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My prof said that "economicsts reverse the axes when graphing", so does this same rule apply for the supply? Is this "reversing the axes" what causes the function to be "flipped" or rewritten in that format with P= ..... ? I understand the math, but not the logic/reason for this, it would be greatly appreciated for the explanation. Also, don't understand why my prof wrote the red line for demand as D(P) and also wrote Quantity variable as D(P)
So the logical reasoning is that we normally think of Quantity Supplied or Quantity Demanded as a function (dependent on) Price, and not the other way around. In other words, how much of a good people demand is based off the price of the good. We wouldn’t really say that the price of the good depends on demand (even though in some circumstances this may be true). Your prof writing the red line as D(P) is just them using function notation to say that Demand is a function of price. TECHNICALLY speaking, it’s incorrect notation as demand isn’t the variable, but rather, quantity demanded (Qd) is, but many profs write it informally as D(P). In my lectures I always write it as Qd(P) for my students to avoid confusion. Hope this helps! If not, let me know and I’ll attempt to elaborate some more!
Great video. Follow up question: why would consumption happen at the shorter end when a price ceiling is initiated at a dusequlibrium price? With a lower price point, wouldn't the quantity demanded increase? And now that vendor has already sunk money into buying buses, wouldn't it want to offer more rides, especially more than 900 to recoup the costs or earn the same amount of profit it would have at 900 rides with a $3 price?
What a great question! In introductory economics we present demand and supply as linear. In realism this isn't the case. So while in this illustration it may make sense for the seller to provide more services with a lower price, the rationale of the short-side rule is that the economic agent who is worse-off from the disequilibrium event (in this case, that's the seller) dictates the quantity amount traded in the market. The idea is that if the quantity supplied is too low, the price must be driven up to achieve equilibrium once again, benefitting the seller. However, in the case of government sanctioned price ceilings, what you suggest in your comment is actually what happens in the real world, and what is taught in economic models, unfortunately, does not always translate perfectly to the real world behaviours of buyers and sellers. Once again, a great question, and it really shows a higher level of understanding to even ask such a thing rather than simply taking it as a given.
You are really a magician. I have tried studying this concept 2 years and till now i could not get this, but your explanation is next level, I appreciate you. thanks and much love ♥from INDIA 🕉
