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Determining the Components of Demand Ä Ä Ä Ä Demand is the behavior of consumers in the market. The components, or determinants, of demand for a product are the price of the good, the price of complementary goods, the price of substitute goods, household income, tastes and preferences, and expectations about future prices. A demand function is a mathematical relationship that predicts the quantity of a good demanded as a function of several related factors. Ceteris paribus means “all other things equal.” It means that in a functional relationship, all factors but one are held constant. Demand refers to the behavior of consumers in the market. Supply refers to the behavior of producers. The question that you want to answer in this example is which factors determine how much of a product that you, as a consumer, will demand. Usually the answer to this question is expressed as a demand function. The demand function is expressed using symbols. You can read the function on the left as: “The quantity of bread demanded in a particular time period is a function of the price of bread, the price of complementary goods, the price of substitute goods, household income, consumer tastes and preferences, and expectations about future prices.” Economists use the assumption ceteris paribus to study the effects of one variable while holding the others constant. If you hold all components constant, except the price of bread itself, you can develop a demand curve that shows the relationship between the price of bread and the quantity of bread demanded in a period of time. www.compasslearning.com Copyright ã 2006, Thinkwell Corp. All Rights Reserved. 1160.doc –rev 11/07/2006