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Qdx=8.4−0.4Px+0.06(50)−0.01(20)=11.2−0.4Px
Notice that income and the price of automobiles are not ignored; they are simply held constant, and they are “collected” in the new constant term, 11.2. Notice also that we can rearrange Equation 3, solving for Px in terms of Qx. This operation is called “inverting the demand function,” and gives us Equation 4. (You should be able to perform this algebraic exercise to verify the result.)
Equation (4)
Px = 28 – 2.5Qx
Equation 4, which gives the per-gallon price of gasoline as a function of gasoline consumed per week, is referred to as the inverse demand function . We need to restrict Qx in Equation 4 to be less than or equal to 11.2 so price is not negative. Henceforward we assume that the reader can work out similar needed qualifications to the valid application of equations. The graph of the inverse demand function is called the demand curve , and is shown in Exhibit 1.1
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3.1. The Demand Function and the Demand CurveThen we would hold constant the values of income and the price of good Y. In our example, those values are 50 and 20, respectively. So, by inserting the respective values, we would rewrite Equation 2 as
Equation (3)
<span>Qdx=8.4−0.4Px+0.06(50)−0.01(20)=11.2−0.4Px
Notice that income and the price of automobiles are not ignored; they are simply held constant, and they are “collected” in the new constant term, 11.2. Notice also that we can rearrange Equation 3, solving for P x in terms of Q x . This operation is called “inverting the demand function,” and gives us Equation 4. (You should be able to perform this algebraic exercise to verify the result.)
Equation (4)
P x = 28 – 2.5Q x
Equation 4, which gives the per-gallon price of gasoline as a function of gasoline consumed per week, is referred to as the inverse demand function . We need to restrict Q x in Equation 4 to be less than or equal to 11.2 so price is not negative. Henceforward we assume that the reader can work out similar needed qualifications to the valid application of equations. The graph of the inverse demand function is called the demand curve , and is shown in Exhibit 1.1
Exhibit 1. Household Demand Curve for Gasoline
This demand curve is drawn with price on the vertical axis and quantity on the horizontal Summary
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