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Economics Graph Meaning
Here you are, you have a vague idea of what an economics graph looks like, but when asked, what are you going to say? Generally speaking, a graph is a visual illustration of numerical information. While simple numbers may be easy to present in numerical format, numbers that are relative to other numbers may be confusing, and graphs help you visualize these relationships. Graphs in economics serve this purpose. It takes very confusing numbers and presents them in the form of patterns. These patterns retain the complete information, yet, they appear summarized, making graphs ideal for simplifying (complicated) things.
An economics graph is a visual illustration of numerical data in economics.
Economists plot graphs on two axes: the vertical axis, also known as the y-axis, and the horizontal axis, also known as the x-axis. Look at figure 1.
Figure 1. Economics Graph, StudySmarter Originals
Importance of Graphs in Economics
The importance of graphs in economics is this; they simplify numerical data to improve readability.
Economics graphs simplify numerical data for easier readability without losing detail.
However, economics graphs are also important because they illustrate the relationships and connections between different variables or concepts in economics. For instance, graphs are important in visualizing the relationship between the price and the quantity of a good. What would take several lines of text to understand can take an instant to understand with the help of a graph.
A well-plotted graph should be able to show the full picture and not just a summary of it.
Types of Economics Graphs
Let's make it clear from the start that you'll most likely be encountering line graphs a majority of the time. However, there are three main types of economics graphs, and they include line, bar, and pie graphs. We'll discuss them here.
The first and most used type of economics graph is the line graph. Line graphs show the relationship between two economic variables plotted on the horizontal and vertical axes. Let's look at the following example.
Kent buys 3 apples for $5 per apple and 5 apples for $2 per apple.
From the simple example above, we can see that the price of apples and the quantity of apples are interacting with each other. So, how do we show you a picture of this? We use the line graph as shown in Figure 2.
Line graphs show relationships between variables in economics.
To interpret a graph, we look at each point and trace its corresponding points on the vertical and horizontal axes.
Figure 2. Line Graph, StudySmarter Originals
Figure 2 shows that the quantity increases when the price decreases. This indicates that Kent is willing to buy more apples when the price goes down. This is a demand curve showing the negative relationship between price and quantity!
Just a pro tip. If it is about price or cost, then keep in mind that money is on the vertical axis, and whatever accompanies the money is on the horizontal axis. Also, we read graphs from the left to the right. So, in this example, the line slopes downward from the left to the right.
The second type of economics graph is the bar graph. This one just compares quantities. For example, you would see the numbers, 1013, 1035, and 1033, representing the number of fish in ponds A, B, and C respectively. The bar graph helps you get the whole picture and shows the differences between the three ponds based on the height of the bars. Look at Figure 3.
Bar graphs compare quantities using the height of the bars.
Figure 3. Bar Graph in Economics, StudySmarter Originals
The third type of economics graph is the pie graph, which is also used to compare quantities. However, this compares quantities as fractions of a single whole.
Pie graphs compare quantities as fractions of a single whole or total.
Let's say there is a small market with 5 blue shirt sellers, 3 green shirt sellers, and 2 pink shirt sellers, making a total of 10 shirt sellers. Look at Figure 4 as an example of a pie graph.
Figure 4. Pie Graph in Economics, StudySmarter Originals
Uses of Economics Graphs
Undoubtedly, graphs are essential in economics. However, what exactly do economists use these graphs for? Surely, they don't just represent fancy designs. Below we will discuss some uses of economics graphs.
- Relationships or connections - graphs in economics illustrate the relationship between two variables, typically, using a line graph. Generally, cost or price is plotted on the vertical axis whereas quantity is plotted on the horizontal axis. A graph showing price and quantity shows the relationship between the price of a good and the quantity of the same good at different points in time. Therefore, economics graphs may also show time progress through shifts in equilibrium over time. Look at Figure 5.
Figure 5. Equilibrium Shift, StudySmarter Originals - Data Sets - graphs in economics shows the relationship between two related concepts. A typical example would be demand and supply. These concepts use the same variables of price and quantity, therefore, they can be plotted on the same graphs to show how they interact with each other. The point where both demand and supply lines intersect is the equilibrium point. Look at Figure 6.
Figure 6. Demand and Supply Graph, StudySmarter Originals - Changes or shifts - graphs in economics also show when a concept completely changes. This is illustrated in the graph as a complete change of position of the line. A shift to the right typically shows an upward change whereas a shift to the left typically shows a downward change. Figure 7 shows a demand curve can shift to the right or left.
Figure 7. Demand Curve Shift, StudySmarter Originals
Creating and Labeling Graphs in Economics
Knowing how to make a line graph is very important as it is used a lot in economics. So, let's explain how to create one.
- First, draw the vertical (x) and horizontal (y) axes and make sure the bottom of the vertical axis meets the left end of the horizontal axis.
- Insert the names/labels for both axes. "Price" typically goes on the vertical axis, whereas "quantity" typically goes on the horizontal axis.
- Indicate the scale of the graph. This is what you mark on the vertical and horizontal axes.
- The scale will guide where your data points will be. The data points are points where corresponding x and y values meet in the data area.
- After making all the data points, trace a continuous line through them to represent the concept you're illustrating (for example, demand curve). Label this curve appropriately. Standard practice is to label the supply curve with "S" and the demand curve with "D".
- If you are creating the graph to illustrate specific points on the graph, label each of the relevant points (for example, the equilibrium point).
- Movements along a curve are movements between data points on the same curve. This shows changes in both price and quantity at the same time.
- A shift in a curve creates a new curve to the left or right of an existing curve. This shows a change in quantity with no change in price (for example, a change in determinants of supply or demand).
Examples of Some Economics Graphs
While there are many graphs you will encounter as you make progress in your economics studies, let's look at three examples of some economics graphs. These are the product market graph, the land market graph, and the capital market graph.
Example 1. the product market graph showing demand and supply. Look at Figure 8.
Example 2. Land market graph showing the supply of land. Look at Figure 9.
Figure 9. Land Market Graph in Economics, StudySmarter Originals
Example 3. Capital market graph showing the demand for capital. Look at Figure 10.
Figure 10. Capital Market Graph in Economics, StudySmarter Originals
These are just examples to show you what graphs generally look like in economics. You have reached the end of this article already! You should read our articles on Market for Capital and Land Market to find out more about these examples!
Graphs in Economics - Key Takeaways
- An economics graph is a visual illustration of numerical data in economics. They simplify numerical data for easier readability without losing detail.
- There are three main types of economics graphs, and they include line, bar, and pie graphs.
- Line graphs are the most used in economics. They show the relationship between two variables in economics.
- Graphs in economics are used to show relationships or connections, data sets (and equilibrium), and changes or shifts.
- Some examples of economics graphs are the product market graph, the land market graph, and the capital market graph.
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Frequently Asked Questions about Graphs in Economics
What is economics graph?
An economics graph is a visual illustration of numerical data in economics.
Why are graphs very important?
Economics graphs simplify numerical data for easier readability and analysis without losing detail.
How do you interpret economics graphs?
To interpret a graph, we look at each point and trace its corresponding points on the vertical and horizontal axes. We then analyze the graph to interpret what it tells us based on economic theory.
What are some types of economic graphs?
The types of economics graphs are the line, bar and pie graphs.
What are the rules for plotting economic graph?
For line graphs, price or cost is on the vertical axis and quantity is on the horizontal axis. Pie graphs show categories as a fraction of a whole. Bar graphs can be plotted in numerous ways, generally with some type of numerical value on the vertical axis.
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