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Generally, there is an inverse relationship between price and demand: as the price increases, demand decreases; as the price decreases, demand increases. This relationship is often represented as a linear function on a graph. There is one exception: in contrast to the typical convention in engineering, science, and other disciplines, price is plotted along the Y-axis, even though it is the independent variable. Therefore, price (p) is conceptualized as a function of demand (D), meaning p=f(D). However, many textbooks and economic analysis uses a functional relationship of D = f(p) also very common while the price is still plotted along y-axis.
Figure 2.1
Price–Demand Relationship (An unusual convention in economics is that the independent variable, price, is plotted along the Y-axis.)
The linear price-demand relationship can be expressed as:
a is the price-axis intercept, representing the maximum price at which demand becomes zero.
b is the slope of the line, indicating how much the price decreases for each unit increase in demand.
Equivalently, b represents the amount by which demand increases for each unit decrease in price.
Both a and b are positive constants.
By solving for D, we can express demand as a function of price:
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