KRUGMAN’S

Economics for AP®

Section 1
Appendix 1
 Government of Sharjah ‫حكومــــــــــة الشارقـــــــــة‬
Sharjah Private Education Authority ‫هيئة الشارقة للتعليم الخاص‬
Al Rushed American Private School ‫مدرسة الرشد األمريكية الخاصة‬

Subject: AP Microeconomics
Week/ Term: Week 7/ Term 1
Standard: 1. C: Identify an economic concept, principle, or model using
quantitative data or calculations. -1ACB
Section 1/ Appendix 1: Basic Economic Concepts/ Graphs in Economics
Objective/Learning Target: By the end of the Session To be able to
(Day 1): Define, Make and interpret a time-series graph, a cross-section
graph, and a scatter diagram
(Day 2): Read, Compare, and create linear & nonlinear relationships
and between relationships that have a maximum & a minimum
(Day 3): Define, calculate, and interpret the slope of a line
Section 1 | Module 4
 • The basic components of a graph & How graphs
illustrate the relationship between variables
• Interpret graphs that display data of economic
models
What You Will • To calculate slope of the given economic models
Learn in this • To analyze/ Interpret the relationships among
two or more variables
Module

Section 1 | Appendix 1
 Can you guess today’s learning objective?

Recap Your
Previous
Knowledge

Section 1 | Module 4
 • Graphs
• Constant vs. Variables
• Independent vs. Dependent Variable
• Economic Models
Keywords • Linear vs. Non-Linear Relationship
• Positive vs. Negative Relationship
• Slope, Negative vs. Positive Slope
• Maximum vs. Minimum Values
• Time-Series Graph
• Bar Graph, Pie Graph, Section 1 | Appendix 1
 Basic Idea
• A graph enables us to visualize the relationship
between two variables.
• To make a graph, set two lines perpendicular to
each other:
• The horizontal line is called the x-axis.
• The vertical line is called the y-axis.
A graph
• The common zero point is called the origin.
Figure shows how to make a graph
1. The horizontal axis (x-axis) measures temperature.
2. The vertical axis (y-axis) measures ice cream
consumption.

Section 1 | Appendix 1
 Interpreting Data Graphs

1. Scatter diagram is a graph of the value of one variable against the

value of another variable.

2. Time-series graph is a graph that measures time on the x-axis and the
variable or variables in which we are interested on the y-axis.
3. Trend is a general tendency for the value of a variable to rise or fall.
4. Cross-section graph is a graph that shows the values of an economic
variable for different groups in a population at a point in time.

Section 1 | Appendix 1
 APPENDIX: MAKING AND USING GRAPHS
Figure shows a scatter diagram.
In 2014 (marked 04), income per
person was $28,990 and expenditure
per person was $27,401. The data for
2010 to 2020 show that as income
increases, expenditure increases.

Section 1 | Appendix 1
 APPENDIX: MAKING AND USING GRAPHS
Figure shows a Time Series Graph.
The graph shows when the price of
coffee was:

• Low or high.
• Rising or falling.
• Changing quickly or slowly.

Section 1 | Appendix 1
  Interpreting Graphs Used in Economic Models
Positive relationship or direct relationship:
relationship between two variables that move
in the same direction.
Figure shows a positive (direct) relationship.
At a speed of 40 MPH, you travel 200 miles in 5
hours—point A.
At a speed of 60 MPH, you travel 300 miles in 5
hours—point B.
As the speed increases, the distance traveled in
5 hours increases proportionately.
Linear relationship: relationship that graphs
as a straight line. Section 1 | Appendix 1
Section 1 | Appendix 1
  Interpreting Graphs Used in Economic Models

Negative relationship or inverse relationship is a

relationship between two variables that move in
opposite directions.
Figure shows a negative (inverse) relationship.
As the time playing tennis increases, the time playing
squash decreases. Because one more hour of tennis
means one hour less of squash, the relationship
between these two variables is described by a straight
line.

Section 1 | Appendix 1
Section 1 | Appendix 1
Figure shows a maximum point.
As the rainfall increases:
1. The curve slopes upward as the yield
rises.
2. The curve is flat at point A, the maximum
yield.
3. Then slopes downward as the yield falls.
Figure shows a minimum point.
As the speed increases:
1. The curve slopes downward as the cost
per mile falls.
2. The curve is flat at point B, the minimum
yield.
• The curve slopes upward as the cost per
mile rises.
Section 1 | Appendix 1
 The Slope of a Relationship
Slope equals 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.
Slope = y ÷ x.
1. When ∆x is 4,
2. ∆y is 3.
3. Slope (∆y/∆x) is 3/4.

Section 1 | Appendix 1
Section 1 | Appendix 1
Section 1 | Appendix 1
 Relationships Among More Than Two Variables

To graph a relationship that involves

more than two variables, we use the
ceteris paribus assumption.
Ceteris Paribus
“other things remaining the same.”
Figure A1.8 shows the relationships
between ice cream consumed, the
temperature, and the price of ice
cream.
Section 1 | Appendix 1
 CHILLI CHALLENGE

TASK 2 TASK 3
TASK 1

Section 1 | Module 4
Exit Slip Refer to the given Graph

Section 1 | Appendix 1
Reflection Time Check your Learning Skills.
Extend
• 2 Things I learned today.
_________________________________
• 1 Question I Still Have………………..
_________________________________
• What confused me the most in today’s
topics
_________________________________
Section 1 | Module 4
Related Links

1. https://quizlet.com/315483330/ap-econ-section-1-appendix-
graphs-in-economics-flash-cards/
2. https://quizizz.com/admin/quiz/652613c8e5045831cda24df1
3. https://www.youtube.com/watch?v=H2k0cKLu1nQ

Section 1 | Appendix 1
 Homework Check your understanding
During the Reagan administration, economist Arthur Laffer argued in favor of lowering income tax rates
in order to increase tax revenues. Like most economists, he believed that at tax rates above a certain
level, tax revenue would fall (because high taxes would discourage some people from working) and
that people would refuse to work at all if they received no income after paying taxes. This relationship
between tax rates and tax revenue is graphically summarized in what is widely known as the Laffer
curve. Plot the Laffer curve relationship, if it has the shape of a nonlinear curve. The following questions
will help you construct the graph.
a. Which is the independent variable? Which is the dependent variable? On which axis do you
therefore measure the income tax rate? On which axis do you measure income tax revenue?
b. What would tax revenue be at a 0% income tax rate?
c. The maximum possible income tax rate is 100%. What would tax revenue be at a 100% income tax
rate?
d. Estimates now show that the maximum point on the Laffer curve is (approximately) at a tax rate of
80%. For tax rates less than 80%, how would you describe the relationship between the tax rate and
tax revenue, and how is this relationship reflected in the slope? For tax rates higher than 80%, how
would you describe the relationship between the tax rate and tax revenue, and how is this
Section 1 | Appendix 1