Appendix 1 Applying Graphs to Economics Key Concepts Summary Practice Quiz Internet Exercises ©2002South-Western College Publishing

What is a direct relationship between two variables? When one increases, the other increases and vice versa

What is the slope of a line? The ratio of change in the variable on the vertical axis (the rise or fall) to change in the variable on the horizontal axis (the run).

vertical axis/horizontal axis = Y/X Slope = rise/run = vertical axis/horizontal axis = Y/X

Expenditure for Personal Computer at Different Annual Incomes Personal Expenditure Annual Income $1,000 $2,000 $3,000 $4,000 $10,000 $20,000 $30,000 $40,000

Y D 4 C 3 B Y=1 2 A X=10 1 X 10 20 30 40

What is an inverse relationship between two variables? When one increases, the other decreases and vice versa

Quantity of Compact Discs Consumers Purchased at Different Prices Price per compact disc Quantity of compact discs $20 $15 $10 25,000,000 50,000,000 75,000,000 $5 100,000,000

Y Negative Sloping Curve A 20 B 15 Y=5 C 10 D X=25 5 X 25 50 75 100

What is an independent relationship between two variables? When one variable changes, the other variable is unchanged

Expenditure for Toothpaste at Different Annual Incomes Personal Expenditure Annual Income $10 $20 $30 $40 $10,000 $20,000 $30,000 $40,000

Y 40 30 A B C D 20 X=10 10 Y=0 X 10 20 30 40

Can slope vary along a curve? Yes, the slope of a curve can vary along the curve

Y 4 3 A 2 Y=2 1 X X=30 10 20 30 40

Y 20 15 A Y= 10 -10 5 X X=50 25 50 75 100

How can I tell the difference between a movement along a curve and a shift in the curve? When price changes, there is movement along a curve. When something other than price changes, the whole curve shifts

What is an example of a change other than price? When income increases the whole demand curve shifts upward

Y 20 Annual Income $60,000 15 10 Annual Income $30,000 5 X 25 50 75 100

Positive Sloping Curve Y D 20 15 C 10 5 X 5 10 15 20

©2002South-Western College Publishing Key Concepts ©2002South-Western College Publishing

What is a direct relationship between two variables? What is the slope of a line? What is an inverse relationship between two variables? What is an independent relationship between two variables? Can slope vary along a curve? What can change other than price?

©2002South-Western College Publishing Summary ©2002South-Western College Publishing

Graphs provide a means to clearly show economic relationships in two-dimensional space. Economic analysis is often concerned with two variables confined to the upper right-hand (northeast) quadrant of the coordinate number system.

Y A direct relationship D 4 C 3 B Y=1 2 A X=10 1 X 10 20 30 40

An inverse relationship Y An inverse relationship A 20 B 15 Y=5 C 10 D X=25 5 X 25 50 75 100

An independent relationship Y An independent relationship 40 30 A B C D 20 X=10 10 Y=0 X 10 20 30 40

Positive slope of an upward-sloping curve Y Positive slope of an upward-sloping curve 4 3 A 2 Y=2 1 X X=30 10 20 30 40

Negative slope of an downward-sloping curve Y Negative slope of an downward-sloping curve 20 15 A Y= 10 -10 5 X X=50 25 50 75 100

A shift in a curve occurs only when the ceteris paribus assumption is relaxed and a third variable not on either axis of the graph is allowed to change

END