Theory question 101
Theory of DemandSection A: answer one question only from this section.
Given the demand function for commodity X Qd = 12 − 2P where Qd is the quantity demanded and P the price of the commodity. (a) Use the demand function to complete the table below.
P: 6, 5, 4, 3, 2, 1, 0
Qd: (blank)
(b) Draw the individual's demand curve (use of graph paper is essential). (c) What is the maximum quantity the individual can buy of commodity X per unit of time? (d) What is the relationship between quantity demanded and price in the function Qd = f(P)?
Show the model answer
(a) Substitute each price into Qd = 12 − 2P
P = 6: Qd = 0; P = 5: Qd = 2; P = 4: Qd = 4; P = 3: Qd = 6; P = 2: Qd = 8; P = 1: Qd = 10; P = 0: Qd = 12
(b) Price on the vertical axis, quantity on the horizontal axis; plot the seven points and join them: a straight line sloping downward from (0, 6) to (12, 0), labelled D
(c) Maximum quantity = 12 units (when price is zero)
(d) Inverse (negative) relationship: the higher the price, the lower the quantity demanded, and vice versa
Multiply the price by 2 and subtract from 12 for each value.