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    Hi,

    So I was just thinking about the demand curve.

    There are two ways I am thinking about it.

    1) Quantitiy Demanded is low => Price is high, Quantity demanded is High means that the price is low.

    But then what is wrong with thinking the following

    2) As Quantity demanded increases, Price decreases.

    ? If you look at the graph, Quantity demanded is the independent variable and price falls as QD increases. So what is wrong with my speculation? As I am sure everyone knows that QD increase should cause an increase in Price.
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    The concept of 'finite' resources and how best to allocate them are at the heart of both Economics and D + S.

    First we assume there are a fixed input of resources. If I demand more until slowly the resources deplete, we can assume that in order to purchase the stock either I or my competitors are willing able to pay a higher purchase price for it. This mechanism known as the 'invisible hand' therefore distributes it on the basis of need as shown by increased value or p1-p2 increase on the Y Axis.

    As far as I'm aware QD+ = -P is impossible on the basis of the concept.
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    Price is changing first not Qd when trying to explain why the demand curve is downward slopping.
    3 reasons why it is downward slopping:
    -diminishing marginal utility
    -income effect
    -substitution effect
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    (Original post by keynes24)
    Price is changing first not Qd when trying to explain why the demand curve is downward slopping.
    3 reasons why it is downward slopping:
    -diminishing marginal utility
    -income effect
    -substitution effect
    Yes that is what I thought. But the x axis is always the independent variable. If the price is the input 'ie changing' and the qd is the output 'the changed' then price should be on the x axis and qd on the y axis.

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    (Original post by 2710)
    Yes that is what I thought. But the x axis is always the independent variable. If the price is the input 'ie changing' and the qd is the output 'the changed' then price should be on the x axis and qd on the y axis.
    It's not that simple. In this case, neither value is independent. If something is cheap, I will buy more of it. If we all buy more of it, more is made, so the price falls. Price and demand depend on each other, so the way round they get put on a graph is just convention.
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    The convention of placing price on the x-axis was introduced by Alfred Marshall in his "Principles of Economics". Though I haven't read the book, I suppose this is because individual consumers are considered "price takers" in a market whilst those controlling the supply (fixed in our assumptions) are considered "price setters". The curve is downward sloping regardless of which variable appears on the x-axis.

    Certain assumptions apply when analysing the demand curve. 1) ceteris paribus - "with other things the same" i.e. nothing is changing apart from the price & quantity as you analyse the situation, supply has been fixed. 2) that you are looking at "normal goods" (see Giffen Good for a counter example).

    Interesting question! :-)
 
 
 
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