- A graph is worth 1,000 words.
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Economics is by nature a quantitative science. In many cases we solve problems by finding a numerical answer. Economists determine the unemployment rate, rate of inflation, the growth of the economy, prices, costs, and much more. However, there are also times when it is easier to illustrate a concept using a graph. Understanding graphs requires you to visualize relationships between two economic variables.
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Ceteris Paribus
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Reviewing Tax Revenue
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Real World Examples
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A graph is worth a thousand words
Economists determine the unemployment rate, rate of inflation, the growth of the economy, prices, costs, and much more. However, there are also times when it is easier to illustrate a concept using a graph.
For instance, if you want to show how the rate of inflation has varied through time you could list the annual inflation rates in a lengthy table, or you could illustrate each point as part of a time series in a graph. The graphing of the points makes it possible to quickly determine when inflation was at its highest and lowest points without having to scan through the entire table.
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What goes up must come down
The amount of lemonade sold rises as the temperature increases. When the two variables move together in the same direction, we say that the relationship between the two variables has a positive correlation.
Conversely, if we graph the relationship between hot chocolate sales and temperature we find that they move in opposite directions; as the temperature goes down, hot chocolate consumption goes up. This data reveals a negative correlation between the two variables, hot chocolate and temperature. Since economists are ultimately interested in using models and graphs to make predictions and test theories, the coordinate system makes both positive and negative correlations easy to observe
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