Linear demand

freeze4real

Guys I'm having trouble understanding my statistics note.


What's linear demand ?


How does it differ from inverse demand ?

Can you please explain this in simple terms.

Thanks.

LeixlipRed

Is this Economics related? Post up some definitions and we can have a look or someone might come along who knows in the mean time.

hivizman

Let P be price and Q be quantity.

Then a linear demand function is of the form:

Q = a - bP

Note that the coefficient of price is negative, based on the economic assumption that consumers will demand less of an item as the price increases. This demand function would be represented as a straight line on a graph, hence it is described as "linear".

The demand function expresses quantity as a function of price - more generally, demand functions are of the form Q = f(P).

The inverse demand function expresses price as a function of quantity. For example, the inverse demand function corresponding to the linear demand function above would be:

P = (a-Q)/b

The inverse demand function is useful in calculating total revenue (= P x Q) in terms of quantity.

freeze4real

Thanks for the help guys.