Page 1: Introduction

Demand curves are fundamental tools in economics used to model

how the quantity of a good or service demanded by consumers
changes in response to changes in price. Two common ways to
represent these relationships are through linear and power demand
curves.

In this document, we will explore these demand curve types, their

mathematical formulas, and the economic concepts they represent.
We'll start with the linear demand curve.

Page 2: Linear Demand Curve

A linear demand curve is a representation of how the quantity

demanded (Q) changes linearly in response to price (P). It's a simple
model that suggests a constant rate of change. The linear demand
curve formula is as follows:

�=�−��Q=a−bP
 Q: Quantity demanded.
 P: Price of the good.
 a: Intercept, representing the quantity demanded when the price is
zero or the starting point.
 b: Slope, indicating how much the quantity demanded changes for
each unit change in price.

The slope (b) reflects the price elasticity of demand. If it's negative, it
implies an inverse relationship between price and quantity demanded.
A higher absolute value of b indicates a more responsive demand to
price changes.
 Page 3: Power (Exponential) Demand Curve

Power demand curves represent a nonlinear relationship between

price and quantity demanded. The formula for a power demand curve
is as follows:

�=�∗��Q=a∗Pb
 Q: Quantity demanded.
 P: Price of the good.
 a: A constant affecting the scale of the curve.
 b: The exponent determining the curvature of the curve.

The value of "b" influences whether the demand is elastic or inelastic.

If "b" is greater than 1, the demand is inelastic, meaning that changes
in price have a proportionally smaller effect on quantity. If "b" is less
than 1, the demand is elastic, indicating that price changes have a
proportionally larger impact on quantity.

Page 4: Economic Implications

Understanding the implications of linear and power demand curves is

crucial for businesses, policymakers, and economists:

 Linear demand curves are more straightforward and are often used for
modeling basic relationships. They assume a constant rate of change
and that price elasticity remains the same at all price levels. This may
not hold in the real world.
 Power demand curves better capture the complexities of consumer
behavior. They can model situations where small price changes at
different price levels result in varying changes in quantity demanded.
This is especially useful for goods with differentiated preferences and
substitutes.
 Elasticity of demand is a key concept. It measures how responsive the
quantity demanded is to changes in price. Elastic demand (|b| > 1)
suggests consumers are sensitive to price changes, while inelastic
demand (|b| < 1) implies less sensitivity.
 The choice between linear and power demand curve models depends
on the nature of the data, the specific product, and the economic
context. For some products, a linear model may work well, while for
others, a power curve might be a better fit.

In conclusion, linear and power demand curves are valuable tools in

economics for understanding and modeling consumer behavior in
response to price changes. Each has its strengths and weaknesses, and
the choice between them depends on the specific economic context
and the data available. Understanding the elasticity of demand is
crucial for making informed business and policy decisions.