In economics, an inverse demand function is a function that maps the quantity of output supplied to the market price (dependent variable) for that output.
In mathematical terms, if the demand function is f(x), then the inverse demand function is f -1(x). This is to say that the inverse demand function is the demand function with the axes switched. This is useful because economists typically place Price (P) on the vertical axis and Quantity (Q) on the horizontal axis. The Inverse Demand Function therefore measures what price a good has to be in order for the consumer to choose that level of consumption.[1]
To compute the inverse demand function simply solve for P in the demand function. For example, if the demand function has the form Q = 10 - 2P then the inverse demand function would be P = 5 - Q/2.
References
- ^ Varian, H.R (2006) Intermediate Microeconomics, Seventh Edition, W.W Norton & Company: London
See also
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