Demand function

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

Definition / explanation

The demand function is understood to be a function that shows the consumer demand for a good in relation to the price. Opposite the demand function is the so-called supply function, which defines the supply depending on the price.

In interaction with the demand function and Offer function kann das Market equilibrium ermittelt werden, also die Preis-Mengen-Kombination bei der die Nachfrage nach dem Gut der zu diesem Preis angebotenen Menge entspricht.

Representation of the demand function

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

Usually it is a strictly monotonic and decreasing function. This means that if prices fall, demand will increase and if prices rise, demand will decrease.

With this model, the demand is clearly limited, because a certain price is expected, which starts with a value of zero. So if a potential buyer is no longer willing to pay a certain price, the demand value is zero. In technical jargon, this price is also known as the prohibitive price, which can be seen on the Y-axis as the intersection.

If the price falls, 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 from the intersection on the X-axis.

Special features and characteristics

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

There are usually several suppliers for a particular product. The prices vary and must be precisely adapted to the market situation. The demand function is responsible for this and provides an optimal picture of what the current situation looks like.

Summary