Introduction

After you have worked through this section of the learning unit, you should be able to:

  • write the demand equation using symbols

With the above information, it is now possible to write a demand equation with the help of the following symbols:

Qd = f(T, Y, Px, N, Pg, ...)

In words, the above equation states that the quantity demanded of a goods or service is a function of taste and preferences (T), income (Y), the price of the goods or service (Px), the number of potential buyers (N), the price of related goods (Pg) and other factors (this is what the three dots ... represent). The other factors are things such as the weather, expected price, income distribution and so forth.

Our dependent variable is the quantity demanded (Qd), which is influenced by the independent variables (T, Y, Px, N, Pg, ... ) of which there are more than six.

To analyse the impact of these independent variables on the quantity demanded we will do it one by one. And the first one we will take a closer look at is the relationship between the price of a good or service (Px) and the quantity demanded (Qd).

Now do the following activity to see if you have grasped the demand equation:

Indicate which of the following variables are dependent variables and which are the independent variables given the demand equation.

The price of the good or service.



Think again.

The price of the good or service is an independent variable since we ill be looking at the impact of the price of the good or service on the quantity demanded.

Yes it is an independent variable since we will explain the impact of this variable on the quantity demanded.

The quantity demanded of the good or service.



Yes this is a dependent variable since this is the variable that we will explain.

Think again.

This is the variable that we try to explain and it is therefore our dependent variable.

The income of households.



Think again.

The income of households is an independent variable since we ill be looking at the impact of the income of households on the quantity demanded.

Yes it is an independent variable since we will explain the impact of this variable on the quantity demanded.

The number of buyers.



Think again.

The number of buyers of good or service is an independent variable since we will be looking at the impact of the number of buyers on the quantity demanded.

Yes it is an independent variable since we will explain the impact of this variable on the quantity demanded.

Write down the correct symbol for the following variables.

  1. The quantity demanded.
  2. The price of the good or service.
  3. Tastes and preferences.
  4. The number of buyers.
  5. The price of related goods and services.
Click to see the answer
  1. The quantity demanded – Qd
  2. The price of the good or service – Px
  3. Tastes and preferences – T
  4. The number of buyers – N
  5. The price of related goods and services – Pg