prisdiagram

Prisdiagram, or price diagram, is a graphical representation used in economics to illustrate the relationship between the price of a good or service and the quantity demanded or supplied. In its common form, the diagram uses price on the vertical axis and quantity on the horizontal axis and displays two curves: a downward-sloping demand curve and an upward-sloping supply curve. The point where the curves intersect is the market equilibrium, with the equilibrium price (often denoted P*) and equilibrium quantity (Q*).

Shifts in the curves occur when non-price determinants change. A change in income, prices of substitutes or complements, tastes, expectations or the number of buyers shifts the demand curve. Changes in costs, technology, prices of inputs, taxes or subsidies, expectations or the number of sellers shift the supply curve. Movements along a curve occur when the price changes, holding determinants constant.

Price diagrams are used to analyze effects of government interventions such as price floors or ceilings, and taxes or subsidies. They help visualize changes in consumer and producer surplus and the overall welfare of society. They are also a basic teaching tool in microeconomics to illustrate equilibrium, elasticity, and the efficiency implications of market regulation.

Limitations include the assumption of ceteris paribus, perfect competition, and static analysis. Real markets may exhibit strategic behavior, information asymmetries, and dynamics that are not fully captured by a simple price–quantity diagram.