This demand curve is drawn with price on the vertical axis and quantity on the horizontal axis. Depending on how we interpret it, the demand curve shows either the highest quantity a household would buy at a given price or the highest price it would be willing to pay for a given quantity. In our example, at a price of $3 per gallon households would each be willing to buy 10 gallons per week. Alternatively, the highest price they would be willing to pay for 10 gallons per week is $3 per gallon. Both interpretations are valid, and we will be thinking in terms of both as we proceed. If the price were to rise by $1, households would reduce the quantity they each bought by 0.4 units to 9.6 gallons. We say that the slope of the demand curve is 1/−0.4, or –2.5. Slope is always measured as “rise over run,” or the change in the vertical variable divided by the change in the horizontal variable. In this case, the slope of the demand curve is ΔP/ΔQ, where “Δ” stands for “the change in.” The change in price was $1, and it is associated with a change in quantity of negative 0.4
3.1. The Demand Function and the Demand Curve
ive. 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 <span>Exhibit 1. Household Demand Curve for Gasoline This demand curve is drawn with price on the vertical axis and quantity on the horizontal axis. Depending on how we interpret it, the demand curve shows either the highest quantity a household would buy at a given price or the highest price it would be willing to pay for a given quantity. In our example, at a price of $3 per gallon households would each be willing to buy 10 gallons per week. Alternatively, the highest price they would be willing to pay for 10 gallons per week is $3 per gallon. Both interpretations are valid, and we will be thinking in terms of both as we proceed. If the price were to rise by $1, households would reduce the quantity they each bought by 0.4 units to 9.6 gallons. We say that the slope of the demand curve is 1/−0.4, or –2.5. Slope is always measured as “rise over run,” or the change in the vertical variable divided by the change in the horizontal variable. In this case, the slope of the demand curve is ΔP/ΔQ, where “Δ” stands for “the change in.” The change in price was $1, and it is associated with a change in quantity of negative 0.4 <span><body><html>
Summary
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