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SESSION 2
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Objectives
Learn how to read and draw tables and graphs. Understand positive and negative relationships of the variables. Understand opportunity cost and trade-off through PPF.
Objectives
Learn
curve. Differentiate between dependent and independent variables. Learn how to measure opportunity cost.
GRAPH It is a diagram showing how two or more sets of data or variables are related to one another. (Cause & Effect) Graphs are essential in economics because, they allow us to analyze economic concepts & examine historical trends.
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Purpose of a Graph
The basic purpose of a graph is to illustrate a relationship between two variables. Example: relationship between grades & study hours.
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TABLE
Possibilities A B C D E F G Study Time
(in Hours)
Grade Points 4.0 (A) 3.5 (B+) 3.0 (B) 2.5 (C+) 2.0 ( C ) 1.5 (D+) 1.0 (D)
16 14 12 10 08 06 04
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Y
G r a d e s 4 3 2 1
X
0 2 4 6 8 10 12 14 16 Hours of study
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TABLE
Possibilities A B C D E F Food 00 10 20 30 40 50 machines 150 120 90 60 30 00
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GRAPH
A
150 120 M a c h i n e s 90 60 B C
30
F 0 10 20 30 40 food
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50
Relationships
Direct Relationship occurs when variables move in the same direction (i.e. they increase or decrease together)
Inverse Relationship occurs when variables move in opposite directions (i.e. one increases as the other decreases)
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Relationships
A positive or direct relationship is said to exist when variables move in the same direction. A negative or inverse relationship is said to exist when variables move in the opposite direction. Variables are independent (unrelated) if one variable remains constant when the other changes.
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Intercepts
Where the graph crosses the x-axis is the x-intercept. It coordinates (a,0).
Where the graph crosses the y-axis is the y-intercept. It coordinates (0,b).
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y-intercept
(0,b) x-intercept (a,0) x
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Direct Relationships
Data Point Community Yearly Rainfall Umbrella Sales
A
B C D
Center City
Moose Haven Blountville Houckton
30 inches
40 inches 50 inches 60 inches
100 units
200 units 300 units 400 units
Echo Ridge
70 inches
500 units
17
Positive Slope
Umbrella Sales
500 400 300 200 100 A B C E
Slope = 100/10 = 10
100 10
10
20
30
40
50
60
18
70
80
Yearly Rainfall
Inverse Relationships
Average January Temperatures
Data Point
City
Coat Sales
F G
50 degrees 40 degrees
H
I J
Snowbound
Cold City Arctica
300 units
400 units 500 units
30 degrees
20 degrees 10 degrees
19
Negative Slope
Sales of woolen coats
500 400 J I
-100
300
10
200 100
G F
10
20
30
40
50
60
20
70
80
January temperatures
Incremental Spending
100 75
0 1 2 3
21
Hours
Nonlinear Relationships
(a) Decreasingly positive slope (b) Decreasingly positive slope
22
When a curve changes position, we say there has been a shift in the curve. A shift represents a new relationship between the variables.
10
20
30
40
50
60
23
70
80
Yearly Rainfall
An Intersection Point
Y At the intersection point of two curves, their values are identical. A
Curve 1
Curve 1
X
24
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Slope of a Line
y
rise y2 y1 m run x2 x1
x2 ,y2
y2
y1
x1 ,y1
y2 y1 x2 x1
x
x1
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x2
Definition of Slope
The slope of the line is its measure of steepness. It measures the rate of change of the line. In all lines the slope is constant, it doesnt change no matter where you are at on the line.
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Slope
tells us how much the X variable changes when the Y variable changes.
If the slope is a positive number, there is a positive relation between X & Y. If the slope is negative, there is a negative relation between X & Y.
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Slope
For a straight line, the slope is calculated as y / x For a nonlinear function, the slope is approximated by calculating the slope of a tangent.
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The values that make up the set of independent values are the domain.
The values that make up the set of dependent values are the range.
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Domain
Correspondence or Relation
Range
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y f x
Name of the function Output Value Member of the Range Dependent Variable These are all equivalent names for the y.
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Input Value Member of the Domain Independent Variable These are all equivalent names for the x.
The production possibilities frontier is a graph showing the various combinations of output that the economy can possibly produce in given available factors of production and technology.
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3,000
2,000
700
1,000
3,000
2,000
700
1,000
3,000
2,200 2,000
600 700
1,000
3,000
2,200 2,000
600 700
1,000
2,200 2,000
600 700
1,000
Good X
41
ECONOMIC GROWTH
Whenever
the production possibility frontier shifts outward, the economy is said to have experienced economic growth.
42
Economic Growth
Economic growth can be caused by an increase in resources.
Good X
43
Economic Growth
Negative Economic growth can be caused by the destruction of resources, such as from disasters or war.
Good X
44
Q.1. Assume that the schedule below describes the production possibilities confronting an economy. Using the information from the table: (a). Draw the PPF. Be sure to label each alternative output combination (A through E). (b). Calculate & illustrate on your graph the opportunity cost of producing one CD player per week. (c ). What is the cost of producing a second CD player? (d). Which point on the curve is the most desired one? How will you find out that point?
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Pianos
CD Players
A B C D E
10 9 7 4 0
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0 1 2 3 4
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