Chapter 1 Appendix

Making and Using Graphs

Chp. 1 Appendix 1
 Graph
• A graph enables us to visualize the relationship
between two variables. The variables are
measured along the two axes.

Chp. 1 Appendix 2
 How to make a graph
• Point A shows that when
the temperature is 40
degrees, ice cream
consumption is only 5
gallons a day.
• Point B shows that when
the temperature is 80
degrees, ice cream
consumption jumps to 20
gallons a day.
• Joining the points gives
us a graph or curve which
tells us the relationship
between the two variables.
Chp. 1 Appendix 3
Interpreting Graphs Used in Economic Models
 Positive or direct relationship
 If two variables X and Y move in the same direction
 When X increases (decreases), Y tends to increase
(decrease)
 The curve has a positive slope
 Negative or inverse relationship
 If two variables X and Y move in opposite directions
 When X increases (decreases), Y tends to decrease
(increase)
 The curve has a negative slope

Chp. 1 Appendix 4
 Slope of a curve
• A straight line has a constant or fixed slope i.e.
value of the slope remains constant all along the
line.
• A curved line has changing slope i.e. value of
the slope changes as we move along the line.

Chp. 1 Appendix 5
Slope of a curved line

Chp. 1 Appendix 6
 Relationships Among More Than
Two Variables
• To graph a relationship that involves more than
two variables, we use the ceteris paribus
assumption.
• Ceteris Paribus means “other things remaining
the same.”

Chp. 1 Appendix 7
 Relationships Among More Than
Two Variables
• If both X (temperature) and Z (price) affect Y
(ice cream cons.) then we can draw the graph
only between 2 variables but analyze how
 changing X (temperature) keeping Z (price)
fixed will affect Y (ice cream cons.)
 changing Z (price) keeping X (temperature)
fixed will affect Y (ice cream cons.)

Chp. 1 Appendix 8
 Relationships Among More Than
Two Variables
• If we draw a curve of X (temperature) and
Y (ice cream cons.)
 as X (temperature) changes, Y (ice cream
cons.) will change and we will move along the
XY curve, ceteris paribus (i.e. keeping Z fixed)
 as Z (price) changes, Y (ice cream cons.)
will change but will shift the XY curve, ceteris
paribus (i.e. keeping X fixed)

Chp. 1 Appendix 9
 An example: Temperature and Price of ice
cream affecting ice cream consumption
• We first draw a graph depicting the relationship between
temperature and ice cream consumption

Movement along the curve as Shift of the curve as price

temperature changes changes
Chp. 1 Appendix 10