Question

State two important determinants of demand.

Answer 1

1. Individual Demand Function: Individual demand function shows the functional relationship between demand of a commodity by a consumer in the market and its various determinants. Individual demand function can be expressed as:
   D_x = f (P_x, P_r, Y, T, E etc.)
   Where, D_x = Demand for commodity X: P_x = Price of commodity X; P_r = Price of other related goods. Y = Income of the consumer; T = Tastes and preferences; E = Expectation of future prices.
2. Market Demand Function: Market demand function shows the functional relationship between demand of a commodity by all the consumers in the market and its various determinants. As mentioned above, market demand is affected by all factors affecting individual demand. In addition it is also affected by size and composition of population, season and weather and distribution of income. So, market demand function can be expressed as:
   MD_x = f (P_x, P_r, Y, T, E, N, Y_d, G etc.)
   Where, MD_x = Market demand for commodity X; P_x = Price of commodity X; P_r = Price of other related goods; Y = Income of the consumer; T = Tastes and preferences; E = Expectation of future prices; N = Population; Y = Distribution of income; G = Government policy.