Q.Write a short note on: Demand function

Speculation is buying or selling now in anticipation of a future change in price, so as to profit from the price change.

Explanation

Speculation refers to transactions undertaken in the present on the basis of expected future price changes. A speculator buys a commodity (or asset) when he expects its price to rise and sells it when he expects its price to fall, hoping to earn a profit from the difference. In the theory of demand, if consumers expect the price of a good to rise in the near future, they increase their present purchases (speculative demand rises); if they expect prices to fall, they postpone purchases and present demand falls. Thus expectations and specu …

A demand function states, in functional or mathematical form, how the quantity demanded of a good depends on its determinants — its own price, income, prices of related goods, tastes and other factors. The price-demand function expresses quantity demanded as a function of price alone, other things held constant.

Meaning

The demand function is the functional relationship between the quantity demanded of a commodity and the various factors that determine it. It shows how demand changes when any of its determinants changes.

Forms of demand function

• General demand function: Here the quantity demanded of a good depends on several variables together — the price of the good, the consumer's income, the prices of substitutes and complements, tastes and preferences, and expectations. In words, quantity demanded is a function of all these factors.
• Price demand function: This simpler and most common form shows the quantity demanded as a function of the price of the good alone, assuming all other factors remain unchanged. It reflects the law of demand, under which quantity demanded rises as price falls. …