USING GRAPHS AND

COMPUTING PERCENTAGE
CHANGES

Dr. Ritika Gugnani

Session-2
Foundation Week
Using Graphs

 An economic relation can be expressed in

words, represented in table, described by
mathematical equation or illustrated by graph.

 Usually Economists are interested in trends and

comparisons.

 Economists use several type of graphs to

present data, represent relationship between
variables and explain concepts.

 Graphs are an important tool in the study of

economics.
Objectives

After the session, you will be able to:

 Make and interpret a time-series graph, a cross-section

graph, and a scatter diagram
 Identify different patterns that emerge in a graph
 Define and calculate the slope of a line
 Distinguish between linear and nonlinear relationships
Graphing Data

• A graph reveals a relationship.

•A graph represents “quantity” as a
distance.
•A two-variable graph uses two
perpendicular scale lines.
•The vertical line is the y-axis.
•The horizontal line is the x-axis.
•The zero point in common to both
axes is the origin.
•A variable is a measure of something
that can take different values.
Contemplating different variables on graphs

 Unemployment rate and year

 Price of a good and its quantity demanded
 Price of a good and its quantity supplied
 Income of a consumer and its quantity demanded
 Price of a good (tea) and quantity demanded of other good (coffee)
 Calorie intake and body mass index
 Hours spent at leisure and hours studied
 And so on
Key concepts

 A functional relationship exists when value of one variable depends

on the value of other

 Dependent variable- a variable whose value depends on that of the

independent variable

 Independent variable- a variable whose value determines that of the

dependent variable.
The Slope of a Relationship

The Slope of a Straight Line

•The slope of a straight line is
constant.
•The slope is positive if the line is
upward sloping.
The Slope of a Relationship

The slope is negative if the line is

downward sloping.
 Moving Along the Curve versus Shifting the Curve

Movement Along a Curve versus

Shifting the Curve
To draw a curve showing the
relationship between hours worked
and income, we fix the weekly
allowance ($40) and the wage ($8
per hour).
A change in the hours worked
causes movement along the curve,
for example, from point b to point
c.
A change in any other variable
shifts the entire curve. For
example, a $50 increase in the
allowance (to $90) shifts the entire
curve upward by $50.
Computing the Slope

Slope of a curve: The vertical difference between two points

divided by the horizontal difference.

Vertical difference between two points

Slope 
Horizontal difference between two points

Income
Slope 
Work hours

In general, if the variable on the

vertical axis is y and the variable
on the horizontal axis is x, we
can express the slope as
y
Slope 
x
Moving Along the Curve versus Shifting the Curve

 A change in one of the variables shown on the graph

causes movement along the curve. (from point a to b to c)

 A change in one of the variables that is not shown on the

graph- one of the variables held fixed in drawing the
curve-shifts the entire curve.
Graphing Nonlinear Relationships

Nonlinear Relationships
(A) Study time There is a positive
and nonlinear relationship
between study time and the grade
on an exam. As study time
increases, the exam grade
increases at a decreasing rate.
For example, the second hour of
study increased the grade by 4
points (from 6 points to 10 points),
but the ninth hour of study
increases the grade by only 1
point (from 24 points to 25 points).
Graphing Nonlinear Relationships

Nonlinear Relationships
(B) Production cost There is a
positive and nonlinear relationship
between the quantity of grain
produced and total production cost.
As the quantity increases, the total
cost increases at an increasing rate.
For example, to increase production
from 1 ton to 2 tons, production cost
increases by $5 (from $10 to $15)
but to increase the production from
10 to 11 tons, total cost increases by
$25 (from $100 to $125).
Computing percentage changes

Economists often express changes in variables

in terms of percentage changes.
Exercise 1: Plot a demand curve from the
following demand schedule
Price (Rs) Quantity demanded
140 0
120 2
100 4
80 6
60 8
40 10
20 12
Exercise 2: Find out the Slope of line so
plotted

 Slope indicates how much the vertical variable changes for a given
increase in horizontal variable.

 Slope = change in vertical distance

Change in horizontal distance
Exercise 3: Derive the equation for demand
function

 Y = mx + c
 Y: Variable on the Vertical axis
 X: variable on the horizontal axis
 m: slope of line = change in y / change in x
 C: intercept
Exercise 4: Movement along the curve

 If price falls from Rs100 to 80, quantity demanded changes from 4 to

6 units.
 If price increases from Rs 40 to Rs 80 , quantity demanded changes
from 10 to 6
Exercise 5: Shift of curve

Price (Rs) Quantity Quantity Quantity

demanded demanded demanded
(units) (units) (units)
Pocket Pocket Pocket
Money=600 Rs Money=640 Rs Money=520 Rs
140 0 2 0
120 2 4 0
100 4 6 0
80 6 8 2
60 8 10 4
40 10 12 6
20 12 14 8
Graphing Data

Economists use three types of graphs to reveal

relationships between variables. They are:

 Time-series graphs
 Cross-section graphs
 Scatter diagrams
Graphing Data

(1) Time-Series Graphs

A time-series graph measures time (for example, months or
years) along the x-axis and the variable or variables in which
we are interested along the y-axis.
The time-series graph on the next slide shows the price of
coffee between 1970 and 2000.
The graph shows the level of the price, how it has changed
over time, when change was rapid or slow, and whether
there was any trend.
Graphing Data

Downward
trend
Graphing Data

(2) Cross-Section Graphs

A cross-section graph shows the values of a variable for
different groups in a population at a point in time.
The cross-section graph on the next slide enables you to
compare the number of people who live in 10 metropolitan
areas in the United States.
Graphing Data
Graphing Data

(3) Scatter Diagrams

A scatter diagram plots the value of one variable on the x-axis
and the value of another variable on the y-axis.
A scatter diagram can make clear the relationship between two
variables.
The three scatter diagrams on the next slide show examples of
variables that move in the same direction, in opposite
directions, and in no particular relationship to each other.
Graphing Data
Graphs Used in Economic Models

Graphs are used in economic models to show the relationship

between variables.
The patterns to look for in graphs are the four cases in which:

 Variables move in the same direction

 Variables move in opposite directions
 Variables have a maximum or a minimum
 Variables are unrelated
Graphs Used in Economic Models

(1) Variables That Move in the Same Direction

•A relationship between two variables that move in the same
direction is called a positive relationship or a direct
relationship.
•A line that slopes upward shows a positive relationship.
•A relationship shown by a straight line is called a linear
relationship.
Graphing Two Variables: positive relationship

Relationship between Hours

Worked and Income
There is a positive relationship
between work hours and income,
so the income curve is positively
sloped.
Graphs Used in Economic Models

(2) Variables That Move in Opposite Directions

•A relationship between two variables that move in opposite
directions is called a negative relationship or an inverse
relationship.
•A line that slopes downward shows a negative relationship.
Graphing Negative Relationships

Negative Relationship between

CD Purchases and Downloaded
Songs
There is a negative relationship
between the number of CDs and
downloaded songs that a consumer
can afford with a budget of $360.
The slope of the curve is $12: Each
additional CD (at a price of $12
each) decreases the number of
downloadable songs (at $1 each) by
12 songs.

Vertical difference
Slope =
Horizontal difference
120  240 120
   12
20  10 10
Graphs Used in Economic Models

(3) Variables That Have a Maximum or a Minimum

•The two graphs on the next slide show relationships that have a
maximum and a minimum.
•These relationships are positive over part of their range and
negative over the other part.
Graphs Used in Economic Models
Graphs Used in Economic Models

(4) Variables That are Unrelated

•Sometimes we want to emphasize that two variables are
unrelated.
•The two graphs on the next slide show examples of
variables that are unrelated.
Graphs Used in Economic Models