Demand and Supply Functions

Vocabulary flashcards covering the concepts, equations, and mathematical formulations of direct and inverse demand and supply functions.

Demand function

A mathematical relationship where the quantity demanded of a good depends on its price ($Q_d = f(P)$), producing a downward-sloping demand curve because consumers seek out less costly substitutes when price rises, ceteris paribus.

Simple demand equation

An equation written as $Q_d = a - bP$, which describes how much the quantity demanded changes in response to a change in the price of the good or service.

Intercept $a$

The intercept parameter in the linear demand function $Q_d = a - bP$.

Slope term $-b$

The slope of the demand function $Q_d = a - bP$, which gives the derivative $\frac{dQ}{dP} = -b$ (the inverse of the slope of the curve when price is plotted on the vertical axis).

Slope of the plotted demand curve

The slope of the curve when price ($P$) is plotted on the vertical axis and quantity ($Q$) on the horizontal axis, mathematically expressed as $\frac{dP}{dQ}$.

Inverse demand function

The demand equation solved for price in terms of quantity ($P = f(Q_d)$), taking the algebraic form $P = \frac{a}{b} - \frac{1}{b}Q_d$, which is used to plot the demand curve on standard axes where price is on the vertical axis.

Supply function

A function denoted as $Q_s = f(P) = c + dP$, where quantity supplied depends on price, $c$ represents the intercept, and $d$ represents the slope of the supply function.

Inverse supply function

The supply equation solved for price as a function of quantity supplied ($P = f(Q_s)$), expressed algebraically as $P = -\frac{c}{d} + \frac{1}{d}Q_s$.

Inverse supply of $Q_s = -44 + 20P$

The inverse supply equation obtained by solving for $P$, yielding $P = 2.2 + 0.05Q_s$.