How to Read and Understand

Graphs
 GRAPHS AND THEIR
MEANING
-
 Re me mb e r f r o m ma t h . . . .
T w o E q u a tio n s in T w o U n k n o w n s
X Y Y
1 5 5
2 4 4
3 3 3
4 2 2
5 1 1 In d e p e n d e n t V a ria b le
1 2 3 4 5 X
C o p yrig h t M cG raw -H ill, In c.
1999
 Re me mbe r f rom mat h. . . .
Two Equations in Two Unknowns
X Y Y
5 Plotting the
1 5
4 Values?
2 4
3 3 3
4 2 2
5 1 1
1 2 3 4 5 X
Copyright McGraw-Hill, Inc.
1999
 Re me mbe r f rom mat h. . .
Two Equations in Two Unknowns
X Y Y
1 5 5
2 4 4
3
etc.
3 3
4 2 2
5 1 1
1 2 3 4 5 X
Copyright McGraw-Hill, Inc.
1999
 Re me mbe r f rom mat h. . .
Two Equations in Two Unknowns
X Y Y
5 Connecting
1 5
4 the Dots?
2 4
3 3 3
4 2 2
5 1 1
1 2 3 4 5 X
Copyright McGraw-Hill, Inc.
1999
 Economics Us e s t he S ame . .
Two Equations in Two Unknowns
P
PX Y QD Y
5 Plotting Price
1 5
4 and Quantity
2 4
3 3 3
4 2 2
5 1 1
Q
1 2 3 4 5 X
Copyright McGraw-Hill, Inc.
1999
 Ec onomic s Us e s t he S ame . . .
Two Equations in Two Unknowns
P QD P
1 5 5 One of the 2
2 4 4 Equations
3 3 3
4 2 2
5 1 1
1 2 3 4 5 Q
Copyright McGraw-Hill, Inc.
1999
 I nve rs e Re lat ions hip. . .
As P Increases, Q Decreases
and vice ve rs a
P QD P
1 5 5 One of the 2
2 4 4 Equations
3 3 3
4 2 2
5 1 1
1 2 3 4 5 Q
Copyright McGraw-Hill, Inc.
1999
 Dire ct Re lat ions hip. . .
Exists Between Consumption & Income
INCOME CONSUMPTION
(per week) (per week)
$400
C=50+.5Y
$ 0 $ 50 a
C O N S U M P T IO N (C )
100 100 b 300

200 150 c 200

e
d
300 200 d c
400 250 e 100
b
a
0 100 200 300 400
INCOME (Y)

Copyright McGraw-Hill, Inc.

1999
 Oh, Say Can You Identify....

Direct & Inverse

Relationships?

Copyright McGraw-Hill, Inc.

1999
How to Read and Understand
Graphs

• Each point on the Cartesian

plane is a combination of
(X,Y) values.

• The relationship between X

and Y is causal. For a given
value of X, there is a
corresponding value of Y, or
X causes Y.
Reading Between the Lines

• A line is a continuous string

of points, or sets of (X,Y)
values on the Cartesian
plane.
• The relationship between X
and Y on this graph is
negative. An increase in the
value of X leads to a
decrease in the value of Y,
and vice versa.
Positive and Negative Relationships

An upward-sloping line
describes a positive
relationship between X
and Y.

A downward-sloping
line describes a
negative relationship
between X and Y.
 The Components of a Line
• The algebraic expression of
this line is as follows:
Y = a + bX
where:
Y = dependent variable
X = independent variable
a = Y-intercept, or value of
Y when X = 0.
+ = positive relationship
Y Y1  Y0 between X and Y
b=  b = slope of the line, or the
X X1  X0
rate of change in Y
given a change in X.
 Different Slope Values

5 7
b  0 .5 b   0 .7
10 10

0 10
b 0 b 
10 0
Strength of the Relationship Between
X and Y

• This line is relatively flat.

Changes in the value of X have
only a small influence on the
value of Y.

• This line is relatively steep.

Changes in the value of X have a
greater influence on the value of
Y.
The Difference Between a Line and a Curve

Equal increments in Equal increments in

X lead to constant X lead to diminished
increases in Y. increases in Y.
 S lope of t he Line is . . .
Vertical Change
Horizontal Change
P QD P
-1
1 5 5
10 = -.1
2 4 4
3 3 3
4 2 2
1
5 1
10 20 30 40 50 Q
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1999
 S lope of a Curve d Line
The Slope of a Straight Line
is . . .
Drawn Just Tangent to the Curve
a
P 20
A
15

10

0
5a 10 15 20 Q
Copyright McGraw-Hill, Inc.
1999
 S lope of a Curve d Line
The Slope of a Straight Line
is . . . to the Curve
Drawn Just Tangent
a
P 20
A
15

10

b
5
B
0
5a 10 15b 20 Q
Copyright McGraw-Hill, Inc.
1999
 Oh, Say Can You Identify....

Slope of the Line?

Copyright McGraw-Hill, Inc.

1999
 Oh, Say Can You Identify....
Tangent?

Copyright McGraw-Hill, Inc.

1999
 Interpreting the Slope of a Curve

• Graph A has
• Graph B has
a positive and
a negative
decreasing
slope, then a
slope.
positive slope.
• Graph C
shows a • Graph D
negative and shows a
increasing negative
relationship and
between X decreasing
and Y. slope.