In economics, we are all the time attempting to relate cause and effect i.e. the economic consequences of certain actions. One of the most basic concepts most people are familiar with in economics is the Law of Supply and Demand.
Take for example, the market for any good or service, fish, the price of the product is plotted on the vertical (y axis) and the quantity on the horizontal (x-axis). The law of demand states that there exists is a negative relationship between the price and quantity on the purchasing/consumption side. For example, at higher prices consumers will purchase less fish and at lower prices, they will demand more.
To illustrate this on a diagram, we draw a graph depicting a down sloping demand curve relating price to the quantity demanded. The law of supply states that there exists a positive relationship between price and quantity on the production side. At higher prices firms will have the incentive to produce and sell more of the product and at lower prices to produce/sell less of the product.
Traditionally, in marketing research, we assume that the variable on the x-axis is the independent variable, which means that any changes in the x-variable cause changes in the y-variable, the dependent variable.
This interpretation in economics is not quite as black-and-white, especially when we plot the demand and supply demand schedules on the same graph. We need to think about how changes in quantity stimulates changes in price, and how changes in price affect quantity.