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Chapter 1 Appendix

Making and Using Graphs

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Graph

A graph enables us to visualize the relationshipbetween two variables. The variables are

measured along the two axes.

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How to make a graph

Point A shows that when

the temperature is 40

degrees, ice cream

consumption is only 5

gallons a day.

Point B shows that whenthe temperature is 80

degrees, ice cream

consumption jumps to 20

gallons a day.

Joining the points gives

us a graph or curve which

tells us the relationship

between the two variables.

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Interpreting Graphs Used in Economic Models

Positive or direct relationship If two variables X and Y move in the same direction

When X increases (decreases), Y tends to increase

(decrease)

The curve has a positive slope

Negative or inverse relationship

If two variables X and Y move in opposite directions

When X increases (decreases), Y tends to decrease

(increase)

The curve has a negative slope

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Slope ofa curve

A straight line has a constant or fixed slope i.e.value of the slope remains constant all along the

line.

A curved line has changing slope i.e. value of

the slope changes as we move along the line.

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Slope ofa curved line

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Relationships Among More Than

Two Variables

To graph a relationship that involves more thantwo variables, we use the ceteris paribus

assumption.

Ceteris Paribus means other things remaining

the same.

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Relationships Among More Than

Two Variables

If both X (temperature) and Z (price) affect Y(ice cream cons.) then we can draw the graph

only between 2 variables but analyze how

changing X (temperature) keeping Z (price)

fixed will affect Y (ice cream cons.)

changing Z (price) keeping X (temperature)

fixed will affect Y (ice cream cons.)

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Relationships Among More Than

Two Variables

If we draw a curve of X (temperature) and

Y (ice cream cons.)

as X (temperature) changes, Y (ice cream

cons.) will change and we will move along theXY curve, ceteris paribus (i.e. keeping Z fixed)

as Z (price) changes, Y (ice cream cons.)

will change but will shift the XY curve, ceteris

paribus (i.e. keeping X fixed)

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An example: Temperature and Price of ice

cream affecting ice cream consumption

We first draw a graph depicting the relationship betweentemperature and ice cream consumption

Movement along the curve as

temperature changes

Shift of the curve as price

changes