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I know it doesn't actually matter which axis is which, but it seems less intuitive me. When I see a supply and/or demand graph, I always have to flip it in my head to feel like I really get what's going on.

It just seems like if you have one variable (price) on which two other variables (supply and demand) depend, then the single variable should be on the horizontal axis. So why isn't this the convention?

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    $\begingroup$ Please see this question on HSM. I'm pretty sure this is purely an arbitrary historical convention. But I'm still waiting for someone to give a proper explanation. $\endgroup$ – user18 Oct 5 '16 at 7:16
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As @KennyLJ points out I think the reason is partly historical. However it is a useful convention for several reasons.

  1. Demand curves are frequently not functions but mappings, e.g. in the case of perfectly elastic demand. So you could not guarantee 'nice' functions anyway.
  2. In this coordinate system the surpluses (producer's and consumer's) are areas under the curves. The explanation is more intuitive and it is somewhat easer to see which integral you have to take.
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    $\begingroup$ I would have thought producer and consumer surpluses were the areas between the curves and the price axis. Most other disciplines do their calculations of area down to the $x$-axis, not across to the $y$-axis $\endgroup$ – Henry Oct 6 '16 at 0:20
  • $\begingroup$ @Henry Gross consumer surplus is the area under the inverse demand curve (to the $x$ or quantity axis). This is tough to see though as it has a negative slope, so what is under it is also to its left. The direction follows from its definition: It is the 'sum' of reservation prices. Net consumer surplus is gross surpluss - price times quantity which may indeed seem like it goes to the left, but again via the definition you can see this is not the case. Similar argument is valid for producer's surplus. $\endgroup$ – Giskard Oct 6 '16 at 7:15
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    $\begingroup$ What do you mean by "mappings"? In mathematics function and mapping are the same thing. $\endgroup$ – golopot Jan 3 '18 at 11:04
  • $\begingroup$ @q4w56 I mean set-valued functions. Most undergrads assume that a function maps to a singleton therefore I used the more general term. $\endgroup$ – Giskard Jan 3 '18 at 11:37
  • $\begingroup$ @denesp Multi-valued function is the more descriptive word. $\endgroup$ – golopot Jan 3 '18 at 21:11
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This objection never made too much sense to me. In the standard model of perfect competition, firms take the price as given and respond by choosing their quantity. So you have a model in which a bunch of actors choose quantity and the market price emerges as a consequence of all of those decisions. This makes it sound awfully like price is the "dependent" variable, which by convention is always placed on the vertical access.

Indeed, this seems to be how Alfred Marshall (who originated the modern form of the Demand-Supply diagram) thought about things. Here's a quote from An Introduction to Postitive Economics, Seventh ed. by Richard G. Lipsey (as quoted here):

"Readers trained in other disciplines often wonder why economists plot demand curves with price on the vertical axis. The normal convention is to put the independent variable on the X axis and the dependent variable on the Y axis. This convention calls for price to be plotted on the horizontal axis and quantity on the vertical axis.

"The axis reversal - now enshrined by nearly a century of usage - arose as follows. The analysis of the competitive market that we use today stems from Leon Walras, in whose theory quantity was the dependent variable. Graphical analysis in economics, however, was popularized by Alfred Marshall, in whose theory price was the dependent variable. Economists continue to use Walras' theory and Marshall's graphical representation and thus draw the diagram with the independent and dependent variables reversed - to the everlasting confusion of readers trained in other disciplines. In virtually every other graph in economics the axes are labelled conventionally, with the dependent variable on the vertical axis."

See also this post on Greg Mankiw's blog.

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  • $\begingroup$ This is a great answer. You should consider answering Kenny's question on hsm. $\endgroup$ – Giskard Oct 5 '16 at 15:10
  • $\begingroup$ If "firms take the price as given and respond by choosing the quantity", it sounds as if quantity is the dependent variable, at least for individual firms. $\endgroup$ – Henry Oct 6 '16 at 0:15
  • $\begingroup$ @henry Yes, but we aren't firms, we are economists analysing the firms. $\endgroup$ – Ubiquitous Oct 6 '16 at 7:24
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In most charts that show a relationship the input goes at the bottom.

In this case p = f(q)

The market is what quickly reacts to q (supply). If there is an interruption to supply price will quickly go up. The clearing price is a function of q.

q = f(p) is also valid as if the price is high more producers will enter the market but that is not an immediate effect. If the price is low and stays low some produces will exit the market but again not an immediate effect.

But if you switch x and y it still works if that is what makes sense to you.

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