Fisheries Economics

2.1.8. Demand function

When the determinants of demand are written in a functional form such as an equation, we get the demand function.

In general, the demand function of a commodity may be stated as follows:

Q = f (Pi, Ps, Y, T)

where,

Q = Quantity demanded

Pi = Price of the good

Ps = Price of substitute or related goods

Y = Income

T = Tastes and preferences

Here's an example:

Suppose that the table below shows the demand for your small company's shrimp feed. The key idea, again, is that the demand is the entire table, not any one number in the table.

Demand for Shrimp Feed

The table shows some possible prices for SF. Under each price is the corresponding number of kgs. that buyers would buy per day at that price.

Price per Kg./ Shrimp:	Re. 1	Rs. 2	Rs. 3	Rs. 4	Rs. 5	Rs. 6
Kgs. Demanded per Day:	60	30	20	15	12	10

Based on this table, how many kgs. of shrimp will be bought per day if you charge Rs. 4 / Kg.?

That question asked for the quantity demanded at that particular price of Rs. 4. Suppose now you raise your price. Does the quantity demanded go up or down?

Please notice that the table (repeated below) says "... Kgs of shrimp demanded per day". Demand quantities always have a time frame. If you charge Rs. 4 you can sell:
15 Kgs per day, or
75 Kgs. per 5-day week, or
3750 Kgs. per 50-week year.
So, you have to specify a time frame.

Price per Kg.:	Re. 1	Rs. 2	Rs. 3	Rs. 4	Rs. 5	Rs. 6
Kgs. Demanded per Day:	60	30	20	15	12	10

You can also use the demand table to go from a quantity to sell to a price to charge. For example, if you want to sell 30 Kgs. per day, what price should you charge?

DEMAND SHIFTS

Demand can shift. A shift in demand means that the relationship between price and quantity demanded changes. In the graph, all the quantities shift up (which is to the right) or down (which is to the left). In the table, shifting up means that all the quantity demanded numbers get bigger, while the prices stay the same. Shifting down means all the quantities demanded get smaller, while the prices stay the same. For example, suppose a rumor spreads that your shrimp are not 100% safe. Which way will your demand probably shift?

The bad rumor makes each point move to the left, which is "down." At every price, buyers will take less shrimp than they used to. This is what economists mean by a "fall in demand."

 DEMAND FOR SHRIMP

Price

 6| F

 5| E

 4| D

 3| C

 2| B

 1| A

 ....:....:....:....:....:....:....:....:....:....:....:....:

 5 10 15 20 25 30 35 40 45 50 55 60 Quantity

  A B C  D E F

Price  Re.1 Rs.2 Rs.3 Rs.4 Rs.5 Rs.6

Quantity  30 15 10 7 6 5

At the old higher demand, you could sell 30 Kgs. a day at $2. Now, at the new lower demand, how many can you sell at a price of $2?

When your demand shifts down, the amount you sell doesn't necessarily go down. It depends on what you do with your price. For example, you can keep on selling 30 Kgs. per day if you cut your price (to what?)

So, when demand shifts down, your price must go down or your quantity sold will go down, but not necessarily both.

Moving Along the Demand Graph versus Shifts in the Demand Graph

Statements like "Demand went up" or "Demand will go down" are ambiguous. They can mean a movement along the demand graph, as price changes. Or, they can mean a shift of the whole demand graph.

Here are some situations where someone might say the demand changed. Which ones are changes in the quantity demanded, moving along the demand curve in response to price changes? Which ones are changes in the demand curve itself?

As the WS epidemic spread, sales of antibiotics skyrocketed.

A diagnostic lab gets a PCR kit. More farmers come.

You cut your price on soil and water analysis. More farmers come.

The government releases a report saying that your district is affected by drought. New farmers go elsewhere.

You extend the operating hours of your diagnostic lab. You see more farmers per day.

You double what you charge farmers in your laboratory. It only makes a little difference in farmers per day.

You buy a soil and water laboratory on wheels, and schedule stops around your area. More farmers get their water and soil tested than before.