Discussion
What do 'a' and 'b' represent in the demand function Qd=a-bP?
Answer: C
In the linear demand function Qd = a - bP, the term 'a' is the constant intercept, that is the quantity demanded when the price is zero, and 'b' is the gradient, the change in quantity demanded for a unit change in price, with a negative sign in front to show the inverse relation. They do not stand for quantity and price themselves, nor for income, taste or the elasticities. The answer is constant intercept and gradient, option C. The gradient b measures how much the quantity demanded falls when the price rises by one unit.
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