Question

In: Economics

How is the demand function developed?

How is the demand function developed?

Solutions

Expert Solution

A demand function is a decreasing function with respect to price that means as the price of a good increases its quantity demanded falls, with a few exceptions, and it is developed by many approaches like:

utility approach where the utility derived from consuming a good is taken into account and as the price increases people are willing to pay less and the demand falls as the utility derived falls. And the demand function is plotted at all those prices and quantity demanded.

other approach is where the quantity demanded is a function of the factors that affect demand like Price of good or service(P), Incomes of consumers(I),Prices of related goods & services(Ps) ,Taste patterns of consumers(T) etc and then our demand function is given by Qd=f(P,I,Ps,T) and this demand function follows the law of demand (The law of demand states that when the price of a good rises, and everything else remains the same, the quantity of the good demanded will fall)

And the demand curve is a downward sloping graph with price on y axis and quantity on x axis.


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