples :
Market Demand Curve for Apples
When prices are plotted on y — axis and quantities purchased are on x — axis, a demand curve DDm is obtained.
DDm — curve is known as Market Demand Curve.
Market demand Curve DDm, like individual demand curves, slopes downward which indicates an inverse relationship between the price and quantity demanded.
Originally published at https://www.ecogradeshelp.com on August 11, 2022.