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Graphs in Economics

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Graphs in Economics

First, here's an open secret - adding a graph to your answer in economics gets you more marks - plain and simple! So, that is why graphs seem to follow you everywhere you go since you started studying economics. That is because economics can be very wordy, and it is essential for graphs in economics to show you things in visual format! (a picture speaks a thousand words, or whatever they say). So, let's find out all about the graphs in economics.

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.

graphs in economics graph studysmarterFigure 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.

graphs economics line graph studysmarterFigure 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.

Graphs in Economics Types of Economics Graphs StudySmarterFigure 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.

Pie graph in economics StudySmarterFigure 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.

  1. 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.graphs economics equilibrium shift studysmarterFigure 5. Equilibrium Shift, StudySmarter Originals
  2. 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.graphs supply demand graph studysmarterFigure 6. Demand and Supply Graph, StudySmarter Originals
  3. 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.graphs economics demand curve shift studysmarterFigure 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.

  1. 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.
  2. Insert the names/labels for both axes. "Price" typically goes on the vertical axis, whereas "quantity" typically goes on the horizontal axis.
  3. Indicate the scale of the graph. This is what you mark on the vertical and horizontal axes.
  4. 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.
  5. 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".
  6. If you are creating the graph to illustrate specific points on the graph, label each of the relevant points (for example, the equilibrium point).
  7. 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.
  8. 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.

graphs economics demand supply graph studysmarter

Figure 8. Demand and Supply Graph in Economics, StudySmarter Originals

Example 2. Land market graph showing the supply of land. Look at Figure 9.

graphs economics land market graph studysmarterFigure 9. Land Market Graph in Economics, StudySmarter Originals

Example 3. Capital market graph showing the demand for capital. Look at Figure 10.

graphs economics capital market graph studysmarterFigure 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.

Frequently Asked Questions about Graphs in Economics

An economics graph is a visual illustration of numerical data in economics.

Economics graphs simplify numerical data for easier readability and analysis without losing detail.

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.

The types of economics graphs are the line, bar and pie graphs.

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.

Final Graphs in Economics Quiz

Question

What is a graph in economics?

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Answer

An economics graph is a visual illustration of numerical data in economics. 

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Question

Why are economics graphs important?

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Answer

Economics graphs simplify numerical data for easier readability and analysis without losing detail. 

Show question

Question

What do line graphs do in economics?

Show answer

Answer

Line graphs show relationships between variables in economics. 

Show question

Question

What do bar graphs do in economics?

Show answer

Answer

Bar graphs compare quantities using the height of the bars. 

Show question

Question

What do pie graphs do in economics?

Show answer

Answer

Pie graphs compare quantities as fractions of a single whole or total. 

Show question

Question

We read economics graphs from the right to the left.

Show answer

Answer

False

Show question

Question

The vertical axis is the Y-axis.

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Answer

True

Show question

Question

Economics graphs show the relationship between two concepts like demand and supply.

Show answer

Answer

True

Show question

Question

Price goes on the vertical axis and quantity goes on the horizontal axis.

Show answer

Answer

True

Show question

Question

Pie graphs do not show quantities fractions of a single whole.

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Answer

False

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Economics graphs do not show changes or shifts.

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False

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Economics graphs show data sets.

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Answer

True

Show question

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The capital market graph is an example of an economics graph.

Show answer

Answer

True

Show question

Question

Economics graphs make complex numbers more readable.

Show answer

Answer

True

Show question

Question

Line graphs are the most used in economics.


Show answer

Answer

True

Show question

Question

What does economic graphs help us do?

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Answer

show the relationship between variables

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Question

This graph shows the relationship between two economic variables plotted on the horizontal and vertical axes.

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Answer

line graph

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Question

Which graph is used most often in economics?

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Answer

line graph

Show question

Question

True or False: Graphs in economics are used to show relationships or connections, data sets (and equilibrium), and changes or shifts

Show answer

Answer

True

Show question

Question

True or False: Bar graphs are the most used in economics

Show answer

Answer

False

Show question

Question

What do line graphs show?

Show answer

Answer

They show the relationship between two variables in economics

Show question

Question

True or False: There are three main types of economics graphs, and they include line, bar, and pie graphs.

Show answer

Answer

True

Show question

Question

True or False: An economics graph is a visual illustration of numerical data in economics

Show answer

Answer

True

Show question

Question

True or False: graphs in economics can shift over time.

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Answer

True

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True or False: labeling an economics graph correctly is not important.

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Answer

False

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True or False: graphs seldom make understanding data easier.

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Answer

False

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True or False: pie charts are the most common type of economics graph.

Show answer

Answer

False

Show question

Question

True or False: bar graphs are similar to line graphs

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Answer

False

Show question

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