Macroeconomics Chapter 1 Appendix Notes.docx - Chapter 1 Appendix Graphs of One Variable Information on economic variables is also often displayed in

Macroeconomics Chapter 1 Appendix Notes.docx - Chapter 1...

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Chapter 1 AppendixGraphs of One VariableInformation on economic variables is also often displayed in time-series graphs. Time-series graphs are displayed on a coordinate grid. In a coordinate grid, we can measure the value of one variablealong the vertical axis (or y-axis) and the value of another variable along the horizontal axis (or x-axis). The point where the vertical axis intersects the horizontal axis is called the origin. At the origin, the value of both variables is zero. The points on a coordinate grid represent values of the two variables. In time-series graphs, the height of the line at each date shows the value of the variable measured on the vertical axis. When the scale on the vertical axis is truncated (//), which means it starts at zero then it jumps to a value on the y-axis, omitting some numbers. Changes in a truncated graph are more emphasized than on the whole time-series since the change would seem smaller on the whole time-series graph.Graphs of Two VariablesWe often use graphs to show the relationship between two variables. Suppose you are interested in the relationship between the prices of a pepperoni pizza and the quantity of pizzas sold per week? A graph showing the relationship between the price of a good and the quantity of the good demanded at each price is called a demand curve.(In drawing a demand curve for a good, we have ato hold constant any variables other than price that might affect the willingness of consumers to buy the good.) The below figure shows the data collected on price and quantity. The figure shows a two-dimensional grid on which we measure the price of pizza along the y-axis and the quantity of pizzas sold per week along the x-axis. Each point on the grid represents one of the price and quantity combinations listed in the table. We can connect the points to form the demand curve for pizza. Notice that the scales on both axes in th graph are truncated. In this case, truncating the axes allows the graph to illustrate more clearly the relationship between price and qty by excluding low prices and qtys.Price(dollarsperpizza)Quantity (pizzasperweek)Points$15 50A$14 55B$13 60C$12 65D$11 70E
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Slopes of LinesWith the plotted data above, you may be interested in how much the qty of pizza sold increases as the price decreases. The slope of a line tells us how much the variable we are measuring on the y-axis changes as the variables on the x-axis changes.The slope of this line shows us how responsive consumers are to changes in the price of pizza. The larger the value of the slope (ignoring the negative sign), the steeper the line will be, which indicatesthat not many additional pizzas are sold when the price falls. The smaller the value of the slope, the flatter the line will be, which indicates a greater increase in pizza sold when the price falls.
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