Graphish: The Language of Graphs

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GraphishThe Language of Graphs

• Chapter 2 Appendix

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Horizontal Number Line
3
Vertical Number Line
4
Coordinate System
B
(1, 20)
A
(4, 5)
1
2 3
4
5
5
From Table to Graph
3.00
2.50
2.00
Price of pens (in dollars)
1.50
1.00
.50
0
1 2 3 4 5 6 7 8
Quantity of pens bought
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Nonlinear Curve
6

5

Price (in dollars)
4
3
2
1
0
10
20
30
40
Quantity
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Slopes of Curves
c
10
Slope 1
9
d
Rise 1
A
8

Slope 4
Run 1
Slope -4
7
Rise 4
6
Rise -4
5
B
4
Run 1
Run 1
e
Slope -0.5
3
L
a
Rise -1
2
Slope 1
Run 2
E
b

1
Rise 1
e
Run 1
0
L
1 2 3 4 5
6 7 8 9 10 11
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Inverse and Direct Relationships
Direct relationship When X goes up, Y goes
up When X goes down, Y goes down
Inverse relationship When X goes up, Y goes
down When X goes down, Y goes up
X
X
Y
Y
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Maximum Point
Slope 0
10
Maximum and Minimum Points
Slope 0
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Presenting Information Visually
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The Importance of Scales
14,000
13,000
Income (in dollars)
Income (in dollars)
12,000
11,000
10,000

1992 1994 1996
1992 1994 1996
(b) Income over time (2)
(a) Income over time (1)
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Chapter Two Definitions

• Land - All natural resources, such as minerals,
  forests, water and unimproved land.
• Labor - The physical and mental talents people
  contribute to the production process.
• Capital - Produced goods that can be used as
  inputs for further production, such as factories,
  machinery, tools, computers and buildings.
• Entrepreneurship - The particular talent that
  some people have for organizing the resources of
  land, labor and capital to produce goods, seek
  new business opportunities, and develop new ways
  of doing things.
• Production - The conversion of labor, land,
  capital, and entrepreneurial ability into goods
  and services.
• Production Possibilities Curve - is a curve
  measuring the maximum combinations of outputs
  that can be obtained from a given number of
  inputs.

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Chapter Two Definitions, Cont.

• Production efficiency - achieving as much output
  as possible from a given amount of inputs or
  resources.
• Inefficiency - getting less output from inputs
  which, if devoted to some other activity, would
  produce more output.
• Principle of increasing marginal opportunity cost
  - in order to get more of something, one must
  give up ever-increasing quantities of something
  else.

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Interdependence and the Gains from Trade

• David Ricardo (1772-1823) and the Principle of
  Comparative Advantage
• Absolute advantage - the comparison among
  producers of a good according to their
  productivity.
• Comparative advantage - the comparison among
  producers of a good according to their
  opportunity cost.

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England may be so circumstanced, that to produce
the cloth may require the labour of 100 men for
one year and if she attempted to make the wine,
it might require the labour of 120 men for the
same time. England would therefore find it her
interest to import wine, and to purchase it by
the exportation of cloth. To produce wine in
Portugal, might require only the labour of 80 men
for one year, and to produce the cloth in the
same country, might require the labour of 90 men
for the same time. It would therefore be
advantageous for her to export wine in exchange
for cloth. Ricardo (1817) as reprinted in
McCulloch (1888, p. 76-77)
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This exchange might even take place,
notwithstanding that the commodity imported by
Portugal could be produced with less labour than
in England. Though she could make the cloth with
the labour of 90 men, she would import it from a
country where it required the labour of 100 men
to produce it, because it would be advantageous
to her rather to employ her capital in the
production of wine, for which she would obtain
more cloth from England, than she could produce
by diverting a portion of her capital from the
cultivation of vines to the manufacture of
cloth.(Ricardo (1817) as reprinted in McCulloch
(1888, p. 76-77).
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Ricardo, the numbers

• Nation Wine Cloth
• England 120 100
• Portugal 80 90
• In Ricardos example, Portugal has an absolute
  advantage with respect to both goods. However,
  Portugals comparative advantage only lies in the
  production of wine.

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Steps in solving Ricardos Problem

• Given Two nations, two commodities, the amount
  of labor each nation requires to produce each
  good.
• Determine
• Who has an absolute advantage?
• Where is each nations comparative advantage?
• What is the cost of producing each good, in terms
  of the other good the nation could produce?
• Given The amount of labor each nation employs,
  the terms of trade each nation faces
  internationally.
• Determine
• What is the maximum amount of each good the
  nation could produce?
• How much of the comparatively disadvantaged good
  could a nation purchase if it trades?
• If you can answer these five questions, you
  understand Ricardos free trade example.

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Example Part (1)

• Nation Wine Fish
• Russia 50 10
• France 60 300
• Who has an absolute advantage? Russia in both
  goods.
• What is each nations comparative advantage?
• Russia is better at Fish production (relative to
  wine production).
• France is better at Wine production (relative to
  fish production).
• What is the cost of producing each good, in terms
  of the other good the nation could produce?
• Russia needs to give up five units of Fish to
  produce one unit of wine, because one unit of
  wine requires 50 units of labor. 50 units of
  Russian labor would produce 5 units of Fish.
• France needs to give up five units of Wine to
  produce one unit of Fish, because one unit of
  Fish requires 300 units of labor. 300 units of
  French labor would produce 5 units of Wine.

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Example Part (2)

• If Russia has 6,000 units of labor, how much Wine
  and Fish could Russia produce? If Russia
  produced no Wine, it could produce 600 Fish. If
  Russia produced no Fish, it could produce 120
  units of Wine.
• If France has 6,000 units of labor, how much Wine
  and Fish could the French produce? If France
  produced no Wine, it could produce 20 units of
  Fish. If France produced no Fish, it could
  produce 100 units of Wine.
• Given 2 units of Fish trade for 1 unit of Wine.
• How much more Wine can Russia consume if trades
  freely with France? If Russia trades it produces
  600 units of Fish. If two units of Fish trade
  for 1 unit of Wine, 600 units of Fish trade for
  300 units of Wine. Without trade Russia can only
  have 120 units of Wine. So with trade Russia
  could have 180 more units of Wine.

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Ricardos conclusions

• Comparative advantage, not absolute advantage,
  determines the pattern of trade.
• Free trade benefits every nation by expanding
  each nations consumption possibilities beyond
  its production possibilities.
• NOTE Free trade benefits every nation but not
  everybody in every nation.

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Chapter Two Definitions, Cont.

• Feudalism - an economic system in which
  traditions rule.
• Mercantilism - an economic system in which the
  government determines the allocation of resources
  by assigning the rights to certain economic
  activities.
• Capitalism -an economic system based upon private
  property and the market in which, in principle,
  individuals answer the basic questions of the
  economic system.
• Socialism (according to Marx) - an economic
  system where the incentive system of capitalism
  remains in place, but the workers own the means
  of production.
• Socialism (as it is practiced) - an economic
  system where the four economic questions are
  primarily addressed by government actions, not
  unregulated market forces.
• Mixed Capitalism - an economics system
  characterized by largely private ownership of the
  factors of production, market allocation of
  resources, and decentralized decision making.
  Most economic activities take place in the
  private sector in this system, but government
  plays a substantial economic and regulatory role.

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The U.S. Economy
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Economic Actors

• Households - group of individuals living together
  and making joint decisions.
• Consumer sovereignty - the consumers wishes
  dictate what will be produced.
• Business - private producing units in our
  society.
• Profit Total Revenue - Total Cost
• Sole proprietorships - businesses that have only
  one owner.
• Partnerships - businesses with two or more
  owners.
• Corporations - businesses that are treated as a
  person, that are legally owned by stockholders,
  who are not liable for the actions of the firms.

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Forms of Business
By Numbers
By Receipts
Sole proprietorships (72)
Corporations (86)
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Income of State and Local Government
Intergovernmental (22)
Property tax (20)
Other (20)
Individual and corporate income tax (20)
Sales or gross receipts (20)
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Expenditures of State and Local Government
Central government administration (10)
Transportation (7)
Other (21)
Civilian safety (14)
Health and Hospitals (21)
Public welfare (9)
Education (37)
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Income of the Federal Government
Social security taxes and contributions (30)
Individual income taxes (50)
Corporate income taxes (8)
Excise taxes and other (6)
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Expenditures of the Federal Government
Health and education (26)
Interest (13)
Other (11)
National defense (18)
Income security (33)