2.1 Graphs, Variables, and Economic Models

One reason to attend college is that a bachelor’s degree provides access to higher-paying 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.

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

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 soda, 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 soda and the number of cans of soda that consumers will buy, assuming that everything else affecting consumers’ purchases of soda stays constant. This type of model can be described mathematically or verbally, but illustrating the relationship in a graph makes it easier to understand, as you’ll see next.