Graphs

In business and economics, graphs are used to convey information and ideas quickly. The most frequently used types are line graphs, bar graphs, and pie charts. Typical line graphs include time-series and cause-and-effect relationship graphs. As a matter of convention, time-series graphs put time on the horizontal axis and whatever is being compared over time on the vertical axis. Generally cause-and-effect relationship graphs show the dependent variable on the horizontal axis and the independent variable on the vertical axis, but not always so. The independent variable is the variable whose value is not determined by the value of other variables. The dependent variable is the variable whose value is determined by the value of the independent variable. For example, a demand curve shows the relationship between price and quantity demanded in a market in a period of time, ceteris paribus (other things being equal, unchanged). The amount of a product purchased depends on its price, which is the independent variable, determined by the business offering the good. Quantity demanded is the dependent variable, changing in response to changes in price. In the example of a DEMAND curve, there is an inverse relationship between price and quantity demanded. As price rises, the quantity demanded decreases. As price decreases, the quantity demanded increases. (The degree to which quantity demanded responds to a price change is measured using the ELASTICITY OF DEMAND concept.) A direct, cause-and-effect relationship is one where a positive change in the independent variable causes a positive change in the dependent variable, and a decrease in the independent variable causes a decrease in the dependent variable. Two typical examples of direct relationships are supply curves and CONSUMPTION functions. In response to a higher price, producers will provide greater quantity. In response to an increase in INCOME, consumers will purchase more goods and services. Graphs are used frequently by businesspeople and economists. Some students call economics courses “graphs and laughs.” Others refer to economics as the “dismal science.” Marketers use graphs to quickly display relationships like the growth in sales or market share over time. Unethical businesspeople use graphs to impress or “snow” consumers. Graphs are created using data, and the quality of the data used to create a graph determines the validity of the information or concept being portrayed. In statistics there is an old saying, “Garbage in, garbage out.” The same is true in the use of graphs.