PRELIM continuation…

#03 Lecture notes: (for lectures and discussions only)

Book references and suggested readings:
A. Economics. Campbell R. McConnel, Stanley C. Rue, Sean M. Flynn, and Randy Grant
Global Edition, New York, U.S.A., McGrowHill/Irwin, 2012
B. Economics 19th Edition by Paul A. Samuelson and William D. Nordhaus
Copright 2010, 2005,2001 by McGraw Hill Companies, Inc.
C. Economics for Consumer, Bernardo Villegas
4th Edition, 1983 Sinag-Tala Publishers, Inc., Manila, Philippines

Knowing Graphs in Economics

Graph is a visual representation of the relationship between two variables.

50
Consumption price
400 40

300 30

200 20

100 10

0 100 200 300 400 0 4 8 12 16 20

Income quantity (in thousand)

Graph A Graph B
Income per week consumption per week Price Quantity
0 50 50 0
10 100 40 4
20 150 30 8
30 200 20 12
40 250 10 16
0 20

Graph A. shows that the direction of the arrow of the line goes up, means that consumption and income has direct
relationship (positive relationship) as income increases the consumption increases. Positively or directly related variables
has an upsloping line in graphs.
Graph B. shows the arrow of the line goes down, means that that there is an inverse relationship between the two
variables( price and quantity) as price decreases the quantity increases, moving in opposite directions. An inverse
relationship of variables is shown in graphs as a downsloping line.

Dependent Variable and Independent Variable

In mathematics, the independent variable is placed on the horizontal axis while dependent variable is placed on the vertical
axis.

Independent variable is the variable that changes first or the cause, while dependent variable is the effect or the variable
that changes because of the change in the independent variable just like in graph A, the income is the independent variable
while consumption is the dependent variable. The graphing of income and consumption in graph A conforms with
mathematical convention.

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PRELIM continuation…
#04 Lecture notes: (for lectures and discussions only)
Book references and suggested readings:
A. Economics. Campbell R. McConnel, Stanley C. Rue, Sean M. Flynn, and Randy Grant
Global Edition, New York, U.S.A., McGrowHill/Irwin, 2012
B. Economics 19th Edition by Paul A. Samuelson and William D. Nordhaus
Copright 2010, 2005,2001 by McGraw Hill Companies, Inc.
C. Economics for Consumer, Bernardo Villegas
4th Edition, 1983 Sinag-Tala Publishers, Inc., Manila, Philippines

In Graph B, the independent variable is the price while the dependent variable is the quantity, however the
price(independent variable) is placed on the vertical axis while the quantity (dependent variable) is placed on the horizontal
axis. Economist put price and cost in the vertical axis, that means economist graphing of independent and dependent
variables is arbitrary. And also when economist plot two variables they employ ceteris paribus assumption (other things
remain constant or equal).

Slope of a Line

The slope of a straight Line is the ratio of the vertical change (rise or drop) to the horizontal change (the run)between any
two points of the line.
Example:
Positive Slope
Slope= vertical axis / horizontal axis = 5 / 10 = ½ = .5

.5 being positive means the two variables involved are directly related.

Negative slope
Slope + vertical axis / horizontal axis = -10 / 4 = -2 ½ = -2.5

-2.5 being negative means the two variables involved have an inverse relationship

Slope and marginals analysis

The concept of slope in economics is important since it shows marginal changes which involve 1 more (or 1 fewer) unit.

Infinite and Zero Slopes

Many variables have no relationship with one another.

Price
consumption

Purchases couples’ legal separation rate

Graph A Graph B

Graph A. purchase remain the same or constant whatever be the price.

Graph B. consumptions remain the same whatever happen to the couple’s legal separation rate.
The two variables in Graphs A are unrelated or has no relationship with each other, which is also true in graph B.

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