In mathematical terminology, a function shows relationship between a dependent variable and an independent variable.
For example, when we bring change in the price of any product, it will cause change in the demand of that particular product. Note, here price is an independent variable while as demand represents a dependable variable.
Let me now come to back to demand function topic. Demand function depicts relationship between demand ( dependent variable ) and its determinants ( independent variables ). Depending upon the purpose of analysis, two types of demand function are as.
1. Simple demand function
The simple demand function shows the relationship between demand and one of its determinants, say for example price. Let me help you understand the simple demand function with a brief illustration.
Let’s assume that quantity demanded of a biscuit ( B ) depends solely on price ( Pb ). The demand function for the same biscuit will look like:
Db = f ( Pb ) —————– 1 where Db = demand for biscuit and Pb = price of biscuit
The above equation, however, does not show the nature of relationship between demand demand and price of biscuit as the quantitative relationship is not known. When it is known, we can express the demand function as:
- Db = a -b Pb—————2 where a denotes quantity demanded at zero price and -b gives the change in demand of biscuit for change in Pb by 1.
2. Dynamic demand function
The dynamic demand function in contrast depicts the relationship between demand of a product and many of its determinants.
Two common forms of demand – price relationship are linear and non linear demand functions. Let me here explain you the linear demand function.
Linear demand function
A demand function is called as linear when the slope of demand curve does not change through out its length.As per equation 2,if we change the value of a and -b parameters,the total demand for Db or demand of biscuit can easily be obtained.Let us assume that a=80 and -b=5.Now the demand function can be written as;
Db = 80 – 5*4 = 60 ————–4