Appendix 1 Applying Graphs to Economics Key Concepts

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 3

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 5

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 6

Y D 4 3 2 1 C B A 10 Y=1 X=10 20 30 40 X 7

What is an Inverse Relationship between two variables? When one increases, the other decreases and vice versa 8

Quantity of Compact Discs Consumers Purchased at Different Prices Price per compact disc Quantity of compact discs $20 25, 000 $15 $10 $5 50, 000 75, 000 100, 000 9

Y 20 15 10 A Negative Sloping Curve B C Y=5 X=25 50 D 75 100 X 10

What is an Independent Relationship between two variables? When one variable changes, the other variable remains unchanged 11

Expenditure for Toothpaste at Different Annual Incomes Personal Expenditure $10 $20 $30 $40 Annual Income $10, 000 $20, 000 $30, 000 $40, 000 12

Y 40 30 20 A B C D X=10 Y=0 10 10 20 30 40 X 13

Can Slope vary along a curve? Yes, the slope of a curve can vary along the curve 14

Y 4 3 A 2 Y=2 1 X=30 10 20 30 40 X 15

Y 20 15 10 Y= -10 5 A X=50 25 50 75 X 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. 17

What can change other than price? When income increases, for example, the whole demand curve shifts upward 18

Y 20 15 Annual Income $60, 000 10 5 Annual Income $30, 000 25 50 75 100 X 19

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

Key Concepts © 1999 South-Western College Publishing 21

• 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? 22

Summary © 1999 South-Western College Publishing 23

Graphs provide a means to clearly show economic relationships in twodimensional space. Economic analysis is often concerned with two variables confined to the upper right-hand (northeast) quadrant of the coordinate number system. 24

Y A direct relationship D 4 3 2 1 C B A 10 Y=1 X=10 20 30 40 X 25

Y 20 15 10 A An inverse relationship B C Y=5 X=25 50 D 75 100 X 26

Y An independent relationship 40 30 20 A B C D X=10 Y=0 10 10 20 30 40 X 27

Y 4 3 Positive slope of an upward-sloping curve A 2 Y=2 1 X=30 10 20 30 40 X 28

Y 20 15 10 Negative slope of an downward-sloping curve Y= -10 5 A X=50 25 50 75 X 100 29

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 30

Appendix Quiz © 1999 South-Western College Publishing 31

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. © 1999 South-Western College Publishing 32

Y EXHIBIT A-7 20 15 10 D C 5 5 10 15 20 X 33

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. 34

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. 35

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. 36

Y A 20 EXHIBIT A-8 15 10 B 5 5 10 15 20 X 37

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. 38

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. 39

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. 40

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. 41

Internet Exercises Click on the picture of the book, choose updates by chapter for the latest internet exercises © 1999 South-Western College Publishing 42

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