<p>It was <strong>Alfred Marshall's doing</strong>, but based on a premise that still prevails in many parts of Economics: if prices are assumed totally elastic, then, although it may be the case that they are taken as given by the individual buyers or sellers, at <strong><em>market</em></strong> level <em><strong>it is quantity that determines price</strong></em>. So price is indeed the dependent variable, if you care about the market and not about the individual.  </p>

<p>And here is page 96 from Marshall's <a href="http://oll.libertyfund.org/titles/1676" rel="nofollow noreferrer"><strong>Principles of Economics (8th ed.1920),</strong></a> (the 1st edition was in 1890), the funny thing being that here Marshall talks about... individual demand! (but it would be totally confusing to swap axes between graphing individual demand and graphing market demand). Read the annotated footnote.</p>

<p><a href="https://i.sstatic.net/Gzugl.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/Gzugl.png" alt="enter image description here"></a></p>

CC BY-SA 3.0
2015-12-16T23:04:40.890Z
2015-12-17T22:06:58.980Z
2015-12-17T22:06:58.980Z
Alecos Papadopoulos
<p>Yes, this is very counter-intuitive and confusing. However, there is an interesting explanation involving graphical analysis of demand and supply i.e. <a href="http://blog.jparsons.net/2011/02/why-do-economists-put-price-on-vertical.html" rel="nofollow">why swap axes?</a> . I think, the explanation in that link may offer you some elements of answer.</p>

CC BY-SA 3.0
2015-12-16T21:04:40.667Z
You provided a very good link. Perhaps you could include some of its content into the body of your answer?
Giskard
CC BY-SA 3.0
2015-12-17T14:14:38.890Z
Okay, next time then.
london
CC BY-SA 3.0
2015-12-16T18:03:59.460Z
2015-12-16T18:03:59.460Z
london
<p>Sometimes economists are bad at drawing graphs.</p>

<p>For example, think of a supply and demand graph. Price is on the y axis and quantity is on the x axis, but generally when we derive the curves for competitive markets, we usually say that firms and consumers respond to price to determine what quantity they buy/sell, rather than the other way around. So why aren't the axes switched there so the dependent and independent variables are where they should be? Tradition I guess.</p>

<p>I imagine it's a similar case here. The axes are just wonky.</p>

CC BY-SA 3.0
2015-12-16T16:58:22.177Z
2015-12-16T16:58:22.177Z
Kitsune Cavalry
<p>In the figure below, I have a coordinate system where $r$ depends on $I$ or $S$, but I do not completely understand why I can have multiple functions inside this coordinate system.</p>

<p>Why can I write $S(r)$ and $I(r)$? Normally, in an x-y-diagram, I interpret it as $y(x)$, since $x$ varies and $y$ depends on $x$.</p>

<p>The diagram below is a quite normal diagram in economics, so I know it is correct, but why isn't the figure 'transposed', i.e. with $r$ on the $x$-axis and $S,I$ on the $y$-axis?</p>

<p>It doesn't make sense that $r = S(r)$ or $r = I(r)$.</p>

<p><a href="https://ctaar.rutgers.edu/gag/notes/is.gif" rel="nofollow"><img src="https://ctaar.rutgers.edu/gag/notes/is.gif" alt="enter image description here"></a></p>

<interest-rate><investment><saving>
Diagram with axes $r$ and $S,I$
Jamgreen
# Diagram with axes $r$ and $S,I$

(Asked by: username_0 on 2015-12-16)

In the figure below, I have a coordinate system where $r$ depends on $I$ or $S$, but I do not completely understand why I can have multiple functions inside this coordinate system.

Why can I write $S(r)$ and $I(r)$? Normally, in an x-y-diagram, I interpret it as $y(x)$, since $x$ varies and $y$ depends on $x$.

The diagram below is a quite normal diagram in economics, so I know it is correct, but why isn't the figure 'transposed', i.e. with $r$ on the $x$-axis and $S,I$ on the $y$-axis?

It doesn't make sense that $r = S(r)$ or $r = I(r)$.

[![enter image description here](https://ctaar.rutgers.edu/gag/notes/is.gif)](https://ctaar.rutgers.edu/gag/notes/is.gif)

**Tags:** interest-rate, investment, saving


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## 3 answers

### Answer by username_1 on 2015-12-16. Score: 3

It was **Alfred Marshall's doing**, but based on a premise that still prevails in many parts of Economics: if prices are assumed totally elastic, then, although it may be the case that they are taken as given by the individual buyers or sellers, at ***market*** level ***it is quantity that determines price***. So price is indeed the dependent variable, if you care about the market and not about the individual.

And here is page 96 from Marshall's [**Principles of Economics (8th ed.1920),**](http://oll.libertyfund.org/titles/1676) (the 1st edition was in 1890), the funny thing being that here Marshall talks about... individual demand! (but it would be totally confusing to swap axes between graphing individual demand and graphing market demand). Read the annotated footnote.

[![enter image description here](https://i.sstatic.net/Gzugl.png)](https://i.sstatic.net/Gzugl.png)


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### Answer by username_2 on 2015-12-16. Score: 2

Yes, this is very counter-intuitive and confusing. However, there is an interesting explanation involving graphical analysis of demand and supply i.e. [why swap axes?](http://blog.jparsons.net/2011/02/why-do-economists-put-price-on-vertical.html) . I think, the explanation in that link may offer you some elements of answer.

> **Comments:**
> **username_3**: You provided a very good link. Perhaps you could include some of its content into the body of your answer?  
> **username_2**: Okay, next time then.  

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### Answer by username_4 on 2015-12-16. Score: 1

Sometimes economists are bad at drawing graphs.

For example, think of a supply and demand graph. Price is on the y axis and quantity is on the x axis, but generally when we derive the curves for competitive markets, we usually say that firms and consumers respond to price to determine what quantity they buy/sell, rather than the other way around. So why aren't the axes switched there so the dependent and independent variables are where they should be? Tradition I guess.

I imagine it's a similar case here. The axes are just wonky.


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