| | | |
| | | |
0+---------------------------------------------------------
M' M _m_
Figure 2



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