Consumer demand

In economics, demand is the quantity of a commodity or a service that people are willing or able to buy at a certain price.

The relationship between price and quantity demanded is also known as demand curve. Preferences and choices, which underly demand, can be represented as functions of cost, benefit, odds and other variables.

Innumerable factors and circumstances could affect a buyer's willingness or ability to buy a good. Some of the more common factors are:

The demand equation is the mathematical expression of the relationship between the quantity of a good demanded and those factors that affect the willingness and ability of a consumer to buy the good. For example, Q_d = f(P; P_rg, Y) is a demand equation where Q_d is the quantity of a good demanded, P is the price of the good, P_rg is the price of a related good, and Y is income; the function on the right side of the equation is called the demand function. The semi-colon in the list of arguments in the demand function means that the variables to the right are being held constant as one plots the demand curve in (quantity, price) space. A simple example of a demand equation is Q_d = 325 - P - 30P_rg + 1.4Y. Here 325 is the repository of all relevant non-specified factors that affect demand for the product. P is the price of the good. The coefficient is negative in accordance with the law of demand. The related good may be either a complement or a substitute. If a complement, the coefficient of its price would be negative as in this example. If a substitute, the coefficient of its price would be positive. Income, Y, has a positive coefficient indicating that the good is a normal good. If the coefficient was negative the good in question would be an inferior good meaning that the demand for the good would fall as the consumer's income increased. Specifying values for the non price determinants, P_rg = 4.00 and Y = 50, results in the demand equation Q = 325 - P - 30(4) +1.4(50) or Q = 275 - P. If income were to increase to 55 the new demand equation would be Q = 282 - P. Graphically this change in a non price determinant of demand would be reflected in an outward shift of the demand function caused by a change in the x intercept.

In economics, the demand curve is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price.

PED is a measure of the sensitivity of the quantity variable, Q, to changes in the price variable, P. Elasticity answers the question of the percent by which the quantity demanded will change relative to (divided by) a given percentage change in the price. For infinitesimal changes the formula for calculating PED is the absolute value of (∂Q/∂P)×(P/Q).

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