Demand curve

The demand curve typically slopes downward due to the law of demand, which states that there is an inverse proportional relationship between price and demand of a commodity.

The graph of the demand curve uses the inverse demand function in which price is expressed as a function of quantity. The standard form of the demand equation can be converted to the inverse equation by solving for P:

The slope of the market industry demand curve is greater than the slope of the individual demand curve; the slope of the enterprise demand curve is less than the slope of the industry demand curve. The slope of a firm's demand curve is less than the slope of the industry's demand curve.

With factors of individual demand and market demand, both complementary goods and substitutes affect the demand curve

In addition to the factors which can affect individual demand there are three factors that can cause the market demand curve to shift:

Some circumstances which can cause the demand curve to shift in include:

The price elasticity of demand is a measure of the sensitivity of the quantity variable, Q, to changes in the price variable, P. Its value answers the question of how much the quantity will change in percentage terms after a 1% change in the price. This is thus important in determining how revenue will change. The elasticity is negative because the price rises, the quantity demanded falls, a consequence of the law of demand.

A sales tax on the commodity does not directly change the demand curve, if the price axis in the graph represents the price including tax. Similarly, a subsidy on the commodity does not directly change the demand curve, if the price axis in the graph represents the price after deduction of the subsidy.

If the price axis in the graph represents the price before addition of tax and/or subtraction of subsidy then the demand curve moves inward when a tax is introduced, and outward when a subsidy is introduced.