1.08 – HDW work with graphs in
economics
HW Review
• Do Now
Normal Line Graphs
• Horizontal axis – independent variable
• Vertical axis – dependent variable
• Read graph from LEFT to RIGHT (like a book!)
The Main Graph in Econ
• Supply and Demand Curves
• Read differently
How much would you pay for…
• An “A” on the next test?
Predicting prices
• Who would benefit from being able to predict
changes in prices?
– Buyers
– Sellers
– Speculators
• Who would benefit from being able to predict
changes in quantities sold?
– Sellers
We will begin by analyzing
competitive markets
• -- markets in which there are many buyers and many
sellers of the same product or service.
• The key feature is that no individual’s actions have a
noticeable effect on the price at which a good or
service is sold.
Later in the course we will study other types of market
structures such as oligopolies, monopolies and
monopolistic competition.
The foundation of market analysis:
Supply and demand model
• -- model of how a competitive market works
• This model will help us answer questions such
as “How will an increase in gas price effect the
price and quantity of SUVs sold?”
The demand Schedule
• List of prices of a good/service and associated quantities
demanded at those prices.
• Using the data in the demand schedule, a Demand Curve is
a graph that depicts the points in the demand schedule.
• What type of relationship do you expect between price and
quantity?
– INVERSE!!!!! (negative correlation)
The law of demand
• A higher price of a good, other things being
equal, leads people to demand a smaller
quantity of the good.
A change from one point on this curve to another
point on this curve is called a change in quantity
demanded.
Figure 3-1 The Demand Schedule and the Demand Curve
Krugman and Wells: Microeconomics
Copyright © 2005 by Worth Publishers
• Talking about reading a demand curve
• Use economic handbook visuals
• Discuss how it is a change in price that drives
everything.
• Interpret points on the demand curve
• A change in price changes “quantity
demanded”
• Maybe use grebes
Issues in Interpreting Graphs
• Features in Graph Construction:
– Consistent Scale
– Area Principle
– Truncated Scale
– The Effect of Scale (size of increments can affect visual
interpretation of data)