Graphs in Economics
Graphs in Economics
Graphs in Economics
APPENDIX
GRAPHS IN ECONOMICS
Objectives
After studying this appendix, you will be able to:
Make and interpret a scatter diagram
Identify linear and nonlinear relationships and relationships that have a
maximum and a minimum
Define and calculate the slope of a line
Graph relationships among more than two variables
Graphing Data
Time-Series Graphs
A time-series graph measures time (for example, months
or years) along the x-axis and the economic indicator
representing variable or variables in which we are
interested along the y-axis.
In short time series graph shows how a variable changes
over time.
Graphing Data
Graphing Data
Cross-Section Graphs
A cross-section graph shows the values of a variable for
different groups in a population at a point in time.
Graphing Data
Graphing Data
Scatter Diagrams
A scatter diagram is a graph that plots the value of one
variable against the value of another variable for a
number of different values of each variable.
A scatter diagram plots the value of one variable on the x-
axis and the value of another variable on the y-axis.
Such a graph reveals whether a relationship exists
between two variables and describes their relationship.
The three scatter diagrams on the next slide show
examples of variables.
Graphing Data
Graphing Data
Graphing Data
Correlation
A scatter diagram that
shows a clear relationship between two variables, such
tells us that the two variables have a high correlation.
When a high correlation is present, we can predict the
value of one variable from the value of the other variable.
Graphs Used in Economic
Models
Graphs are used in economic models to show the
relationship between variables.
The patterns to look for in graphs are the four cases in
which:
Variables move in the same direction
Variables move in opposite directions
Variables have a maximum or a minimum
Variables are unrelated
Graphs Used in Economic
Models
Variables That Move in the Same Direction
A relationship between two variables that move in the
same direction is called a positive relationship or a direct
relationship.
A line that slopes upward shows that economic variables
are positively related or economic indicators has a positive
relationship.
If the relationship is illustrated by a straight line is it is
called a linear relationship.
The three graphs on the next slide show positive
relationships.
Graphs Used in Economic
Models
Graphs Used in Economic
Models
Variables That Move in Opposite Directions
If the relationship between two variables that move in
opposite directions there is a negative relationship or an
inverse relationship exists between those variables.
A negative relationship is illustrated by a line that slopes
downward.
The three graphs on the next slide show negative
relationships.
Graphs Used in Economic
Models
Graphs Used in Economic
Models
Variables That Have a Maximum or a Minimum
The two graphs on the next slide show relationships that
have a maximum and a minimum.
Relationships
are positive over part of their range and negative over the
following part.
Or
are negative over part of their range and positive over the
following part.
Graphs Used in Economic
Models
Graphs Used in Economic
Models
Variables That are Unrelated
Sometimes two variables are unrelated so there is no
relationship exist between them.
There are 2 examples of variables that are unrelated
shown in the next slide.
Graphs Used in Economic
Models
The Slope of a Relationship
The slope of a relationship is the change in the value of the variable measured
on the y-axis divided by the change in the value of the variable measured on
the x-axis.
We use the Greek letter (capital delta) to represent “change in.”
So y means the change in the value of the variable measured on the y-axis
and x means the change in the value of the variable measured on the x-axis.
The slope of the relationship is y/x.
The Slope of a Relationship
Slope at a Point
The slope of a curved line
at a point is equal to the
slope of a straight line that
is the tangent to that point.
Here, we calculate the
slope of the curve at point
A.
The Slope of a Relationship