Graphs and functions

Chapter 0 for
Econ 100.1
(E. de Dios)
 A function
In plain words, a function simply states that
“y depends on (is determined by) x”
as in:
“The average travel time on EDSA (y) increases with the number of
vehicles on it (x).”
Write this as:
y = f(x) ,
(+)

where “+” means y is positively affected by x (i.e., y rises if

and only if x rises)
 A function
Other possibilities to write out:
• What happens to spending (y) when income
increases?
• What happens to the quantity demanded of
anything (y) when its price (x) rises?
• What happens to output (y) when the number
of workers employed (x) increases?
 Linear form
The function f(x) can take any form, but for most
of our purposes, linear functions will suffice to
represent phenomena, i.e.,
y = a + bx b > 0,
is the linear version of y = f(x), and
(+)

y = a + bx b < 0
corresponds to y = f(x).
(–)
 Graph of a linear function
(K-12, LOL!)
y
y = a + bx

Dy
Dx
b = Dy/Dx
a

x
 A change in a
raises or lowers the whole curve
y y = a + bx

y = a + bx

a
a a>a

x
 A function of several variables
Now suppose y depends not only on x but on z as
well, e.g.
“Travel time on EDSA increases with the number of
vehicles on it (x) and decreases with the number of
traffic rule-enforcers (z).”
Then write:
y = f(x, z), or in linear form
(+, –)

y = a0 + bx + cz, b > 0, c < 0.

 A function of several variables
It is possible to say that
y is a function of x, holding z constant
y is a function of z, holding x constant,
and to draw a graph in each case.
Holding other things constant (ceteris paribus)
allows us to concentrate on the independent
variable of interest.
 A function of several variables
y as a function of x, given z y as a function of z, given x

y y

x z
 A function of several variables
Note that the effect of z is like changing a in the
one-variable case. In fact we can rewrite:
y = a0 + bx + cz, b > 0, c < 0.
= (a0 + cz) + bx
= a + bx where a = a0 + cz
So when z increases, the whole graph of
y = a + bx shifts downward, since c < 0.
 A change in z
raises or lowers the whole curve
y y = a + bx

y = a + bx

a0 + cz
z > z, remembering c < 0
a0 + cz

x
 A function of several variables
In general, this is also true even if f(x, z) is not a
linear function.
Suppose
y = f(x, z, w).
(+, –, +)

Then the graph of y as a function of x

• shifts downward as z rises, and
• shifts upward as w rises.
 A change in other variables
shifts the whole curve
y
f(x, z, w)
f(x, z, w)

y = f(x, z, w)
z>z (+, – , +)

x
 A macroeconomic example
The demand for money L is a positive function
of income Y and a negative function of the
interest rate r.
L = L(Y, r)
(+, –)

L = h1Y + h2r h1 > 0, h2 < 0.

L is graphed as a downward sloping curve
relative to r .
 Demand for money
L For any level of the interest rate,
the demand for money is higher rises
with higher income.
Y>Y

L(r, Y)

L(r, Y)

r
 A change in other variables
shifts the whole curve
Whether the x–y graph is shifted up or down by
the increase of the other variable depends on
the sign of the coefficient.
If the coefficient sign of z is positive, the x–y
graph shifts upward.
If the coefficient sign of z is negative, the x–y
graph shifts downward.
 Equilibrium
We often confront a situation where y depends on x but x also
depends on y.
A. The travel time (y) on EDSA rises with the number of vehicles on it
(x) and falls with the number of traffic rules-enforcers (z)
y = f(x, z).
(+, –)

B. The number of vehicles on EDSA (x) falls as the travel time (y) on it
rises (because people are discouraged from driving out if traffic is bad);
and falls with the price of gasoline (w):
x = g(y, w).
(– , – )
 Equilibrium
There seems to be a circularity because x
depends on y and then y depends on x. To break
out of this, note there are really two different
statements (functions): A is about how vehicles
tangle each other up; B is about what affects
people’s desire to use their their vehicles.
We can graph these functions f and g separately.
 Note on inverse functions
To graph x = g(y, w) on the x–y diagram, we need to
re-express y as a function of x. Note that in linear
form:
x = – my – pw
my = – x – pw
y = – x/m – (p/m)w
In other words, if x is negatively related to y, then y
is negatively related to x. And if w is negatively
related to x, it is also negatively related to y.
 Note on inverse functions
To summarise, if
x = g(y, w), then
(–, –)

y = g–1(x, w).
(–, –)

(Explain to yourself in plain language why this

makes sense.)
 Equilibrium on EDSA
y
f(x, z)

ya

yb
g– 1(x, w)

x1 x* x
People drive x1 number vehicles expecting travel
time ya. But they experience a much lower travel
time yb. So they are encouraged to travel more and
in more vehicles.
Only when the number of vehicles on the road is x*
does their experienced travel time coincide with
their expected travel time.
(Ask yourself what happens if the number of
vehicles is to the right of x*.)
 Other variables
Now apply what you’ve learned and ask what
happens to equilibrium travel time if:
• The number of traffic rule-enforcers (z) falls.
• The price of gasoline (w) rises.
Show these changes by shifting the relevant curve
in the graph. Does the math coincide with your
intuition?
Then good. (Otherwise, you’re making a mistake.)
END