Economics
Graphs in Economics
Graphs are an essential tool in economics to visually represent data and relationships between variables. They allow economists to analyze and interpret complex information in a clear and concise manner, making it easier to communicate findings and make informed decisions. Graphs can be used to illustrate supply and demand curves, production possibilities frontiers, and other economic concepts.
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11 Key excerpts on "Graphs in Economics"
eBook - PDF- Irvin B. Tucker, Irvin Tucker(Authors)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
............................................................................................................................................................................................. 1 APPLYING GRAPHS TO ECONOMICS Economists are famous for their use of graphs. The reason is “ a picture is worth a thou-sand words. ” Graphs are used throughout this text to present economics models. By drawing a line, you can use a two-dimensional illustration to analyze the effects of a change in one variable on another. You could describe the same information using other model forms, such as verbal statements, tables, or equations, but a graph is the simplest way to present and understand the relationship between economic variables. Don ’ t be worried that graphs will “ throw you for a loop. ” Relax! This appendix explains all the basic graphical language you will need. The following illustrates the sim-plest use of graphs for economic analysis. A-1 A DIRECT RELATIONSHIP Basic economic analysis typically concerns the relationship between two variables, both having positive values. Hence, we can confine our graphs to the upper-right (northeast) quadrant of the coordinate number system. In Exhibit A-1 notice that the scales on the horizontal axis ( x -axis) and the vertical axis ( y -axis) do not necessarily measure the same numerical values. The horizontal axis in Exhibit A-1 measures annual income, and the vertical axis shows the amount spent per year for a personal computer (PC). In the absence of any established traditions, we could decide to measure income on the vertical axis and expenditure on the horizontal axis. The intersection of the horizontal and vertical axes is the origin and the point at which both income and expenditure are zero. In Exhibit A-1, each point is a coordinate that matches the dollar value of income and the corresponding expenditure for a PC.
No longer available |Learn more- William Baumol, Alan Blinder, John Solow, , William Baumol, Alan Blinder, John Solow(Authors)
- 2019(Publication Date)
- Cengage Learning EMEA(Publisher)
You will see them online. If you become a doctor, you will use graphs to keep track of your patients’ progress. If you join a business firm, you will use them to check profit or performance at a glance. This appendix introduces some of the techniques of graphic analysis—tools you will use throughout the book and, more important, very likely throughout your working career. Graphs Used in Economic Analysis Economic graphs are invaluable because they can dis-play a large quantity of data quickly and because they facilitate data interpretation and analysis. They enable the eye to take in at a glance important statistical rela-tionships that would be far less apparent from written descriptions or long lists of numbers. Two-Variable Diagrams Much of the economic analysis found in this and other books requires that we keep track of two variables simultaneously. A variable is something measured by a number; it is used to analyze what happens to other things when the size of that number changes (varies). For example, in studying how markets operate, we will want to keep one eye on the price of a commodity and the other on the quantity of that commodity that is bought and sold. For this reason, economists frequently find it useful to display real or imaginary figures in a two-variable diagram, which simultaneously represents the behavior of two economic variables. The numerical value of one variable is measured along the horizontal line at the bottom of the graph (called the horizontal axis ), starting from the origin (the point labeled “0”), and the numeri-cal value of the other variable is measured up the verti-cal line on the left side of the graph (called the vertical axis ), also starting from the origin. The “0” point in the lower-left corner of a graph where the axes meet is called the origin . Both variables are equal to zero at the origin. Figures 1(a) and 1(b) are typical graphs used in eco-nomic analysis.
eBook - PDFEconomics
Principles & Policy
- William Baumol, Alan Blinder, John Solow, , William Baumol, Alan Blinder, John Solow(Authors)
- 2019(Publication Date)
- Cengage Learning EMEA(Publisher)
Why do you not try to transcribe every word uttered by the lecturer? Why don’t you write down just the title of the lecture and stop there? How do you decide, roughly speaking, on the correct amount of detail? 3. Explain why a government policymaker cannot afford to ignore economic theory. As noted in the chapter, economists often use graphs to explain and analyze models. Indeed, this book is full of graphs. But that is not the only reason for studying how graphs work. Most college students will deal with graphs in the future, perhaps frequently. You will see them online. If you become a doctor, you will use graphs to keep track of your patients’ progress. If you join a business firm, you will use them to check profit or performance at a glance. This appendix introduces some of the techniques of graphic analysis—tools you will use throughout the book and, more important, very likely throughout your working career. Graphs Used in Economic Analysis Economic graphs are invaluable because they can dis- play a large quantity of data quickly and because they facilitate data interpretation and analysis. They enable the eye to take in at a glance important statistical rela- tionships that would be far less apparent from written descriptions or long lists of numbers. Two-Variable Diagrams Much of the economic analysis found in this and other books requires that we keep track of two variables simultaneously. A variable is something measured by a number; it is used to analyze what happens to other things when the size of that number changes (varies). For example, in studying how markets operate, we will want to keep one eye on the price of a commodity and the other on the quantity of that commodity that is bought and sold. For this reason, economists frequently find it useful to display real or imaginary figures in a two-variable diagram, which simultaneously represents the behavior of two economic variables.
- Supriya Sarnikar(Author)
- 2015(Publication Date)
- Palgrave Pivot(Publisher)
Leinhardt, Zaslavsky, and Stein (1990) collect and classify the many studies in math and science education literature which gather data on students’ graph related misconceptions. Some of the common mistakes which are relevant to economics are: (1) viewing graphs as pictures instead of as a relationship between variables; (2) insensitivity to the variables on the axes; (3) not recognizing the meaning of areas under line graphs. There are numerous examples of students treating graphs as pictures in mathematics and physics education research. For example, in a physics setting, when asked to show the relationship between time and the speed of a bicycle going uphill and then downhill, many students simply draw a graph resembling a hill with speed measured on the y -axis and time on the x -axis. This is in spite of the fact that students knew that a bicycle is likely to slow down when going uphill and gather speed when coming downhill (Clement 1989, 82; Beichner 1994). Inability to recognize the meaning of areas under graphs presents difficulties in kinematics when students cannot find velocity from acceleration–time graphs. In economics, students who treat graphs as pictures, and are insensitive to the variables measured, cannot calculate consumer surplus; producer surplus; or profits from graphical information. The graphing difficulties in economics and physics outlined above are not usually due to students’ inability to understand graphs per se. In economics, I have found that students find it easier to think of changes over time in a single variable and can graph time trends in a single variable with ease even when no numbers are involved. But interpretation of graphs which represent the relationship between two variables, both of which can increase or decrease seems to present difficulties for most students
eBook - PDF- Irvin Tucker(Author)
- 2018(Publication Date)
- Cengage Learning EMEA(Publisher)
1A–5 A HELPFUL STUDY HINT FOR USING GRAPHS To some students, studying economics is a little frightening because many chapters are full of graphs. Just remember that a graph is simply a visual aid that illustrates the relationship between economic variables. Noting these relationships is the ticket to understanding how the economy really works. So, keep in mind that all inverse (negative) relationships are expressed as downward-sloping curves (or lines), and all direct (positive) relationships are expressed as upward-sloping curves. This will help you to do well on tests! Key Concepts Direct relationship Inverse relationship Slope Independent relationship Copyright 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 24 PART 1 • Introduction to Economics Summary • 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 (northeast) quadrant of the coordinate number system. • A direct relationship occurs when two variables change in the same direction. 10 20 30 40 0 1 2 3 4 Personal computer expenditure (thousands of dolla rs per year) Annual income (thousands of dollars) C D B A Y = 1 X = 10 X = 30 Y = 3 • An inverse relationship occurs when two variables change in opposite directions. 25 50 75 100 0 5 10 15 20 Price per compact disc (dollars) Quantity of compact discs purchased (millions per year) 25 C Y = –5 X = 25 B A D E • An independent relationship occurs when two variables are unrelated.
eBook - ePub- Peter Smith(Author)
- 2016(Publication Date)
- Routledge(Publisher)
Figure 5.1 showed GNI per capita in 2012 for selected countries. Graphs provide a simple but important way of monitoring the economic performance of a country, or undertaking international comparisons. They provide information that focuses attention on particular periods or countries.It is often helpful to use graphs of data to look for patterns. For instance, it might be important to explore how different countries experienced the global recession that followed the financial crisis of the late 2000s. A time-series graph that brings together data on a number of countries is one approach, although showing more than a small number of countries can become confusing.Figure 8.4 shows the annual growth rates of GDP for the UK, Greece, China and the world as a whole for the period 2000–2013.Figure 8.4Annual growth rates, selected countries, 2000–13(Source: Data from World Bank World Development Indicators ).You can see from this that the UK and Greece followed a similar pattern to the world as a whole until the onset of recession, although Greece showed a bit more variability in its growth rate. After 2009, the UK and the world showed a recovery, whilst Greece continued to suffer, with growth rates still negative right up to 2013. Meanwhile, China showed steady and rapid growth until 2007, and continued to see GDP growing even during and after the world recession. These sorts of patterns help us to understand what is going on in the world.Another way of using data is to look for relationships between macroeconomic variables. Keynes argued that there would be a positive relationship between consumers’ expenditure and household income. A scatter graph can enable us to explore this relationship, as shown in Figure 8.5 .Figure 8.5Real consumption and income, 1948–2014(Source: Based on data from the Office for National Statistics licensed under the Open Government Licence v.3.0. Data from ONS database).Each point marked on the graph shows the combination of consumption expenditure and income in a particular year. The pattern suggests that there is a strong positive relationship between these two variables, as overall there is an upward sloping pattern to the scatter, which is not too far away from a straight line. The relationship is not perfect, but it would be expected that it would be, as there are no doubt other factors than income that influence consumption expenditure. Nonetheless, the closeness of the pattern suggests that there is a close association between these variables.
eBook - PDF- Gary Koop(Author)
- 2014(Publication Date)
- Wiley(Publisher)
These features of the data can be seen easily from the histogram, but would be di⁄cult to comprehend simply by looking at the raw data. 1.3.3 XY plots Economists are often interested in the nature of the relationships between two or more variables. For instance:‘What is the relationship between capital structure (i.e. the division between debt and equity ¢nancing) and ¢rm performance (e.g. pro¢t)?’, ‘Are higher educa- tion levels and work experience associated with higher wages among workers in a given industry?’, ‘Are changes in the money supply a reliable indicator of in£ation changes?’, ‘Do di¡erences in ¢nancial regulation explain why some countries are growing faster than others?’, etc. All these questions involve two or more di¡erent variables. The techni- ques described previously are suitable for describing the behaviour of only one variable; for instance, the properties of the single variable real GDP per capita are illustrated in Figure 1.2 above. They are not, however, suitable for examining relationships between pairs of variables. Once we are interested in understanding the nature of the relationships between two or more variables, it becomes harder to use graphs. Beginning in the next chapter, we will discuss regression analysis, which is the most important tool used by economists working with many variables. However, graphical methods can be used to draw out some simple aspects of the relationship between two variables. XY plots (also called scatter diagrams) are particularly useful in this regard. Below you will ¢nd a graph of data on deforestation (i.e. the average annual forest loss over the period 1981^1990 expressed as a percentage of total forested area) for 70 tropical countries, along with data on population density (i.e. the number of people per thousand hectares).
eBook - PDF- Martha L. Olney(Author)
- 2011(Publication Date)
- Wiley(Publisher)
Economic models are expressed in three ways: • Words • Mathematical equations • Graphs Most models are expressed in two ways (words and one other); some are expressed in all three. If you don’t understand the words, look at the graph. If a graph doesn’t make sense, look at the equation or the words. All three ways of expressing a model should reinforce each other. Think of them as three languages all telling you the same thing. Eventually you should understand all three expressions of any model, and be able to move back and forth between them. MATHEMATICAL TOOLS In a Principles of Economics course, you need to be able to use a few mathematical tools. We cover the most commonly used math tools here. Graphing tools (covered in the next section) are perhaps more important to your success in studying eco- nomics. Be sure to refer back to this chapter often, until you are comfortable with these math and graphing tools. Fractions and Decimals In some parts of economics, we use fractions—in other parts, decimals. You want to be comfortable going back and forth between fractions and decimals. And you want to be comfortable reducing fractions: 30 40 = 3 4 = 0.75 20 40 = 1 2 = 0.5 0.6 = 6 10 , so 1 0.6 = 10 6 = 5 3 Absolute Value On a few occasions, economists use absolute value. The absolute value of any number is the distance that number is from zero (ignoring whether the number is 8 Chapter 1 Economics Tools—Math and Graphing above or below zero). The absolute value of a number is indicated with two straight lines: | |. So |4| = 4 and |−4| = 4. Functional Notation Much of economics is shorthanded with equations and symbols (or, notation). For example, an economist writes the simple sentence “How many sodas you want to buy depends primarily on the price of soda” as q D = f (p ). Economists say they have expressed the relationship in an equation using functional notation.
eBook - PDFEconomics
Theory and Practice
- Patrick J. Welch, Gerry F. Welch(Authors)
- 2016(Publication Date)
- Wiley(Publisher)
Economic theory explains why an event occurs, or gives a generalized interpretation of the relationship between economic variables. Economic theories are explored within the framework of a model that includes variables, assumptions or conditions held to be true, data collection and analysis, and conclusions. Economic policy is a guideline for a course of action. Value judgments are important in the selection of economic policies. 6. In expressing theories and policies, economists use verbal statements, graphs, and mathematical equations. An upward‐sloping line in a graph illustrates a direct relationship between variables, and a downward‐sloping line indicates an inverse relationship. 7. A production possibilities table and curve can be used to illustrate scarcity. These show that, with assumptions of full employment and constant resources and technology, more of one good can be obtained only by giving up some of another good, making trade-offs necessary. The effect of unemployment, which causes an economy to produce fewer goods and services than with full employment, is shown by a point inside, or to the left of, the production possibilities curve. Increases in technology and/or resources allow for economic growth, permitting a shift of the curve to the right. 8. Macroeconomics is concerned with the operation of the economy as a whole and with the interactions of its major sectors. Microeconomics deals with individual operating units and markets within the economy. Summary Review Questions 21 Key Terms and Concepts 1. What are the definition of and the root of the study of economics? How does a combination of scarce resources and unlimited wants force people to make economic decisions? How are value judgments and opportunity costs important in the making of these decisions? 2. Classify each of the following factors of production into one of the four resource categories used in economics, and identify the income return to the owners of each factor.
eBook - PDF- David Stager(Author)
- 2013(Publication Date)
- Butterworth-Heinemann(Publisher)
20 Chapter One function of income; that is, the amount of these expenditures will depend on the level of income. The dependent variable (consumption) is conventionally shown on the vertical axis and the independent variable (income) is shown on the horizontal axis. An important exception to this convention occurs in supply and demand analysis. There the independent variable, price, is on the vertical axis and the dependent variable, quantity demanded or supplied, is on the horizontal axis. The line representing the consumption function in Figure 1.6 hap-pens to be a straight line, but functions more often are non-linear or curved. In fact, the functions plotted on a graph are generally referred to as curves even when they are straight lines. Curves are described as being upward-sloping, or downward-sloping, to the right. A curve that is upward-sloping to the right has a positive slope; a negative slope is represented by a curve sloping downward to the right. Review of the Main Points 1. Economic principles can be presented verbally, but mathematical exposition is often more precise. Geometric graphs are commonly used in economics to illustrate the verbal explanations. A coordinate graph shows the relationship between two variables. Economic Anaiysis and Economic Poiicy This chapter describes methods used to analyze economic behaviour and the application of the results to solve economic problems. Econo-mists often disagree on the results of economic analysis, the conclusions to be drawn from these results, or the appropriate prescriptions for indi-vidual decisions or for social policies. Some of the disagreement stems from problems with analytical techniques and inadequate statistics. But more often the disagreement stems from differences in political or social judgments about what should be done in response to economic problems.
eBook - PDF- Brian Dennis(Author)
- 2016(Publication Date)
- Chapman and Hall/CRC(Publisher)
55 4 Basic Graphs It might seem to you that scientists have an obsession with quantification. Your impressions are correct and probably underestimated. To build reliable knowledge, scientists naturally seek to gather and record counts, measure-ments, and attributes of the items being studied. Data, the collective name for such counts, measurements, and attributes, are the lifeblood of science. Studying data with quantitative tools allows scientists to detect patterns, for-mulate trial explanations (hypotheses), design tests, make predictions, and assess the reliability of the explanations. Graphs are crucial to science. Even a small table of data is nearly incompre-hensible by itself. Graphs allow scientists to visualize quantitative patterns. Graphs are a huge part of what R is about. Graphs are R. Real-World Example This time, let us go straight to a real-world example. We will explore data from economics and political science. Table 4.1 displays the data that I assembled from the 2010 Economic Report of the President . The report is available online: http://www.gpoaccess.gov/eop/index.html. Each line of the data represents a federal budget year. Four “variables” or columns are in the data set: YEAR (1960–2010): I started the data in 1960, as a sort of general begin-ning to the “modern” government/budget/economic era. UNEMPLOY: Civilian unemployment rate, in percent. SURPLUS: Surplus (positive) or deficit (negative) in federal budget, as percent of the gross domestic product that year. PARTY: Political party of the president who was responsible for that bud-get year, where R indicates Republican and D indicates Democratic. The federal budget in the first year of a president’s term is set by the president in the previous year, and so I used 1 year as a time lag. For instance, 1960 was a Republican year; John F. Kennedy took office in January, 1961, but he had effectively no budgetary influence until the new federal fiscal year began in the following October.
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