Getting Started

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CHAPTER
Getting Started
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A P P E N D I X C H E C K L I S T

• When you have completed your study of this
  appendix, you will be able to

Interpret a scatter diagram, a time-series graph,
and a cross-section graph.
Interpret the graphs used in economic models.
Define and calculate slope.
Graph relationships among more than two variables.
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APPENDIX MAKING AND USING GRAPHS

• Basic Idea
• A graph enables us to visualize the relationship
  between two variables.
• To make a graph, set two lines perpendicular to
  each other
• The horizontal line is called the x-axis.
• The vertical line is called the y-axis.
• The common zero point is called the origin.

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APPENDIX MAKING AND USING GRAPHS

• Figure A1.1 How to make a graph

The horizontal axis (x-axis) measures
temperature.
The vertical axis (y-axis) measures ice cream
consumption.
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APPENDIX MAKING AND USING GRAPHS
Point A shows that when the temperature is 40
degrees, ice cream consumption is only 5 gallons
a day.
Point B shows that when the temperature is 80
degrees, ice cream consumption jumps to 20
gallons a day.
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APPENDIX MAKING AND USING GRAPHS

• Interpreting Data Graphs
• Scatter diagram
• A graph of the value of one variable against the
  value of another variable.
• Time-series graph
• A graph that measures time on the x-axis and the
  variable or variables in which we are interested
  on the y-axis.

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APPENDIX MAKING AND USING GRAPHS

• Trend
• A general tendency for the value of a variable
  to rise or fall.
• Cross-section graph
• A graph that shows the values of an economic
  variable for different groups in a population at
  a point in time.

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APPENDIX MAKING AND USING GRAPHS

• Figure A1.2(a) shows a scatter diagram.

In 2000 (marked 00), income per person was
25,500 and expenditure per person was 23,900.
The data for 1995 to 2005 show that as income
increases, expenditure increases.
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APPENDIX MAKING AND USING GRAPHS

• Figure A1.2(b) shows another scatter diagram.

In 2000 (marked 00) when the price of an
international phone call was 49 a minute, 30
billion minutes of calls were made.
The data show that as the price falls, the number
of calls increases.
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APPENDIX MAKING AND USING GRAPHS

• Figure A1.2(c) shows a
• times-series graph.

The graph shows when the price of coffee was

• High or low.

• Rising or falling.

• Changing quickly or slowly.

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APPENDIX MAKING AND USING GRAPHS

• Figure A1.2(d) shows a cross-section graph.

• The graph shows the percentage of people who
  participate in various sports activities.

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APPENDIX MAKING AND USING GRAPHS

• Interpreting Graphs Used in Economic

• Positive relationship or direct relationship
• A relationship between two variables that move in
  the same direction.

• Linear relationship
• A relationship that graphs as a straight line.

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APPENDIX MAKING AND USING GRAPHS

• Figure A1.3(a) shows a positive (direct)
  relationship.

At a speed of 40 MPH, you travel 200 miles in 5
hourspoint A.
At a speed of 60 MPH, you travel 300 miles in 5
hourspoint B.
As the speed increases, the distance traveled in
5 hours increases proportionately.
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APPENDIX MAKING AND USING GRAPHS

• Figure A1.3(b) shows a
• positive (direct) relationship.

As the distance sprinted increases, recovery time
increases.
But sprint twice as far and it takes more than
twice as long to recoverthe curve gets steeper.
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APPENDIX MAKING AND USING GRAPHS

• Figure A1.3(c) shows a positive (direct)
  relationship.

As study time increases, the number of problems
worked increases.
But study twice as long and the number of
problems you work less than doublethe curve gets
less steep.
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APPENDIX MAKING AND USING GRAPHS

• Negative relationship or inverse relationship
• A relationship between two variables that move in
  opposite directions.

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APPENDIX MAKING AND USING GRAPHS

• Figure A1.4(a) shows a negative (inverse)
  relationship.

As the time playing tennis increases, the time
playing squash decreases.
Because one more hour of tennis means one hour
less of squash, the relationship between these
two variables is described by a straight line.
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APPENDIX MAKING AND USING GRAPHS

• Figure A1.4(b) shows a negative (inverse)
  relationship.

As the journey length increases, the cost per
mile of the trip falls.
But there is a limit to how much the cost per
mile can fall, so the curve becomes less steep as
journey length increases.
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APPENDIX MAKING AND USING GRAPHS

• Figure A1.4(c) shows a negative (inverse)
  relationship.

As leisure time increases, the number of
problems worked decreases.
But the tenth hour of leisure (the first hour of
work) decreases the number of problems worked
most, so the curve becomes steeper as leisure
time increases.
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APPENDIX MAKING AND USING GRAPHS

• Figure A1.5(a) shows a maximum point.

• As the rainfall increases

1. The curve slopes upward as the yield per acre
rises.

• 2. The curve is flat at point A, the maximum
  yield.

3. Then slopes downward as the yield per acre
falls.
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APPENDIX MAKING AND USING GRAPHS

• Figure A1.5(a) shows a minimum point.

• As the speed increases

1. The curve slopes downward as the cost per mile
falls.

• 2. The curve is flat at point B, the minimum cost
  per mile.

• 3. The curve slopes upward as the cost per mile
  rises.

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APPENDIX MAKING AND USING GRAPHS

• Figure A1.6(a) shows variables that are
  unrelated.

• As the price of bananas increases, the students
  grade in economics remains at 75 percent.

The curve is horizontal.
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APPENDIX MAKING AND USING GRAPHS

• Figure A1.6(b) shows variables that are
  unrelated.

• As rainfall in California increases, the output
  of French vineyards remains at 3 billion gallons.

The curve is vertical.
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APPENDIX MAKING AND USING GRAPHS

• The Slope of a Relationship
• Slope
• The change in the value of the variable measured
  on the y-axis divided by the change the value of
  the variable measured on the x-axis.
• Slope ?y ?x.

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APPENDIX MAKING AND USING GRAPHS

• Figure A1.7(a) shows a positive slope.

1. When ?x is 4,
2. ?y is 3.
3. Slope (?y/?x) is 3/4.
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APPENDIX MAKING AND USING GRAPHS

• Figure A1.7(b) shows a negative slope.

1. When ?x is 4,
2. ?y is 3.
3. Slope (?y/?x) is 3/4.
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APPENDIX MAKING AND USING GRAPHS

• Figure A1.7(c) shows the slope of a curve at a
  point.

Slope of the curve at A

• equals the slope of the red line tangent to the
  curve at A.

1. When ?x is 4,
2. ?y is 3.
3. Slope (?y/?x) is 3/4.
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APPENDIX MAKING AND USING GRAPHS

• Relationships Among More Than Two Variables
• To graph a relationship that involves more than
  two variables, we use the ceteris paribus
  assumption.
• Ceteris Paribus
• other things remaining the same.
• Figure A1.8 shows the relationships between ice
  cream consumed, the temperature, and the price of
  ice cream.

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APPENDIX MAKING AND USING GRAPHS

• Figure A1.8(a) shows the relationship between
  price and consumption, temperature remaining the
  same.

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APPENDIX MAKING AND USING GRAPHS

• Figure A1.8(b) shows the relationship between
  temperature and consumption, price remaining the
  same.

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APPENDIX MAKING AND USING GRAPHS

• Figure A1.8(c) shows the relationship between
  price and temperature, consumption remaining the
  same.

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