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Chapter 5

Demand based approaches

Most firms recognise that there exists a relationship between the selling
price of their product or service and the demand. By investigating and
analysing this relationship it is possible, in theory, to establish an
optimum price, i.e. a price that will maximise profits.

Price

‘a’ is the price at which we sell nothing

Quantity
demanded

Note: "a" can also be viewed as the theoretical maximum possible price that could be
charged before demand fell to zero.

There are two methods of solution to problems investigating the relationship between
price and demand: the algebraic approach, and the tabular approach.

Relationship between
price and demand

Algebraic approach Tabular approach

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