MARKET DEMAND

FUNCTION OR
LINEAR DEMAND FUNCTION
LINEAR DEMAND FUNCTION FORMULA:
 Dx=a – bPx + cPs – dPc + eY + fA + gT + hE + iC + jPOP

 Parameters show the value of Dx irrespective of

the other parameters.

 If the parameters of specific variable is +ve sign, the

Qded is directly related to variables.

 If the parameters of specific variable is -ve sign, the

Qded is indirectly related to variables.
DEMAND FUNTION FOR PRICE:
 Dx=f (Px)
 The above function is in Linear Form and can be
expressed as Dx = a – bPx.

 a = intercept and constant parameter.

 It shows the level of Demand when the price is Zero.

 b is another parameter the “-ve” sign shows the inverse

relationship between Dx & Px.
 CONCEPT OF ELASTICITY OF DEMAND &
ITS SIGNIFICANCE TO BUSINESSMAN:
Importance of ED

EP EY EXY EA OTHER
 Significance of Price Elasticity (EP):
1. Price Decision:
a. Goods having inelastic demand.
b. Goods having elastic demand.
c. Substitutes.
d. Complements (Joint Demand)
e. Habituated Goods.
f. Urgent Goods or Necessaries.
g. Durable & perishable goods.
2. Markets:
a. Perfect Compensation.
b. Monopoly.
c. Price Discrimination.
3. Govt. Policy for Govt. Authorities:
a. Tax Policy.
b. Public Utility Pricing.
4. Business Firm:
a. Perfectly Competitive Monopoly Firm.
b. Monopoly.
c. Discriminating Monopoly.
d. Factor Pricing.
e. Importance to Trade Unionists
f. Shifting the Tax Burden.
5. International Trade:
a. International Trade.
b. Devaluation.
 Income Elasticity (EY):
a. Demand Forecasting.
b. Taxation.
c. Selection of Markets.
d. Importance to Planners.
 Cross Elasticity (EXY):
a. Product Information & Price Strategy.
b. Degree of Compensation.
c. Nature of Markets.
d. Useful to measure the inter-relationship between
Industries & other sectors.
 Promotional ED (EA):
a. Market for New Products.
b. Extent of established Market
c. Increase sale through advertisement.
d. Effective entry of New Products.
e. Low cost advertisement.
 Other forms of ED:
a. Responsiveness of Sales.
b. Responsiveness of Sales to changes.
c. Expectations in ED.