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All economic systems face the same five problems. These problems are:

What to produce?

How it will be produced?

For whom will it be produced?

How much should be produced?

Depreciation - at what rate will these things wear out and need to be replaced?

DEPRECIATION

Depreciation is the decreasing in value of a good or the wearing out of a good.

That is why we must replace appliances, automobiles, etc.

Determining the life of products or goods is a very complicated economic problem; however, it is a very important consideration in supply and demand.

An individual may buy a brand new car at a new-car price.

However, as soon as it is driven out of the lot and taken home, the new car loses some of its value.

It DEPRECIATES because it is no longer a brand-new car.

As soon as a product is put into use, it is no longer new but begins to depreciate in value.

PRODUCERS create, construct, or offer goods and/or services for sale to the consumer.

The CONSUMERS are willing to purchase goods or services.

The interaction of producer and consumer establishes a price.

Producers cannot offer a free good for sale because they did not make or create it.

For example, consider the free goods of air and water.

If the water is reprocessed and bottled for sale, it is no longer a free good, but an economic good.

Price is established when consumers and producers come to an agreement as to how much will be offered by the producer and at what price the consumer will buy.

The agreement is reached at a hypothetical place called MARKET.

Even though we use the word MARKET in various ways, in economics it is not a place.

In economics, MARKET is a concept which means the point at which producers and consumers agree on a price to sell and buy.

As you learn about and prepare supply and demand graphs, you will better understand the importance and interaction of supply and demand.

On the graph, the place where the supply and demand curves (lines) cross is where the price is established.

At that point, all of a product will usually be purchased. This point becomes known as equilibrium.

The amount of a good or service that an individual or producer is offering for sale is called SUPPLY.

The amount of a good or service that a consumer is willing to buy is called DEMAND.

To be simple and to the point, supply and demand is what economics is really all about.

However, the interaction of these two concepts can be very simple, or it can be very complex.

Supply is offered by the producer.

The producer who is offering the supply of goods hopes that there will be someone wanting or demanding what is being offered.

The individual offering the supply must begin by preparing and presenting a SUPPLY SCHEDULE that states in what quantity, and at what price the goods will be offered.

Before you proceed further into your study of economics, it would be wise to stop here and reinforce your understanding of preparing and interpreting graphs.

Please read carefully and follow the explanation and exercises which are provided as exhibits.

As you proceed into a more advanced study of economics, you may want to come back to this chapter to review graphing techniques.

Before a graph can be prepared, a table called a SCHEDULE should be created.

The schedule lists how much (price) the buyer will pay and at what quantity the seller will be offering the goods.

The data from the schedule is then used to construct the graph.

Even though this is not required, a schedule is highly recommended as the first step in preparing a graph.

This process will make it easier to check your work before you begin to construct and plot points on the graph.

A graph must have a name.

The name should indicate what is being shown by the graph, a title for the X and Y axes, and in some cases, it must have a legend to identify symbols or figures used on the graph.

FUNDAMENTALS OF GRAPHING

On all graphs except pie graphs, there must be an X and a Y axis.

The X Axis and whatever is labeled for X will always run HORIZONTALLY left to right across the page.

The Y Axis and whatever is labeled for Y will always run VERTICALLY from the bottom to the top of the page.

Locate the x and y axes on the graph.

The point where the X and Y axes meet, usually in the lower left hand corner of the chart, is labeled 0.

A graph usually has grids; however they are not always necessary.

GRIDS are vertical and horizontal lines which are equally spaced and which intersect.

Grids sometimes assist the reader in locating a point or an amount on a chart.

A POINT is a location on a graph.

It is shown by a dot or a period.

After all points are plotted, the points may be connected by a line.

This is what provides the slant or curve.

Remember:

The supply curve ALWAYS slopes upward from the left to the right.

Remember:

The demand curve ALWAYS slopes downward left to right.

The low point for demand on this graph is about $_______.

2.00

TYPES OF GRAPHS

It is wise to learn and know what type of graph to use to display data.

LINE GRAPHS:

A line graph has both an X and Y axis.

Data will be placed (or plotted) by a point on the graph.

After all points are placed on the graph, a line is drawn connecting the points.

A line graph is excellent for showing business cycles, or profit or losses over a period of time, and test data.

Which person showed the steadiest improvement?

Barbara

Frank

Heather

BAR GRAPHS:

A bar graph has both an X and Y axis.

Data will be placed beginning on the X axis and extended up to its correct points on the Y Axis.

After all points are identified, the space is shaded.

The data is displayed in bars.

Depending on how data are arranged on the X and Y axes determines whether the bars go up and down or across.

HI-LO GRAPHS:

A Hi-Lo graph has both an X and Y axis.

The data is displayed by making a point at the high range and low range.

Next, a line is drawn to connect each high and its corresponding low point.

Sometimes there may be an additional point.

This type of graph is excellent for displaying stock market prices because you can plot the high for the day, the low for the day, and the closing for the day.

This graph represents the movement of the Stock Market in a 15 minute period WHILE Alan Greenspan, the Chairman of the Federal Reserve Board, testified before a Congressional Committee.

The reason for the dramatic change in a 15 minute period occurred after Chairman Greenspan warned that interest rates may have to be raised because stocks had risen too far.

PIE GRAPHS

A pie graph is a complete circle which is divided into segments according to what percent of the whole is to be displayed.

These graphs are best for showing total income or expenses for the country, state, county, agency, individual, etc.

This type of graph gives a very clear visual representation of income and expense percentage.

Graphs can be very fancy or very simple.

They can sometimes provide a clearer message than words.

The use of computer software makes it relatively easy to create beautiful graphs.

Using colors on graphs adds to the interpretation of the data.

It is also very important in the development of your research to be able to interpret historical timelines and graphs.

This timeline provides valuable information on the growth of agriculture in the United States.

The advances in agriculture in America are shown below in the graphs in a different form.

The advances in crude oil and steel production in America are shown below.

Essentially, a timeline is a story in a graphic form, showing a progression of historical events that will be helpful to you in your study of any subject.

Please examine the timeline listed above on the growth of transportation. Think back to our study of the economic history of the United States in lessons 6 and 7.

The growth of transportation in America is shown below in the graphs in a different form.

This concludes our discussion of this lesson. The information on graphing and timelines will be helpful to you in your other subjects.