Microeconomics/Macroeconomics Chapter 1 Questions and Answers

Chapter 1 The Art and Science of Economic out concern INTRODUCTION THIS CHAPTER HAS dickens PURPOSES TO INTRODUCE STUDENTS TO SOME OF THE BASIC LANGUAGE OF sparingalS AND TO STIMULATE STUDENT INTEREST IN THE SUBJECT. IT CONVEYS TO STUDENTS THAT economic science IS NOT ONLY FOUND IN THE m singletary SECTION OF THE NEWSPAPER, BUT ALSO IS VERY MUCH A PART OF THEIR EVERYDAY LIVES. BEGINNING WITH THE frugal PROBLEM OF SCARCE RESOURCES BUT UNLIMITED WANTS, THIS CHAPTER PROVIDES AN OVERVIEW OF THE ambit AND THE ANALYTICAL TECHNIQUES USED. CONCEPTS INTRODUCED INCLUDE RESOURCES, GOODS AND SERVICES, THE ECONOMIC ACTORS IN THE ECONOMY, AND MARGINAL ANALYSIS.TWO MODELS FOR ANALYSIS, THE CIRCULAR FLOW MODEL AND STEPS OF THE SCIENTIFIC METHOD, ARE INTRODUCED. THE APPENDIX INTRODUCES THE USE OF GRAPHS. CHAPTER OUTLINE THE ECONOMIC PROBLEM SCARCE RESOURCES, UNLIMITED WANTS exercise PowerPoint slide 3 for the following section Economics is to a greater extent or less qualification choices. The problem is that wants or desires are some unlimited epoch the resources available to satisfy these wants are meagerly. A resource is precious when it is non freely available, when its price exceeds zero. Economics studies how mountain use their scarce resources in an attempt to satisfy their unlimited wants. engross PowerPoint slides 4-9 for the following sections Resources The inputs, or factors of harvest-tideion, utilise to produce the goods and services that charitables want. Resources are divided into four categories 1. Labor kind-hearted effort, both physical and mental 2. Capital Physical capital Manufactured items ( as well asls, buildings) use to produce goods and services. Human capital Knowledge and skills people acquire to increment their labor productivity. 3. Natural resources gifts of nature, bodies of water, trees, oil reserves, minerals and animals. These can be re untriedable or exhaustible. . Entrepreneurial ability The imagination required to d evelop a new product or process, the skill needed to organize turnout, and the ordainingness to take the risk of profit or loss. Payments for resources Laborwage capitalinterest natural resourcesrent entrepreneurial abilityprofit. Use PowerPoint slides 10-12 for the following section Goods and Services Resources are combined to produce goods and services. A good is something we can see, feel, and touch (i. e. , corn). It requires scarce resources to produce and is used to satisfy human wants. A service is not tangible unless requires scarce resources to produce and satisfies human wants (i. e. , haircut). A good or service is scarce if the amount people demand exceeds the amount available at a price of zero. Goods and services that are truly free are not the undecided matter of economics. Without scarcity, thither would be no economic problem and no need for prices. Use PowerPoint slide 13 for the following section Economic de limitination Makers There are four types of fina lity makers 1. Households 2. Firms 3. Governments 4. The rest of the worldTheir inter exercise determines how an economys resources are allocated. Use PowerPoint slide 14 for the following section Markets Buyers and sellers submit out exchanges in markets. Goods and services are exchanged in product markets. Labor, capital, natural resources, and entrepreneurial ability are exchanged in resource markets. Use PowerPoint slides 15-16 for the following section A Simple Circular Flow Model A simple circular flow model in Exhibit 1 describes the flow of resources, products, income and revenue among economic decision makers. The Art of Economic AnalysisUse PowerPoint slide 17 for the following section quick of scent Self-Interest Economics assumes that various(prenominal)ists, in making choices, rationally select alternatives they perceive to be in their best interests. Rational refers to people trying to make the best choices they can, given the available information. Each sin gle(a) tries to minimize the expected cost of achieving a given benefit or to maximize the expected benefit achieved with a given cost. Use PowerPoint slide 18 for the following section Choice Requires Time and Information Time and information are scarce and therefore valuable.Rational decision makers acquire information as farsighted as the expected redundant benefit from the information is greater than its expected additional cost. Use PowerPoint slide 19 for the following section Economic Analysis Is bare(a) Analysis Economic choice is ground on a comparison of the expected peripheral cost and the expected marginal benefit of the action under consideration. Marginal means incremental, additional, or extra. A rational decision maker changes the status quo if the expected marginal benefit is greater than the expected marginal cost.Use PowerPoint slides 20-21 for the following section microeconomics and Macroeconomics Microeconomics The study of individual economic choices (e. g. , your economic behavior). Macroeconomics The study of the performance of the economy as a whole, as measured, for role model, by total production and employment. Economic fluctuations The turn and fall of economic activity relative to the long-term growth trend of the economy also called business cycles. Use PowerPoint slide 22 for the following section The Science of Economic AnalysisThe Role of Theory An economic surmise is a simplification of economic reality that is used to make divineions active the real world. An economic supposition captures the important elements of the problem under study. Use PowerPoint slides 23-26 for the following section The Scientific Method A four-step process of theoretical investigation 1. Identify the interrogative and define relevant variables. 2. Specify assumptions Other-things-constant assumption Focuses on the congressships between the variables of interest, assuming that nothing else important changes (i. e. , ceteris pari bus). Behavioral assumptions Focus on how people will behave (i. e. , in their rational self-interest). 3. Formulate a hypothesis, a theory about how key variables relate to each other. 4. bear witness the hypothesis. Compare its predictions with evidence. The theory is thus either rejected, accepted, or modified and retested. Use PowerPoint slide 27 for the following section Normative vs. Positive A positive economic dictation concerns what is it can be supported or rejected by reference to facts. A normative economic statement concerns what should be it reflects an opinion and cannot be shown to be true or false by reference to the facts.Economists Tell Stories Use PowerPoint slide 28 for the following section CaseStudy A Yen for Vending Machines Use PowerPoint slide 29 for the following section Predicting Average Behavior The task of an economic theory is to predict the impact of an economic event on economic choices and, in turn, the effect of these choices on particular ma rkets or on the economy as a whole. Economists focus on the average, or typical, behavior of people in separates. Use PowerPoint slides 30-31 for the following section Some Pitfalls of Faulty Economic Analysis The fallacy that acquaintance is causation The fact that angiotensin-converting enzyme event precedes another or that two events occur simultaneously does not mean that one caused the other. The fallacy of composition The incorrect belief that what is true for the individual, or the part, is true for the group, or the whole. The skid of ignoring substitute effects (unintended consequences of policy) If Economist Are So Smart, Why Arent They Rich? Use PowerPoint slides 32-33 for the following section CaseStudy College Major and Annual Earnings extension Understanding GraphsUse PowerPoint slides 34-39 for the following section Drawing Graphs Origin The point of departure, the point from which all variables are measured. Horizontal axis The value of the x variable impr overs as you move along this axis to the right of the origin a straight line to the right of the origin. Vertical axis The value of the y variable sum ups as you move upward and away from the origin a straight line extending above the origin. Within the space framed by the axes, you can plot possible combinations of the variables measured along each axis. Graph A house painting showing how variables relate. Time-series graph Shows the value of one or more variables over measure. Functional sex act Exists between two variables when the value of one variable depends on the other variable (e. g. , the value of the independent variable determines the value of the dependent variable). Types of relationships between variables Positive, or direct, relation As one variable increases, the other variable increases. Negative, or inverse, relation As one variable increases, the other variable decreases. Independent, or misrelated relation As one variable increases, the other varia ble remains unchanged or unrelated.Use PowerPoint slides 40-46 for the following section The Slopes of Straight Lines The pitch of a line measures how much the vertical variable (y) changes for each 1-unit change in the plane variable (x). The pitch of a line is a convenient device for bar marginal effects. Slope reflects the change in y for each one unit change in x. The side of a line does not predicate causality but indicates a relation between the variables. The slope of a line is the change in the vertical distance divided by the increase in the horizontal distance. The slope of a line depends on how units are measured the mathematical value of the slope depends on the units of measurement in the graph. The slope of a straight line is the identical everywhere along the line. The slope of a skipd line varies from one point to another along the curve. If the slope is Positive There is a positive or direct relation between the variables. Negative There is a negativ e or inverse relation between the variables. Zero or assumed infinite There is no relation between the variables they are independent or unrelated.Use PowerPoint slides 47-48 for the following section The Slope, Units of Measurement, and Marginal Analysis The Slopes of Curved Lines Curve Shifts A change in an underlying assumption is expressed by a suspension in the curve. Chapter SUMMARY ECONOMICS IS THE STUDY OF HOW PEOPLE CHOOSE TO USE THEIR SCARCE RESOURCES TO PRODUCE, EX channelize, AND CONSUME GOODS AND SERVICES IN AN ATTEMPT TO SATISFY UNLIMITED WANTS. THE ECONOMIC PROBLEM ARISES FROM THE CONFLICT amid SCARCE RESOURCES AND UNLIMITED WANTS. IF WANTS WERE LIMITED OR IF RESOURCES WERE NOT SCARCE, THERE WOULD BE NO NEED TO STUDY ECONOMICS.Economic resources are combined in a miscellany of ways to produce goods and services. Major categories of resources include labor, capital, natural resources, and entrepreneurial ability. Because economic resources are scarce, only a limite d number of goods and services can be produced with them. Therefore, goods and services are also scarce, so choices must be made. Microeconomics focuses on choices made in households, firms, and presidencys and how these choices affect particular markets, such as the market for used cars. Choice is guided by rational self-interest.Choice typically requires time and information, both of which are scarce and valuable. Whereas microeconomics examines the individual pieces of the puzzle, macroeconomics steps back to consider the big picturethe performance of the economy as a whole as reflected by such measures as total production, employment, the price level, and economic growth. The 2008-2009 recession illustrates economic fluctuations, the evolve and fall of economic activity relative to the long-term growth trend of the economy. Economic fluctuations are also called business cycles. These cycles will be a study topic in the macroeconomics course.Economists use theories, or models, to help generalize the effects of an economic change, such as a change in price or income, on individual choices and how these choices affect particular markets and the economy as a whole. Economists employ the scientific method to study an economic problem by (a) formulating the question and isolating relevant variables, (b) specifying the assumptions under which the theory operates, (c) developing a theory, or hypothesis, about how the variables relate, and (d) testing that theory by comparing its predictions with the evidence.A theory might not work perfectly, but it is useful as long as it predicts better than competing theories do. Positive economics aims to discover how the economy works. Normative economics is concerned more with how, in someones opinion, the economy should work. Those who are not careful can fall victim to the fallacy that association is causation, to the fallacy of composition, and to the mistake of ignoring secondary effects. The cecal appendage to this chapter deals with the construction and interpretation of graphs. TEACHING POINTS 1.THIS COURSE WILL PROVIDE THE FIRST EXPOSURE TO THE ECONOMIC WAY OF THINKING FOR MANY OF YOUR STUDENTS. ALTHOUGH IT SEEMS NATURAL TO YOU, ECONOMIC ANALYSIS PRESENTS A FORMIDABLE CHALLENGE TO MANY STUDENTS. YOU MAY WISH TO CONSIDER PRESENTING ECONOMICS AS ONE OF MANY APPROACHES TO DESCRIBING HUMAN BEHAVIOR kinda THAN AS A BODY OF ESTABLISHED DOCTRINES. INTRODUCING A TOPIC WITH RELEVANT QUESTIONS TO WHICH ECONOMICS PROVIDES AN ANSWER GENERALLY ENHANCES STUDENT INTEREST IN ECONOMICS. SUCH QUESTIONS erupt AT THE BEGINNING OF EACH CHAPTER. 2. Students are generally eager and very fresh at the beginning of the semester.Chapters 1 and 2 can be depute during the first week, and you can move almost immediately into discussions of production possibilities, the idea of opportunity cost, the use of marginal analysis, and comparative advantage (see Chapter 2). It should also be leisurely to meld a discussion o f the points contained in the Chapter 1 Appendix with the analytics of Chapter 2. 3. One point to stress in discussing the role and importance of economic analysis is that, while individual responses to changes in an economic environment are not always predictable, the aggregate response often is.The use of such knowledge is valuable in virtually any context in which individuals, households, firms, resource owners, and so on, are faced with changing opportunities and be. You might use some examples to illustrate this, such as what is the predicted response to a tax on gasoline and who ends up paying for the tax or the impact of a tax refund on consumer behavior. 4. From a purely analytical perspective, the most important conception introduced in this chapter is the idea that decisions are made on the basis of marginal analysis.You might stress that marginal analysis is a cornerstone of economics. 5. Some terminology in the text may deviate from your own lecture notes. If you inten d to use any of the Test Banks, try to mention deviations between the texts usage and the terms you use in your lectures. For example, the text uses the word resources whereas you might use factors of production in your lecture notes. 6. Some students think that economics is synonymous with business. You may wish to explain the difference, because many of your students will be studying business administration. . Many students will be apprehensive about the mathematics used in the course. A good way for students to master the few mathematical tools needed in assort is by through application and by using the Study Guides and the online materials. It is essential for students to become comfortable with reading and shifting graphs as well as dividing fractions. The appendix to Chapter 1 provides a good foundation for the tools needed. 8. Many beginning students do not understand what economists mean by the statement consumers are rational. It is helpful to express that rationality doe s not imply that all consumers must be identical or that all consumers make good decisions all the time. Individuals can have dramatically different tastes for goods and service and yet all can be considered rational. ANSWERS TO End-of-Chapter Questions and exercises ANSWERS TO QUESTIONS FOR REVIEW 1. (Definition of Economics) What determines whether or not a resource is scarce? Why is the concept of scarcity important to the definition of economics? A resource is scarce when the amount people desire exceeds the amount available at a price of zero.The concept of scarcity is important to the definition of economics because scarcity forces people to direct how they will use their resources in an attempt to satisfy their unlimited wants and desires. Economics is about making choices. Without scarcity there would be no economic problem, and therefore no need to choose between competing wants and desires. 2. (Resources) To which category of resources does each of the following hold out ? a. A taxi b. Computer software c. One hour of legal counsel d. A parking lot e. A forest f. The Mississippi River g.An individual introducing a new way to market products on the Internet. a. capital a fabricate item employed to produce a service. b. capital a manufactured item employed to produce a good. c. labor human effort. d. capital and natural resources the parking lot is on a natural resource ( demesne), but the land has undergone capital improvement in the form of leveling and paving. e. natural resource. f. natural resource. g. entrepreneurial ability. 3. (Goods and Services) Explain why each of the following would not be considered free for the economy as a whole a.Food vouchers b. U. S. aid to developing countries c. Corporate charitable contributions d. Noncable television programs e. Public high school education aEven if viands vouchers allow individuals to purchase food at no cost, producing the food in the first place uses resources and hence has a cost. b. U. S. aid, while free to the recipient country, involves costs to the United States because the aid requires the use of U. S. resources to assist developing countries. c. The corporation (and its owners) pays for these gifts. d. This is perhaps the most interesting example. Free TV is paid for by consumers through the higher(prenominal) prices of the products advertised there. The cost of advertising is passed along to consumers. e. Public high school education is paid for by citizens, either through taxes or borrowing. 4. (Economic Decision Makers) Which group of economic decision makers plays the leading role in the economic system? Which groups play supporting roles? In what sense are they supporting actors? The main decision makers are households, with firms, governments, and the rest of the world serving as supporting actors.Households are considered to be the lead actors since they supply resources used in production, and demand goods and services produced by other actors. Firms, go vernments, and the rest of the world are supporting actors because they demand the resources that households supply and use them to produce and supply the goods that households demand. 5. (Micro versus Macro) Determine whether each of the following is primarily a microeconomic or a macroeconomic eject a. What price to charge for an automobile b. Measuring the impact of tax policies on total consumer spending in the economy c.A households decisions about what to buy d. A workers decision regarding how much to work each week e. Designing a government policy to increase total employment Microeconomics is the study of the individual economic behavior of decision-making units in the economy, whereas macroeconomics studies the performance of the economy as a whole. a. Microeconomic issue it refers to the price of an individual good. b. Macroeconomic issue it refers to the economy as a whole. c. Microeconomic issue it refers to the decision of one individual household. . Microeconomic iss ue it refers to the decisions of one worker. e. Macroeconomic issue it refers to the economy as a whole. 6. (Micro versus Macro) Some economists believe that in order to really understand macroeconomics, you must first understand microeconomics. How does microeconomics relate to macroeconomics? Microeconomics studies the behavior and choices made by individuals. The behavior and choices made by these individuals is added together to determine the economywide(or macroeconomic(measures, such as total production and unemployment.Microeconomics studies the individual pieces of the economic puzzle macroeconomics fits those pieces together. 7. (Normative versus Positive Analysis) Determine whether each of the following statements is normative or positive a. The U. S. unemployment rate was below 10. 0 percent in 2010. b. The inflation rate in the United States is too high. c. The U. S. government should increase the minimum wage. d. U. S. trade restrictions cost consumers $40 billion annu ally. A positive statement is a statement about what is. It can be supported or rejected by reference to facts.A normative statement concerns what someone thinks ought to be. It is an opinion and cant be shown to be true or false by reference to facts. a. Positive. Either the unemployment rate was below 10. 0 percent or it was not. The validity of the statement can be checked with appropriate data. b. Normative. There is no objective measure of when the inflation rate is high and when it is not. The statement reflects someones opinion of what rate is too high. c. Normative. The word should is usually an indication of an opiniona normative statement. d. Positive.In principle, the cost of trade restrictions could be measured. Measurement does not involve opinions 8. (Role of Theory) What good is economic theory if it cant predict the behavior of a specific individual? This question highlights the fact that economics, like all social sciences, attempts to describe and explain human beh avior. In doing so, it cannot measure and control for all factors influencing behavior. The result is that the behavior of a specific individual cannot be explained or predicted, but the behavior of groups of individuals can be.We cannot, for example, predict any particular individuals buying response to a sale. We can, however, predict what kind of total selling volume will occur because of a sale. Answers to Problems and Exercises 9. (Rational Self-Interest) Discuss the impact of rational self-interest on each of the following decisions a. Whether to attend college full time or enter the workforce full time b. Whether to buy a new textbook or a used one c. Whether to attend a local college or an out-of-town college a. Individuals will equal the expected benefits of tending college full time with the expected costs.One benefit might be that the individuals stock of knowledge and productivity will grow, and so will his or her wage. Costs include not only tuition, but also the wage s that could have been earned by working instead of attending college full time. If the expected benefits outweigh the costs, then the rational person will choose to go to college full time. b. Individuals will compare the expected benefits of a new textbook with the higher costs of purchasing a new textbook. Benefits include not being confused by other students markings in the book and a higher resale value.However, the out-of-pocket cost of a new book will be higher than the cost of a used book. If the expected benefits outweigh the costs, then a rational person will purchase the new textbook. c. Individuals will compare the expected benefits and costs associated with both colleges under consideration and will choose the college at which the difference between benefits and costs is greater. The costs of attending an out-of-town college may include greater travel costs and phone bills and benefits such as learning about a different region. 10. Rational Self-Interest) If behavior is governed by rational self-interest, why do people make charitable contributions of time and money? Rational self-interest is not blind materialism, pure selfishness, or greed. Rational self-interest means we choose the option that maximizes expected benefits with a given cost. wad will give more to charities when the contribution is tax deductible. The lower the personal cost of helping others the more we are unforced to help and contribute.. 11. (Marginal Analysis) The owner of a small pizzeria is deciding whether to increase the radius of delivery area by one mile.What considerations must be taken into account if such a decision is to increase profitability? By increasing its delivery radius, the store will have greater sales. However, these marginal revenues must be balanced against the additional costs incurred, such as greater consumption of pizza ingredients, more gasoline for the delivery truck, and possibly the need to hire additional labor and increase advertising. 12. (Time and Information) It is often costly to obtain the information necessary to make good decisions. Yet your own interests can best be served by rationally deliberation all options available to you.This requires informed decision making. Does this mean that making uninformed decisions is irrational? How do you determine how much information is the right amount? Rational decision makers will continue to acquire information as long as the benefit of the additional information exceeds the additional costs. Oftentimes we are willing to pay others to gather and digest the information for us. 13. (CaseStudy A Yen for Vending Machines) Do vending machines preserve any resources other than labor? Does your answer spell any additional insight into the widespread use of vending machines in Japan?Vending machines, in addition to being labor saving, also conserve space and time. Given the population density of Japan and the limited free time of the typical Japanese worker, vending machines can be expected to be popular among both sellers and buyers in Japan. 14. (CaseStudy A Yen for Vending Machines) Suppose you had the choice of purchasing identically priced lunches from a vending machine or at a cafeteria. Which would you choose? Why? Different students will answer this question in different ways, but the key point is that non-monetary factors affect decision making.For example, students who opt for the cafeteria instead of the vending machine may, for example, do so because of the impersonal nature of the machine and the desire to socialize the eating experience. 15. (Pitfalls of Economic Analysis) Review the discussion of pitfalls in economic thinking in this chapter. Then identify the fallacy, or mistake in thinking, in each of the following statements a. Raising taxes always increases government revenues. b. Whenever there is a recession, imports decrease. Therefore, to stop a recession, we should increase imports. . Raising the tariff on imported steel helps t he U. S. steel industry. Therefore, the entire economy is helped. d. Gold sells for about $1,000 per ounce. Therefore, the U. S. government could sell all the gold in Fort Knox at $1,000 per ounce and reduce the national debt. a. This assertion is a mistake because the secondary effects of taxes on production and the labor supply are ignored. If the tax rate were raised to 100 percent, for example, no one would want to work or produce. b. This is the fallacy that association implies causation.It is more likely that recession causes a change in imports than the other way round. c. This is a fallacy of composition. True, the tariff may help the steel industry. but it hurts purchasers of steel, including the automobile and construction industries. The overall effect on the economy is unclear. d. This is the fallacy of composition, because attempts to sell so much gold at once would push fine-tune the price of gold. 16. (Association Versus Causation) Suppose I observe that communities with lots of doctors tend to have relatively high rates of illness. I conclude that doctors cause illness.Whats wrong with this reasoning? The causality is undoubtedly in the other direction that is, doctors will tend to locate where there is a lot of disease and therefore a greater need for medical care. 17. (CaseStudy College Major and Annual Earnings) Because some college majors pay nearly twice as much as others, why would students pursue their rational self-interest choose a lower paying major? Students select college majors for a variety of reasons, and the expected pay is only one of them. Some students may have a special interest in lower-paying fields, such as philosophy, religion, or social work.Some students may not have the cleverness to succeed in the higher-paying majors, such as engineering, mathematics, or computer science. And many students, when they select a major, may simply be unaware of the pay differences based on college major. 18. (Global Economic Watch) Select Global Issues in Context and in the Basic Search box at the top of the page, enter the phrase selfish. On the Results page, scroll down to the Magazines section. Choose the red link to View All. Scroll down to click on the link for the December 8, 2008, article Going super acid for Selfish Reasons. Are the companies described acting out of rational self-interest? The article indicates that, although the companies actions may help the environment, the companies are primarily motivated to save costs, an example of rational self-interest. 19. (Global Economic Watch) Select Global Issues in Context and in the Basic Search box at the top of the page, enter either the term microeconomic or the term macroeconomic. Choose one of the resources and write a summary in your own words. Especially emphasize how the resource is an example of microeconomics or macroeconomics.Student answers will vary, but should demonstrate understanding of the definitions of microeconomics and macroecon omics. Answers to Appendix Questions 1. (Understanding Graphs) Look at Exhibit 5 and answer the following questions a. In what year (approximately) was the unemployment rate the highest? In what year was it the lowest? b. In what decade, on average, was the unemployment rate highest? In what decade was it lowest? c. Between 1950 and 1980, did the unemployment rate generally increase, decrease, or remain about the same? a. In 1931 the unemployment rate reached its highest point, 25 percent.In 1942 it reached its lowest, approximately 1 percent. b. Unemployment was the highest in the decade of the 1930s and lowest in the decade of the 1900s. c. Between 1950 and 1980, unemployment generally increased. 2. (Drawing Graphs) Sketch a graph to illustrate your idea of each of the following relationships. Be sure to label each axis appropriately. For each relationship, explain under what circumstances, if any, the curve could shift a. The relationship between a persons age and height b. Avera ge monthly temperature in your nursing home town over the course of a year c.A persons income and the number of hamburgers consumed per month d. The amount of fertilizer added to an acre of land and the amount of corn grown on that land in one growing season e. An automobiles horsepower and its gasoline mileage (in miles per congius) a. In the years between birth and 15, you would expect a persons height to increase as his or her age increased. After age 15 or so, height would remain constant. pic b. The average monthly temperature in your home town over the course of a year varies with the seasons. picSeasons c.In the following example drawn, the number of hamburgers consumed per month will rise at first as a persons income increases. (The curve is steeply upward sloping from the origin to an income of $10,000). However, after a certain income level, there will be less and less of a rise in the number of hamburgers consumed per month. (The curve is still upward sloping but is fl attening between an income of $10,000 and $20,000. ) Then, as income rises further, this consumer will decide to try other foods and actually buys few hamburgers per month. (The curve begins to slope downward after an income of $20,000 is reached. ) pic d. As you add more fertilizer, you expect to produce more corn per acre up to a point of saturation. An acre of land will have some finite limit on what it can produce in one growing season, no matter how much fertilizer is added pic e. As a car is engineered to be more powerful with more horsepower, you would expect it to use more gasoline and to get lower mileage per gallon of gasoline. pic 3. (Slope) suppose you are given the following data on wage rates and number of hours worked Hours Worked Hourly Point Wage Per Week a $0 0 b 5 0 c 10 30 d 15 35 e 20 45 f 25 50 a. Construct and label a set of axes and plot these six points. Label each point a, b, c, and so on. Which variable do you think should be measured on the vertical axis, and which variable should be measured on the horizontal axis? b. Connect the points. Describe the resulting curve. Does it make sense to you? c. Compute the slope of the curve between points a and b.Between points b and c. Between points c and d. Between points d and e. Between points e and f. What happens to the slope as you move from point a to point f? a. It is conventional in economics to measure prices on the vertical axis. Here the wage rate is the price of an hour of labor, so it goes on the vertical axis. Hours worked is measured on the horizontal axis. B. THE GRAPH SHOWS THAT AT VERY LOW WAGE RATES, THE PERSON CHOOSES NOT TO WORK AT ALL. ITS entirely NOT WORTH HER WHILE. HOWEVER, ONCE THE WAGE REACHES $10 PER HOUR, SHE BEGINS TO OFFER HER TIME IN THE LABOR MARKET BY BEING WILLING TO WORK 30 HOURS PER WEEK.AT HIGHER AND HIGHER WAGE RATES, SHE IS WILLING TO WORK MORE AND MORE HOURS. c. THE SLOPE IS MEASURED BY THE VERTICAL CHANGE THAT RESULTS FROM A GIVEN CHAN GE ALONG THE HORIZONTAL AXIS. From point a to point b, the vertical change (wage) is 5, and the horizontal change (hours worked) is zero. Slope is 5/0 = assumed infinity. From point b to point c, the vertical change (wage) is 5, and the horizontal change (hours worked) is 30. Slope is 5/30 = +1/6. From point c to point d, the vertical change (wage) is 5, and the horizontal change (hours worked) is 5. Slope is 5/5 = +1.From point d to point e, the vertical change (wage) is 5, and the horizontal change (hours worked) is 10. Slope is 5/10 = +1/2. From point e to point f, the vertical change (wage) is 5, and the horizontal change (hours worked) is 5. Slope is 5/5 = +1. A change in the steepness of the curve indicates a change in slope. As the curve becomes steeper, the rate of increase in hours of work (slope) is increasing. The shape of the curve indicates that as the curve flattens, the rate of increase in hours of work (slope) is decreasing. d a b c e f