1. What is Demand Function?

The demand function represents the relationship between the quantity demanded of a good and various factors that influence it, primarily price and income. It shows how much of a product consumers are willing and able to purchase at different price levels.

2. How Does the Calculator Work?

The calculator uses a linear demand function:

Where:

• \( Q_d \) — Quantity demanded (units)
• \( P \) — Price (dollars)
• \( I \) — Income (dollars)
• \( OF \) — Other factors
• \( a \) — Base demand constant
• \( b \) — Price coefficient (negative for normal goods)
• \( c \) — Income coefficient
• \( d \) — Other factors coefficient

Explanation: The function demonstrates the inverse relationship between price and quantity demanded (law of demand), and the direct relationship between income and demand for normal goods.

3. Importance of Demand Calculation

Details: Accurate demand estimation is crucial for businesses to set optimal prices, forecast sales, manage inventory, and make production decisions. It helps understand market dynamics and consumer behavior.

4. Using the Calculator

Tips: Enter price in dollars, income in dollars, and any other relevant factors. The calculator will estimate the quantity demanded based on the linear demand function parameters.

5. Frequently Asked Questions (FAQ)

Q1: What is the law of demand?
A: The law of demand states that, all else equal, as the price of a good increases, the quantity demanded decreases, and vice versa.

Q2: How does income affect demand?
A: For normal goods, demand increases with income. For inferior goods, demand decreases as income rises.

Q3: What are other factors that affect demand?
A: Other factors include consumer preferences, prices of related goods (substitutes and complements), population changes, and expectations about future prices.

Q4: What is the difference between demand and quantity demanded?
A: Demand refers to the entire relationship between price and quantity, while quantity demanded refers to a specific point on the demand curve at a given price.

Q5: Can demand be perfectly inelastic?
A: Perfectly inelastic demand means quantity demanded does not change with price changes. This is rare in reality but can occur for essential goods with no substitutes.