The Demand Function

The Demand Function

Qdx = f(Px, Py, M, H)
Wherein:
Px = Price of Good
Py = price of Related Goods
M = income
H = value of any other function that affects
demand (level of advertising, size of
population or consumer expectation)
 Linear Demand Function
Qdx = 0 + x Px + y Py +m M + H H
Wherein:
I s = fixed numbers given by firm research dept.
or economic consultant
Px = Price of Good
Py = price of Related Goods
M = income
H = value of any other function that affects demand
(level of advertising, size of population or
consumer expectation)
 Linear Demand Function
Qdx = 0 + x Px + y Py +m M + H H

Increase in Px (Price of Good) = decrease in Qd

of good X. x < 0
Qdx = 0 + x Px + y Py +m M + H H
y is positive = increase in price of good Y will
increase the consumption of good X. ergo,
Good X is a substitute good for Good Y.
y is negative = increase in price of good Y will
decrease the consumption of good X. ergo,
Good X is a complement good for Good Y.
Qdx = 0 + x Px + y Py +m M + H H
m M can be positive or negative depending if
X is a normal or inferior good.

m is positive = increase in income (M) will

increase the consumption of good X. ergo,
Good X is a normal good.
m is negative = increase in income (M) will
decrease the consumption of good X. ergo,
Good X is an inferior good.
Qdx = 0 + x Px + y Py +m M + H H
H = value of any other function that affects
demand (level of advertising, size of
population or consumer expectation)
 Demonstration Problem
X Corp.’s Demand function:
Qdx = 12,000 - 3Px + 4Py - 1M + 2Ax
X sells for $200/unit,
Y sells for $15/unit
2000 advertising units
10,000 consumer income

Qdx = 5, 460 units

 The Supply Function
Qsx = f(Px, Pr, W, H)
Wherein:
Px = Price of Good
Pr = price of technologically related Goods
W = wage rate on labor
H = value of any other function that affects
supply (existing technology, number of firms
in the market, taxes or producer expectations)
 The Supply Function
Qsx =0 + x P x + r P r + w W + H H
Wherein:
Px = Price of Good
Pr = price of technologically related Goods
W = wage rate on labor
H = value of any other function that affects
supply (existing technology, number of firms
in the market, taxes or producer expectations)