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 QD 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 of linear demand curve
Qd = 20 – 2P
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.