Definition:
A demand curve represents the relationship between price and the quantity of a product customers are willing to purchase. Pricing systems estimate demand curves to understand how sales volume changes as prices increase or decrease.
Why It Matters:
- Helps identify optimal price levels.
- Enables better elasticity estimation.
- Supports data-driven pricing decisions.
Example:
A retailer observes that lowering the price of a product from $50 to $45 increases sales volume significantly, revealing a strong demand response.