Pralhada Baidar

Lecturer, PYC

Demand Function:
Demand is the consumer’s desire to purchase goods and services, and
willingness to pay a price for goods and service.
The demand of a good depends upon the various factors such as price of the
good, income of the consumer, level of advertisement etc.

But here we assume that the demand depends only on the price. So, the
simplest model of the demand function is
Q = f (P)
That is, the quantity demanded depends upon only on the price. The equation
Q =f(P) is known as the demand law.
This can also be written as
P = g(Q) = f-1(Q)

The graph of demand function is called demand curve and the equation is
called demand equation. An increase in the price of goods will decrease the
quantity demanded and vice-versa so slope of demand curve must be
negative.

For example, the demand function is

Q = 200 – 2P i.e. Q = f (P) [y = f(x)]
Here,
Slope = -2 (negative)
When P = 0, Q= 200= vertical intercept i.e. (0, 200)
When Q = 0, P = 100 = horizontal intercept i.e. (100, 0)

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Quantity (Q)

250

200

150

100

50

Price (P)
O 20 40 60 80 100
Figure (a)
Since Q = 200 – 2P, so P can be expressed in terms of Q as
P = 100 – 0.5Q i.e. P = f (Q) [y = f(x)]
Here,
Slope = -0.5
When Q = 0, P= 100 = vertical intercept i.e. (0, 100)
When P = 0, Q = 200 = horizontal intercept i.e. (200, 0)
Price (P)

120
100
80
60
40
20
Quantity
O 40 80 120 160 200 240 (Q)

Figure (b)

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The general form of demand equation is
P =f(Q) = a +(-b)Q
The negative slope indicates that price drops by 'b' units for each unit increase
in quantity and vice-versa..
Here,
Slope = -b
When Q = 0, P=a = vertical intercept i.e. (0, a)
a a
When P = 0, Q = = horizontal intercept i.e. ( , 0)
b b
The demand function, P = a – bQ is graphically represented in below figure.

Vertical intercept, a

Q
O a
Horizontal intercept,
b

Supply Function:
Supply is the total amount of certain goods or services which are available to
consumers.
The supply of goods depends upon the factors such as price of goods, cost of
production, number of products in the market, number of producers in the
markets supplying the goods, supply of the goods in the market etc.
Now we consider only the case when supply of goods depends upon the
price. The simplest model of the supply function is
Q = f(P)
That is, quantity supplied depends only on the price, other factors remaining
constant. The supply function Q = f(P) is known as the law of supply.
This can also be written as
P = g(Q) = f-1(Q)

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For example, the supply function is
Q = 20 + 2P i.e. Q = f (P)
This supply law can be written as
P = -10 + 0.5Q i.e. P= f (Q)
Plot both the graphs.
The general form of supply equation is
P =f(Q) = c +dQ
The positive slope indicates that price increases by’d’ units for each unit
increase in quantity and vice-versa.
Here,
Slope = d
When Q = 0, P=c = vertical intercept i.e. (0, c)
-c -c
When P = 0, Q = d = horizontal intercept i.e. ( d , 0)

The demand function, P = c + dQ is graphically represented in below figure.

Vertical interc ept, c

H orizontal interc ept,

–c
d
Q
O