01a applying graphs to economics

Appendix 1
Applying Graphs to
Economics
• Key Concepts
• Summary
• Practice Quiz
•Internet Exercises
©1999 South-Western College Publishing

What is a
Direct Relationship
between two variables?
When one increases,
the other increases
and vice versa
* Return to previous slide while in slide show
2

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).
3

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

4

Expenditure for Personal Computer
at Different Annual Incomes
Personal Annual
Expenditure Income

$1,000 $10,000
$2,000 $20,000
$3,000 $30,000
$4,000 $40,000

5

Y D
4
C
3
B Y=1
2
A X=10
1
X
10 20 30 40
6

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

7

Quantity of Compact Discs Consumers
Purchased at Different Prices
Price per Quantity of
compact disc compact discs

$20 25,000,000
$15 50,000,000
$10 75,000,000
$5 100,000,000

8

Y A
Negative Sloping Curve

20
15 B
Y=5 C
10
X=25 D
5
X
25 50 75 100
9

What is an Independent
Relationship between
two variables?
When one variable changes,
the other variable remains
unchanged

10

Expenditure for Toothpaste
at Different Annual Incomes
Personal Annual
Expenditure Income

$10 $10,000
$20 $20,000
$30 $30,000
$40 $40,000

11

Y
40
30
20 A B C D
X=10
10 Y=0
X
10 20 30 40
12

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

13

Y
4
3
A
2 Y=2
1
X=30 X
10 20 30 40
14

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

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.
16

What can change
other than price?
When income increases, for
example, the whole demand
curve shifts upward

17

Y
20 Annual Income
$60,000
15
10
Annual Income
5 $30,000
X
25 50 75 100
18

Positive Sloping Curve
Y
20 D
15
10 C
5
X
5 10 15 20
19

Key Concepts

20

• What is a Direct Relationship between two varia
• What is the Slope of a line?
• What is an Inverse Relationship between two va
• What is an Independent Relationship between tw
• Can Slope vary along a curve?
• What can change other than price?

21

Summary

22

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.

23

Y A direct relationship
D
4
C
3
B Y=1
2
A X=10
1
X
10 20 30 40
24

Y A
An inverse relationship

20
15 B
Y=5 C
10
X=25 D
5
X
25 50 75 100
25

Y An independent relationship
40
30
20 A B C D
X=10
10 Y=0
X
10 20 30 40
26

Y Positive slope of an
upward-sloping curve
4
3
A
2 Y=2
1
X=30 X
10 20 30 40
27

Y Negative slope of an
downward-sloping curve
20
15
Y= A
10 -10
5
X=50 X
25 50 75 100
28

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

29

Appendix Quiz

30

1. Straight line CD in Exhibit A-7 on the next
page shows that
a. increasing the value of X will increase the
value of Y.
b. decreasing the value of X will decrease
the value of Y.
c. there is a direct relationship between X
and Y.
d. all of the above.
D. As the value of X increases, the value
of Y increases, and vice versa; this is
called a direct relationship.
31

Y EXHIBIT A-7
20
15 D
10 C
5
X
5 10 15 20
32

2. In Exhibit A-7, the slope of straight
line CD is
a. 3.
b. 1.
c. -1.
d. 1/2.
D. The slope of a line is measured by the
rise over the run, or a change in vertical
divided by a change in the horizontal.
For example, as Y increases from 5
units to 15, X increases from 0 to 20.
The slope is 10 divided by 20.
33

3. In Exhibit A-7, the slope of straight line
CD is
a. positive.
b. zero.
c. negative.
d. variable.
A. When both X and Y move in the
same direction, it is said that they are
directly related to one another.

34

4. Straight line AB in Exhibit A-8 shows that
a. increasing the value of X reduces the
value of Y.
b. decreasing the value of X increases the
value of Y.
c. there is an inverse relationship between
X and Y.
d. all of the above.
D. When the value of X decreases, the
value of Y increases and vice versa;
this shows a direct relationship
between X and Y.
35

Y
20 A EXHIBIT A-8

15
10
5 B
X
5 10 15 20
36

5. As shown in Exhibit A-8, the slope of
straight line AB
a. decreases with increases in X.
b. increases with increases in X.
c. increases with decreases in X.
d. remains constant with changes in X.
D. The slope of a straight line stays the
same between the two points on the line.

37

6. In Exhibit A-8, the slope of straight
line AB is
a. 3.
b. 1.
c. -1.
d. -5.
C. There is a one to one inverse ratio
between a change in X and a change
in Y. For example, as Y decreases
from 20 units to 0, X increases from 0
to 20. The slope is -20 divided by 20.

38

7. A shift is a curve represents a change in
a. the variable on the horizontal axis.
b. the variable on the vertical axis.
c. a third variable that is not on either
axis.
d. any variable that is relevant to the
relationship being graphed.

C. A shift occurs when something
changes other than the price.

39

8. A change in a third variable not on
either axis of a graph is illustrated
with a
a. horizontal or vertical line.
b. movement along a curve.
c. shift of a curve.
d. point of intersection.
C. When price changes the movement is
always along a stationary curve.
When something changes other than
price, the whole curve shifts.
40

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41

01a applying graphs to economics

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