WTF Economics: shifting curves UP/DOWN or LEFT/RIGHT?

2017 May 24
by Daniel Lakeland

Further evidence that I don't think like an Economist. From Mankiw's Macroecon undergrad textbook (and pretty much everywhere else you look on the web etc where they're trying to describe supply and demand curve models):

Now. In my world, if someone offers me something such as say Pears, at a particular price, I look at the price and decide my quantity I will buy. So Qd = D(P) and if I grow pears and have to harvest them and transport them to a market, then I look at the price they are selling at at the market, and decide if I'm going to pay the money to harvest and transport, so my market supplied quantity Qs = S(P)

In other words, price is the input variable, and quantity is the output variable, and so I expect all the graphs to have P on the bottom horizontal X axis and Q on the left vertical Y axis.

The fact that it's intuitive to econ professors to flip these axes... is I think very weird. When I talk with economists I'd want to say "demand increases so the demand curve shifts up", and they expect me to say "demand increases so the demand curve shifts right"

It may be the convention, but you're not going to convince me that it is a good convention to go against everything that will be learned in every other math related field.

Probably too late to fix. Sigh

 

5 Responses leave one →
  1. Will permalink
    May 24, 2017

    Most economists (including this one) don't think like economists by this definition...

    https://hsm.stackexchange.com/questions/140/why-is-price-on-the-vertical-axis-and-quantity-on-the-horizontal-axis

  2. Daniel Lakeland
    May 24, 2017

    Probably a lot of the confusion is that this is just the model for equilibrium. The more fundamental model is the model of the dynamics, and then there's no Price, there's price-at-time, so P(t+dt) is a function of P(t) and also D(t),S(t), the transaction volume V(t) and the inferences that the individual actors make by observing V(t) and/or their environment, but on this simple diagram, there is no time, and it makes no sense to say that "price is a function of price"

    • Daniel Lakeland
      May 24, 2017

      Even more fundamental than The Price, is the bid-ask spread, because Bids and Asks can change without transactions, whereas it makes no sense to talk about a transaction Price without transactions. So a producer looks at the quantity they have, and the Bid Price, and the Ask Price, and they provide a new Ask Price, the consumer looks at their preferences for consumption and the Bid Price and Ask Price, and provides a new Bid Price, these converge towards the point where they are close enough to meet in the middle and then we see a Transaction Price and a Transaction Volume.

      If we taught this as fundamental, and then taught the equilibrium price theory as a simple model applicable for slow changes, the way that equilibrium thermodynamics is applicable for slow adiabatic displacements of the piston head or whatever, it would in my opinion improve understanding.

  3. Dale Lehman permalink
    May 29, 2017

    I have distant memories of hearing a somewhat different story, but this is the best I can find:

    According to Humphrey (1992), Cournot contributed the original curves while Rau and Mangoldt provided stability analysis. Mangoldt did the first comparative statics exercises and Jenkin applied the analysis of price determination to the long and the short runs. Cournot, Dupuit and Jenkin use the framework for tax incidence analysis while Jenkin devises the concept of producer surplus. To Humphrey’s knowledge, Marshall was probably aware of much of this work. One wonders if Marshall's placing of price on the vertical axis and quantity on the horizontal axis might have been done to differentiate his work from the others – Cournot has quantity on the vertical axis and price on the horizontal (but see Gordon 1982 for another explanation of why Marshall did it – to motivate the desire to use price as a money measurement of benefits and costs in measuring surplus and welfare). Humphrey (1992) asserts that Marshall nevertheless deserves some credit because he gave the diagram its most “complete, systematic and persuasive” statement but not because he was the first to invent it. So there you have it. (from http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/03/a-very-brief-history-of-demand-and-supply.html).

    Suffice it to say, there is some history to the placement of P and Q on the graph. This does not defend its current positioning, but it is sometimes useful to find out how things got the way they became.

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