Demand curve

As demand function is called in economics a mathematical function that specifies the quantity for a given price of a good that is in demand at this price. Represented graphically, it is usually with reversed coordinate axes: The vertical axis is the price plotted on the horizontal the crowd. A distinction is made between individual and aggregate demand functions. The former capture the demand behavior of a person, the latter capture the demand behavior of all market participants.

Often, the demand function is the supply function used in combination to the market equilibrium - that is, those price-quantity combination that corresponds to the demand for the good of the amount offered at this price - to be determined.

Concepts and properties

A demand function is a generally a function. It is usually accepted as falling strictly monotonic, ie, with increasing price, the demand should also decline. A generally negligible special case merely represent so-called Giffen goods whose demand falls in the price.

It refers to that price, with a demand of zero corresponds, as prohibitive; in the graphical example of Figure 1 is one of the 16 €.

That dose is maximum demand - under the assumption of a falling curve of the demand curve that is nothing more than the amount that is in demand when the price is zero - is referred to as saturation amount; it amounts in Figure 1 on four units of the good.

Horizontal and vertical interpretation of the individual demand function

The fact that the demand function is usually shown with reversed coordinate axes, it brings with it in principle, that the resulting curve can be read only by the price axis (see below: horizontal interpretation); eventually change another graph remains that functionally the price on the amount ( and not the amount on the price ) is mapped. However, the individual demand curve is actually a vertical interpretation accessible.

Note, however, that this applies to the aggregate demand ( see following section ) does not hold in general.

The horizontal interpretation of the demand function is the one that most closely follows the common understanding. Strictly you follow the functional form of the demand function: Based on the price the question is answered, what is the difference resulting from this demand. In Figure 2 is shown, for example, that consumers are ready at a price of 8 € to purchase 2 units; at a price of 4 € if they were, however, willing to even buy 3 units.

For vertical interpretation of the example is to read as follows (Fig. 3): In order for the demand is 3 units, the price must be 4 €. Or put differently: The price that consumers are willing to pay for the third unit is 4 €.

From the coexistence of horizontal and vertical interpretation it follows that Figure 1 therefore also can be interpreted as if it were not a function, whose axes are reversed, but simply a function in ordinary representation. This function is called the price-demand function. With her is the inverse function of ( inverse ) demand function. For example, let

Then is the inverse function

This is precisely that function that the "exchanging " demand function from the example in Figure 1 corresponds to (but also a horizontal interpretation allowed).

Aggregate demand curve

While individual demand curves / specify the demand for a good by one individual to a household, provide aggregate demand curves demand by all market participants is; one speaks accordingly of the market demand. Graphically, the aggregation is done by adding up the individual demands. Note, however, that may not be vertical are added, for example, in Figure 4 (the prices can not be added), but only horizontally. Since no negative demands exist, must demand of Person 2 are also attributed only below a price of 10 € beyond; This has inter alia the result that when the aggregation normally causes a " buckling " of the function.

Marshallian and Hicksian demand

The Financial Theory of Microeconomics, the aggregate demand function is obtained from the individual Nutzenmaxierung of households. The individual demand for a commodity depends on two factors: on the one of the prices of all goods, on the other hand the available budget of the household.