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Econ 100.2
Understanding Graphs
August 16 Discussion Class

I. Graphs
A. A graph is a diagram showing how two or more sets of data or variables are
related to one another.
B. In economics, graphs are widely used because of its interest in analyzing the
relationships among different variables.
C. A variable is an item of interest that can be defined and measured. Common
variables in economics are prices, demand, supply, unemployment, etc.
D. The horizontal line on the graph is the horizontal axis or the X axis while the
vertical line is the vertical axis of the Y axis. At the intersection of X and Y axes
is the point called the origin.
II. Slope
A. The slope of the line represents the change in one variable when another variable
change or “the change in Y per unit of change in X”. Hence, a slope is the
numerical description of the relationship between two variables, say X and Y.
B. Slope of a Straight Line
1. To calculate the slope of a straight line, the “rise over run” concept may be
used where the rise and run represent the vertical and horizontal change,
respectively, between any two points along the line.
2. In the instance where the equation of the line is given, express it in a slope
intercept form, y=mx+b, where the slope is the value of m.
3. Remember that the slope of a straight line is constant across the line.
4. The slope may either be positive or negative. A positive slope implies that
variables move in a similar direction (direct relationship) while a negative
slope implies that variables move in opposite direction (indirect relationship).
5. Steepness is not the same as slope. Two lines having the same slope may
appear to have different levels of steepness due to the scale of the graph.
6. Graphs – refer to board illustrations.
C. Slope of a Curve Line
1. Unlike a straight line, the slope of a curve line is not constant and varies
across the curve.
2. To determine the slope of a particular point along the curve, draw a
(straight) line tangent to such point and determine the slope of such tangent
line similar to how you compute the slope of a straight line.
3. The slope may also be derived using calculus. For example, in the quadratic
function y=ax2+bx+c, the derivative of the function, y’=2ax+b, is the slope of
the curve. Notice that the slope is not constant because of the variable x.
Econ 100.2
Understanding Graphs
August 16 Discussion Class

4. By inspection of the graph, it is easy to determine that at the area where the
curve is rising, the slope is positive while at the area where the curve is
falling, the slope is negative. At the particular point of the curve where a
horizontal tangent line can be drawn, the slope is zero.
5. Graphs – refer to board illustrations.
D. Marginal Value
1. In economics, the term “marginal” simply means additional.
2. For example, when we say marginal cost of production, we mean the
additional cost of producing another unit of product. And when we say
marginal tax on income, we mean the additional tax paid on the next unit of
income.
3. The slope also represents the marginal value since it answers the question –
how much will Y increase if I increase X by one unit?
4. For example, assume that units of production and total cost of production are
graphed along the X and Y axes, respectively. If you increase the unit of
production by one unit, the additional cost (or the marginal value) would just
be equal to the slope of the line.
5. Graphs – refer to board illustrations.
Econ 100.2
Understanding Graphs
August 16 Discussion Class

Exercise

The following problem deviates from the concept of “production” and illustrates a problem on
“consumption”. Nevertheless, the concepts from PPF are still applicable.

Suppose that you are assigned to decide the food for your group’s overnight party. Your group
allotted P3,500 for food and limited you to buy only either pizza or donuts or a combination of
both. A slice of pizza costs P70 while a piece of donut costs P35. This is mathematically
expressed as P=X1/70 and D=X2/35 where X1 and X2 are the amount of peso allotment for
pizza and donuts, respectively, P is the total number of pizza slices and D is the total number of
donuts.

1. Determine the maximum number of pizza slices and donuts that you can buy given the
budget.
2. Express P in terms of D and determine the slope.
3. Draw the PPF (with D on the x-axis and P on the y-axis).
4. Determine the opportunity cost of buying another slice of pizza.
5. Determine the opportunity cost of buying another piece of donut.
6. Determine the relationship between your answers in (4) and (5) with the slope.
7. Suggest a combination of pizza and donut that is (a) efficient, (b) inefficient and (c)
infeasible.
8. Determine the impact of an increase in the food budget on the following: (a) opportunity
cost of pizza and donut, (b) curve/frontier (b) no. of inefficient combinations and (c) no.
of efficient combinations.