Reading and Working with Graphs Economics

If a picture’s worth a thousand words… A graph is worth 2,000—economically speaking. A graph is a visual representation of the relationship between variables. Independent variable—can change in value freely Dependent variable—changes only as a result of changes in the independent variable. Ceteris Paribus – everything else is held constant

A thousand words… Correlation – statistical relationship between two variables. Numerical Table - listing of paired observations in numerical form that shows the relationship between the two variables That relationship can also be seen in a graphic form when the paired observations are plotted on a graph.

A thousand words… Numerical table x y 10 25 5 30 Paired Observation

A thousand words… The independent variable is always the x value and the dependent is always the y value That means that the independent variable is always placed on the x axis on a graph and the dependent is on the y One major exception – in economics Price always goes on the y axis and quantity goes on the x no matter which is the independent or dependent variable

A thousand words… y Dependant variable x Independent variable

Relationships A direct relationship is said to exist when an increase in one variable is associated with an increase in the other, and a decrease in on is associated with a decrease in the other.

Inverse Relationships An inverse relationship exists when one variable decreases as a result of an increase in the other or increases as a result of a decrease in the other.

Complex Relationships A complex relationship is one that changes from direct to inverse or vice versa.

A thousand words… Linear Curve Non Linear Curve y y x x

Gas consumption as a function of driving speed. MILES PER HOUR MILES PER GALLON 45 25 50 24 55 23 60 21 65 19 70 16 75 13

Let’s graph that one…

Drawing Theoretical Graphs Weight and clothing size Weight Clothing Size

Drawing Theoretical Graphs Age and running speed Running Speed Age

Drawing Theoretical Graphs Amount of time spent studying each class and the number of classes in which you are enrolled Number of classes Amount of time spent studying

Drawing Theoretical Graphs Price of land and quantity of land Price Quantity