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Demand Function
Consumer’s demand for an item is the result of a wide variety of forces. In mathematical terms, the demand function for product X can be symbolized as
where = total quantity demanded of product X (in units) = price of product X = measure of the prices of the brands and products that are substitutes for product X = measure of the prices of the brands and products that are complementary to product X = index of consumers’ tastes and preferences = level of advertising and promotional efforts devoted to product X = level of advertising and promotional efforts for substitutes brands and products = level of advertising and promotional efforts for complimentary products = measure of consumers’ incomes or purchasing power = buyer expectations concerning future prices, incomes, and product availability = features or attributes of the product in relation to other items (where the product is a standard commodity or a differentiated product) = number of potential consumers (the size of the market population) = other demand-related factors specific to product X
Using the functional notation to symbolize the relationship between the quantity demanded of a particular product and specific demand-influencing variables is a more explicit and conceptually accurate way of representing the demand for a product that in the simple graphic portrayal of price-quantity relationships in the form of demand curves.
Nevertheless, it is analytically convenient to segregate demand determinants into two groups: (1) the selling price of the product and (2) all other demand determinants. Using this dichotomization, variations in the purchases of a product associated solely with changes in product price are customarily termed changes in the quantity demanded and are represented graphically by movements along a given demand curve. In Figure 5-1(a), a decrease in the price of X from to increases the quantity demanded from to – all other factors
Consumer’s demand for an item is the result of a wide variety of forces. In mathematical terms, the demand function for product X can be symbolized as
where = total quantity demanded of product X (in units) = price of product X = measure of the prices of the brands and products that are substitutes for product X = measure of the prices of the brands and products that are complementary to product X = index of consumers’ tastes and preferences = level of advertising and promotional efforts devoted to product X = level of advertising and promotional efforts for substitutes brands and products = level of advertising and promotional efforts for complimentary products = measure of consumers’ incomes or purchasing power = buyer expectations concerning future prices, incomes, and product availability = features or attributes of the product in relation to other items (where the product is a standard commodity or a differentiated product) = number of potential consumers (the size of the market population) = other demand-related factors specific to product X
Using the functional notation to symbolize the relationship between the quantity demanded of a particular product and specific demand-influencing variables is a more explicit and conceptually accurate way of representing the demand for a product that in the simple graphic portrayal of price-quantity relationships in the form of demand curves.
Nevertheless, it is analytically convenient to segregate demand determinants into two groups: (1) the selling price of the product and (2) all other demand determinants. Using this dichotomization, variations in the purchases of a product associated solely with changes in product price are customarily termed changes in the quantity demanded and are represented graphically by movements along a given demand curve. In Figure 5-1(a), a decrease in the price of X from to increases the quantity demanded from to – all other factors