1. Working with Graphs Graphs are used to demonstrate economic theories.

2. Theories and Models Theories are developed to explain observed phenomena in terms of a set of basic rules and assumptions. While most economic models are abstractions from reality, they provide aid in understanding economic behavior.

3. A Good Theory Consists of A set of Variables; A set of Assumptions; At least one Hypothesis; and The ability to make Predictions.

4. Positive and Negative Slopes X 0 Y 0 X Y Negative SlopePositive Slope Y = f (X) Y: Endogenous (Dependent) Variable X: Exogenous (Independent) Variable