What is demand function? State a consumer's demand function.

Demand Function. It explains the relationship between the demand for a commodity and the factors determining demand. In a way it gives functional relationship (i.e., cause and effect relationship) between demand and its determinants. The above analysis is presented as demand function in the form of the following equation.

D_x = f(P_x, P_R, Y, T)

The equation shows that demand for commodity x (D_x) is the function (f) of Price of commodity x (P_x); Price of Related goods (P_R); Income of consumer (Y) and Tastes of consumer (T).

A consumer's demand function for a good gives the amount of the good that the consumer chooses at different levels of its price when the other things remain unchanged.

Let us first discuss the relationship between the price and demand which is expressed in the form of 'law of demand' and take up the relationship with other determinants afterwards.

To simplify let us divide all the determinants of demand in two categories, namely, 'price of commodity itself' in first category and 'factors other than the price' of the commodity, (such as price of related goods, income of consumer and taste of consumer) in the second category.

(i)    Change in quantity demanded. When change (rise or fall) in demand for a commodity is caused by change in its own price, it is called change in quantity demanded. It shows specific quantity of a commodity purchased against its specific price. It is expressed in the form of either extension or contraction of demand. A change in quantity demanded is graphically represented in the form of movement along a given demand curve.

(ii)    Change in demand. When change (rise or fall) in demand is caused by factors other than the own price of the commodity, it is merely called change in demand. It is expressed in the form of either increase or decrease in demand. In fact, change (increase or decrease) in demand is graphically represented by shift of a demand curve upward or downward.

Comparison. 1. Change in 'quantity demanded' is caused by change in price of commodity (i.e., demand curve does not shift) whereas 'change in demand' is caused by factors other than the price i.e., demand curve shifts rightward or leftward.