Graphs Used in Economics

- Overview

Graphs in economics are used to show relationships, data sets, and changes. They are visual representations of numerical information. Graphs condense detailed numerical information to make it easier to see patterns (such as "trends") in the data.

Some common chart types used in economics include:

• Line chart: Shows the relationship between two variables, one on the horizontal axis and the other on the vertical axis. Line charts are often used to show the relationship between two variables that are both changing.
• Pie Chart: Shows how a whole is divided into parts. The slices of a pie chart show the relative sizes of subgroups.
• Bar chart: Makes it easier to compare parts of one pie chart to another.
• Demand curve: Shows the quantity of a good that consumers are willing to buy at each market price.
• Scatter plot: Shows the value of one variable compared to the value of another variable.
• Production possibilities curve: Shows all the different combinations of output that can be produced given current resources and technology.
• Beveridge Curve: Shows the relationship between unemployment rate and job vacancy rate in an economy.

Other examples of economic charts include product market charts, land market charts, and capital market charts.

Economists use graphs not only as compact and readable representations of data, but also to visually represent relationships and connections; in other words, they function as models.

Therefore, they can be used to answer questions. For example: How do rising interest rates affect home sales? Graphing the results can help clarify the answer.

- To Construct and Interpret Graphs

Many analyzes in economics involve relationships between variables. A variable is simply a quantity whose value can be changed. A graph is a graphical representation of the relationship between two or more variables. 

The key to understanding a graph is knowing the rules that apply to its construction and interpretation. To construct and interpret graphs, you can:

• Learn how graphs show relationships between two or more variables.
• Defines the slope of the curve.
• Distinguish between movement along a curve, translation of a curve, and rotation of a curve.
• Learn what the shape of a curve represents in real life.
• Understand what slope means and how to interpret what high or low slope values mean.
• Explain what each axis represents and the units of measurement involved.
• Define the variables or data points represented on the chart.
• Draw attention to important data points or noteworthy features in a chart, such as peaks, valleys, or sudden changes.
• Read the title, look at the keys, then read the labels.
• Use color coding to ensure your chart is easy to interpret.

You can build graphs using different data displays, such as: Tally charts, bar graphs, picture graphs, line plots.

- Using Graphs and Charts to Show Values of Variables

• Time-series graph: Shows how the value of a variable changes over time. Time is usually placed on the horizontal axis.
  
• Scatter plot: Shows the relationship between two quantitative variables. The value of one variable is displayed on the horizontal axis and the value of the other variable is displayed on the vertical axis.
• Bar graph: Compare different types of data to different groups. The length and height of the bar measure the value of the variable.
• Heat map: Visualize the correlation coefficient between a set of variables. Heatmaps color table cells proportionally based on the intensity of the values between two variables.

In the graph, the independent variable should be plotted on the x-axis and the dependent variable should be plotted on the y-axis.