In economics, demand is the quantity of a commodity or a service that people are willing or able to buy at a certain price, per unit of time. The relationship between price and quantity demanded is also known as demand curve. Preferences and choices, which underlie demand, can be represented as functions of cost, benefit, odds and other variables. Determinants of (Factors affecting) demand Innumerable factors and circumstances could affect a buyer's willingness or ability to buy a good. Some of the common factors are:
Good's own price: The basic demand relationship is between potential prices of a good and the quantities that would be purchased at those prices. Generally the relationship is negative meaning that an increase in price will induce a decrease in the quantity demanded. This negative relationship is embodied in the downward slope of the consumer demand curve. The assumption of a negative relationship is reasonable and intuitive. If the price of a new novel is high, a person might decide to borrow the book from the public library rather than buy it. Price of related goods: The principal related goods are complements and substitutes. A complement is a good that is used with the primary good. Examples include hotdogs and mustard, beer and pretzels, automobiles and gasoline. (Perfect complements behave as a single good.) If the price of the complement goes up the quantity demanded of the other good goes down.
Mathematically, the variable representing the price of the complementary good would have a negative coefficient in the demand function. For example, Qd = a - P - Pg where Q is the quantity of automobiles demanded, P is the price of automobiles and Pg is the price of gasoline. The other main category of related goods are substitutes. Substitutes are goods that can be used in place of the primary good. The mathematical relationship between the price of the substitute and the demand for the good in question is positive. If the price of the substitute goes down the demand for the good in question goes down.
Personal Disposable Income: In most cases, the more disposable income
(income after tax and receipt of benefits) a person has the more
likely that person is to buy.
Tastes or preferences: The greater the desire to own a good the more
likely one is to buy the good. There is a basic distinction between
desire and demand. Desire is a measure of the willingness to buy a
good based on its intrinsic qualities.
This list is not exhaustive. All facts and circumstances that a buyer finds relevant to his willingness or ability to buy goods can affect demand. For example, a person caught in an unexpected storm is more likely to buy an umbrella than if the weather were bright and sunny.
3.1 Elasticity along linear demand curve 3.2 Constant price elasticity demand
4 Market structure and the demand curve
5 Inverse demand function
6 Residual demand curve
7 Is the demand curve for PC firm really flat?
11.1 In psychopharmacology 11.2 In energy conservation
12 See also 13 Notes 14 Further reading 15 External links
Q = a
displaystyle Q=aP^ c
where a and c are parameters, and the constant price elasticity is c and
c ≤ 0
displaystyle cleq 0
. Market structure and the demand curve In perfectly competitive markets the demand curve, the average revenue curve, and the marginal revenue curve all coincide and are horizontal at the market-given price. The demand curve is perfectly elastic and coincides with the average and marginal revenue curves. Economic actors are price-takers. Perfectly competitive firms have zero market power; that is, they have no ability to affect the terms and conditions of exchange. A perfectly competitive firm's decisions are limited to whether to produce and if so, how much. In less than perfectly competitive markets the demand curve is negatively sloped and there is a separate marginal revenue curve. A firm in a less than perfectly competitive market is a price-setter. The firm can decide how much to produce or what price to charge. In deciding one variable the firm is necessarily determining the other variable Inverse demand function Main article: Inverse demand function In its standard form a linear demand equation is Q = a - bP. That is, quantity demanded is a function of price. The inverse demand equation, or price equation, treats price as a function g of quantity demanded: P = f(Q). To compute the inverse demand equation, simply solve for P from the demand equation. For example, if the demand equation is Q = 240 - 2P then the inverse demand equation would be P = 120 - .5Q, the right side of which is the inverse demand function. The inverse demand function is useful in deriving the total and marginal revenue functions. Total revenue equals price, P, times quantity, Q, or TR = P×Q. Multiply the inverse demand function by Q to derive the total revenue function: TR = (120 - .5Q) × Q = 120Q - 0.5Q². The marginal revenue function is the first derivative of the total revenue function; here MR = 120 - Q. Note that the MR function has the same y-intercept as the inverse demand function in this linear example; the x-intercept of the MR function is one-half the value of that of the demand function, and the slope of the MR function is twice that of the inverse demand function. This relationship holds true for all linear demand equations. The importance of being able to quickly calculate MR is that the profit-maximizing condition for firms regardless of market structure is to produce where marginal revenue equals marginal cost (MC). To derive MC the first derivative of the total cost function is taken. For example, assume cost, C, equals 420 + 60Q + Q2. Then MC = 60 + 2Q. Equating MR to MC and solving for Q gives Q = 20. So 20 is the profit maximizing quantity: to find the profit-maximizing price simply plug the value of Q into the inverse demand equation and solve for P. Residual demand curve The demand curve facing a particular firm is called the residual demand curve. The residual demand curve is the market demand that is not met by other firms in the industry at a given price. The residual demand curve is the market demand curve D(p), minus the supply of other organizations, So(p): Dr(p) = D(p) - So(p ) Is the demand curve for PC firm really flat? Practically every introductory microeconomics text describes the demand curve facing a perfectly competitive firm as being flat or horizontal. A horizontal demand curve is perfectly elastic. If there are n identical firms in the market then the elasticity of demand PED facing any one firm is
PEDmi = nPEDm - (n - 1) PES
where PEDm is the market elasticity of demand, PES is the elasticity of supply of each of the other firms, and (n -1) is the number of other firms. This formula suggests two things. The demand curve is not perfectly elastic and if there are a large number of firms in the industry the elasticity of demand for any individual firm will be extremely high and the demand curve facing the firm will be nearly flat. For example, assume that there are 80 firms in the industry and that the demand elasticity for industry is -1.0 and the price elasticity of supply is 3. Then
PEDmi = (80 x (-1)) - (79 x 3) = -80 - 237 = -317
That is the firm PED is 317 times as elastic as the market PED. If a
firm raised its price "by one tenth of one percent demand would drop
by nearly one third." if the firm raised its price by three tenths
of one percent the quantity demanded would drop by nearly 100%. Three
tenths of one percent marks the effective range of pricing power the
firm has because any attempt to raise prices by a higher percentage
will effectively reduce quantity demanded to zero.
The cultivation and expansion of needs is the antithesis of wisdom. It is also the antithesis of freedom and peace. Every increase of needs tends to increase one’s dependence on outside forces over which one cannot have control, and therefore increases existential fear. Only by a reduction of needs can one promote a genuine reduction in those tensions which are the ultimate causes of strife and war.
^ O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics:
Principles in Action. Upper Saddle River, New Jersey: Pearson Prentice
Hall. p. 79. ISBN 9780131334830.
^ Colander, David C. Microeconomics 7th ed. pp. 132–133. McGraw-Hill
^ The perfectly competitive firm's demand curve is not in fact flat.
However, if there are numerous firms in the industry the demand curve
of an individual firm is likely to be extremely elastic, for a
discussion of residual demand curves see Perloff (2008) at pp.
^ The form of the inverse linear demand equation is P = a/b - 1/bQ.
^ Samuelson, W & Marks, S. Managerial
Friedman, Milton (December 1949). "The Marshallian
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