Question

Why does a supply and demand curve increase on the horizontal axis to the right and not on the vertical axis down and up?

Answer 1

Among the first concepts MBA students encounter in microeconomics are the demand and supply curves. Students learn the various properties of demand and supply curves, factors driving the demand and supply curves and how they interact to produce the market equilibrium. This understanding is central to pretty much all the study of economics and policy.

The demand and supply curves are usually drawn on an X-Y graph with the quantity demanded or supplied on the X axis and the price on the Y axis. For normal goods the quantity demanded falls as the price rises and so the demand curve falls from the left to the right (which is a topic for another class). The supply ,on the other hand, increases as the price goes up and so increases as we move from the left to the right. The interaction between them results in the market equilibrium – which is the market price and quantity (a topic for another day).

An increase in supply is represented by the diagram above. An increase in supply can either be thought of as a shift to the right of the demand curve or a downward shift of the supply curve. The shift to the right interpretation shows that, when supply increases, producers produce and sell a larger quantity at each price. The downward shift interpretation represents the observation that supply often increases when the costs of production decrease, so producers don't need to get as high of a price as before in order to supply a given quantity of output. (Note that the horizontal and vertical shifts of a supply curve are generally not of the same magnitude.)

Shifts of the supply curve need not be parallel, but it's helpful (and accurate enough for most purposes) to generally think of them that way for the sake of simplicity.

In contrast, a decrease in supply is represented by the diagram above. A decrease in supply can either be thought of as a shift to the left of the supply curve or an upward shift of the supply curve. The shift to the left interpretation shows that, when supply decreases, firms produce and sell a smaller quantity at each price. The upward shift interpretation represents the observation that supply often decreases when the costs of production increase, so producers need to get a higher price than before in order to supply a given quantity of output. (Again, note that the horizontal and vertical shifts of a supply curve are generally not of the same magnitude.)

Again, shifts of the supply curve need not be parallel, but it's helpful (and accurate enough for most purposes) to generally think of them that way for the sake of simplicity.