What is Demand Function and its types?/ Law of Demand/ Assumptions of law of Demand class 12th.-infotech9213.

Demand Function:

Demand Function shows the functional relationship between demand for a commodity and its various determinants. It is a mathematical relationship between demand and factor affecting demand.

            Demand (DX)= f(Px, Pr, Y, T, Ep)

 Where, Px= Price of the goods

              Pr=  Price of related goods

              Y=   Consumer Income

              T=   Taste and Preference

              E=   Expectations

There are two types of demand function:

1. Individual Demand Function,
2. Market Demand Function.

1. Individual Demand Function:-

Individual Demand Function show Functional relationship between an individual consumer (for a commodity) and its various determinants. i.e. =f(Px, Pr, Y, T, E)

(1) Price of Own Commodity (px) : Keeping other factors as a constant, as own price increases then quantity demand decreases and as own price decreases then quantity demand increases. i.e. There is inverse relationship between price of own commodity and its quantity demand.

(2) Price of Related Goods (pr) : Demand for a commodity also depends on price of related goods. There are two types of related goods.

1. Substitute Goods: substitute goods are those goods which can be used in place of each other without effecting the satisfaction of consumer.                     Such as Pepsi and coke, Tea and Coffee. If price of one increases then demand for other increases. and when price of one decreases then price of other also decreases. It means there is a positive relationship between price of substitute goods and demand for other goods. Like if price of Pepsi increases then demand for coke will increase and if price of Pepsi Decreases then price of coke will also decrease. so substitute have positive relation.                               
2. Complementary Goods: Complementary Goods are those goods which are used together to satisfy a particular want to complete demand of consumer. for example- Car and petrol, Pen and ink, Bread and butter. If price of one increases then demand for other decreases and when price of one decreases then demand for other increases. i.e. There is negative relationship between price of complementary goods and demand for other goods. Like if price of petrol increases it will cause decrease in demand of cars. so it has negative relation.

(3) Income of Consumer (Y) : When income of consumer change then there is change in demand for different goods. i.e. (normal goods and inferior goods).

• Normal Goods: These are those goods which have positive relationship between Income of consumer and its quantity demand. other things remaining constant i.e. when consumer's income increases then quantity demand also increases. and when consumer's Income decreases then quantity demand also decreases.                                                                                                                          
• Inferior Goods: These are those goods which have negative (or inverse) relationship between income of consumer and its quantity demand. other things remaining constant, i.e. when consumer's income increase then quantity demand decrease. and vice versa.

(4) Taste and Preferences (T): Demand of a commodity also depends on taste and preferences of consumer. If taste and preferences of consumer increases then it leads to increase in quantity demand and vice versa. i.e. There is a positive relationship between taste and preferences of consumer and demand of a commodity.

(5) Expectation Price (E): Demand of a commodity also depends on expectation price. It the consumer expects that the price of the commodity will increase in the  future then demand for a commodity increase at a current price. If the consumer fears acute shortage of the commodity in the future, consumer may raise his present demand for the commodity at its existing price.

2. Market Demand Function 

Market demand function shows the relationship between market demand for a commodity and its various determinants.

         Market demand = f(Px, Pr, Y, T, E, N, Yd)

Px, Pr, Y, T, E have already been discussed in case of individual demand function. now we discuss the remaining factors (N ad Yd) as under:

(1) Size of population/ Number of buyers(N): Market demand of a commodity depends on the size of population. when population increases then no. of buyers increases, as a result market demand increases and vice-versa. It means there is positive relationship size of population/ number of buyers and demand for a commodity.

(2) Distribution of Income(Yd): Market demand of a commodity depends on distribution of income in the society. If there is a equal distribution of income in the society then, market demand for necessary goods(grain) is expected to rise. on the other hand if there is unequal distribution of income in the society then, demand  increase for the luxury goods(like car).

Law of Demand

According to this law, keeping other factors as a constant. when own price of the commodity increases then, its quantity demand decreases, and when own price decreases then, quantity demand increases. It means there is a inverse relationship between own price and quantity demand of a commodity.

Assumptions of the law of Demand.

1. Consumer is rational.
2. Income of the consumer is constant.
3. Taste and preferences of the consumers remain constant.
4. Price of related goods remain constant.
5. Consumer is consuming normal goods. 

Related topics:

What Is Demand In Economics? class 12th/ Demand Schedule/ Demand Curve

What Is Economics and Economy ? / Difference Between Micro And Macro Economics./ What Is Positive And Normative Economics?