Demand curve formula

The demand curve shows the amount of goods consumers are willing to buy at each market price.

A linear demand curve can be plotted using the following equation.

Qd = a – b(P)

• Q = quantity demand
• a = all factors affecting price other than price (e.g. income, fashion)
• b = slope of the demand curve
• P = Price of the good.

Inverse demand equation

The inverse demand equation can also be written as

• P = a -b(Q)
• a = intercept where price is 0
• b = slope of demand curve

Example

Qd = 20 – 2P

 Q P 40 0 38 1 36 2 34 3 32 4 30 5 28 6 26 7 0 20

a

Change in a

In this case, a has increased from 40 to 50.

This means that for the same price, demand is greater. It reflects a shift in the demand curve to the right. This could be due to a rise in consumer income which enables them to buy more goods at each price.

Change in b

In this case, the equation has changed from Q=40-2P to Q= 40-1P

This means the slope is steeper and looks like this.

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