I just want to have a further or simple explanation on supply and demand curve, when do we say that the supply curve or the demand curve is ambiguous? It is when you have determined if it is an increase or decrease.
Can you cite some examples of graphs. Thanks
Certainly! Let's dive into the concepts of supply and demand curves and when we consider them ambiguous.
Supply and demand curves illustrate the relationship between the price of a good or service and the quantity that producers are willing to supply and consumers are willing to demand at that price. The demand curve typically slopes downwards from left to right, indicating that as the price of a good decreases, the quantity demanded tends to increase. The supply curve, on the other hand, typically slopes upwards from left to right, suggesting that as the price of a good increases, the quantity supplied tends to increase.
Now, to address your question about when the supply curve or the demand curve can be considered ambiguous – this happens when there is insufficient information available, making it difficult to determine the direction of the curve's shift, whether it be an increase or a decrease.
For example, imagine a situation where the price of a good suddenly increases. If at the same time there is an unexpected event that affects both the supply and demand for that good, it can lead to uncertainty about the direction of the curve. Such events might include changes in consumer preferences, shifts in production costs, or alterations in government policies.
In these cases, without additional information, it becomes difficult to determine if the supply or demand curve will shift to the left (decrease) or to the right (increase). This lack of clarity creates ambiguity.
To better understand supply and demand curves, it is helpful to analyze specific examples. Let's consider two scenarios:
1. Graph 1: The demand curve for coffee:
- Price is represented along the vertical axis (y-axis).
- Quantity is represented along the horizontal axis (x-axis).
- The demand curve slopes downwards, indicating that as the price of coffee decreases, the quantity demanded increases.
2. Graph 2: The supply curve for smartphones:
- Price is represented along the vertical axis (y-axis).
- Quantity is represented along the horizontal axis (x-axis).
- The supply curve slopes upwards, indicating that as the price of smartphones increases, the quantity supplied increases.
These examples demonstrate how the direction of the curve's shift can be determined using the conventional relationships between price and quantity.
Remember, when there is uncertainty about the directions of shifts due to insufficient information, we refer to the supply or demand curve as ambiguous.