Jose Solivan

BADM 5020

Assignment: Learning activity 1 ch 3 -U2

1) What is a demand function? Which variables determine demand?

The demand function states the relation between the quantities of goods and services
consumers demand during a specific period and all the factors that influence the level of
purchases considering the variables that influence the consumer his decision to acquire the
product or not.

The variables that most often affect are:

- Price of the good
- Consumer’s income
- Prices of related goods
- Advertising expenditures
- Consumer preferences
- Credit availability
- Loyalty and quality of the product

2) What happens to demand when the following changes occur?

a. Price of the good X declines.

When price of the good X declines then demands of good X increases. This is based on the
Law of Demand which states that there is an inverse relationship between price and
demand, if a goods price decreases the quantity demanded of these goods increases, as the
consumer will have more purchasing power and can increase consumption.

b. The price of a substitute good Y decreases

When the price of a substitute good Y decreases, the quantity demanded for good Y
increases, but the demand for the good that it is being substituted for decreases.

c. Consumer's Income decreases and the good X is inferior

When consumer income decreases and the good X is inferior, then demand increase as the
inferior good is more affordable, than an expensive good.