Graphs, Variables, and Economic Models

A quantity that can take on more than one value is called a variable.

One reason to attend university is that a bachelor’s degree provides access to higherpaying jobs. Additional degrees, such as MBAs or law degrees, increase earnings even more. If you were to read an article about the relationship between educational attainment and income, you would probably see a graph showing the income levels for workers with different amounts of education. And this graph would depict the idea that, in general, more education increases income. This graph, like most of those in economics, would depict the relationship between two economic variables. A variable is a quantity that can take on more than one value, such as the number of years of education a person has, the price of a can of pop, or a household’s income.

As you learned in this chapter, economic analysis relies heavily on models, simplified descriptions of real situations. Most economic models describe the relationship between two variables, simplified by holding constant other variables that may affect the relationship. For example, an economic model might describe the relationship between the price of a can of pop and the number of cans of pop that consumers will buy, assuming that everything else that affects consumers’ purchases of pop stays constant. This type of model can be described mathematically or verbally, but illustrating the relationship in a graph makes it easier to understand. Next we show how graphs that depict economic models are constructed and interpreted.