Appendix 1

Applying Graphs to
Economics
• Key Concepts
• Summary
• Practice Quiz
•Internet Exercises
©2002South-Western College Publishing
 What is a
direct relationship
between two variables?
When one increases,
the other increases
and vice versa
2
 What is the
slope of a line?
The ratio of change in the
variable on the vertical axis
(the rise or fall) to change
in the variable on the
horizontal axis (the run).
3
 Slope = rise/run =
vertical axis/horizontal
axis = Y/X

4
Expenditure for Personal Computer
at Different Annual Incomes
Personal Annual
Expenditure Income

$1,000 $10,000
$2,000 $20,000
$3,000 $30,000
$4,000 $40,000

5
Y D
4
C
3
B Y=1
2
A X=10
1
X
10 20 30 40 6
 What is an inverse
relationship between
two variables?
When one increases,
the other decreases
and vice versa
7
Quantity of Compact Discs Consumers
Purchased at Different Prices
Price per Quantity of
compact disc compact discs

$20 25,000,000
$15 50,000,000
$10 75,000,000
$5 100,000,000

8
Y Negative Sloping Curve
A
20
15 B
Y=5 C
10
X=25 D
5
X
25 50 75 100 9
What is an independent
relationship between
two variables?
When one variable
changes, the other
variable is unchanged
10
Expenditure for Toothpaste
at Different Annual Incomes
Personal Annual
Expenditure Income

$10 $10,000
$20 $20,000
$30 $30,000
$40 $40,000

11
Y
40
30
20 A B C D
X=10
10 Y=0
X
10 20 30 40 12
 Can slope vary
along a curve?
Yes, the slope of a curve
can vary along the curve

13
Y
4
3
A
2 Y=2
1
X=30 X
10 20 30 40 14
Y
20
15
Y= A
10 -10
5
X=50 X
25 50 75 100 15
 How can I tell the
difference between a
movement along a curve
and a shift in the curve?
When price changes, there
is movement along a
curve. When something
other than price changes,
the whole curve shifts
16
What is an example
of a change other
than price?
When income increases
the whole demand
curve shifts upward
17
Y
20 Annual Income
$60,000
15
10
Annual Income
5 $30,000
X
25 50 75 100 18
 Positive Sloping Curve
Y
20 D
15
10 C
5
X
5 10 15 20 19
Key Concepts

©2002South-Western College Publishing 20

• What is a direct relationship between two vari
ables?
• What is the slope of a line?
• What is an inverse relationship between
two variables?
• What is an independent relationship
between two variables?
• Can slope vary along a curve?
• What can change other than price?

21
Summary

©2002South-Western College Publishing

22
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-hand (northeast) quadrant of
the coordinate number system.

23
Y A direct relationship
D
4
C
3
B Y=1
2
A X=10
1
X
10 20 30 40 24
Y A
An inverse relationship

20
15 B
Y=5 C
10
X=25 D
5
X
25 50 75 100 25
Y An independent relationship
40
30
20 A B C D
X=10
10 Y=0
X
10 20 30 40 26
Y Positive slope of an
upward-sloping curve
4
3
A
2 Y=2
1
X=30 X
10 20 30 40 27
Y Negative slope of an
downward-sloping curve
20
15
Y= A
10 -10
5
X=50 X
25 50 75 100 28
A shift in a curve occurs only
when the ceteris paribus
assumption is relaxed and a third
variable not on either axis of the
graph is allowed to change

29
END