1 WHAT IS ECONOMICS?

APPENDIX
Graphs in Economics

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After studying this appendix, you will be able to:
 Make and interpret a scatter diagram
 Identify linear and nonlinear relationships and
relationships that have a maximum and a
minimum
 Define and calculate the slope of a line
 Graph relationships among more than two
variables
 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.
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 Graphing Data

To plot a point 6,194 m above

sea level at 10 degrees, we
need the x-value and the
y-value of the point.
Point A shows an x-value of
10 degrees C.
Point B shows a y-value of
6,194 m above sea level.
Point C plot a point 6,194 m
above sea level when the
temperature is 10 degrees C.

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 Graphing Data

Economists measure variables that describe what, how,

and for whom goods and services are produced.
These variables are quantities produced and prices.
Figure A1.2 shows two examples of economic graphs.

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 Graphing Data

Figure A1.2 shows how to

make an economics graph.
Point A tells us the quantity
of tickets bought in 2019
and the average price of a
ticket.
You can “read” this graph
as telling you that in 2019:
1.2 billion movie tickets
were bought at a price of
$9.11 a ticket.

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 Graphing Data

Scatter Diagrams
A scatter diagram plots the value of one variable against
the value of another variable for a number of different
values of each variable.
A scatter diagram reveals whether a relationship exists
between the two variables.
Figure A1.3 shows the production budget for ten popular
movies and their worldwide box office revenues.
The table gives the data and the graph describes the
relationship between each movie’s production budget and
its box office revenue.
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Graphing Data

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 Graphing Data

Point A tells us that

Star Wars Ep. VII: The
Force Awakens cost
$306 million to produce
and brought in
$2,059 million at the
box office.
The pattern of the
points reveal that there
is no clear tendency
for a larger production
budget to bring a greater
box office revenue.
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 Graphing Data

Figure A1.4(a) is a scatter

diagram of income and
expenditure in Canada, on
average, from 2008 to
2018.
Point A shows that in 2014,
income was $46,000 and
expenditure was $31,000.
The graph shows that as
income increases, so does
expenditure, and the
relationship is a close one.
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 Graphing Data

Figure A1.4(b) is a scatter

diagram of inflation and
unemployment in Canada
from 2009 to 2019.
The points show no
relationship between the
two variables.
For example, when
unemployment as high,
inflation was high in 2011
and low in 2009.

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 Graphs Used in Economic Data

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.

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 Graphs Used in Economic Data

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.
The three graphs on the next slide show positive
relationships.

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Graphs Used in Economic Data

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 Graphs Used in Economic Data

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.
The three graphs on the next slide show negative
relationships.

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Graphs Used in Economic Data

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 Graphs Used in Economic Data

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.

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Graphs Used in Economic Data

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 Graphs Used in Economic Data

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.

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Graphs Used in Economic Data

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 The Slope of a Relationship

The slope of a relationship is the change in the value of

the variable measured on the y-axis divided by the change
in the value of the variable measured on the x-axis.
We use the Greek letter  (capital delta) to represent
“change in.”
So y means the change in the value of the variable
measured on the y-axis and x means the change in the
value of the variable measured on the x-axis.
Slope equals y/x.

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 The Slope of a Relationship

The Slope of a Straight

Line
The slope of a straight line
is constant.
Graphically, the slope is
calculated as the “rise” over
the “run.”
The slope is positive if the
line is upward sloping.

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 The Slope of a Relationship

The slope is negative if the

line is downward sloping.

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 The Slope of a Relationship

The Slope of a Curved Line

The slope of a curved line at a point varies depending on
where along the curve it is calculated.
We can calculate the slope of a curved line either at a
point or across an arc.

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 The Slope of a Relationship

Slope at a Point
The slope of a curved
line at a point is equal to
the slope of a straight
line that is the tangent to
that point.
Here, we calculate the
slope of the curve at
point A.

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 The Slope of a Relationship

Slope Across an Arc

The average slope of a
curved line across an arc is
equal to the slope of a
straight line that joins the
endpoints of the arc.
Here, we calculate the
average slope of the curve
along the arc BC.

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 Graphing Relationships Among
More Than Two Variables
When a relationship involves more than two variables, we
can plot the relationship between two of the variables by
holding other variables constant—by using ceteris paribus.
Ceteris paribus means “if all other relevant things remain
the same.”
Figure A1.12 shows a relationship among three variables.

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 Graphing Relationships Among
More Than Two Variables
The table gives the quantity of ice cream consumed at
different prices as the temperature varies.

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 Graphing Relationships Among
More Than Two Variables
Ceteris Paribus
To plot this relationship we hold the temperature at 21°C.
At $2.75 a scoop, 10 litres are consumed.

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 Graphing Relationships Among
More Than Two Variables
We can also plot this relationship by holding the
temperature constant at 32°C.
At $2.75 a scoop, 20 litres are consumed.

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 Graphing Relationships Among
More Than Two Variables
When temperature is constant at 21°C and the price of ice
cream changes, there is a movement along the blue curve.

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 Graphing Relationships Among
More Than Two Variables
When temperature is constant at 32°C and the price of ice
cream changes, there is a movement along the red curve.

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 Graphing Relationships Among
More Than Two Variables
When Other Things Change
The temperature is held constant along each curve, but in
reality the temperature can change.

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 Graphing Relationships Among
More Than Two Variables
When the temperature rises from 21°C to 32°C,
the curve showing the relationship shifts rightward from
the blue curve to the red curve.

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