Chapter: Engineering Economics and Financial Accounting : Demand and Supply Analysis

Demand Function

Demand function -- a behavioral relationship between quantity consumed and a person's maximum willingness to pay for incremental increases in quantity. Individual Demand function, Market Demand function.

DEMAND FUNCTION:

 

Demand function -- a behavioral relationship between quantity consumed and a person's maximum willingness to pay for incremental increases in quantity. It is usually an inverse relationship where at higher (lower) prices, less (more) quantity is consumed. Other factors which influence willingness-to-pay are income, tastes and preferences, and price of substitutes

 

Individual Demand function

 

Qdx = f(Px, Y, P1……Pn-1, T, A ,Ey, Ep, u)

 

Where

 

Qdx= qty demanded for the product X

 

Px = price of the product

 

Y = level of household income

 

P1….Pn-1 = price of all the other related products

 

T = tastes of the consumer

 

A = advertising

 

Ey = consumer‘s expected future income

 

Ep= consumer‘s expected future price

 

U= all those determinants that are not covered in the list determinants

 

Market Demand function

 

Qdx = f(Px, Y, P1……Pn-1, T, A ,Ey, Ep, P, D, u)

 

Qdx,Px,Y,P1…Pn-1,T,A, Ey,Ep,U are the same as the individual demand function

 

P = population

 

D = distribution of consumers in various categories such as income, age, sex etc.,

 

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Engineering Economics and Financial Accounting : Demand and Supply Analysis : Demand Function |


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