3 Supply and Demand

• Most people think of trade as a zero sum game in which one side wins and the other side loses.

• The view is that the rich countries are winners and the poor countries arelosers.
• Some people think of trade as the redistribution of goods.

• In this chapter, we will see that trade is not an unbalanced equation.
• We will look at how economists use the scientific method to explain the world we live in.
• We need to explore the more nuanced reasons why trade creates value.

• Children trade lunch items to get something better.

• Calculating assumptions to simplify reality is what economists do to create these models.
• The models help economists understand the relationships that drive economic decisions.

• The show is dedicated to testing myths.
• The myth is confirmed at the end of each episode.
• Thirty-six people died.

• Some people claim that the fire was caused by the painted fabric in which the zeppelin was wrapped.

• The hydrogen used to give the lift was thought to be the cause of the disaster.

• The first model had a nonflammable skin.
• The second model used a replica of the original fabric but did not contain hydrogen.
• The burn times of the models were compared with the original footage of the disaster.

• They "busted" the myth that the paint was to blame after examining the results.
• The model with the hydrogen burned twice as fast as the one without it.
• It seems reasonable to conclude that the disaster was caused by hydrogen.

• The scientific method is used by economists to answer questions about observable phenomena and to explain how the world works.
• The first step in the scientific method is to observe a phenomenon that interests them.

• They build a model to test the hypothesis.

• Experiments are designed to test how well the model works.
• They can verify, revise, or refute the hypothesis after collecting data from the experiments.

• The economist's laboratory is the world around us, from the economy as a whole to the decisions made by firms and individuals.
• Experiments can't always be designed to test hypotheses.
• They need to gather historical data or wait for real world events to take place to better understand the economy.

• Economists try to approach their subject with objectivity.
• They don't let personal beliefs and values influence the outcome of their analysis.
• Positive analysis is used by economists to be objective.

• A statement like "An unemployed an opinion that cannot worker should receive financial assistance to help make ends meet" is a test of opinion.

• Financial assistance to the unemployed provides the wrong incentives.
• Workers may end up spending more time unemployed if the financial assistance is not enough to meet basic needs.
• Both opinions are based on values, beliefs, and opinions.

• Positive analysis is a concern for economists.
• Policymakers, voters, and philosophers are in the realm of normative statements.
• If the unemployment rate goes up, economists try to understand the situation.
• Model Building and Gains from Trade should receive unemployment assistance.
• Maintaining a positive framework is important for economic analysis because it allows decision makers to observe the facts objectively.

• Learning how to analyze complex issues and problems is what thinking like an economist is all about.
• International trade, Social Security, job loss, and inflation are some of the complicated economic topics.

• Economic models, which are simplified versions of reality, are used by economists to analyze these phenomena and to determine the effect of various government policy options related to them.
• We use models to analyze the economy.

• A good model should be easy to use and accurate.
• One of the most famous models in history was designed by the Wright brothers.
• Before the Wright brothers made their famous first flight in 1903, they built a small wind tunnel out of a wooden box.

• They put a device inside the box to measure the Wright brothers' wind tunnel dynamics.
• The lifting properties of each design were determined by the brothers after they tested over 200 different wing configurations.
• The Wright brothers were able to determine the best type of wing to use using the data they collected.

• Economic models help us to predict the effects of changes in prices, production processes, and government policies.

• The Wright brothers were able to experiment with different wing designs because of a controlled setting.
• They could test the change in design by only changing one element.

• If the Wright builds economic models.
• It brothers changed many design elements at the same time, so economists wouldn't have a way of knowing which change was responsible for improved performance.
• Keeping everything else constant.

• The simplified version of real ity is what economists start with.

• The economic model we study in Chapter 3 is supply and demand.

• Factors that we can control and factors that we can't account for in models.
• For being trolled.

• It was in a model.

• The first flight was difficult due to the wind and other factors.

• The process of building an economic model is very similar to that used by Orville.
• We need to be aware of three factors: what we include in the model, the assumptions we make when choosing what to include in the model, and the outside conditions that can affect the model's performance.
• The design of the first airplane was within the control of the Wright brothers.
• The weather was an external factor because the Wright brothers couldn't control it.
• An airplane model that flies perfectly in a wind tunnel may not fly reliably when exposed to the elements because the world is a complex place.
• The test becomes more realistic if we add more variables that we can't control.

• We need to choose which variables to include in the model.
• We would like to include all the important variables inside the model and exclude the unimportant variables.
• Using a model that contains faulty assumptions can lead to spectacular failures.
• The financial crisis began in December of 2007.

• The faulty assumption that real estate prices will always rise caused banks to sell and repackage mortgage backed investments in the years leading up to the crisis.
• In a world where real estate prices were rising annually, this assumption seemed reasonable.
• The assumption turned out to be false in the late 1990s.
• Some investors prices fell in the 2000s.
• The entire financial market believed that real estate was on the edge of collapse because of one faulty assumption.

• Which statements are positive and which are not?
• Arkansas winters are too cold.

• Five serves of real value of money is what you should eat.

• 0.7 British day is the current exchange rate.
• Is it pound per U.S. dollar?

• People save 15% on insurance when they switch to Geico.

• Everyone should have a life insurance policy.

• Duke University graduates earn more than University of Virginia graduates.

• The top educational institution in the country is Harvard University.

• The average temperature in Fargo in January is 56 degrees.

• The phrase "too cold" is a matter of opinion.
• This is not a normal statement.

• While working at a bank, the word "should" indicates an opinion.
• This is not a normal statement.

• This is positive.
• You can check the current exchange rate to see if the statement is true or false.

• This claim was made in one of the commercials.
• It's a positive statement because it's a testable claim.
• If you had the data from Geico, you could determine if the statement was correct or not.

• This sounds like a very sensible statement.
• The word "ought" makes it an opinion.
• This is not a normal statement.

• You can see which graduates earn more.

• This is positive.

• Some national rankings show that this is true, but others do not.
• It is not possible to identify a definitive "top" school because of the different rankings.
• This is not a normal statement.

• This is a positive statement.
• In January, North Dakota is very cold.
• Climate data can be used to verify the statement.

• We need to learn our first economic model.
• You might want to review the appendix at the end of the chapter.
• Graphs show the relationship between two variables.
• Learning economics depends on your ability to read and understand graphs.

• We learned in Chapter 1 that economics is about trade offs.
• You may have to decide if you should spend more time studying or hanging out with your friends.
• A society has to allocate its resources.
• The decision to build new roads will result in less money for new schools.

• We can model trade- offs more clearly with these assumptions.

• Imagine a society that only produces pizza and chicken wings.
• This approach helps us understand trade- offs by keeping the analysis simple, since a real economy produces millions of different goods and services.

• The production possibilities frontier is shown in Figure 2.1.
• The total resources and the number of people in this society are fixed.
• The economy can produce 100 pizzas and 0 wings if it uses all of its resources.
• It can make 300 wings and 0 pizzas if it uses all of its resources.
• The production possibilities frontier has two outcomes represented by points A and B.
• Humans enjoy variety and it is unlikely that the society will choose either of these extreme outcomes.

• The economy of our society will end up with a combination of pizza and wings if we decide to spend some of our resources on pizza and wings.
• The society would use its resources to make 70 pizzas and 90 wings.
• The combination would be 50 pizzas and 150 wings.
• If the society uses all of its resources efficiently, each point along the production possibilities frontier represents a possible set of outcomes.

• Some combinations of pizza and wings can't be made because there aren't enough resources.
• Our society can enjoy point E, but it can't produce the level of output we want.
• The points beyond the production possibilities frontier are not feasible with the available resources and technology.

• All of the society's resources are being used in the most efficient way possible at any combination of wings and pizzas.
• There are points located in the shaded ing wings.

• The points represent outcomes inside the production possibilities frontier and indicate inefficient use of the society's resources.
• Consider the labor resource.
• Pizza and wings will not be as efficient if employees spend a lot of time at work on the Web.
• If workers use all of their time efficiently, they will produce an efficient amount of pizza and wings, and output will be somewhere on the PPF.

• The only way to get more of one good is to accept less of another.
• A society may prefer one point over the other.
• If wings suddenly become more popular, the movement from point C to point D will represent a desirable trade off.
• 20 fewer pizzas will be produced but 60 additional wings will be added.

• The opportunity cost of producing one good instead of the other is represented by the trade- offs that occur along the production possibilities frontier.

• The opportunity cost of producing more wings is shown in Figure 2.1, when society moves from point C to point D. The movement from point D to point C has an opportunity cost.

• We have assumed a constant trade off between the number of pizzas and the number of wings.
• Not all resources in our society can be used to make pizza and wings.

• Some people are good at making pizza, while others are not.
• Both types of workers will be used when the society tries to make as many pizzas as possible.
• To get more pizzas, the society will have to use less skilled workers.
• Pizza production won't expand at a constant rate.

• Production does not expand at a constant rate because resources are not perfect.
• To produce 20 extra pizzas, the society can move from point D to point C. To move from point D to point C requires giving up 30 wings.
• There is an opportunity cost of 30 wings for moving from point D to point C.

• The society will have to use less skilled workers to make more pizzas.
• The cost of making an extra 20 pizzas rises from 30 wings between points D and C to 80 wings between points B and A as we move up the PPF.

• Suppose the society decides it wants more pizzas and moves from point C to point B with 70 pizzas.

• If the society decides that 70 pizzas are not enough, it can expand pizza production from point A to point B.
• The society has given up 80 wings.
• The opportunity cost of producing an extra 20 pizzas rises from 30 wings to 80 wings as we move up the PPF from point D to point A.
• The increased trade- off necessary to produce more pizzas is reflected in the higher opportunity cost.

• Changes in relative cost mean that a society faces a good rises as a society significant trade off if it tries to produce more of it.

• We have modeled the production possibilities frontier based on the resources available to society.
• Most societies want to create economic growth.

• The production possibilities frontier can be used to explore economic growth.
• If our society develops a new technology that increases efficiency, we can ask what will happen to the PPF.
• If a new pizza assembly line improves the pizza production process and does not require the use of more resources, it simply redeploys the resources that already exist.
• The society would be able to make more pizza with the same number of workers.
• It would allow the same amount of pizza to be made with fewer workers.
• The society has expanded its resources.

• It is now possible to make 120 pizzas using the same number of workers and the same amount of time that it took to make 100 pizzas.
• The ability to produce wings has not changed despite the new pizza- making technology.
• The society can now move from point A to point B, where it can produce more goods such as pizzas and wings.

• The assembly line allows a re deployment of labor that increases the production of wings.
• Point B is possible because of improvements in technology.

• If the population grows, the production possibilities frontier will expand.
• More workers are needed to make pizza and wings.

• The society can make more pizzas and wings with more workers.

• More pizzas can be made.

• The enhanced pizza- making capacity makes it possible to produce more wings at the same time.

• The shift makes point C possible.

• You can base your answers on the ppF.
• There is a possible amount of cars and bicycles that can be sold.

• The curve from point A to point B shows the cost of producing more bikes.

• If society makes a lot of bicycles and cars.

• The entire PPF will shift if an improved process for manufacturing cars is introduced.

• The cost of producing more cars is shown by moving from point A to point B.

• The PPF is the maximum that can be produced when all resources are being used efficiently.
• Some people who could help produce more cars or bicycles would not be working because of unemployment.

• The PPF will not shift upward along the bicycle axis.

• The frontier has been pushed out by the extra workers, not just one end of it.

• Adding resources and technology make an economy more efficient.
• There are three ways to create gains for society.
• Determining what to specialize in is an important part of one's work.
• Every worker, business, or country is good at what they do.

• You should learn about information technology.
• An employer will hire you for your specialized skills if you have a certificate or degree.
• Your salary is determined by your information technology skills.
• You can use your salary to purchase goods and services that you want and that you don't know how to make yourself.

• Gains from trade can be made if you specialize and exchange your skilled expertise with others.

• We need to return to our good economy.
• We'll assume that the economy has only two people.
• One person is better at making pizzas while the other is better at making wings.
• The potential gains from trade are clear.
• Each person will specialize in what he or she is better at producing and then will trade to acquire some of the good produced by the other person.

• The production potential of the two people in our econ omy is shown in Figure 2.5.

• Mike Piazza can make 24 pizzas, 72 wings, and produce 24 pizzas all at the same time.

• The amount of pizza and wings produced by each person is shown in the graphs.
• The data in the table at the top of the figure is used to draw the production possibilities frontier.

• There is a constant trade off between producing pizza and wings.
• The trade off between making pizza and making wings is fixed at 60: 120, or 1:2.
• Mike makes 24 pizzas for every 72 wings.
• The trade off between producing pizza and producing wings is fixed at 24:72.

• Let's assume that each of them wants to make an equal number of pizzas and wings.
• Mike makes 18 pizzas and 18 wings, while Debra makes 40 pizzas and 40 wings.
• Since she is more productive, she produces more food.
• If she can't trade with Mike, she will make 40 pizzas and 40 wings.

• At first glance, it would appear that she should work alone.

• Table 2.1 compares production with and without trade.

• Without trade, Mike and Deb have a combined production of 58 units of pizza and wings.
• Her production is 60 units when she makes only pizza.
• In this case, her individual pizza output is greater than the combined output of 58 pizzas.

• 2 additional pizzas and 14 additional wings have been produc tioned.

• It leads to greater output.
• They would like to eat pizza and wings.
• If Mike gets 19 pizzas in exchange for 47 wings, he will be better off by 1 pizza and 7 wings.

• She produces 40 pizzas and 40 wings if she doesn't specialize.
• She can have 41 pizzas and 47 wings if she trades with Mike.
• He will have 72 wings if he produces only wings.
• He makes 18 pizzas and 18 wings if he doesn't specialize.
• He can have 19 pizzas and 25 wings if he trades with her.
• Even though she has an advantage in making pizza and wings, she is better off trading with Mike.
• The result is amazing because of specialization.
• When they spend their time on what they do best, they are able to produce more and divide the gain.

• Workers enjoy gains from trade if they are specialized.

• The concept of opportunity cost gives us a second way of proving the principle that trade creates value.
• She will produce 40 pizzas and 40 wings.

• She will have 41 pizzas and 47 wings if she trades with Mike.

• He can have 19 pizzas and 25 wings if he trades with her.

• If you look at Table 2.2, you can see that in order to make 1 more pizza, she must give up making 2 wings.
• The opportunity cost of a pizza is 2 wings.
• The opportunity cost of one wing is 12 pizzas.
• In Mike's case, the production of 3 wings is increased by each pizza he produces.
• The cost for him to produce 1 pizza is 3 wings.
• He gives up 13 pizza when he produces 1 wing.

• The ability to make a good at a lower opportunity cost is a comparative advantage.

• In other words, she has an advantage in producing pizzas.
• There is no comparative advantage in the production of wings.
• She would have to give up 12 pizzas to make 1 wing.

• Each time he makes a wing, he makes 3 pizzas.
• The opportunity cost for produc ing wings is higher for Mike.
• Mike has an advantage in producing wings because he is a low cost producer.
• She is better at making pizzas and wings than anyone else.
• She can't have a comparative advantage in making both goods.

• The concept of opportunity cost helps us understand why people produce more.
• Mike gives up 3 wings for every pizza, but his opportunity cost of producing pizzas is less.
• The person should be able to produce pizzas.
• If you want to double check, consider who should make the wings.
• She gives up 12 pizza for every wing she makes, while Mike gives up 13 pizza for every wing he makes.
• Mike should make wings.
• Their combined output is 60 pizzas and 72 wings.

• If they specialize and trade, they will do better.
• We need to return to opportunity cost to answer this question.
• Think of the process you probably went through when you traded lunch food with friends.
• Maybe you wanted a friend's apple and he wanted a few of your cookies.
• If you agreed to trade three cookies for an apple, it would benefit both of you because your friend valued his cookies more than yours.

• In our example, Mike and Deb will benefit from exchanging a good at a lower price than the opportunity cost of producing it.
• The opportunity cost is 1 pizza per 2 wings.

• She ends up with more pizza and wings than she did without trade.
• Mike has an opportunity cost of 1 pizza per 3 wings.
• The amount of trade must fall between Mike's opportunity cost of 1:3 and the opportunity cost of 1:2 for it to be mutually beneficial.
• The trade will not be attractive to both parties, so either Mike or Debra will be better off without it.
• In the example shown in Table 2.3, there are 19 pizzas and 47 wings.
• The advantage to both of them is that the ratio of 19:47 falls between the opportunity costs of both of them.

• The man is 6'8" and 260 pounds.
• You might think that he would move his household on his own.

• Despite the fact that he could probably do the work of two ordinary people, he kept playing basketball and hiring people.
• Let's see if this was a good decision.

• There is an advantage to playing basketball and moving furniture.
• An absolute advantage doesn't mean that he should do both tasks himself.
• He could have asked for a few days to pack up and move, but he wouldn't have been able to work with his new team.

• When you are paid millions of dollars to play a game, the time spent moving is time lost practicing or playing basketball, which incurs a substantial opportunity cost.

• Imagine that you are going to visit your family in Chicago.
• You can either take a train or plane.

• Learning to value time is the key to answering the question.
• The easiest way to calculate the cost savings of taking the train is to compare it with the time saved on the plane.

• A person who takes the train can save $100, but it will take 20 hours to do so.
• The savings would be at an hourly rate of $5 per hour.

• You will be indifferent between plane and train travel if you value your time at $5 an hour.

• You should take the plane if your time is worth more than $5 an hour.
• You should take the train if your time is worth less than $5 an hour.

• This approach to calculating opportunity cost gives us a more realistic answer than simply observing ticket prices.

• Business travelers use opportunity cost to save time.
• Good economists will look at the full opportunity cost of their decisions, which includes both the financials and the cost of time.

• We did not discuss any of the possible side issues such as the fear of flying, sleeping arrangements on the train, or anything else that might be relevant to someone making the decision.

• Saving one life doesn't mean sacrificing another.

• All three of Ryan's brothers are dead.

• The army rationalizes the decision to try to save Private Ryan.

• A patrol led by Captain Miller loses many good men up being the lives that the patrol loses-- lives that in the process, and those who remain begin to doubt otherwise could have been pursuing a strategic mili the mission.
• The sergeant was told to tary objective by Captain Miller.
• "This Ryan better be worth it" is what the entire film is about.
• He needs to go home and pay the opportunity cost.

• We were living in the moment when we looked at our wings- pizza or short- term wants.
• The short society as a whole must weigh the benefits available today against those available tomorrow.

• Consumers can adjust their behavior in the short run.
• Consumers have time to wants and limitations to fully adjust to market conditions in the long run.

• Life's important decisions are about the long run.
• Consumers have time to fully adjust to market where to live, who to marry, and where to go.

• It is necessary to give up something you want to buy today in order to have more money available in the future.
• We make decisions that reflect this tension between today and tomorrow, such as eating a large piece of cake, taking a nap, buying a jet ski or purchasing stocks in the stock market.
• The decisions are made between the present and the future.

• The trade off between the present and the future is evident in the tension between what we consume now and what we plan to consume later.

• These goods help us meet our needs.

• Capital goods are everywhere.
• Capital goods include roads, factories, trucks, and computers.

• Capital is a form of education.

• Every investment in capi tal goods has an opportunity cost because of the scarcity of resources.
• You can't use the money to travel to Study now if you buy a new laptop.

• A firm that decides to invest in a new factory to expand future production is unable to use the money to hire more workers now.

• Economic growth depends on the decision between consuming or investing.

• When a society chooses point A in the short run, very few capital goods are created.
• Capital goods are needed to enhance future growth, which is why the PPF2 expands slightly.

• They have a choice about what to do next.

• His partners are skeptical.
• None of the three have any money.

• The five silver coins are not very good with the lance.

• For them to win more tournaments, they will have to invest a lot of money in training and if they can compete at the highest level.

• Investing now will allow them to make consumer goods in the short run and invest in production possibilities that will allow them to make capital goods in the long run.
• Each of them will have a better life in the long run because of the peasants' choice.

• The long- run production possibilities curve only expands a small amount because new capital is a necessary ingredient for economic growth in the future.

• The long- run production possibilities curve expands with investment in new capital.

• The trade off is between spending today and investing tomorrow.
• Emerging global economic powers like China and India are investing in the future.
• The citizens of these countries have invested more in capital goods over the last 20 years than their counterparts in North America and Europe.
• China and India have higher economic growth rates than other countries.
• Your friend is fond of saying he will study later.
• He often doesn't get the grades he wanted because he doesn't study enough.

• Your friend doesn't understand long- run trade- offs.

• You can start by reminding him that each decision has consequences at the margin and later in life.

• Your friend's reasoning is correct.
• It's almost irrelevant how well he does on one exam over four years.
• Many poor exam scores have a cumulative effect on the semester.

• At this stage of economic development, China prefers point B, but point B is not necessarily better than point A.
• Many developed countries, such as the United States, take a more balanced approach to weighing current needs against future growth, as China is sacrificing the present for a better future.
• Chinese workers typically work longer hours and have higher savings rates than their U.S. counterparts.

• The U.S. workers have more leisure time and disposable income that leads to higher rates of consumption.

• You know the answer after reading this chapter.
• There is a misconception that every trade results in a winner and a loser.

• The production possibilities tier is the first model we have developed.
• The benefits of trade and ways to grow the economy are shown in this model.
• When producers specialize, they focus their efforts on those goods and services for which they have the lowest opportunity cost and trade with others who are good at making something else.
• Each producer must find its comparative advantage to have something valuable to trade.

• We will look at the supply and demand model in the next chapter.
• The model is different, but the result is the same.

• The A380 can hold more than 800 observations.

• The economy is influenced by the world potential market for copying cal change.

• There is no reason anyone would want to pay less than $100.

• Over 80% of American households have a new technology that would affect their computer use.

• Future versions of new products will be substantially better according to a Boeing engineer in 1933.

• Economists use real data to test their hypotheses.
• The world around us is in the economist's laboratory.

• A good model should be easy to use.
• A model is harder to understand when it involves many variables.

• Maintaining a positive framework is important for economic analysis because it allows decision makers to observe the facts objectively.

• A production possibilities frontier is a model that shows the combinations of outputs that a society can produce if all of its resources are being used efficiently.
• When resources are fully utilized and potential output is maximized, an outcome is efficient.
• The PPF can be used to illustrate trade- offs and to explain opportunity costs and the role of additional resources and technology in creating economic growth.

• Society is better off if individuals and firms specialize and trade on the basis of comparative advantage.

• Parties that are better at producing goods and services than their potential trading partners still benefit from trade.
• They can trade what they produce for other goods and services that they are less skilled at making.

• All societies face a trade off between consumption and economic growth.
• Capital goods help spur economic growth.
• Because capital goods are not consumed in the short run, society must be willing to sacrifice how well it lives today in order to have more later.

• A production possibilities frontier curve can be drawn.

• This would be the case if you gave an example of two goods.

• The two men might specialize in Italy.
• They are artists.
• The productive artist should be Michael.

• According to the table, a student can make 6 sculptures a day but only make 2 paintings for the exams.

• Defend your answer.

• My dog is 75 pounds.

• You should take your dog for a checkup every year.

• Dogs are cuter than chihuahuas.

• It's a good idea to have leash laws for dogs.
• They reduce injuries.

• How do you decide to invest in a college?
• You can make a pie with pro bread for 4 hours.

• There is a comparative advantage in the production of potatoes.

• A politician will tell you about an apple pie.
• What range of ratios for solar power and wind power are available if Joey and Rachel decide to build more production facilities and specialize in production.

• If you wanted to work on a production concert, where would you go?
• You can't see both in the same evening.
• Everyone pitches in and works love Taylor Swift and would pay more for it than usual.
• $200 is spent to see her perform.

• A friend has just offered you a free ticket to read the poem "The Road Not Taken" by Rob.

• 2:1 and 10:5 are the same ratio.

• 3 sculptures for each painting is the opportunity cost for Angelo.

• He can make 6 sculptures if he devotes all of his time to them.

• The ratio is the same as 3:1.

• We need to compare Michael's and Angelo's strengths.

• It is not a straight line.

• The student's is the low-opportunity- cost producer of grade in history, falling from 96 to 76 in history.

• Normative Angelo should sculpt.
• If Angelo does the sculptures, Michael will shift the entire PPF out along the concentrate on the paintings.
• This is not the carrot axis.

• If you go to the Maroon 5 you can use the land to produce carrots, but you would have to give up planting potatoes.
• If you want to see Taylor Swift at a concert, you'll have to pay a fee, but if you want to see the Maroon 5 at a concert, you'll only have to pay a fee.

• If you pay for the ticket, Rachel will give you 2 pies for every loaf.
• Joey gives up 1 pie for every loaf.

• The amount is $65.

• The ticket for Joey is free.
• You will get pies if Joey makes bread and Rachel the 5 concert is worth more than $65.

• Rachel makes 2 pies per loaf and Joey makes 1 5 pies per loaf.
• The opportunity cost of using would benefit them both.

• Many students try to understand economics without learning how to read graphs.
• The approach is shortsighted.
• You can think your way to the correct answer in a few cases, but the models we build and illustrate with graphs are designed to help analyze the tough questions, where your intuition can lead you astray.

• Economics is a science.
• Calculating a numerical answer is how economists solve problems.
• Calculating the unemployment rate, the inflation rate, the growth rate of the economy, prices, costs, and much more is done by economists.
• Economists like to compare numbers from the past and the present.
• Data-driven topics like financial trends, transactions, the stock market, and other business related variables lend themselves to graphic display throughout your study of economics.
• Many theoretical concepts are easier to understand when depicted in graphs and charts.

• Graphing can be used to find relationships between different sets of observations.
• The production possibilities frontier model presented in this chapter involves the relationship between the production of pizza and chicken wings.
• The trade off between pizza and wings is much more vivid thanks to the graphical presentations.

• We begin with simple graphs involving a single variable.

• We move to graphs with two variables.

• Bar graphs and pie charts are the two most common ways to display data.

• Coca- Cola Co. has the largest market share.
• Each firm has a bar that represents its market share percentage.

• The market share of the other firms is 12%.

• The data from the beverage industry is shown on a pie chart.
• The pie slice is the size of the market share.

• Pie charts are generally better for showing proportions than bar graphs.

• A time- series graph shows information about a variable.

• If you want to show how the inflation rate has changed over time, you can either list the annual inflation rates in a lengthy table or show each point in a graph.
• It is possible to quickly determine when inflation was highest and lowest with the help of graphs.

• Understanding graphs requires you to see the relationships between economic variables.
• Each variable is plotted on a grid.
• The coordinate system allows us to show how the two variables relate to each other.

• When the temperature is that low, no one will buy lemonade.
• The amount of lemonade sold is 30 cups by the time we reach point C. 60 cups of lemonade are sold after the temperature reached 90 degrees.

• If we graph the same direction.

• The coordinate system makes it easy to observe positive and negative correlations, as economists are interested in using models and graphs to make predictions and test theories.

• There is a difference between a positive correlation and a negative correlation.

• The quantity of lemonade sold increases when the temperature increases.

• The quantity of hot chocolate sold increases as the temperature increases.

• There is a correlation between lemonade sales and higher temperatures.

• Hot chocolate sales fall to 30 cups when the temperature rises to 50 degrees.
• The temperature is 70 degrees and hot chocolate sales are down to 10 cups.
• The negative correlation between hot chocolate sales and temperature is shown by the purple line connecting points E- H.

• A slope can have either positive or negative values.

• The slope shows us how responsive consumers are to temperature changes.
• lemonade customers are not very responsive as the temperature rises from 0 to 50 degrees, because zero indicates no change and 0.2 is close to zero.
• They are more responsive when the temperature rises from 70 to 90 degrees.
• The slope has risen from 30 to 60 cups.
• The positive relationship's strength is stronger and the curve is more vertical.

• The movement from point A to point B is different than the movement from point A to point B.

• The same analysis can be applied to Figure 2A.6b.
• As the temperature rose from 32 degrees to 50 degrees, hot chocolate customers responded by cutting their consumption by 30 cups.
• Hot chocolate customers are not very responsive from point G to point H, where the temperature goes from 70 to 100degF.
• The slope is -0.3 and the consumption fell from 10 cups to 0 cups.
• The line is flatter or more horizontal because of the weaker strength of the negative relationship.
• There is a difference between the movement from point E to point F and the movement from point F to point E.

• Economists look at the area of different sections below a curve in graphs.
• Figure 2A.7 shows the demand for Bruegger's bagels.
• When the price of bagels goes down, consumers will buy more bagels.
• The revenue the seller receives is one of the most important considerations for the firm.
• Let's assume that Bruegger's sells 4,000 bagels a week and the price of each bagel is $0.
• The total amount of Bruegger's revenue can be shown by shading the area by the number of sales and price.
• The blue triangle shows the surplus benefit consumers receive from buying bagels.
• We can see the "surplus" that consumers get from Bruegger's Bagels by highlighting the blue triangular area under the demand curve and above the price of $0.60, because many buyers are willing to pay more than $0.60 per bagel.

• There is a total revenue of $6,000.

• The area of the green rectangle can be determined by taking the height and dividing it by the base.

• There is a consumer surplus.

• An important part of the relationship was left out.

• There is a relationship between lemonade sales and bottles of suntan lotion.
• Figure 2A.8 shows a graph of the two variables.

• The graph is deceptive when you stop to think about the relationship.
• The graph shows a correlation between the number of bottles of suntan lotion sold and the amount of lemonade sold.
• We associate lemonade and suntan lotion with summer activities.
• Variable influences are not caused by using more suntan lotion.

• When it is hot outside, more suntan lotion is used and more lemonade is consumed.
• The graph makes it look like the number of people using suntan lotion affects the amount of lemonade being consumed, when in fact the two variables are not directly related.

• Suppose that a research organization notes the events of an assigned effort to fight the AIDS epidemic in Africa.

• As the number of doctors goes up, so do the death rates from AIDS.
• The research organization puts out a press release that claims doctors are to blame for the increase in AIDS deaths.
• It's possible that more doctors are needed in areas with high incidences of AIDS.
• We need to do more than just look at the correlation to come to the correct conclusion.

• The value of quantity demanded of apples is calculated in the following graph.

• The data in the table can be plotted into a $20 graph.

• The number of people who drown increases as ice cream sales increase.