I never understood as a first year student why we called the demand curve a "curve" when it was a straight line so I am hoping I will be able to clarify it a bit better for anyone who was wondering.
why is it called a demand curve if we always draw it as a straight line?
It is called a demand curve because sometimes - well most of the times - it is in fact not a straight line but is in fact curved.
When is it not a straight line?
If you read the post why is the demand curve downward sloping you would see that the demand curve does not necessarily need to be straight. Here is the example again:
Assume you live in a one good economy which only sells donuts and you have an income of $10 - all of which you are going to spend.
If the price of donuts are $10, you can obviously only buy 1 donut.
If the price of donuts are $5, you can buy 2 donuts.
If the price of donuts are $1, you can buy 10 donuts.
If you plotted these points onto an axis with price on the vertical axis and quantity of donuts purchased on the horizontal axis, you would see a negative relationship like such:
If you connect the points with a line, this would be a demand curve.
You should be able to see that it is not a linear line which would connect these points - you would need to draw a curved line. Hence, a demand curve.
Are there any implications of it being a straight line?
Yes, it affects the elasticity of the curve - something will I go into further in a following blog post.
so why do we draw a demand curve as a straight line then?
Because it makes life simpler. It is easy to construct the consumer and producer surplus and we can use simple linear equations to produce the supply and demand curves when the lines are straight.
You can probably also see that if you connected small portions of the points on the curve, the line looks pretty linear so it is not to bad of an estimation.
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