2.8 DIAGRAMS, LINES & EQUATIONS

• Correlation: When two variables move together in the same (or opposite) direction. Correlation measures the degree to which two variables are related but does not establish cause and effect.
• Causation: When a change in one variable directly causes a change in another. Causation implies a direct cause-and-effect relationship.
• Scatter diagrams are used to plot the relationship between two variables.
• A line can be fitted through the points of a scatter diagram to show the general trend of the data.
• Econometrics is the field that uses statistical methods to measure relationships between economic variables, often by fitting lines through scatter diagrams.
• Diagrams are useful for representing economic models and understanding relationships between variables.