Consumption (Economics); Prices; Supply and demand
In Fig. 2 we start as before with our demand curve, and supply curve,
cutting one another at the point P. We then suppose that some
alteration takes place in the conditions of demand; there has been a
growth in the general taste for the commodity or service, and the
demand, as we say, has increased accordingly. How is this fact to be
represented in the diagram? Plainly not by taking another point on
the curve, DD', at a further distance from OY. For this would merely
indicate the larger amount that would be taken, if the conditions of
demand had remained unaltered but the sellers had reduced their
prices. The correct way of representing the change we have supposed is
to construct a new demand curve (in the figure, the dotted curve
_dd'_), lying at every point above the old demand curve. For this
indicates that larger quantities will be purchased at the old prices,
which is exactly what we want to represent. Similiarly if we wish to
represent a change in the conditions of supply, such as might result,
in the case of a commodity, from a tax imposed on its production, we
must draw a new supply curve, _ss'_, which in the case supposed, must
lie everywhere above the old supply curve. On the other hand, the
decrease or increase in demand or supply, _resulting_ from a change in
price, is represented simply by a shifting of the equilibrium from one
point to another on the same curve. The striking pictorial contrast
between a movement from one curve to another, and a movement along the
same curve should help to make vivid to our minds the fundamental
distinction between a change in the _conditions_ of demand, arising
from new tastes, enhanced purchasing power, etc.; and a mere change in
the amount purchased resulting from an alteration in the price which
the sellers ask. Words, as this necessarily cumbrous sentence shows,
are a clumsy instrument for the expression of abstract relations; it
is not very easy to see which words in a sentence are the significant,
commanding ones, and which are performing, as it were, ordinary
routine duties. A diagram is not exposed to similar ambiguities of
emphasis.
Public-domain text, read in full here on John Shaqi.
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