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Simple economics question that I can't get a good answer to.

  1. Nov 24, 2005 #1
    Why is it that when you're showing a graph in anything relating to economics, Price is on the Y axis and Quantity is on the X axis? Doesn't it seem that the quantity is dependent upon the price, rather than the opposite? I realize that neither one nor the other is totally independent or totally dependent, but it just seems that price shifts are far more commonly due to changes in quantity demanded than the other way around.
     
    Last edited: Nov 24, 2005
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  3. Nov 24, 2005 #2

    mezarashi

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    I believe it may have its 'historical' reasons. The demand and supply curves show the quantity demanded and supplied at any given price assuming all other variables hold constant; so you're kind of right, price is the determining factor. But as long as there is consistency, it should alright, but note that alot of other analyses including demand shifts and etc are based on Y(price)-X(qnt). Also, the amount of products sold can be determined by the more familiar 'area under the curve' instead of 'area to the left of the curve', which may be more appealing in some ways.
     
  4. Nov 24, 2005 #3

    selfAdjoint

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    Actually price and quantity are mutual variables; each can be determined by the other. Quantity can determine price. For example if there is a glut of widgets, the price of widgets will fall, and if there is a widget shortage it will rise. This is the de Beers philosophy in marketing diamonds.
     
  5. Nov 24, 2005 #4
    On a supply-demand curve it's supply and demand that are the determining factors, both quantity and price are results.
     
  6. Nov 25, 2005 #5
    It's historical. In consumer theory you derive the individual demand curve by maximizinging your utility function given prices and income. So price is the independent variable, quantity the dependent. In 'the theory of firm' you get the individual supply curves from maximizing your revenue function where you adjust quantity by given factor prices and given price of the good you produce.

    So the agents in crazy neoclassical complete market micro are always price takers. Given some prices, income, costs- what quantity would you choose? That gives the curves. Add them all together, you get the aggregate supply and demand curves.

    Well, there is shifting the curves and moving along the cuves. Or in eco lingo, exogeneous and endogeneous variables.
    You first need demand and supply curves to begin with. They are formed in micro theory as described above.

    Only in the real world, not in your average microeconomics textbook.
    Allright, in oligopoly theory you have this obvious interdependence, but the nice demand and supply curves are gone.
     
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