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I am looking for a suggestion of programs that can be used to illustrate effects like the income/substitution effect with regards to the consumption choice etc.
With many programs, need you to specify functional forms, but if you are just illustrating the effects it can be a hassle to conjure up some functional form to make a mere sketch of the effects.
And using paint is just... wrong... and ugly.
My main suggestions would be:
Adobe Illustrator, which will let you draw graphs freehand. This is a very powerful professional illustration tool that will allow you to produce crisp vector images (if you don't know the difference between a vector image and a raster image then you should look that up before starting).
PGF TikZ / PGFplots. This is my preferred way of producing figures. It requires that you code the figures (and therefore that you specify either a functional form or some points on the function), but produces extremely precise and crisp images. The main advantage of this approach, though, is that it is completely integrated with LaTeX. The fonts will match those in the rest of your document/presentation (assuming you are using LaTeX) and you don't need to mess around with any external files since the code can be included in your main LaTeX document.
Ah, this is a question I have struggled with. I think the answer depends wether you are intending to use the image in LaTeX or not. That said, in my opinion most answers provide good solutions (I've tried them all), but my recommendation is something that hasn't been mentioned:
Inkscape: Inkscape is a free, open source software similar to Adobe Illustrator. It is very simple to create elegant vector graphics that scale up nicely.
*Inkscape+PDFLaTeX: If you want to use LaTeX then you can use the same images created normally in Inkscape and then save them as PDFs using the Inkscape+PDFLaTeX option. This will produce a PDF with all but the text, which then can be rendered on top using the LaTeX engine. This has the advantages of
If I understood this correctly, you're just looking to draw simple graphs? If you're not willing to create functions in a program like R or similar, I'd suggest a simple solution: the drawing function in Google Drive.
Open Google Drive and then open Google Drawings. It is actually pretty good and easy to learn for basic graphs.
I recommend the "The Ipe extensible drawing editor", available for free: http://ipe.otfried.org/
As a sample here is an image I made from scratch using this software.
Once you get used to the software this takes about 5 minutes.
The main feature I use is the ability to snap objects to geometric locations such as intersections and boundaries. Sometimes you have to use invisible lines to make a nice graph but I guess there are some tricks to most software.
Excel - its trivial to put in some dummy values to get a graph, but easily the best way to do it, and has a lot of configuratable options to get the look and feel just right.
I am a big supporter (and user of) LatexDraw.
LaterDraw uses Pstricks which is the main alternative to Tikz to draw graphs in in LaTex.
If you are not familiar with LaTex, one advantage of LatexDraw is that it allows you to generate pdf (and png, and jpeg, and tiff, and ...) versions of your graphs without having to paste the code of the picture in a Tex document and compile the document.
