1. Copyright © 2002 Thomson Learning, Inc.
A Lecture Presentation in PowerPoint to accompany Exploring Economics Second Edition by Robert L. Sexton
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2. Working With Graphs

3. GRAPHS ARE AN IMPORTANT ECONOMIC TOOL
Visual aids, such as graphs, greatly enhance our understanding of a theory.
Graphs are important tools for economists that allow us to understand better the workings of the economy.

4. GRAPHS ARE AN IMPORTANT ECONOMIC TOOL
Graphs enhance understanding of important economic relationships.
The most useful graph for our purposes connects a vertical line (the Y-axis) with a horizontal line (the X-axis).

5. Exhibit 1 PLOTTING A GRAPH40 30 20 10
–30
–10
–40
–20
–40
–30
–20
–10 10 20 30 40 a

6. GRAPHS ARE AN IMPORTANT ECONOMIC TOOL
The intersection of the two lines occurs at the origin, which is where the value of both variables is equal to zero.
Moving to the right on the horizontal axis and up along the vertical axis each lead to higher values.

7. USING GRAPHS AND CHARTS
Three common types of graphs
Pie chart
a circle subdivided into proportionate slices that represent various quantities that add up to 100 percent
Bar graph
represents data using vertical bars rising from the horizontal axis
Time-series graph
a type of line chart that plots data trends over time

8. What College Students Earn
Exhibit 2 PIE CHART,
What College Students Earn
$400 and over
28%
Don't have a job
33%
$200-$399
25%
$200 and under
14%

9. BAR GRAPH,
Most Popular Amusement/Theme Parks, by number of visitors, 1997 17 16 15 14 13 12 11 10 9
Visitors (in millions) 8 7 6 5 4 3 2 1
The Magic
Kingdom at
Walt Disney
World
Disneyland
Epcot at
Walt Disney
World
Disney-MGM
Studios at
Walt Disney
World
Universal
Studios
Florida
Universal
Studios
Hollywood
Sea World
of Florida
Busch
Gardens
Tampa
Sea World
of California
Six Flags
Great
America

10. (annual percent change)
AND TIME SERIES GRAPH 15
12.5 10
(annual percent change)
Inflation rate
7.5 5
2.5
1960
1965
1970
1975
1980
1985
1990
1995
2000

11. THE RELATIONSHIP BETWEEN TWO VARIABLES
something that is measured by a number

12. RELATIONSHIP BETWEEN TWO VARIABLES
Positive relationship
when two variables change in the same direction
That is, an increase in one variable (practice time) is accompanied by an increase in the other variable (overall score), or a decrease in one variable (practice time) is accompanied by a decrease in the other variable (overall score).

13. Exhibit 3 A POSITIVE RELATIONSHIP
(40, 10) D 10 9
(30, 8) C 8 7
(20, 6) B 6
Scores at Z Games 5
(10, 4) A 4 3 2 1 10 20 30 40
Practice Time per Week

14. THE RELATIONSHIP BETWEEN TWO VARIABLES
Negative relationship
when two variables change in opposite directions
That is, when one variable rises, the other variable falls, or when one variable decreases, the other variable increases.

15. THE GRAPH OF A DEMAND CURVE
The downward-sloping line, labeled demand curve, shows the different combinations of price and quantity purchased.
Note that the higher you go up on the vertical(price) axis, the smaller the quantity purchased on the horizontal (quantity) axis, and
the lower the price on the vertical axis, the greater the quantity purchased.

16. Exhibit 4 EMILY’S DEMAND CURVE—A NEGATIVE RELATIONSHIP
(1, $25) A
$25
(2, $20) B 20 15
(3, $15) C
Price of CDs 10
(4, $10) D 5
(5, $5) E 1 2 3 4 5 6
Quantity of CDs Purchased

17. THE GRAPH OF A DEMAND CURVE
As you can see, curves are sometimes drawn as straight lines for ease of illustration.
Moving down along the curve, we see that as the price falls, a greater quantity is demanded; moving up the curve to higher prices, a smaller quantity is demanded.

18. THE RELATIONSHIP BETWEEN THREE VARIABLES
Although only two variables are shown on the axes, graphs can be used to show the relationship between three variables.

19. THE RELATIONSHIP BETWEEN THREE VARIABLES
Third variable—income
Three variables are now income, price, and quantity purchased.
If income increases, the whole demand curve shifts outward (rightward) compared to the old curve
If income falls, the whole demand curve shifts inward (leftward) compared to the old curve.

20. Exhibit 5 SHIFTING A CURVE
a. Demand Curve With Higher Income
b. Demand Curve With Lower Income D
D (with
higher
income)
D (with
lower income) D
Price of CDs
Price of CDs
Quantity of CDs Purchased
Quantity of CDs Purchased

21. THE RELATIONSHIP BETWEEN THREE VARIABLES
A movement between one point and another along a curve
A change in one of the variables on the graph, like price or quantity purchased, will cause a movement along the curve--from point A to point B.
A shift in the whole curve
A change in one of the variables not shown (held constant) will cause the whole curve to shift, such as the change from D0 to D1.

22. Exhibit 6 SHIFTS VERSUS MOVEMENTSa D0 D1
Price of CDs A B
Quantity of CDs Purchased

23. SLOPE The steepness of the lines or curves on graphs
The ratio of rise (change in the Y variable) over the run (change in the X variable)

24. SLOPE A slope can be either positive (upward sloping) or
A curve that is upward sloping represents a direct, or positive, relationship between the two variables and slants upward from left to right.
negative (downward sloping).
A curve that is downward sloping represents an inverse, or negative, relationship between the two variables and slants downward from left to right.

25. Exhibit 7 DOWNWARD- AND UPWARD-SLOPING LINEAR CURVES
a. Downward-Sloping Linear Curve
b. Upward-Sloping Linear Curve 25
Downward
sloping 25
Upward
sloping 20 20 15 15 10 10 5 5 5 10 15 20 25 5 10 15 20 25 a

26. SLOPE
The numeric value of the slope shows the number of units of change of the Y-axis variable for each unit of change in the X-axis variable.
Slope provides the direction (positive or negative) as well as the magnitude of the relationship between the two variables.

27. SLOPE A straight-line curve is called a linear curve.
The slope of a linear curve between two points measures the relative rates of change of two variables.
negatively sloped line carries a minus sign
the positively sloped line carries a plus sign.

28. Exhibit 8 SLOPES OF POSITIVE AND LINEAR CURVES
a. Positive Slope
b. Negative Slope A 10 10 9 9 8 8 7 7 –8
Rise
Negative
slope – 4 6 6
Positive
Slope
+ 1/2 5 5 4 4 B 3 3 A
1 Rise B 2 2
2 Run
+2 Run 1 1 1 2 3 4 5 6 1 2 3 4 5 6
X-axis
X-axis a

29. SLOPE
A nonlinear curve is a line that actually curves.

30. Exhibit 9 THE SLOPE OF A NONLINEAR CURVE5 4
Slope = 0 B 3 A
Y-axis C 2 1 1 2 3 4 5 6 7
X-axis a

31. SLOPE
When slope varies from point to point along the curve, we can find the slope at any given point by drawing a straight line tangent to that point on the curve.
Tangency: when a straight line just touches the curve without actually crossing it.