Demand Function

In economics, the demand function represents consumer demand for a commodity as a function of price. The graphical representation is made on a coordinate axis (Y-axis is price / X-axis is quantity) which is known as demand curve.

Definition / Explanation

The demand function is a function that shows the consumer demand for a good in relation to the price. Compared to the demand function is the so-called supply function, which defines the supply as a function of the price.

At the point where demand function and supply function intersect, the market equilibrium can be determined, i.e. the price/quantity combination in which the demand for the good corresponds to the quantity offered at this price.

As a rule, the demand function is displayed directly in a coordinate system. The so-called abscissa (X-axis) represents the offered quantity and the ordinate (Y-axis) the price.

It is usually a strict monotone and falling function. By this, it is meant that with falling prices the demand will increase and with increasing prices the demand decreases.

The demand is clearly limited to this model because it is calculated with a certain price, which starts with a value zero. So if a potential buyer is no longer willing to pay a certain price, the demand value is zero. In technical terms, this price is also referred to as the prohibitive price, which is recognizable as the intersection point on the Y-axis.

If the price drops, so does the demand for a product. However, the falling price will not necessarily lead to an infinitely high demand. The market is saturated from a certain point, which can be seen at the intersection on the X-axis.

Special Features and Characteristics

The demand or the supply depending on the price formation is processed in the functions. An intersection of the two components creates a market equilibrium in monopoly formation.

There are usually several suppliers for a particular product. The prices vary and have to be adapted exactly to the market situation. This is the responsibility of the demand function, which gives an optimal picture of what the current situation looks like.

Summary

• Demand function describes consumer demand for a good in relation to its price.


• With demand function and supply function, market equilibrium can be determined


• Representation: X-axis = quantity demanded and Y-axis = price


• usually strictly monotonous and falling function