Page 38 - The Principle of Economics

APPENDIX
GRAPHING: A BRIEF REVIEW
Many of the concepts that economists study can be expressed with numbers—the price of bananas, the quantity of bananas sold, the cost of growing bananas, and so on. Often these economic variables are related to one another. When the price of bananas rises, people buy fewer bananas. One way of expressing the relationships among variables is with graphs.
Graphs serve two purposes. First, when developing economic theories, graphs offer a way to visually express ideas that might be less clear if described with equations or words. Second, when analyzing economic data, graphs provide a way of finding how variables are in fact related in the world. Whether we are working with theory or with data, graphs provide a lens through which a recog- nizable forest emerges from a multitude of trees.
Numerical information can be expressed graphically in many ways, just as a thought can be expressed in words in many ways. A good writer chooses words that will make an argument clear, a description pleasing, or a scene dramatic. An effective economist chooses the type of graph that best suits the purpose at hand.
In this appendix we discuss how economists use graphs to study the mathe- matical relationships among variables. We also discuss some of the pitfalls that can arise in the use of graphical methods.
GRAPHS OF A SINGLE VARIABLE
Three common graphs are shown in Figure 2A-1. The pie chart in panel (a) shows how total income in the United States is divided among the sources of income, in- cluding compensation of employees, corporate profits, and so on. A slice of the pie represents each source’s share of the total. The bar graph in panel (b) compares a measure of average income, called real GDP per person, for four countries. The height of each bar represents the average income in each country. The time-series graph in panel (c) traces the rising productivity in the U.S. business sector over time. The height of the line shows output per hour in each year. You have probably seen similar graphs presented in newspapers and magazines.
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