Linear Demand Functions

Paper 3 IB Economics HL
Learning Outcomes
1. Explain the Demand Function in the form Qd = a - bP.
2. Plot a demand curve from the linear demand function.
3. Identify the slope of the function Qd = a - bP, that is -b
(coefficient of price).
4. Outline why, if the a term changes, there will be a shift
in the Demand Curve.
5. Outline why, a change in b affects the sttepness of the
Demand Curve.
Demand Function
Qd = a - b(P)
Qd = Quantity Demanded
a = if there is a change in any of the non-price determinants, the a will change
and cause a shift of the Demand Curve.
b = changes in the price coefficient will affect the steepness.
Demand function: Qd = 600 - 50P
Complete the Demand Schedule
for Espressos given the above
function.
Qd = 600 - 50(P)
P = 0
Qd = 600 - 50(0)
Qd = 600 - 0
Qd = 600
Now complete the rest of the
schedule and graph it.
0 600
1
2
3
4
5
6
7
Price
Quantity Demanded
Changes in a in Qd = a - b(P)
A recent FDA article stated that consumption of
Espresso aides in fighting certain types of
cancer.
What non-price determinant of Demand is
affected? How will it change?
Qd = a - b(P) Qd = 600 - 50(P)
The non-price determinant of tastes & preferences has
increased the Demand for coffee.
This will affect the a portion of our function.
Qd = 600 - 50(P) changes to Qd = 800 - 50(P)
Calculate the new Demand Schedule and graph it.
What do you notice about the Demand Curve?
What happens when a variable increases/decreases?
Changes in b in Qd = a - b(P)
Change in b affect the steepness of the Demand Curve.
If individuals become more responsive/sensitive to the
change in price of espresso the b coefficient will change.
If individuals become more
sensitive to price change, how
would that affect your b
coefficient?
Qd = 600 - 50(P)
Consumers demand 50 fewer
Espresso each time the price
rises by $1.
Change in b
If individuals are more sensitive this means as
price increases by $1 there will be more than
50 less espressos consumed.
Lets say 70 less espressos are consumed when
the price increases by $1. The new equation would
be:
Qd = 600 - 70(P)
Calculate the new demand schedule and graph your
findings.
What do you notice about the new
Demand Curve?
Is it steeper or flatter?
What does this tell us about price
change?