ECO 1 CHAPTER 1: APPENDIX Erkmen Giray ASLIM (erkmengirayaslim.com)erkmengirayaslim.com e-mail:...

ECO 1CHAPTER 1: APPENDIX

Erkmen Giray ASLIM (erkmengirayaslim.com)

e-mail: era314@Lehigh.edu

08/28/2015

Department of Economics

Lehigh University

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

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.

GRAPHS OF ONE VARIABLE

Market shares of different firms - % of industry sales

GRAPHS OF ONE VARIABLE Time Series Graphs

Coordinate Grid:x-axis (Years) vs. y-axis (Sales – Variable of Interest)

GRAPHS OF TWO VARIABLES

Plotting Price and Quantity: The Demand Curve

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

MORE THAN TWO VARIABLES Shift factors of the demand

curve: Change in hamburger prices

EXAMINING RELATIONSHIPSNegative – Demand Curve

Positive – See example below

• Not all points are exactly on the line. Insert a line that best fits the data.

EXAMINING RELATIONSHIPS

• It is not always easy to determine the cause and the effect. Be careful with causal statements !

NONLINEAR GRAPHSSlope is no longer constant

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

FORMULASAREAS OF A RECTANGLE AND A TRIANGLE

height x baserectangle a of Area

FORMULASAREAS OF A RECTANGLE AND A TRIANGLE

height x base x trianglea of Area 1/2