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Econ 104 - 2

# Econ 104 - 2 - Economic theories A theory consists of a set...

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Economic theories a set of definitions about variables Variable = something measured by a number Examples: price and quantity View two variables together to see if they exhibit a relationship. a set of assumptions motives, physical relations, direction of causation a set of predictions (or hypotheses ) A theory consists of:

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Graphing Functional Relations The relationship between two variables may be positive or negative . If the graphs of these relationships are straight lines, the variables are linearly related to each other. Otherwise, variables are said to be non-linearly related.
Correlation Positive correlation means only that X and Y move together. Negative correlation means that X and Y move in opposite directions .

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Expenditure for Personal Computer at Different Annual Incomes Personal Expenditure Annual Income \$1,000 \$2,000 \$3,000 \$4,000 \$10,000 \$20,000 \$30,000 \$40,000
Quantity of Compact Discs Consumers Purchased at Different Prices Price per compact disc Quantity of compact discs \$20 \$15 \$10 25,000,000 50,000,000 75,000,000 \$5 100,000,000

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Econ 104 - 2 - Economic theories A theory consists of a set...

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