ECONOMICS The Use of Graphs & Tables

SESSION 2

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A picture is worth a thousand words.

(Chinese Proverb)

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Objectives
Learn how to read and draw tables and graphs. Understand positive and negative relationships of the variables. Understand opportunity cost and trade-off through PPF.

Objectives
Learn

how to calculate slope of the

curve. Differentiate between dependent and independent variables. Learn how to measure opportunity cost.

GRAPHS AND TABLES

GRAPH It is a diagram showing how two or more sets of data or variables are related to one another. (Cause & Effect) Graphs are essential in economics because, they allow us to analyze economic concepts & examine historical trends.

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Purpose of a Graph
The basic purpose of a graph is to illustrate a relationship between two variables. Example: relationship between grades & study hours.

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How to Plot a Graph?

The horizontal line on a graph is referred to as the horizontal axis, or the X axis. The vertical line is known as vertical axis or Y axis. The vertical line at left and horizontal line at the bottom correspond to the variables:

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TABLE
Possibilities A B C D E F G Study Time
(in Hours)

Grade Points 4.0 (A) 3.5 (B+) 3.0 (B) 2.5 (C+) 2.0 ( C ) 1.5 (D+) 1.0 (D)

16 14 12 10 08 06 04
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Y
G r a d e s 4 3 2 1

X
0 2 4 6 8 10 12 14 16 Hours of study
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TABLE
Possibilities A B C D E F Food 00 10 20 30 40 50 machines 150 120 90 60 30 00

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GRAPH
A
150 120 M a c h i n e s 90 60 B C

30
F 0 10 20 30 40 food
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50

Relationships

Direct Relationship occurs when variables move in the same direction (i.e. they increase or decrease together)
Inverse Relationship occurs when variables move in opposite directions (i.e. one increases as the other decreases)

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Relationships

A positive or direct relationship is said to exist when variables move in the same direction. A negative or inverse relationship is said to exist when variables move in the opposite direction. Variables are independent (unrelated) if one variable remains constant when the other changes.

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Intercepts

Where the graph crosses the x-axis is the x-intercept. It coordinates (a,0).
Where the graph crosses the y-axis is the y-intercept. It coordinates (0,b).

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The x and y intercepts of a line

y

y-intercept
(0,b) x-intercept (a,0) x

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Direct versus Inverse Relationships

Y variable Direct Relationship (positive) upward sloping to the right.

Inverse Relationship (negative) downward sloping to the right. X Variable

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Direct Relationships
Data Point Community Yearly Rainfall Umbrella Sales

A
B C D

Center City
Moose Haven Blountville Houckton

30 inches
40 inches 50 inches 60 inches

100 units
200 units 300 units 400 units

Echo Ridge

70 inches

500 units
17

Positive Slope
Umbrella Sales
500 400 300 200 100 A B C E

Slope = 100/10 = 10

100 10

10

20

30

40

50

60
18

70

80

Yearly Rainfall

Inverse Relationships
Average January Temperatures

Data Point

City

Coat Sales

F G

Tropical City North Town

100 units 200 units

50 degrees 40 degrees

H
I J

Snowbound
Cold City Arctica

300 units
400 units 500 units

30 degrees
20 degrees 10 degrees
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Negative Slope
Sales of woolen coats
500 400 J I

Slope = -100/10 = -10

-100
300

10
200 100

G F

10

20

30

40

50

60
20

70

80

January temperatures

Information at the Margin

The slope shown equals 25, which means that the additional spending by restaurant customers decreases by $25 with each passing hour.
-25 50 1

Incremental Spending
100 75

0 1 2 3
21

Hours

Nonlinear Relationships
(a) Decreasingly positive slope (b) Decreasingly positive slope

(c) Decreasingly negative slope

(d) Increasingly negative slope

22

A Shift in the Curve

Umbrella Sales
500 400 300 200 100 A B C E

When a curve changes position, we say there has been a shift in the curve. A shift represents a new relationship between the variables.

10

20

30

40

50

60
23

70

80

Yearly Rainfall

An Intersection Point
Y At the intersection point of two curves, their values are identical. A

Curve 1

Curve 1

X
24

How To Find THE SLOPE of a Line Given Two Points

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Slope of a Line
y

rise y2 y1 m run x2 x1
x2 ,y2

y2

y1

x1 ,y1

y2 y1 x2 x1
x

x1
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x2

Definition of Slope

The slope of the line is its measure of steepness. It measures the rate of change of the line. In all lines the slope is constant, it doesnt change no matter where you are at on the line.

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Slope

Slope focuses on change

It

tells us how much the X variable changes when the Y variable changes.

If the slope is a positive number, there is a positive relation between X & Y. If the slope is negative, there is a negative relation between X & Y.

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Slope
For a straight line, the slope is calculated as y / x For a nonlinear function, the slope is approximated by calculating the slope of a tangent.

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Domain and Range

The values that make up the set of independent values are the domain.
The values that make up the set of dependent values are the range.

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Domain

Correspondence or Relation

Range

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y f x
Name of the function Output Value Member of the Range Dependent Variable These are all equivalent names for the y.
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Input Value Member of the Domain Independent Variable These are all equivalent names for the x.

The Production Possibilities Frontier

The production possibilities frontier is a graph showing the various combinations of output that the economy can possibly produce in given available factors of production and technology.

Ideas Illustrated by the Production Possibilities Frontier

Efficiency Trade-offs Opportunity Cost Economic Growth

Trade Off vs Opportunity Cost

Trade Off: exchange of commodities between groups, individuals or countries. When choices are made to accept having less of one thing in order to get more of other thing. Opportunity Cost or Economic Opportunity: loss in value of next best alternative forgone as the result of making decision. It is the value of next best choice that one gives up when making a decision.

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The Production Possibilities Frontier

Quantity of Computers Produced

3,000

2,000

Production Possibilities Frontier

700

1,000

Quantity of Cars Produced

The Production Possibilities Frontier

Quantity of Computers Produced

3,000

An efficient point of production is the point A A

2,000

Production Possibilities Frontier

700

1,000

Quantity of Cars Produced

The Production Possibilities Frontier

Quantity of Computers Produced C is another efficient point: The trade-off involved is 200 more computers and 100 less cars An efficient point of production is C the point A A

3,000

2,200 2,000

Production Possibilities Frontier

600 700

1,000

Quantity of Cars Produced

The Production Possibilities Frontier

Quantity of Computers Produced C is another efficient point: The trade-off involved is 200 more computers and 100 less cars An efficient point of production is C the point A A The point B is inefficient B Production Possibilities Frontier

3,000

2,200 2,000

600 700

1,000

Quantity of Cars Produced

Quantity of Computers Produced 4,000 3,000

The Production Possibilities Frontier

Economic growth is illustrated by a shift outwards in the Production Possibilities Frontier

2,200 2,000

600 700

1,000

Quantity of Cars Produced

Technologically Efficient and Feasible Points

Not Feasible
All points on the PPF are are technologically efficient and feasible.

Feasible but Inefficient

Good X
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ECONOMIC GROWTH
Whenever

the production possibility frontier shifts outward, the economy is said to have experienced economic growth.

42

Economic Growth
Economic growth can be caused by an increase in resources.

Good X
43

Economic Growth
Negative Economic growth can be caused by the destruction of resources, such as from disasters or war.

Good X
44

Q.1. Assume that the schedule below describes the production possibilities confronting an economy. Using the information from the table: (a). Draw the PPF. Be sure to label each alternative output combination (A through E). (b). Calculate & illustrate on your graph the opportunity cost of producing one CD player per week. (c ). What is the cost of producing a second CD player? (d). Which point on the curve is the most desired one? How will you find out that point?

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Potential Weekly Output combinations

Pianos

CD Players

A B C D E

10 9 7 4 0
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0 1 2 3 4

End of the Session 2

Quote of the Day:
An economist is an expert who will know tomorrow why the things he predicted yesterday didnt happen today.

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