Chapter -1, Graphs in economics
Chapter :- 1 Graphs in economics (Notes)
Meaning of a Diagram and a Graph
1. Diagram:
A representation of observed data by way of a picture is diagram. It is drawn for self-explanatory data. To draw a diagram an appropriate scale is necessary, but thorough knowledge of statistics is not’ required.
Uses: For advertising agency to draw attention, for government to provide information, for social organisation to spread awareness.
2. Graph:
A representation of observed data by means of a line or a curve on a graph paper is graph. It is drawn for complex statistical information. To draw a graph an appropriate scale is must and also knowledge of statistics is essential to draw and understand it.Uses: For economists to know the trends of Macroeconomic parameters.
Importance of Diagrams and Graphs in Economics:
• The study of economics is made easier by way of diagrams and graphs.
• Trends of certain economic parameters, over various years can be observed through a single diagram or graph.
• Changes occurring in various sectors of economy can also be easily understood.
• A comparison can be easily made for some economic parameters between groups/classes, regions, sectors as well as time periods.
• Many difficult aspects of economics are presented through a diagram or a graph and time and effort of presenting and understanding these aspects is saved.
• Certain ‘difficult principles of economics are easy to understand with the help of diagrams and graphs.
Points to be considered while drawing a Diagram and a Graph:
• Choice of type of Diagram or Graph and their presentations.
• Clarity of data.
• Selection of Scales and Measures.
• To represent the data clearly on X-axis and Y-axis.
• To mention the source of data, and
• To mention the method of calculating the data.
Types of Diagrams:
1. Time-based Line Diagrams (Curves):
Time-based line diagram or curve show the shape or slope of relationship between two economic variables. For example, a demand curve, supply curve, etc. In this type of diagram independent variable is measured on X-axis and dependent variable is measured on Y-axis.
Uses: To show the trends of population, rate of inflation, literacy rate, etc.
2. Bar Diagram:
A diagram prepared by drawing a vertical or horizontal bar for the data on one or more variables for different places, time or things is bar diagram. In bar diagram width of each bar is taken equal and its height (length) is taken proportional to the value of the data.
Types of Bar Diagrams:
• Simple Bar Diagram: A simple bar diagram is drawn for only one variable over a base, say various place, times, things, etc.
• Clustered Bar Diagram: This type of diagram is drawn for more than one related variables over a common base say various places, times, things, etc.
• Divided Bar Diagram: It is drawn when every single value of the variable over a common base, say places, times, things, etc. has sub-categories.
Points to be considered while drawing a Bar Diagram:
• The width of each bar should be equal.
• The length (height) of respective bars should be proportional to the value of the variable they represent.
• The distance between all bars should be equal and it should be maintained equal to the distance between the origin and the first bar.
• All bars are usually drawn on X-axis. Instead it can also be drawn horizontal on Y-axis.
• All bars should be arranged from left to right in order of the data series.
Pie Diagram
When entire data and its different components are represented by dividing the circle in degrees proportional to the data, then a pie diagram is obtained. The degree for a component on a circle is obtained by the following formula:
Degree = Component value Total value × 100
Points to be considered while drawing a Pie Diagram:
• 360° degrees make a circle.
• Degrees of sub-divisions are calculated and the sum of the degrees of all such sub-divisions must be 360°.
• For comparing the relevant data over two time periods or regions two pie diagrams are to be drawn side by side by taking the radius of circle proportional to their data set.
Types of Graphs:
• Time series Graphs
• Graphs of Continuous Frequency Distribution:
• Histogram
• Frequency Polygon
• Frequency Curve
• Cumulative Frequency Curve
• Logarithmic Graphs:
Time Series Graphs: The graphs drawn by taking time period as base are called time series graphs. This type of graphs are used to find the trend of changes in economic activities.
Use of Technology in the Study of Economics
1. Computer Technology:
• Complicated economic data and difficult theories of economics can be made easy by expressing in a power point presentation.
• A large amount of statistical data of economics can be entered in an excel sheet and processing this sheet for any formula at only one click. For – example sum total, averages, dispersion, correlation, etc. Also we can obtain various figures for the data in an excel sheet.
• There are several programmes in a computer which help us to draw diagrams and graphs in economics.
• Computer preserves plenty of study material in economics and transfers it in a hard disk or pen drive, in e-mail, drop-box, google drive, digi-locker, etc. and we can access this material and read it in any part of the world.
• Using statistical programmes like SPSS, SHAZAM, SAS, E-views, etc. almost all types of data can be processed in minutes by entering the right formulae.
Cautions in using Computer Technology:
• It is an aid in studying but not a study material by itself.
• It helps to make the study easier and faster but it does not replace the process of studying.
• If we do not use the right commands in a computer we may end up losing our material.
• If we do not know the correct formulae and commands, we may also end up getting incorrect graphs and data processing.
2. Internet Technology:
Internet is a facility created by digital technology. The use of internet in economics can be described as follows:
• As tutorials: Through powerpoint presentations we can read guiding study materials in economics on the open access link.
• As active learning: Some videos of lectures by experts are put on open access sites which students can listen on the net like we do in our classroom.
• As reading material: Numerous books are available online free of cost on net for reading. Also good research articles, copies of journals, etc. are also available for students to read on net. Such materials are known as e-books, e-journals, etc.
• As information: Information on universities offering degrees in economics and other details on the subject economics we can get on internet.
• As data: Data on banking on website of RBI, data on exports and imports on website of Ministry of Commerce and Industries, data on budget on website of Ministry of Finance, etc. Data collected by CSO. NSSO, WHO, UNO, CMIE, ILO, IMF, etc. are put on websites.
• As miscellaneous: By using search engine on internet many other information like quotes by economists, names of reference books etc.
Cautions in using Internet:
• A lot of substandard material, irrelevant information, misleading information, ideas of another are found on internet. So we must avoid using such data.
• Only authentic websites must be refferred to otherswise we may end up getting misled.
• Data CDs (Compact Discs): Some authentic agencies like laboratories, research centres, government agencies, etc. collect and publish the data on macroeconomic indicators and put huge data in compact discs. Such CDs are sold to and used by educational institutions, research institutes etc. for their studies. Agency namely CMIE (Centre for Monitoring Indian Economy) also creates data software, which are very useful to research institutions and corporations, etc.
Cautions in using CDs:
• The data CDs contain a huge data. So it becomes complicated to use.
• A CD consists of several data sheets. So one must have knowledge for searching the relevant data sheet.
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