ECO 1 CHAPTER 1: APPENDIX Erkmen Giray ASLIM (erkmengirayaslim.com)erkmengirayaslim.com 08/28/2015 Department of Economics Lehigh University

ATTENDANCE QUESTION WHAT IS ECONOMICS? EXPLAIN RATIONALITY IN ECONOMICS. Resources are few (scarce resources) Wants are many (unlimited needs) Decisions are made (compare benefits and costs) (Ex. Studying for exam and/or going out with friends – time constraint) Rationality is not solely about making the best decision but rather using all available information – individuals weigh benefits and costs

USING GRAPHS AND FORMULAS Graphs are helpful tools in illustrating important economic concepts. Why? Simplifies the idea and makes it concrete to solve real-world problems. Ex. Street maps to find your way. A graph is like a street map - it is a simplified version of reality.

GRAPHS OF ONE VARIABLE Market shares of different firms - % of industry sales

GRAPHS OF ONE VARIABLE Time Series Graphs Coordinate Grid: x-axis (Years) vs. y-axis (Sales – Variable of Interest)

GRAPHS OF TWO VARIABLES Plotting Price and Quantity: The Demand Curve

CALCULATING THE SLOPE Linearity: Constant Slope with constant hamburger prices

MORE THAN TWO VARIABLES Shift factors of the demand curve: Change in hamburger prices

EXAMINING RELATIONSHIPS Negative – Demand Curve Positive – See example below Not all points are exactly on the line. Insert a line that best fits the data.

EXAMINING RELATIONSHIPS It is not always easy to determine the cause and the effect. Be careful with causal statements !

NONLINEAR GRAPHS Slope is no longer constant

FORMULAS PERCENTAGE CHANGE The percentage change is the change in some economic variable, usually from one period to the next, expressed as a percentage. Ex. Change in real Gross Domestic Product (GDP) or real GDP growth.

FORMULAS AREAS OF A RECTANGLE AND A TRIANGLE