Can anyone explain how to read that first graph? Like, there's a line for demand, say, but given the axes labels, it seems to say "for greater demand, the price goes down", so the exact opposite of what basic price theory predicts.
Same for the supply lines, just the other way around.
Also, the use of straight lines indicates a linear relationship. Is that really the case in practice?
So you're reading it as a "prerequisite chart"? That seems odd because the common way to read graphs is that what's reported on the y-axis is a function of the values of the x-axis.
I find it also hard to read it that way when I look at that "Price in February -> Price in April" annotation: if those two points on the y-axis mark points in time, then so do the correlating points on the x-axis. I can only read that as "from February to April, the demand went up while the prices went down".
I suppose one thing they're trying to express here is the idea of the equilibrium price of oil, by marking the intersection of the demand line with the two supply lines. However, why they are lines in this graph in the first place, or why they are located at these specific positions is unclear to me.
If you want to read it as one would normally, where the X axis is the input variable, you could read it as "For a given quantity of demand, what is the maximum price the market can sustain?" So if you want to sell higher quantities of oil, the price has to decrease. The supply side is the opposite direction since costs go up as quantities go up (ignoring efficiencies of scale).
Since the graph is without units, the only relevant of their positions are the signs of the slopes, and that you need a higher price to supply oil at any given quantity (hence the Straight closed" line being higher on the graph).
You're not crazy, economists really have a weird an IMO misleading way of drawing their diagrams.
I agree with you that price should be on the X axis, and drawing the two supply lines in the same diagram is at least somewhat problematic.
What economists posit[0] is that at any point in time, there are demand and supply curves. They answer the question of who is willing to sell or buy how much given a price? (Quantity is the dependent, so should be the Y axis!)
And they argue that the microarchitecture of the particular market causes price and quantity to converge to where these lines intersect.
And then factors external to the market can change the supply/demand curves. The February diagram looks different from the April diagram. They are conceptually separate diagrams. Combining them into a single diagram in a coherent way would lead to something 3D, which is hard to draw and think about, so economists have the convention of drawing it all in a single diagram anyway.
None of this is correct, by the way, but it's sometimes a useful model.
[0] Outside of literal markets with order books, supply and demand curves don't really exist. And in those markets, their dynamics are different.
it's classic "economists don't know what they're doing" case - traditionally they switch labels, with input variable on the y axis
> "for greater demand, the price goes down"
If demand were to be greater, the entire demand line shifts to the right. But demand is generally stable because oil is a neccessity in the short term. This demand line is near vertical which means people/companies will buy a little less when the price spikes, but not drasticly less. People still need to drive to work, heat homes, etc.
kleiba2 · · focus · HN ↗
Same for the supply lines, just the other way around.
Also, the use of straight lines indicates a linear relationship. Is that really the case in practice?
317070 · · focus · HN ↗
kleiba2 · · focus · HN ↗
I find it also hard to read it that way when I look at that "Price in February -> Price in April" annotation: if those two points on the y-axis mark points in time, then so do the correlating points on the x-axis. I can only read that as "from February to April, the demand went up while the prices went down".
kleiba2 · · focus · HN ↗
arijun · · focus · HN ↗
Since the graph is without units, the only relevant of their positions are the signs of the slopes, and that you need a higher price to supply oil at any given quantity (hence the Straight closed" line being higher on the graph).
atq2119 · · focus · HN ↗
I agree with you that price should be on the X axis, and drawing the two supply lines in the same diagram is at least somewhat problematic.
What economists posit[0] is that at any point in time, there are demand and supply curves. They answer the question of who is willing to sell or buy how much given a price? (Quantity is the dependent, so should be the Y axis!)
And they argue that the microarchitecture of the particular market causes price and quantity to converge to where these lines intersect.
And then factors external to the market can change the supply/demand curves. The February diagram looks different from the April diagram. They are conceptually separate diagrams. Combining them into a single diagram in a coherent way would lead to something 3D, which is hard to draw and think about, so economists have the convention of drawing it all in a single diagram anyway.
None of this is correct, by the way, but it's sometimes a useful model.
[0] Outside of literal markets with order books, supply and demand curves don't really exist. And in those markets, their dynamics are different.
NooneAtAll3 · · focus · HN ↗
why? no idea
kleiba2 · · focus · HN ↗
francisofascii · · focus · HN ↗
If demand were to be greater, the entire demand line shifts to the right. But demand is generally stable because oil is a neccessity in the short term. This demand line is near vertical which means people/companies will buy a little less when the price spikes, but not drasticly less. People still need to drive to work, heat homes, etc.