Appendix to Chapter

Graphs and Their Meaning horizontal axis The "left-right" or "westeast" axis on a graph or grid.

vertical axis The "up-down" or "north-south" axis on a graph or grid.

If you glance quickly through this text, you will find many graphs. Some seem simple, while others seem more complicated. All are important. They are included to help you visualize and understand economic relationships. Physicists and chemists sometimes illustrate their theories by building arrangements of multicoloured wooden balls, representing protons, neutrons, and electrons, which are held in proper relation to one another by wires or sticks. Economists most often use graphs to illustrate their models. By understanding these "pictures," you can more readily comprehend economic relationships. Most of our principles or models explain relationships between just two sets of economic facts, which can be conveniently represented with two-dimensional graphs.

Construction of a Graph

A graph is a visual representation of the relationship between two variables. Table A1-1 is a hypothetical illustration showing the relationship between income and consumption for the economy as a whole. Without even studying economics, we would intuitively expect that people would buy more goods and services when their incomes go up. Thus we are not surprised to find in Table A1-1 that total consumption in the economy increases as total income increases.

The information in Table A1-1 is expressed graphically in Figure A1-1. Here is how it is done: We want to show visually or graphically how consumption changes as income changes. Since income is the determining factor, we represent it on the horizontal axis of the graph, as is customary. And because consumption depends on income, we represent it on the vertical axis of the graph, as is also customary. Actually, what we are doing is representing the inde endent variable on the horizontal axis and the dependent variable on the vertical axis.

Now we arrange the vertical and horizontal scales of the graph to reflect the ranges of values of consumption and income, and we mark the scales in convenient increments. As you can see, the values marked on the scales cover all the values in Table A1-1. The increments on both scales are $100 for approximately each 1.25 centimetres.

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