Most graphs in economics are based on a grid bordered on the
left and below by two perpendicular lines that show the values of
two variables: x and y. One variable is called the
x-variable and the other is called the
y-variable. The solid horizontal line at the bottom of the
graph is called the horizontal axis or
x-axis, and values of the
x-variable are measured along it. Similarly, the solid
vertical line on the left of the graph is called the vertical axis
or y-axis, and values of the
y-variable are measured along it.
The point where the two axes meet, each variable is equal to zero.
This is known as the origin. As you move rightward from the origin
along the x-axis, values of the x-variable are
positive and increasing. As you move up from the origin along the
y-axis, values of the y-variable are
positive and increasing.
The table below shows the data on the outside temperature and the
number of ice cream cones that a typical vendor can expect to sell
at a football stadium during one game.
X-Variable : |
Y-Variable: |
|
40 |
0 |
A |
60 |
10 |
B |
70 |
30 |
C |
80 |
50 |
D |
90 |
70 |
E |
The first column shows the values of outside temperature (the
x-variable) and the second column shows the number of ice
cream cones sold (the y-variable). Five combinations or
pairs of the two variables are shown, each denoted by A through E
in the third column.
You can plot each of the five points A through E on the graph by
using a pair of numbers: the values that the x-variable
and the y-variable take on for a given point.
For example, at point A, the x-variable takes on the value
of 40 and the y-variable takes on the value of 0.
On the axis below, plot point A (40, 0) and accordingly point B
(60, 10), point C (70, 30), point D (80, 50), point E (90,70). As
you will see, if one of the variables for a point has a value of
zero, it will lie on one of the axes. If the value of x is
zero, the point will lie on the vertical axis (this is known as the
vertical intercept); if the value of
y is zero, the point will lie on the horizontal axis, like
point A (known as the horizontal
intercept).
Most graphs depict a relationship between two variables and
represent a causal relationship, a relationship in which the value
of one variable is determined or influenced by the value of another
variable. In a causal relationship, the determining variable is
called the independent variable, while
the variable it determined is called the dependent
variable.
In our example the number of ice cream cones sold is determined or
influenced by the temperature outside; therefore, temperature is
the independent variable and is measured along the horizontal axis
or x-axis, while number of ice cream cones sold is the
dependent variable and is measured along the vertical axis or
y-axis.
By convention, x represents an independent variable and
lies on the horizontal axis, while y represents a
dependent variable and lies on the vertical axis.
When you connect points A, B, C, D, and E on the graph, such a line
on a graph is called a curve, regardless of whether it is a
straight line or a curved one. If the curve that shows relationship
is a straight line, or linear, the
variables have linear relationship. If
the curve is not a straight line, or is
nonlinear, the variables have a
nonlinear relationship.
The shape and the direction of the curve reveal the general nature
of the relationship. When an increase in one variable is associated
with an increase in the other variable, the two variables are said
to have a positive relationship. When an
increase in one variable is associated with a decrease in the other
variable, the two variables are said to have a negative
relationship. If two variables are independent of
each other, then there is no relationship between two
variables.
The diagram above represents a positive relationship.
The above graph depicts that there is a positive relationship between temperature and number of cones sold. It means that rise in temperature leads to higher number of cones sold. Further, the relationship is polynomial or non linear relationship between the dependent and independent variable. Using polynomial equation of degree 2, it has R square with the value of .9919. It shows that polynomial equation best fits to the given data.
Most graphs in economics are based on a grid bordered on the left and below by...
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