1

Economics 1A
Lecture 1
Economic Issues and Concepts
Francesca Flamini
francesca.flamini@glasgow.ac.uk
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Introduction
What is Economics?
Why does it matter?
2
2
Introduction
Example: Saturday afternoon in the city centre
Full of people
Car parks are busy
Large variety of items available (from milk to
jewellery)
Not just luxury items, items that many can and do
buy
3
What is Economics?
19
th
century British economist Alfred Marshall: a
study of mankind in the ordinary business study of mankind in the ordinary business
Economies are complex interacting systems
involving the production, distribution and
consumption of goods and services, which
collectively have a considerable influence on our
quality of life. q y
Economics is the study of economies at the level
of both individuals and society as a whole.
4
3
Kittel, B., W. Luhan and R. Morton (2014):
Communication and Voting in Multi-party
Elections: An Experimental Study. EJ
De Giorgi, G. and M. Pellizzari (2014):
Understanding Social Interactions: Evidence Understanding Social Interactions: Evidence
from the Classroom. EJ
G. Levy and R. Razin (2014) Religious Beliefs,
Religious Participation, and Cooperation. AEJ
La Ferrara, E., A. Chong and S. Duryea: (2012)
Soap Operas and Fertility: Evidence from Brazil Soap Operas and Fertility: Evidence from Brazil
AEJ
J. C. Aker, J.C., C. Ksoll and T.J. Lybbert: (2012)
Can Mobile Phones Improve Learning?
Evidence from a Field Experiment in Niger, AEJ 5
Why does it matter?
Economics can help answering many important
questions, e.g.,
1. How does our economic system work?
2. Why does the economy sometimes have bad
years?
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4
The complexity of the modern economy
A market economy is an economy in which
production and consumption are the result of p p
decisions made by individual consumers and
firms.
Market economies are self-organising, in the
sense that, based on the decentralised
decisions of individuals (who pursue their
lf i t t) th bl t di t own self-interest), they are able to coordinate
complex activities and provide consumers
with the goods and services they want.
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The Invisible Hand
Adam Smith (1776) in a famous passage:
It i t f th b l f th b t h It is not from the benevolence of the butcher,
the brewer, or the baker, that we expect our
dinner, but from the regard of their own
interest. ... [A businessman] intends only his
own gain and he is in this, as in many other
cases led by an invisible hand to promote an cases, led by an invisible hand to promote an
end which was not part of his intention.
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5
Command/Planned economy
An alternative to market economies are An alternative to market economies are
command/planned economies, where a
central authority (the state/the goverment)
makes decisions about production and
consumption.
Command economies have not been very y
successful (USSR 1917-1991).
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The complexity of the modern economy
The economic system has co-evolved with The economic system has co evolved with
other systems (e.g. legal, political, and
social), which influence each other.
These systems continue to evolve
We are attempting to gain understanding of We are attempting to gain understanding of
economics in this context.
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6
Resources and Scarcity
Economic issues involve individual choices Economic issues involve individual choices
Examples: what to consume/produce or not,
how to spend time.
Individuals have a variety of wants (needs) Individuals have a variety of wants (needs),
possibly unlimited, but their resources are
limited.
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Types of Resources
Factor inputs (or factors for production):
1. natural resources: land, forests, minerals, etc.
in short, land
2. labour - human resources, time and effort of
workers.
3. capital - tools, machinery, buildings used in
making other goods making other goods.
4. entrepreneurship - entrepreneurs/innovators
take risks to introduce new products, develop
new business, etc.
12
7
Scarcity and Choice
Resources are limited!
Scarcity is a fundamental problem faced by Scarcity is a fundamental problem faced by
all economies: not enough resources (land,
labour, capital, and entrepreneurship) are
available to produce all the goods and
services that people would like to consume.
Scarcity makes it necessary to choose among
alternative possibilities: whether to consume
(or produce) more of one good or more of
another good.
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Opportunity Costs
To obtain more of something implies that
something else must be given up.
Opportunity Cost of an item: what you must
give up in order to obtain that item.
Examples:
- a film vs. drinks with your friends; a film vs. drinks with your friends;
- economics course vs. geography course;
- going to university vs. getting a job.
14
8
Opportunity Costs
It measures the cost of obtaining a unit of one
product in terms of the number of units of
th d t th t ld h b h other products that could have been chosen
instead.
It plays an important role in Economics
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Production Possibilities
Boundary/Frontier (PPB/PPF)
Output (production) combinations outside of
the PPB are unattainable /not feasible.
Those inside or exactly on the PPB are
attainable/feasible.
Points on the boundary indicate different
bi ti f i t t d bli combinations of private sector and public
sector goods which are feasible given that all
inputs are used efficiently in production.
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9
Unattainable combinations
A Production-Possibility Boundary
Production possibility
boundary
Attainable
combinations
Quantity of public sector goods
0
17
A production-possibility boundary
The quantity of public sector goods produced is measured along the
horizontal axis. horizontal axis.
The quantity of private sector goods is measured along the vertical
axis.
Any point on the diagram indicates some amount of each kind of
good produced.
The production-possibility boundary separates the attainable
combinations, such as a, b, and c, from unattainable combinations,
such as d.
P i t d b t ffi i t f i t Points a and b represent efficient uses of societys resources.
Point c represents either an inefficient use of resources or a failure
to use all the resources that are available.
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10
d
c
0
a
Unattainable combinations
A Production-Possibility Boundary
Production possibility
boundary
c
1
b
c
Attainable
combinations
0 g
0
g
1
Quantity of public sector goods
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Opportunity Cost Illustrated
The boundary is negatively sloped because in
a fully employed economy more of one good a fully employed economy more of one good
can be produced only if resources are freed
by producing less of other goods.
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11
c
0 d
a
Unattainable combinations
A Production-Possibility Boundary
Production possibility
boundary
c
1
b
c
C
G
Attainable
combinations
g
0
g
1
G
Quantity of public sector goods
0
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Production Possibilities
Boundary/Frontier (PPB/PPF)
Moving from point a (with coordinates c
0
and
g
0
) to point b (with coordinates c
1
and g
1
)
i li d i dditi l t f implies producing an additional amount of
public sector goods, indicated by G in the
figure.
The opportunity cost of this increase in G is a
reduction in private sector goods by the reduction in private sector goods by the
amount indicated by C.
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12
The effect of economic growth on the
production possibility boundary
Economic growth (often due to technological
progress) shifts the boundary outwards progress) shifts the boundary outwards.
Some combinations of goods that were
previously unattainable become attainable.
This is a highly stylised concept (real
economies involve many complex issues). It
however reflects some important concepts in
economics: scarcity, choice, opportunity cost.
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The Effect of Economic Growth
on the Production-Possibility Boundary
Production possibility
boundary before growth
Quantity of public sector goods
0
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The Effect of Economic Growth on the
Production-Possibility Boundary
Production possibility
boundary after growth
a
b
d
Production possibility
boundary before growth
Quantity of public sector goods
0
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Individuals pursue their own self-interest, buying and
selling what is best for themselves: they are maximizers.
Decisions at the margin: decisions on whether to do a bit
Who Makes the Choices and How
g
more or a bit less of an activity (spending time, money,
consuming or producing goods).
Incentives: people respond to incentives, especially to
price signals. Other things being equal, sellers seek high
prices, while buyers seek low prices.
Specialisation and exchange: Modern economies feature
a relatively high degree of specialisation (division of
labour, production) and exchange of goods and services.
People specialize in doing what they are relatively better
at.
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Why Specialisation?
Individual abilities differ
Comparative advantage is a fundamental
principle in Economics
Examples of absolute and comparative
advantage
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Absolute Advantage
Time spent fully
producing one
or the other
Sweaters Suits
Peter
either
100
either
or
40
or
J ane
Total
400 10
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Absolute Advantage
Time spent fully
producing one
or the other
Time divided equally
between producing the
two products
Sweaters Suits Sweaters Suits
Peter
either
100
either
or
40
or
50 20
J ane
Total
400 10
200 5
250 25
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Absolute Advantage
Time spent fully
producing one
or the other
Time divided equally
between producing the
two products
Full Specialization
Sweaters Suits Sweaters Suits Sweaters Suits
Peter
either
100
either
or
40
or
50 20 - 40
J ane
Total
400 10
200 5 400
-
250 25 400 40
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Absolute advantage
The first columns show that, working full time on his own,
Peter can produce either 100 sweaters or 40 suits per year Peter can produce either 100 sweaters or 40 suits per year,
whereas Jane can produce 400 sweaters or 10 suits.
Thus Jane has an absolute advantage in producing sweaters
and Peter has an absolute advantage in producing suits.
The second columns show the outputs if they both spend
half their time producing each commodity.
The third columns show the results when Peter specialises in p
suits, producing 40 of them, and Jane specialises in
sweaters, producing 400.
Sweaters production rises from 250 to 400, while suits
production goes from 25 to 40.
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Comparative Advantage
Time spent fully
producing one
or the other
Peter
either
100
either
or
40
or
Sweaters Suits
48
J ane
Total
400
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17
Comparative Advantage
Time spent fully
producing one
or the other
Time divided equally
between producing the
two products
Peter
either
100
either
or
40
or
50 20
Sweaters Suits Sweaters Suits
48
24
44
J ane
Total
400
200
250
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Comparative Advantage
Time spent fully
producing one
or the other
Time divided equally
between producing the
two products
Full Specialization
Peter
either
100
either
or
40
or
50 20 - 40
Sweaters Suits Sweaters Suits Sweaters Suits
48
24 12
44 300 52
J ane
Total
400
200 300
250
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18
Comparative advantage
The first columns in the table show that Jane is more productive than
Peter in both suits and sweaters.
Compared with Peter Jane is 400 per cent more efficient at Compared with Peter, Jane is 400 per cent more efficient at
producing sweaters and 20 per cent more efficient at producing suits.
The second columns give the outputs when Peter and Jane each
divide their time equally between the two products.
It is possible to increase the combined production of both
commodities by having Jane increase her production of sweaters (the
good she is relatively better at) and Peter increase his production of
suits suits.
The third column gives an example in which Peter specialises fully in
suits production and Jane spends 25 per cent of her time on suits
and 75 per cent on sweaters.
Total production of sweaters rises from 250 to 300, while total
production of suits goes from 44 to 52.
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Opportunity cost
Compared with Peter, Jane is relatively better at
producing sweaters.
Jane still has comparative advantage in
sweaters, while Peter has comparative
advantage in suits.
Opportunity costs:
Peter's Jane's
1 suit 2.5 sweaters 8.33 sweaters
1 sweater 0.4 suits 0.12 suits
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Comparative Advantage and
Opportunity cost
An individual has a comparative advantage in
producing a good (or service) if the producing a good (or service) if the
opportunity cost of producing the good is
lower for that individual than for other people.
Comparative, not absolute, advantage is
the basis for mutual gain the basis for mutual gain.
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This example is only an illustration.
Comparative advantage
Perhaps the most important application: international
trade.
Total production can always be increased when each
producer (or country) becomes more specialised in
the production of the commodity in which it has a
comparative advantage.
Implication: if country A has an absolute advantage in
the production of all goods, it may still gain from
trading with country B. Why?
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20
Barter is difficult/inefficient. Why?
The so-called double coincidence of wants.
A ffi i t h h i
The exchange of goods
A more efficient exchange mechanism: money as a
medium of exchange.
Circular flow of income and expenditure.
Consumers (the owners of inputs) provide the factors
of production to firms and in exchange receive some
payments.
Producers provide consumers with the goods they
want/demand and in exchange receive payments.
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Goods Market
The Circular Flow of Income and
Expenditure
Individuals
(consumers))
Firms
(producers)
Factor Market
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21
The Circular Flow of Income and Expenditure
Goods Market
Individuals
(consumers)
Firms
(producers)
Factor
Market
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The circular flow of income and expenditure
The yellow line shows the flows of goods and services while the
black line shows the payments made to purchase these.
Factor services flow from individuals who own the factors
(including their own labour) through factor markets to firms who (including their own labour) through factor markets to firms who
use them to make goods and services (yellow arrow).
The goods and services then flow through goods markets to those
who consume them (yellow arrow).
Money payments flow through factor markets from firms to
individuals (black arrow).
When individuals spend this income buying goods and services,
fl th h d k t b k t d (bl k money flows through goods markets back to producers (black
arrow).
The prices of inputs and of the final goods consumed are
determined in the two markets.
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A useful aid to think about the economy
Between 1983 and 2004, Irish labour force (the number of people
who want to work) expanded who want to work) expanded.
The number of Irish people employed increased by 50%
Was this luck?
The model tells us that the number of jobs is not fixed, it depends
on how much consumers spend and this depends on how many
people are working.
Hence enough jobs can be created when the working population
grows.
The circular flow of income and expenditure is a simple model able
to capture a very important element in the economic system.
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Alternatives to the market economy?
Three pure types of economy can be distinguished:
traditional, command and free market.
1) Traditional system: based on traditions, customs, habits.
The allocation of resources is predetermined, according to
traditions.
This is a rather static system, not much present in the
modern world (examples: Medieval Europe; today only in
small, very isolated self-sufficient communities).
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THE STATE
Command Economy
CONSUMERS
HOUSEHOLDS
PRODUCERS
HOUSEHOLDS
2) Command economy: the state makes both production and
consumption decisions, there is no role for the free markets
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THE STATE
Free market Economy
CONSUMERS
HOUSEHOLDS
PRODUCERS
HOUSEHOLDS
3) Free entry economy: the system responds to price incentives
only. There is no role for the Government
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24
THE STATE
Mixed Economy
CONSUMERS
HOUSEHOLDS
PRODUCERS
HOUSEHOLDS
3) Mixed economy(in practice the most popular) Economic
behaviour responds to mixes of tradition, government command,
and price incentives.
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Role of Government
Governments create and enforce important
background institutions, such as private property.
They intervene to increase economic efficiency by They intervene to increase economic efficiency by
correcting situations where markets do not
effectively perform well.
* public goods (not provided well by markets as
they cannot be restricted to those who are willing
to pay) to pay)
* externalities (e.g. pollution)
Health and education (minimum provision)
They also redistribute income and wealth in the
interests of equity.
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Economics 1A
Lectures 2-3
How Economists Work
Francesca Flamini
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Outline
Positive and normative statements
E i th i / d l Economic theories/models
Economic data
Graphs of economic relationships
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Introduction
Economics seeks to understand many
important issues.
Examples:
What makes some countries grow richer when others
seem to get poorer?
How the UK government should design the auction to
sell the UK spectrum for 3G/4G mobile phones?
Economists have developed ways of setting p y g
out and testing their theories
They also seek to use their models/theories
to provide advice on how things could be
improved.
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Positive and normative statements
Economists give advice on a wide variety of
topics Advice comes in two broad types: topics. Advice comes in two broad types:
Normative
Positive
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Positive statements
Positive statements: statements of fact,
whether correct or incorrect whether correct or incorrect.
In principle may be resolved by appealing to
facts.
There are however situations in which the
facts may be agreed but differing views may
be held as to what the facts imply for policy be held as to what the facts imply for policy.
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Normative statements
Normative statements involve a value
judgement depend on opinions Frequently judgement, depend on opinions. Frequently
include words such as should or ought
implying some kind of underlying moral or
ethical issues are involved.
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Positive and Normative statements
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Why does it matter?
Much of the success of modern science
depends on the ability of scientists to depends on the ability of scientists to
separate their views on what does, or might,
happen in the world, from their views on what
they would like to happen.
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Economic theories/models
They simplify complex realities to highlight
the essential elements of a problem (and their the essential elements of a problem (and their
interconnections).
Essentially they are a set of definitions,
assumptions, relationships which help us
explain various things.
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Definitions of variables to be employed
Variables: something that can take on
multiple values (e.g. price, quantity, time,
income) income).
endogenous variables: explained within the
theory or the model.
exogenous variables: determined outside the
model/theory.
E i bl i fl th Exogenous variables can influence the
behaviour of endogenous variables (but not
the other way around).
58
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Examples
The quantity of a wheat produced is an
endogenous variable in a theory of supply.
The weather is an exogenous variable which The weather is an exogenous variable, which
influences wheat harvests.
In some models/theories, technological
progress is assumed to be exogenous.
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Assumptions
A theorys assumptions concern motives,
physical relationships lines of causation and physical relationships, lines of causation, and
the conditions under which the theory is
meant to apply, as well as the direction of
causation
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Assumptions
Assumptions on behaviour: assumption that firms
act so as to maximize profits; assumption that
people pursue their self-interest.
Physical relationships: the production function
shows how the amount of output is related to the
quantities of inputs used.
Conditions under which the theory is meant to
apply: e.g. in studying one market, we assume
i f ll th d t h ld t t prices of all other products are held constant.
Identifying causal relationships between
variables: what causes what?
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Predictions
A theorys predictions are the propositions
that can be deduced from the model that can be deduced from the model.
Typically of the form if...something is done,
then,... this will happen
Very useful for instance to evaluate policies
(e.g., how revenue would change if the tax
law were to change?) law were to change?).
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Test the Theory
Economists make much use of evidence, or,
as they usually call it empirical observations as they usually call it, empirical observations.
Compare the theory's predictions with the
evidence.
Modify the theory if it consistently fails to
predict correctly.
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Theories about human behaviour
Can we explain and predict human behaviour?
A i tifi t d f h b h i i l A scientific study of human behaviour is only
possible if humans respond in predictable ways to
things that affect them.
Unlikely that this will happen at individual level, it is
more likely at groups level.
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Why do economists disagree?
Example: Progressive tax structure vs flat tax
Economists may have different values.
Economists may use different models (Economist Economists may use different models (Economist
A uses a model that focuses on the administrative
costs of tax systems, while economist B looks at
the effect on income distribution)
Most disputes are eventually resolved by the
accumulation of evidence But it may take time accumulation of evidence. But it may take time.
Economic Analysis is a method not a set of
conclusions
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Economic data
Index Numbers
Types of numerical graphs
* time series
* cross sectional
* scatter diagrams
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Index Numbers
Index numbers help express relative
movements in a variable (say prices) movements in a variable (say, prices).
To do this we take the price at some point of
time as the base to which prices in other
periods will be compared.
We call this the base period.
67
The formula of any index number is:
Index in period t = (value in period t/value in
base period) 100
or
I
t
=(X
t
/X
0
) 100
Note that the index in the base year is 100.
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Subtracting 100 from the index gives the
percent change relative to the base year percent change relative to the base year.
I
t
- I
0
= (X
t
/X
0
) 100 - 100 = (X
t
/X
0
-1) 100
= (X
t
-X
0
)/X
0
100 = %X
t
The percent change can also be computed
using directly the raw data
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Index numbers An example
Price of cocoa and coffee
(average price in each quarter; US cents per kg)
Period Cocoa Coffee
2001 (Q1) 100.4 146.7
2001 (Q2) 104.5 146.4
2001 (Q3) 100 8 129 7
(average price in each quarter; US cents per kg)
2001 (Q3) 100.8 129.7
2001 (Q4) 121.8 126.4
2002 (Q1) 149.0 136.6
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36
Calculation of an index of coffee
prices (base: 2001, Q1)
Period Coffee Coffee Index
2001 (Q1) (146.7/146.7)x100 100
2001 (Q2) (146.4/146.7)x100 99.8
2001 (Q3) (129.7/146.7)x100 88.4
2001 (Q4) (126.4/146.7)x100 86.2
2002 (Q1) (136 6/146 7)x100 93 1 2002 (Q1) (136.6/146.7)x100 93.1
Coffee prices decreased by almost 14% (100-86.2) before
recovering slightly.
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Index of cocoa and coffee prices
Period Cocoa Index Coffee Index
2001 (Q1) 100 100
2001 (Q2) 104.1 99.8
2001 (Q3) 100.4 88.4
2001 (Q4) 121.3 86.2
2002 (Q1) 148 4 93 1 2002 (Q1) 148.4 93.1
Cocoa prices increased by almost 50% (148.4-100).
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37
Price indexes
Economists make frequent use of indexes of
the price level that cover a broad group of the price level that cover a broad group of
prices across the whole economy.
One of the most important of these is the
retail price index, RPI, which covers goods
and services that individuals buy.
How can we combine multiple indexes? How can we combine multiple indexes?
73
Index numbers as averages
Index numbers are particularly useful if we wish to
combine several different series into some
average (e g RPI) average (e.g. RPI) .
This can be done by:
An un-weighted (equalweight) index
A weighted index
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38
Index numbers as averages
An un-weighted (equalweight) index is a simple
average of two (or more) indices, e.g.,
((I
coffee
+I
cocoa
)/2)= 0.5I
coffee
+ 0.5I
cocoa
A weighted index, with the weights reflecting the
relative importance of the variables considered
(given for example by their share of sales), e.g.,
0.9 I
coffee
+0.1I
cocoa
75
Index of cocoa and coffee prices
Period Equal weights Coffee = 0.9; q g ;
Cocoa = 0.1
2001 (Q1) (100+100)/2=100 100
2001 (Q2) (104.1+99.8)/2=101.9 0.1*104.1+0.9*99.8=100.2
2001 (Q3) 94.2 89.6
2001 (Q4) 103.7 89.7
2002 (Q1) 120 7 98 6 2002 (Q1) 120.7 98.6
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39
To sum up
All price indexes are calculated using the
same procedure same procedure.
First, the relevant prices are collected. Then a
base year is chosen. Then each price series
is converted into index numbers.
Finally, the index numbers are combined to
create a weighted average index series create a weighted average index series
where the weights indicate the relative
importance of each price series.
77
Graphing economic data
A single economic variable such as
unemployment or GDP can come in two basic unemployment or GDP can come in two basic
forms:
Time-series
Cross-section
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40
Time series - Example
79
Y axis: the unemployment rate measures the number of people
actively looking for a job as a percentage of the labour force.
X axis: time (range 1971-2014)
Cross-section, Example
Unemployment rates (in %, July 2014)
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Source:Eurostat
41
Scatter diagrams
A scatter diagram is designed to show the
relationship between two different variables relationship between two different variables.
To plot a scatter diagram, values of one
variable are measured on the horizontal axis
and values of the second variable are
measured on the vertical axis
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Example
Households Annual income () Annual savings
1 70,000 10,000
2 30,000 2,500
3 100,000 12,000
4 60,000 3,000
5 80,000 8,000
6 10,000 500
7 20,000 2,000
8 50,000 2,000
9 40,000 4,200
10 90,000 8,000
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42
Scatter diagram
83
Graphs of economic relationships
Theories are built on assumptions about
relationships between variables.
A function: gives the specific relationship
between two variables.
Y=f(X)
X is the independent variable, since it can
take on any value y
Y is the dependent variable, since its value
depends on X, the value of the variable on
the right-hand side. .
84
43
Example
Annual Income Consumption Reference letter p
0 800 p
2,500 2,800 q
5,000 4,800 r
7,500 6,800 s
10,000 8,800 t
85
86
44
Functions
C = f(Y)
Thi i d C i f ti f Y This is read C is a function of Y.
Or The amount of consumption spending
depends upon the households income.
87
Linear relationship (function).
General notation:
Y=a+bX
Example 1: Y=10+2X
positive relationship: X and Y move in the same
direction, as X we have Y, and graphically the
line is upward-sloping.
Example 2: Y=10-2X
negative relationship: X and Y move in opposite
ways, as X we have Y, and graphically the line is
downward-sloping.
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45
Let X take the positive values {0,1,2,3,4,5,6}.
Find the corresponding values for Y Find the corresponding values for Y.
X Y=10+2X Y=102X
0 10 10
1 12 8
2 14 6
3 16 4 3 16 4
4 18 2
5 20 0
6 22 2
89
Y
10
Y Y
10
Y
10
YY
10
10
10 10
10 10
X 5
0
X Y 2 10
slope = -2
X
0
X Y 2 10
slope = 2
X 5
0
X Y 2 10
slope = -2
X 5
0
X Y 2 10
slope = -2
X
0
X Y 2 10
slope = 2
X
0
X Y 2 10
slope = 2
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The slope of a straight line
The slope gives the change in Y for a one unit
change in X
b=(Y)/(X)) b=(Y)/(X))
means change in
What does it mean b>0?
Go back to example C=F(Y), why is the slope 0.8? p ( ) y p
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The slope of a straight line
The slope of a straight line is the same along the
line.
The slope gives the marginal change in Y i e The slope gives the marginal change in Y, i.e.
the change in Y when there is a bit more or a bit
less of X.
Important concept as most economic decisions
are decisions on the margin
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Non-linear relationships
Linear relationships are nice and simple but
not all relationships are linear not all relationships are linear.
The slope is NOT the same at all points along
a non-linear curve.
The next graph illustrates the case of
diminishing marginal change: the slope
becomes flatter as we move downwards long becomes flatter as we move downwards long
the curve.
This means that, as X increases, Y keeps
decreasing but by smaller and smaller
amounts.
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Y
steeper
y y

2 1
Negative relationship with
Diminishing marginal change
p
x x
1
y
X
flatter
2
y
x
x
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Can you draw a negative relationship with
increasing marginal changes? increasing marginal changes?
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Y

Positive relationship with Increasing marginal change

steeper
fl
x
y
x
y

2 1 1
y
X
flatter
x
x
2
y
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Maxima and minima
So far, all the graphs we have shown have
had either a positive or negative slope over had either a positive or negative slope over
their entire range.
But many relationships change direction as
the independent variable increases.
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Minimum and Maximum
Y Y Y
min.
Y
max.
X X
slope of the tangent at the points of minimum and maximum is zero
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