Transcript Appendix

Appendix 1
Applying Graphs to
Economics
• Key Concepts
• Summary
• Practice Quiz
•Internet Exercises
©2002South-Western College Publishing
What is a
direct relationship
between two variables?
When one increases,
the other increases
and vice versa
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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).
4
Slope = rise/run =
vertical axis/horizontal
axis = Y/X
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Expenditure for Personal Computer
at Different Annual Incomes
Personal
Expenditure
$1,000
$2,000
$3,000
$4,000
Annual
Income
$10,000
$20,000
$30,000
$40,000
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Y
D
4
3
2
1
C
B
A
Y=1
X=10
10 20 30 40
X
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What is an inverse
relationship between
two variables?
When one increases,
the other decreases
and vice versa
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Quantity of Compact Discs Consumers
Purchased at Different Prices
Price per
compact disc
$20
$15
$10
$5
Quantity of
compact discs
25,000,000
50,000,000
75,000,000
100,000,000
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Y
20
15
10
5
Negative Sloping Curve
A
B
Y=5
C
X=25
D
X
25 50 75 100
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What is an independent
relationship between
two variables?
When one variable
changes, the other
variable is unchanged
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Expenditure for Toothpaste
at Different Annual Incomes
Personal
Expenditure
$10
$20
$30
$40
Annual
Income
$10,000
$20,000
$30,000
$40,000
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Y
40
30
20
10
A
B
C
D
X=10
Y=0
10 20 30 40
X
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Can slope vary
along a curve?
Yes, the slope of a curve
can vary along the curve
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Y
4
3
2
1
A
Y=2
X=30
10 20 30 40
X
15
Y
20
15
10
5
Y=
A
10
X=50
X
25 50 75 100
16
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
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What is an example
of a change other
than price?
When income increases
the whole demand
curve shifts upward
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Y
20
15
Annual Income
$60,000
10
5
Annual Income
$30,000
X
25 50 75 100
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Positive Sloping Curve
Y
D
20
15
C
10
5
5
10 15 20
X
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Key Concepts
©2002South-Western College Publishing
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• What is a direct relationship between two
variables?
• What is the slope of a line?
• What is an inverse relationship between
two variables?
• What is an independent relationship
between two variables?
• Can slope vary along a curve?
• What can change other than price?
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Summary
©2002South-Western College Publishing
23
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.
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Y
A direct relationship
D
4
3
2
1
C
B
A
Y=1
X=10
10 20 30 40
X
25
Y
20
15
10
5
An inverse relationship
A
B
Y=5
C
X=25
D
X
25 50 75 100
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Y
An independent relationship
40
30
20
10
A
B
C
D
X=10
Y=0
10 20 30 40
X
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Y
4
3
2
1
Positive slope of an
upward-sloping curve
A
Y=2
X=30
10 20 30 40
X
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Y
Negative slope of an
downward-sloping curve
20
15
10
5
Y=
A
10
X=50
X
25 50 75 100
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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
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END