Supply and demand graph
Price and quantity, two curves, and the point where they cross.
Axes before curves
A graph of supply and demand, also searched as graph supply and demand or graph for supply and demand, is a coordinate picture. Price is on the vertical axis. Quantity is on the horizontal axis. The demand curve slopes downward: at a higher price, buyers take a smaller quantity. The supply curve slopes upward: at a higher price, sellers offer a larger quantity. Equilibrium is the point where the curves cross. At that price, the quantity buyers want matches the quantity sellers offer.
Label the axes every time. A sketch with two crossing lines and no words is not yet this graph. Mark equilibrium as P and Q, or with a sample pair you state as a sample, such as 4 dollars and 30 units. Those numbers illustrate the point. They are not a market report.
A shift is a new curve
A movement along a curve is a response to price. A shift is a new curve because something else changed. Sample story: a hot week increases how much bottled water people want at every price. Draw a second demand curve to the right of the first. The new crossing has a higher price and a higher quantity. Say that in a sentence under the graph so the picture is not left to imply a cause it does not name.
If you are listing reasons for a shift before you know which curve moves, a T-chart (demand-side reasons, supply-side reasons) keeps the lists apart. The graph comes after you know which side moved.
Steps
- Draw and label the axes. Price vertical, quantity horizontal. Include units if you use numbers.
- Sketch demand downward and supply upward. They must cross inside the first quadrant.
- Mark equilibrium. Drop a dotted line to each axis and label the price and the quantity.
- Shift only the curve whose story changed. Write the cause under the graph in one line.
Questions
- Which axis is price on a supply and demand graph?
- Price is vertical. Quantity is horizontal. This is the classroom convention even though price is what buyers and sellers are choosing in the story.
- What does the crossing point mean?
- Equilibrium: the price at which the quantity demanded equals the quantity supplied. It is not automatically the fairest price. It is the price where the two plans match.
- What moves the demand curve?
- A change other than the good's own price: income, tastes, the price of a related good, or the number of buyers. A change in the good's own price is a movement along the curve you already drew.