Economics Unit One Chapter One: Part Two

Graphs and What They Tell Us Charts and tables show data in rows and columns – They can reveal patterns by showing numbers in relation to other numbers Graphs use two set of variables – One along the horizontal axis – One along the vertical axis

Graphs and What They Tell Us Line Graphs: – Plot at least two sets of data One on the horizontal axis (x-axis) One on the vertical axis (y-axis) – The actual line on the graph is called the curve

Line Graph

Graphs and What They Tell Us Bar graphs compare relative values of things – The varying heights of each bar show the proportionate quantity or value of a given product/ item compared to other similar products/ items

Bar Graph/Chart

Graphs and What They Tell Us Pie Charts show how parts make the whole – This is a good way to compare percentages

Pie Graph/Chart

Graphs and Economic Models Economic models are basically graphs which are simplified representations of economic forces. – Expressed in : words; graphs; or equations A production possibilities curve is one type of economic model, and one of the most useful and most common.

PPC A PPC charts the maximum amount of goods or services that can be produced from limited resources PPC’s run between extremes of producing only one item or the other – The typical model distinguishes between “Guns and Butter” – or military and consumer goods PPC’s show the trade-off between items – More of one means less of another

PPC Concepts revealed by a PPC: – Efficiency: producing the maximum amount of goods and services These are points on the curve – Underutilization: producing fewer goods and services than possible These are points on inside the curve – You cannot work above the curve, it is impossible. If you are working above the curve, then the curve has moved due to an increase in the ability to produce

PPC Example

Micro v Macro Economics is the study of how individuals and societies satisfy their unlimited wants with limited resources – However, there are two specific types of economics, and it is important to understand the distinctions between the two.

Micro v Macro Microeconomics – studies the individual players (or aspects) in an economy Includes players: individuals, families, businesses, etc Includes aspects: prices, costs, profits, competition, as well as consumer and producer behavior Macroeconomics – studies the behavior of the economy as a whole Looks at a combination of all individual units Includes: inflation, unemployment, aggregate demand, aggregate supply Also includes: monetary system, business cycle, tax policies, international trade, etc.

Positive v. Normative There are not only the previous was of studying economics, but these as well Positive Economics: - it is what it is – Describes and explains economics as it is Uses verifiable facts Does not make judgments Normative Economics: - this is what it could be – Studies what economic behavior should be Makes value judgments to recommend future actions