Watch the video from 5:35:

In the description, the narrator says that "demand depends on price".

However, in the plot, he is keeping price "P" as the dependent variable.

enter image description here

How does that make sense?

  • $\begingroup$ You choose: (a) Because economists are contrary; (b) Because economists are sheep, following Marshall's conventions; (c) Because economists think firms and consumers make decisions based on quantities not prices, and then let a market mechanism find the clearing price $\endgroup$
    – Henry
    Dec 5 '20 at 16:15
  • $\begingroup$ It's an X/Y graph. Like voltage across a resistor as a function of resistance. It could go either way. A particular orientation is nor "required" so long as the graph is monotonic. $\endgroup$
    – Hot Licks
    Dec 5 '20 at 20:53
  • $\begingroup$ See this: hsm.stackexchange.com/questions/140/… $\endgroup$
    – user18
    Dec 6 '20 at 11:17
  1. In supply and demand model both price depends on quantity and quantity depends on price. These two variables are determined together. They are both endogenous variables. Consequently, here the rule that independent variable goes on $x$-axis and dependent variable goes on $y$-axis does not apply because neither of the two variables is exogenous.
  2. By convention in economics price is always plotted on $y$-axis. This was not historically always the case. As you can see in this answer in past there were several authors that decided to plot price on $x$-axis as well. However, the convention of price going on $y$-axis was eventually established by Marshall who considered price to be the depend variable (although really they are both endogenous), and popularized this convention through his textbook (Principles of Economics) that was widely used.

As the other answer already stated, this is mostly due to a convention that goes back to Marshall. However, I think there is an additional reason for this.

Optimizing economists often think "on the margin" and a central equation in many economic models is "marginal benefit = marginal cost." In a competitive market the marginal revenue is simply the price that firms take as given. However, firms with market power can influence the price. A monopolist takes the demand as given and calculates "marginal revenue" to equalize it to "marginal cost." It is unintuitive to think about marginal revenue in terms of price, but much more intuitive to think about marginal revenue in terms of quantity. With quantity on the horizontal axis, you can easily draw the graph of marginal revenue as you intuitively think about it into your p-q diagram, where you already plotted your inverse demand function.


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