Sec.2. Diagrams and their Uses.  It will help to prevent mistakes like this and more generally to make sharp and clear the fundamental relations which exist between demand, supply and price, if we exhibit them pictorially in the form of a diagram.  Such diagrams are of great service in many parts of economic theory, not because they can prove anything which could not be proved otherwise, but because, being really a simpler medium of expression than words, they enable the mind to grasp more readily and to retain more vividly the essential facts of complex relations.

Figure 1: 

Y
|
|                                            S’
|                                          *
D |                                         **
|*                                       **
| **                                    *
|  **                                  *
|    *                                *
|     **                            **
|      **                          *
|        **                       *
|         **                    **
|           **                 *
|            **  Q           **
l|--------------*------------* R
|              |***       **
|              |   ** P **
m|--------------------***
|              |  *** |***
k|--------------***----+---** r
|          q*|      |     ***
|          *** |      |        ****
|       ***    |      |           ****
|    ***       |      |               ***
S |****          |      |                  ****
|              |      |                      ** D’
|              |      |
|              |      |
|              |      |
|              |      |
0+-------------------------------------------------------- X’
N      M.
Figure 1

In Fig. 1 the curve DD’ represents the conditions of demand.  It is supposed to be drawn in such a way that if any point, Q, be taken on the curve, and the perpendicular QN be drawn to meet the base line, or axis OX, then ON will represent the amount that will be demanded at a price represented by QN (or O_l_).  In other words, distances measured along OY represent prices, and distances measured along OX represent quantities of the commodity, or service, or whatever it may be.  Clearly, then, the demand curve, DD’, must slope downwards from left to right, since the lower the price asked, the greater will be the amount demanded.  Similarly the curve SS’ represents the conditions of supply.  It is supposed to be so drawn that if any point q be taken upon it, and the perpendicular qN be drawn to meet OX, then ON will represent the amount that will be supplied at a price represented by qN (or O_k_).  Equally clearly this supply curve must slope upwards from left to right, since the higher the price obtainable, the greater will be the quantity offered.  Take the point P where the two curves meet, and draw the perpendicular PM to meet OX.  Then the third law enunciated at the beginning of this chapter corresponds to the statement that PM or O_m_ will represent the price at which the commodity or service will be exchanged.