Appendix: Making & Using Appendix: Making & Using GraphsGraphs

• Why bother?• Graphs & Data• Graphs & Models• Slope

Why bother?Why bother?

• visual relationship between to variables• analyze & understand

-- information-- ideas

• “A picture is worth a thousand words”• corny, but true• a graph conveys info more clearly

& quickly than words

Graphs & DataGraphs & Data

• scatter diagram-- graph x value that corresponds to y value-- relationship between x and y-- do they move in same direction?-- opposite direction?-- varied directions?

example: consumption & incomeexample: consumption & income

each point = 1 year

as income rises, so does consumption

• time-series graph-- measures the behavior of a variable over

time-- x axis = time-- y axis = variable-- Is variablehigh or low?rising or falling?stable or volatile?

example: price of coffeeexample: price of coffee

price is volatile

no long-term trend of rising or falling

price ranged between $1-$5 per lb.

• cross-section graph

-- looks at value of one variablefor different groups,at single point in time

-- compare outcomes for different groups

example: income per personexample: income per person

compare income across cities in 1995

Graphs & Economic ModelsGraphs & Economic Models

• how do variables move together?• positive relationship

-- variables move in same direction• negative (inverse) relationship

-- variables move in opposite direction

price

quantitydemanded

demand

Negative relationshipHere, linear relationship

Y

X

Negative relationshipbut not linear

price

quantitysupplied

supply

positive relationshipHere, linear relationship

Positive relationshipbut not a linear relationship

X

Y

your grade ineco 101

price of teain China

No relationshipYour grade is independent of price of tea in China

Changing relationshipCar mileage at first rises, then falls as speed rises

speed(mph)

Car mileage(mpg)

SlopeSlope

• quantifies relationship between two variables

valueaxisxinchangevalueaxisyinchangeslope

• line-- slope is constant• nonlinear

-- slope changes

example 1: Demand for pizzaexample 1: Demand for pizzaprice

quantity of pizzademanded

demand

25 50

$5

$10

price

quantity of pizzademanded

demand

25 50

$5

$10

x1 = 25, y1 = 10x2 = 50, y2 = 5

change in x = 25change in y = -5

valueaxisxinchangevalueaxisyinchangeslope

2.255slope

slope < 0 negative relationship

example 2: nonlinearexample 2: nonlinearY

X7

20

4030

10 15

AB C

Y

X7

20

4030

10 15

AB C

slope from A to B

Y

X7

20

4030

10 15

AB C

slope from B to C

slope is flatter

Using graphsUsing graphs

• model markets• production & costs• competitive and monopoly firms• explain wage behavior

more practicemore practice

• Link to graph tutorial at the bottom of the course Web page.