In the hard sciences such as physics, math, chemistry, et al , the use of indepe

Question

In the hard sciences such as physics, math, chemistry, et al, the use of independent and dependent variables is different from their use in economics. In the hard sciences the independent variable is shown on the horizontal or X axis and the dependent variable on the Y or vertical axis. In economics we reverse them. We put the independent on the Y axis and the dependent on the X axis. This allows us to display the demand schedule, the supply schedule and equilibrium on the same graph.

Before we go any further in this discussion let me define the two. The independent variable is the first mover. It's the thing that moves first. The dependent variable is defined as the variable that changes in value only because the value of another variable changed. For example, when the price of a product goes up or down the demand for that product will change. Price goes up, demand tends to go down. Price goes down demand tends to go up. The only reason the demand moved was because the price moved. Price was therefore the first mover, the independent variable, and quantity demanded followed suit and changed, the dependent variable.

I mention this because it is very important for businesses to know what will happen to revenues when their prices change.

It is assumed that price moves first---the firstmover---but do you believe demand could also be considered the first mover? In other words, does price change first or does demand?

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Explanation / Answer

In most cases and usually it is price that gets changed first and rapidly causing changes in demand. But yes there could be certain situation where the demand moves first then price follows as response.

For example in situation when preferences of people changes due to fad. Some products may start getting grip in international market or start getting mature in domestic market to which the marketer feel to increase the price to creram out the extra created demand surplus (if elasticity of price is not much). Similarly if a product has faced any backlash by its customers due to some environemntal factors like any law suit agisnt the firm, any violation of ethical practice etc then the company may start offering the good at lower price. Another situation could be substitution effect because of competition. Due to competition when consmuers sart switching the good to another brand, the firm may control the situation of decreasing demand by reducing the price.

All the baove situations examplifies that sometimes quantity also move first and the price then repsonse or in other words the demand changes first then firm changes its pricing decision accordingly.

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