eco 1 chapter 1: appendix erkmen giray aslim (erkmengirayaslim.com)erkmengirayaslim.com e-mail:...
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ECO 1CHAPTER 1: APPENDIX
Erkmen Giray ASLIM (erkmengirayaslim.com)
e-mail: [email protected]
08/28/2015
Department of Economics
Lehigh University
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ATTENDANCE QUESTION
• WHAT IS ECONOMICS? EXPLAIN RATIONALITY IN ECONOMICS.
• Resources are few (scarce resources)
• Wants are many (unlimited needs)
• Decisions are made (compare benefits and costs)
(Ex. Studying for exam and/or going out with friends – time constraint)
• Rationality is not solely about making the best decision but rather using all available information – individuals weigh benefits and costs
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USING GRAPHS AND FORMULAS
• Graphs are helpful tools in illustrating important economic concepts. Why?
• Simplifies the idea and makes it concrete to solve real-world problems. • Ex. Street maps to find your way.
A graph is like a street map - it is a simplified version of reality.
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GRAPHS OF ONE VARIABLE
Market shares of different firms - % of industry sales
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GRAPHS OF ONE VARIABLE Time Series Graphs
Coordinate Grid:x-axis (Years) vs. y-axis (Sales – Variable of Interest)
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GRAPHS OF TWO VARIABLES
Plotting Price and Quantity: The Demand Curve
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CALCULATING THE SLOPELinearity: Constant Slope
with constant hamburger prices
Δ
Δ
Change in value on the vertical axis y RiseSlope
Change in value on the horizontal axis x Run
($12 $14) 20.2
(65 55) 10
Δ
Δ
Price of pizzaSlope
Quantity of pizza
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MORE THAN TWO VARIABLES Shift factors of the demand
curve: Change in hamburger prices
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EXAMINING RELATIONSHIPSNegative – Demand Curve
Positive – See example below
• Not all points are exactly on the line. Insert a line that best fits the data.
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EXAMINING RELATIONSHIPS
• It is not always easy to determine the cause and the effect. Be careful with causal statements !
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NONLINEAR GRAPHSSlope is no longer constant
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FORMULASPERCENTAGE CHANGE
• The percentage change is the change in some economic variable, usually from one period to the next, expressed as a percentage.
• Ex. Change in real Gross Domestic Product (GDP) or real GDP growth.
100x GDP
GDPGDP
2003
20032004
100x )periodfirst thein Value
periodfirst thein Value - period second thein Value( change Percentage
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FORMULASAREAS OF A RECTANGLE AND A TRIANGLE
height x baserectangle a of Area
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FORMULASAREAS OF A RECTANGLE AND A TRIANGLE
height x base x trianglea of Area 1/2