Solution Manual for Economics, Global Edition, 12th Edition

Preview (16 of 431 Pages)

100%

Purchase to unlock

Loading page image...

PrefacePart 1IntroductionChapter 1What is Economics?1AppendixGraphs in Economics8Chapter 2The Economic Problem19Chapter 3Demand and Supply37Part2Monitoring MacroeconomicPerformanceChapter 4Measuring GDP and Economic Growth52Chapter 5Monitoring Jobs and Inflation65Part3Macroeconomic TrendsChapter 6Economic Growth77Chapter 7Finance, Saving, and Investment88Chapter 8Money, the Price Level, and Inflation100Chapter9The Exchange Rate and the Balance of Payments114Part4Macroeconomic FluctuationsChapter10Aggregate Supply and Aggregate Demand126Chapter 11Expenditure Multipliers140Chapter 12TheBusiness Cycle, Inflation, and Deflation155Part5Macroeconomic PolicyChapter 13Fiscal Policy168Chapter 14Monetary Policy182Chapter 15International Trade Policy196T a b l e o f C o n t e n t s

Loading page image...

A n s w e r st ot h eR e v i e wQ u i zPage 21.List some examples ofthescarcitythat you face.Examples of scarcitycommon to studentsinclude not enough income to afford both tuition and a nicecar,not enough learning capacity to study for both an economics exam and a chemistry exam in onenight, and not enough time to allowextensivestudyingandextensivesocializing.2.Find examples of scarcity in today’s headlines.A headline inThe Sacramento BeeonMay 6, 2014was “Sleep Train Kicks Off Annual ‘Clothing Drive forFoster Kids’.”The story points outthatthese children facescarcitybecause “foster children typicallyarrive in a foster home with just the clothes on their back.” Accordingly, the charity group Sleep Trainis looking for donations to provide foster children with more clothing, which means that the fosterfamily will need to provide less clothing.3.Find anexampleof the distinction between microeconomics and macroeconomics in today’sheadlines.Microeconomics:OnMay 6, 2014a headline inTheNew York Timeswas “Bayer Buys Merck’s ConsumerBusiness for $14.2 Billion.” This story covers a microeconomic topic because it discusseshow twopharmaceutical firms have decided to transfer ownership of the unit producing over-the-counterconsumer products for Merck.Macroeconomics:OnMay 6, 2014, a headline inTheWall Street Journalwas “U.S. Trade Gap Narrows as Demand Grows Here and Abroad.” This story covers amacroeconomic topic because it concernsthe total amount of international tradein the entireeconomy.Page71.Describe the broad facts aboutwhat,how, andfor whomgoods and services are produced.What gets produced is significantly different today than in the past. Today the U.S. economy producesmore services, such as medical operations, teaching, and hair styling, than goods, such as pizza,automobiles, and computers. How goods and services are produced is by businesses determining howthe factors of production, land, labor, capital and entrepreneurship, are combined to make the goodsand services we consume. Land includes all natural resources, both renewable natural resources such aswood, and nonrenewable natural resources such as natural gas. Labor’s quality depends on people’shuman capital. In the U.S. economy, human capital obtained through schooling has increased over theyears with far more people completing high school and attending college than in past years. Finally, forwhom are goods and services to be produced depends on the way income is distributed to U.S.citizens. This distribution is not equal; the 20 percent of people with the lowest income earn about 5percent of the nation’s total income while the 20 percent of people with the highest incomes earnabout 50 percent of total income. On the average, men earn more than women, whites more than non-whites, and college graduates more than high school graduates.1WHAT ISECONOMICS?C h a p t e r

Loading page image...

2C H A P T E R12.Use headlines from the recent news to illustrate the potential for conflict between self-interestand the social interest.One example of an issue concernstheincome necessary to live in an apartment buildinginSanFrancisco.AMay 5, 2014headline fromThe San Francisco Chroniclewas“S.F. Landlord: Make $100K orGet Out.”This story discussesan owner’s attempt to make the tenants prove that their annual incomeis at least $100,000. The owner is following his self-interest because he wants to have only high-incomeresidents who, presumably, create less damageand might be willing to pay more rent. The head of SanFrancisco’s Housing Rights Committee, Sara Shortt, believes that the requirement is not in the socialinterest. She asserts that the effort “definitely reads like a harassment tactic” andthat the effort toforce tenants to move is illegal. She believes that the social interest is served by having a variety oftenantsin the apartments.Page101.Explain the idea of a tradeoff and think of three tradeoffs that you have made today.A tradeoff reflects the point thatwhensomeone gets one thing, something else must be given up. Whatis given up is the opportunity cost of whatever is obtained.Three examplesof tradeoffs that arecommon to students include: a) When a student sleeps in rather than going to his or her early morningeconomics class, the student trades off additional sleep for study time. The opportunity cost of thedecision is a lower grade on the exam. b) When a student running late for class parks his or her carillegally, the student trades off saving time for the risk of a ticket. The potential opportunity cost of thedecision is the goods and services that cannot be purchased if the student receives an expensive parkingticket. c) A student trades off higher income byspending time during the day working ata part-time jobfor lesstime spent atleisure time and study. The opportunity costfor the higher incomeis less leisureand lower grades in classes.2.Explain what economists mean by rational choice and think of three choices that you’ve madetoday that are rational.A rational choice is one that compares the costsand benefits of the different actions and then choosesthe action that has the greatest benefit over cost for the person making the choice.Three rationalchoices made by students include: a) The choice toskip breakfast togo to class. In this case the benefitis the higher grade in the class and the cost is the breakfast forgone. b) The choice to stop talking witha friend on the phone and start studying for an impending exam. In this case the benefit is the resultinghigher grade in the class and the cost is the conversation forgone. c) The choice to do laundry todayrather than watch television. In this case the benefit is the fact the student will have clean clothes towear and the cost is the loss of the entertainment the television show would have provided.3.Explain why opportunity cost is the best forgone alternative and provide examples of someopportunity costs that you have faced today.When a decision to undertake one activity is made, often many alternative activities are no longerpossible. Often these activities are mutually exclusive so only the highest valued alternative is actuallyforgone. For instance, the decision to go to a student’s 8:30 AM class eliminates the possibility ofsleeping in during the hour and of jogging during the hour. But in this case, it is impossible tobothsleepin and to jog during the hour, so the opportunity cost cannot be both activities. What is lost isonlytheactivity that otherwise would have been chosen—eithersleeping inorjogging—which is whateveractivity would have been chosen, that is, the most highly valued of the forgone alternatives. Forstudents, attending class, doing homework, studying for a test are all activities with opportunity costs.

Loading page image...

W H A TI SE C O N O M I C S ?34.Explain what it means to choose at the margin and illustrate with three choices at the margin thatyou have made today.Choosing at the margin means choosing to do a little more or a little less of some activity.Threecommonexamplesstudents encounterare: a) When a student faces a chemistry and an economics finalexam in one day, the student must determine whether spending the last hour studying a little morechemistry or a little more economics will yield a better contribution (marginal benefit) to his or heroverall GPA. b) A college student buying a computer must decide whether the marginal benefit ofadding 1 GB of additional memory is worth the marginal cost of the additional memory. c) A studentfootball fan with a choice of a cheap seat in the student bleachers located at the far end of the playingfield or a more expensive seat located on the 30 yard line must determine whether the marginal benefitof watching the game from a better seat is worth the marginal cost of the higher ticket price.5.Explain why choices respond to incentives and think of three incentives to which you haveresponded today.People making rational decisions compare the marginal benefits of different actions to their marginalcosts.Therefore people’s choices change when their incentives, that is the marginal benefit and/ormarginal cost, of the choice changes.Just as everyone else, students respond to incentives; a) A studentstudies because of the incentives offered by grades. b) A student is more likely to attend a class ifattendance is factored into the grade. c) A student might attend a meeting of a club if the student’ssignificant other is eager to attend the meeting.Page 111.Distinguish between a positive statement and a normative statement and provide examples.Apositivestatement is a description of how the worldis.It is testable. Anormativestatement is adescription of how the worldought to be. It is, by its very nature, not testable because there is nouniversally approved criterion by which the statement can be judged. “I will receive an A for thiscourse,” is a positive statement made by an economics student—it might not be true, but it is testable.“I will receive a good grade for this course,” is a normative statement. Whether someone agrees with itdepends on his or her interpretation of what makes for a “good” grade.2.What is a model? Can you think of a model that you might use in your everyday life?Amodelis a description of some aspect of the economic world. It includes only those features that arenecessary to understand the issue under study. An economic model is designed to reflect those aspectsof the world that are relevant to the user of the model and ignore the aspects that are irrelevant. Atypical model is a GPS map. It reflects only those aspects of the real world that are relevant in assistingthe user in reaching his or her destination and avoids using information irrelevant to travel.3.How do economists try to disentangle cause and effect?Economists use models to understand some aspect of the economic world. Testing the predictions ofmodels makes it necessary to disentangle cause and effect. To overcome this problem, economists havethree methods of testing their models: Using a natural experiment, using a statistical investigation, andusing economic experiments. A natural experiment is a situation that arises in the ordinary course oflife in which one factor being studied varies and the other factors are the same. This method allows theeconomist to focus on the effect from the factor that differs between the two situations. A statisticalinvestigation looks for correlations between variables but then determining whether the correlationactually reflects causation can be difficult. An economic experiment puts people into decision makingsituations and then varies the relevant factors one at a time to determine each factor’s effect.4.How is economics used as a policy tool?Individuals, businesses, and governments use economics as a policy tool. Individuals use the economicideas of marginal benefit and marginal cost when making decisions for such topics as attending college,paying cash or credit for a purchase, and working. Businesses also use the concepts of marginal benefitand marginal cost when making decisions about what to produce, how to produce, and even how manyhours to stay open. Finally governments also use marginal benefit and marginal cost when decidingissues such as the level of property taxes, the amount to fund higher education, or the level of a tariffon Brazilian ethanol.

Loading page image...

4C H A P T E R1A n s w e r s t o t h eS t u d y P l a nP r o b l e m s a n d A p p l i c a t i o n s1.Apple Inc. decides to make iTunes freely available in unlimited quantities.a.Does Apple’s decision change the incentives that people face?Apple’s decision changes people’s incentives. For example, it increases people’s incentives to buy aniPod to take advantage of the newly “free” music available on iTunes.b.Is Apple’s decision an example of a microeconomic or a macroeconomic issue?Apple’s decision is a microeconomic decision because it affects a single company and a single market.2.Which of thefollowing pairs does not match?a.Labor and wagesLabor earns wages, so this pair matches.b.Land and rentLand earns rent, so this pair matches.c.Entrepreneurship and profitEntrepreneurship earns profit, so this pair matches.d.Capital and profitCapital earns interest, so this pair doesnotmatch.3.Explain how the following news headlines concern self-interest and the social interest.a.StarbucksExpands inChinaStarbucks’expansion is a decision made byStarbucksto furtherStarbucks’interest. Thus the decision isdirectly inSrarbucks’self interest. The social interestis affected because Starbucks’ expansion will havean effect in China. For instance, more Chinese citizens might drink coffee rather than tea and fewercoffee shops run by Chinese firms might open.b.McDonald’s Moves intoGourmet CoffeeMcDonald’s decision to servegourmet coffeeis a decision made by McDonald’s to further McDonald’sinterest. Thus the decision is directly in McDonald’s self interest. The social interest isaffected becausemore people willdrink coffeerather than otherdrinks such as sodas.c.Food Must Be Labeled with NutritionDataThe decision to require that food must be labeled with nutrition information is made in the socialinterest. This decision is not made by any one single firm and so does not (necessarily) reflect anyone’sself interest.4.The night before an economics test, you decide to go to the movies instead of staying home andworking your MyEconLab Study Plan. You get 50 percent on your test compared with the 70percent that you normally score.a.Did you face a tradeoff?Yes, you faced a tradeoff. The tradeoff was between a higher test score and an evening with yourfriends at the movies.b.What was the opportunity cost of your evening at the movies?The opportunity cost of going to the movies is the fall in your grade. That is the 20 points forgone fromchoosing to see the movie rather than study.

Loading page image...

W H A TI SE C O N O M I C S ?55.Cost of Sochi Winter OlympicsThe Russian government spent $6.7 billion on Olympic facilities and $16.7 billion upgrading Sochiarea infrastructure. Sponsors spent $27.6 billion on hotels and facilities hoping to turn Sochi intoa year-round tourist magnet.Source:The Washington Post, February 11, 2014Was the opportunity cost of the Sochi Olympics $6.7, $23.4, or $51 billion? Explain your answer.The $6.7 billion spent on Olympic facilities is definitely an opportunity cost of the Sochi Olympics. The$16.7 billion spent upgrading the Sochi area infrastructure and the $27.6 billion spent on hotels andfacilities are an opportunity cost of the Sochi Olympicsifthe funds would not have spent otherwise.However, if there were already plans underway to upgrade the Sochi area infrastructure then the costis not an opportunity cost of the Sochi Olympics because the cost would have been paid even if Sochidid not host the Olympics. Similarly, if there were already plans underway to build hotels and facilitiesin Sochi then the cost is not an opportunity cost of the Sochi Olympics because the cost would havebeen paid even if Sochi did not host the Olympics.6.Which of the following statements is positive, which is normative, and which can be tested?a.The UnitedStatesshould cut its imports.The statement is normative and cannot be tested.b.China is the largest trading partnerof the United States.The statement is positive and can be tested.c.If the price of antiretroviral drugs increases, HIV/AIDS sufferers will decrease their consumptionof the drugs.The statement is positive and can be tested.

Loading page image...

6C H A P T E R1Answers to AdditionalProblemsandApplications7.Rapper Offers Free Tickets for ConcertEminem will hit the road with Rihanna offering an awesome deal—buy one and get one free!Source:Mstars News, February 24, 2014When Eminem gave away tickets, what was free and what was scarce? Explain your answer.The seats in thearenasare scarce—there are only a limited number. Also scarce is the time theenthusiastic fans spendin line to acquire the tickets. In addition, if the fans whowith the “free”ticketattended the concert rather than sell their free tickets, they incurred the opportunity cost of theforegone ticket price. So the concert was far from “free” for the concert-goers. The publicity thatEminem receives is free to him but the publicity used reporters’ scarce time to report on the lines forthe tickets rather than reporting on other news worthy events.8.How does the creation of a successful movie influencewhat,how, andforwhomgoods and servicesare produced?The “what” question is affected in two ways. First, one good or service that is produced is thesuccessful movie. Second, spinoffs (Iron Man II) and/or similar films likely will be created in the future.The “how” question is affected to the extent that movies use different production methods. Somemovies, for instance, have a lot of special effects while other movies have few or none. The “for whom”question is influenced because those people who, as the result of the blockbuster movie, have higherincomes so that more goods and services are produced for them.9.How does a successful movie illustrate self-interested choices that are also in the social interest?The a successful movie increases the income of the people involved with the movie. Hence thesepeople’s choices are driven largely by self interest. However the creation of a successful movie alsoincreases the quantity of widely enjoyed entertainment. The amount of entertainment available in theeconomy increases which benefits society. So the choices the people made in their self interest alsoreflected choices made in the social interest.10.Before starring inIron Man, Robert Downey Jr. had appeared in 45 movies that grossed anaverage of $5 million on the opening weekend. In contrast,Iron Mangrossed $102 million.a.Howwillthe success ofIron Maninfluence the opportunity cost of hiring Robert Downey Jr.?The salary that must be paid to Robert Downey Jr. to appear in future movies increased because someof the success ofIron Manwas attributed to Mr. Downey. As a result the opportunity cost to movieproducers of hiring Mr. Downey increased.b.How have the incentives for a movie producer to hire Robert Downey Jr. changed?There are two effects on the incentives of producers to hire Mr. Downey. First, because theopportunity cost of hiring Mr. Downey increased, the incentive to hire him decreased. Howeverbecause part of the success ofIron Manwas attributed to Mr. Downey’s acting in the title role,producers expect that his acting will lead to increased success for future movies. This belief increasesproducers’ incentives to hire Mr. Downey.11.What might be an incentive for you to take a class in summer school?Listsome of the benefitsand costs involved in your decision.Would your choice be rational?Early graduation,smaller class sizes, and/or retaining eligibility for a scholarshipareexamples ofincentives that encourage taking summer classes. The benefits of taking summer classes might includeearly graduation, more personal attention from the instructor, retained eligibility for a scholarship, andincreased knowledge about some aspect of the world. Costs potentially include forgone summer jobsor internships, less time to spend with friends, and additional tuition and other class-related expenses ifthe class I not one that would be taken otherwise. The choice is rational as long as the studentdetermines that taking summer classes offers the highest benefit over cost for the use of his or timeand efforts.

Loading page image...

W H A TI SE C O N O M I C S ?712.Look at today’sWall Street Journal.What is the leading economic news story? With which of thebigeconomicquestions does it dealand what tradeoffs does it discuss or imply?OnMay6, 2014, the top economic news story discusseda report claimingthat climate change isalreadyharming the economy. The report asserted that climate change isalreadybringing extremeweather such as floods, drought, and other weather-related disasters, all of which harm the nation’seconomy.This story implicitly discusses the “how” question: Will goods and services be produced in ways thatlimit climate change or not? It also discusses the “what” question: Will goods and services that limitclimate change, such as solar panels, be produced?Thestory implicitly illustrates a tradeoff:Ifchoices are taken tolimitclimate change, such as reducingcarbon emissions from generating power,consumers will pay higher prices but the extent of climatechange will be decreased.13.Provide two microeconomic statementsand two macroeconomic statements.Classifyyourstatements aspositive or normative, and explainyour classifications.Microeconomic statements are: Fewer deep water oil wells should be drilled in the Gulf of Mexico. Ifless oil is produced, the price of oil will rise. The first statement is normative because it relies on whatthe person thinks “should” be done. The second statement is positive because it is possible to test theeffect of less oil being produced.Macroeconomic statements are: The currently unemployment rate is too high. The currentunemployment rate is higher for blacks than for whites. The first statement is normative because itdepends on what is deemed “too high.” The second statement is positive because it can be checked todetermine its validity.

Loading page image...

A n s w e r st ot h eR e v i e wQ u i zPage 281.Explain how we “read” the three graphs in Figs.A1.1 and A1.2.Thepoints in the graphs relate the quantity of the variable measured on the one axis to the quantity ofthe variable measured on the other axis. The quantity of the variable measured on the horizontal axis(thex-axis) is measured by the horizontal distance from the origin to the point. Similarly, the quantity ofthe variable measured on the vertical axis (they-axis) is measured by the vertical distance from theorigin to the point. The point relates these two quantities. For instance, in Figure A1.2a, pointAshowsthat at a price of$1.37per song,3.8million songs are downloaded.2.Explain what scatter diagrams show and why we use them.Scatter diagrams plot the value of one economic variable against the value of another variable for anumber of different values of each variable.We use scatter diagrams because they quickly reveal if arelationship exists between the two variables. Moreover, if a relationship exists, scatter diagrams showwhether increases in one variable are associated with increases or decreases in the other variable.3.Explain how we “read” the three scatter diagrams in Figs.A1.3 and A1.4.The scatter diagram in Figure A1.3 shows the relationship between box office ticket sales and DVDssoldfor9popular movies. The figure shows that higher box office sales are associated with a highernumber of DVDs sold. But thefigure shows that therelationship is weak.The scatter diagram in FigureA1.4ashows the relationship between income, in thousands of dollars peryear, andexpenditure, also in thousands of dollars per year, for the years 2001to 2011. The scatterdiagram shows that higher income leads to higher expenditure. The figure also shows that therelationship is relatively strong.The scatter diagram in Figure A1.4b shows the relationship between the inflation rate and theunemployment rate for the years 2001to 2011. The figure shows that for most of the years, there wasa weakrelationship between these variables, with perhaps higher inflation being associated with lowerunemployment.1GRAPHS INECONOMICSA p p e n d i x

Loading page image...

8A P P E N D I X14.Draw a graph to show the relationship between two variables that move in the same direction.A graph that shows the relationship between twovariables that move in the same direction isshown by a line that slopes upward. Figure A1.1illustrates such a relationship.5.Draw a graph to show the relationship betweentwo variables that move in opposite directions.A graph that shows the relationship between twovariables that move in theoppositedirectionsisshown by a line that slopes downward. FigureA1.2 illustrates such a relationship.

Loading page image...

G R A P H SI NE C O N O M I C S96.Draw a graphoftwo variableswhose relationship shows (i)a maximum and(ii)a minimum.A graph that shows the relationshipbetween two variables thathave amaximum is shown by a line that starts outsloping upward, reaches a maximum, andthen slopes downward. Figure A1.3illustrates such a relationship with curveB.A graph that shows the relationshipbetween two variables thathave aminimum is shown by a line that starts outsloping downward, reaches a minimum, andthen slopes upward. Figure A1.3 illustratessuch a relationship with curveA.7.Which of the relationships in Questions 4and 5 is a positive relationship and which isa negative relationship?The relationship in Question 4 betweenthe two variables that move in the samedirection is a positive relationship. Therelationship in Question 5 between thetwo variables that move in the opposite directionsis a negative relationship.8.What are the two ways of calculating the slope of a curved line?To calculate the slope of a curved line we can calculate the slope at a point or across an arc.The slope of a curved line at a point on the line is defined as the slope of the straight line tangent to thecurved line at that point. The slope of a curved line across an arc—between two points on the curvedline—equals the slope of the straight line between the two points.9.How do we graph a relationship among more than two variables?To graph a relationship among more than two variables, hold constant the values of all the variablesexcept two. Then plot the value of one of the variables against the other variable.10.Explain what change will bring amovement alonga curve.A movement along a curve occurs when the value of a variable on one of the axes changes while all ofthe other relevant variables not graphed on the axes do not change. The movement along the curveshows the effect of the variable thatchanges,ceteris paribus(holding all of the other non-graphedvariables constant).11.Explain what change will bring ashiftof a curve.A curve shifts when there is a change in the value of a relevant variable that is not graphed on the axes.In this case the entire curve shifts.

Loading page image...

1 0A P P E N D I X1A n s w e r s t o t h e S t u d y P l a n P r o b l e m s a n d A p p l i c a t i o n sUse the spreadsheet to work Problems 1 to 3.The spreadsheet provides data on the U.S.economy: Column A is the year, column B isthe inflation rate, column C is the interestrate, column D is the growth rate, and columnE is the unemployment rate.1.Draw a scatter diagram of the inflation rate and the interest rate. Describe the relationship.To make a scatter diagram of the inflation rate and the interest rate, plot the inflation rate on thex-axisand the interest rate on they-axis. The graph will be a set of dots and is shown in Figure A1.4. Thepattern made by the dots tells us that as the inflation rate increases, the interest rate usually increasesso there is a(weak)positive relationship.2.Draw a scatter diagram of the growth rate and the unemployment rate. Describe the relationship.To make a scatter diagram of the growth rate and the unemployment rate, plot the growth rate on thex-axis and the unemployment rate on they-axis. The graph will be a set of dots and is shown in FigureA1.5. The pattern made by the dots tells us that when the growth rate increases, the unemploymentrate usually decreases so there is a negative relationship.ABCDE120031.61.02.86.0220042.31.43.85.5320052.73.23.45.1420063.44.92.74.6520073.24.51.84.6620082.91.4−0.35.8720093.80.2−2.89.382010−0.30.12.59.6920111.60.11.88.91020123,10.12.88.11120132.10.11.97.4

Loading page image...

G R A P H SI NE C O N O M I C S1 13.Draw a scatter diagram of the interest rate and the unemployment rate. Describe therelationship.To make a scatter diagram of theinterestrateand the unemployment rate, plot theinterestrate on thex-axis and the unemployment rateon they-axis. The graph will be a set of dotsand is shown in Figure A1.6. The pattern madeby the dots tells us that when theinterestrateincreases, the unemployment rate usuallydecreases so there is a negative relationship.Use the following news clip to work Problems 4 to 6.LegoShatters More Records:Source: Boxofficemojo.com,Data for weekend ofFebruary14-17, 20144.Draw a graph of the relationshipbetween the revenue per theater onthey-axis and the number of theaterson thex-axis. Describe therelationship.Figure A1.7 shows the relationship. Asthe figure shows, there is apositiverelationship.5.Calculate the slope of the relationship between3,775and 2,253theaters.The slope equals the change in revenue per theaterdivided by the change in the number of theaters. Theslope equals ($16,551$12,356)/(3,7752,253)which equals $2.76per theater.6.Calculate the slope of the relationshipin Problem 4between2,253and3,372theaters.The slope equals the change in revenue per theaterdivided by the change in the number of theaters. Theslope equals ($12,356$7,432)/(2,2533,372which equals−$4.40per theater.MovieTheaters(number)Revenue(dollars pertheater)The LEGO Movie3,775$16,551About Last Night2,253$12,356RoboCop3,372$7,432TheMonument Men3,083$5,811

Loading page image...

1 2A P P E N D I X17.Calculate the slope of the relationship shown inFigure A1.8.The slope is5/4. The curve is a straight line, so itsslope is the same at all points on the curve. Slopeequals the change in the variable on they-axisdivided by the change in the variable on thex-axis.To calculate the slope, you must select two pointson the line. One point is at 10 on they-axis and 0on thex-axis, and another is at 8 on thex-axis and0 on they-axis. The change inyfrom 10 to 0 isassociated with the change inxfrom 0 to 8.Therefore the slope of the curve equals10/8,which equals5/4.Use the relationship shown in Figure A1.9 to workProblems 8 and 9.8.Calculate the slope of the relationshipat pointAand at pointB.The slope at pointAis2, and the slope at pointBis0.25. To calculate the slope at a point on acurved line, draw the tangent to the curved line atthe point. Then find a second point on the tangentand calculate the slope of the tangent.The tangent at pointAcuts they-axis at 10. Theslope of the tangent equals the change inydividedby the change inx. The change inyequals4 (6minus 10) and the change inxequals 2 (2 minus 0).The slope at pointAis4/2, which equals2.Similarly, the slope at pointBis0.25. The tangentat pointBgoes through the point(4, 2). Thechange inyequals0.5, and the change inxequals2. The slope at pointBis0.25.9.Calculate the slope across the arcAB.The slope across the arcABis1.125. Theslope across an arcABequals the change iny, which is 4.5 (6.0 minus 1.5) divided by thechange inx, which equals4 (2 minus 6).The slope across the arcABequals 4.5/4,which is1.125.Price(dollarsper ride)Balloon rides(number per day)50F70F90F53240501027324015182732

Loading page image...

G R A P H SI NE C O N O M I C S1 3Use the table to work Problems 10 and 11. The table gives the price of a balloon ride, the temperature,and the number of rides a day.10.Draw a graph to show the relationship betweenthe price and the number of rides, whentemperature is 70°F. Describe this relationship.Figure A1.10 shows the relationship between theprice and the number ofballoonrides when thetemperature is 70F. The relationship betweenthe price and the number of rides is inverse; thatis, when the price rises, the number of ridesdecreases.11.What happens in the graph in Problem 10 if thetemperature rises to 90°F?If the temperature rises to 90F, the curve shiftsrightward. This shift is illustrated in Figure A1.11.In that figure, both the initial curve, which applieswhen the temperature is 70F, and the new curve,which applies when the temperature is 90F, areillustrated. The curve when the temperature is90F lies to the right of the curve when thetemperature is 70F indicating that at every price,more balloon rides are takenwhen thetemperature is 90F rather than 70F.

Preview Mode

This document has 431 pages. Sign in to access the full document!

Report

Study Now!

Document Details

Related Documents

Test Bank For Economics, 13th Edition

Solution Manual for Economics, 13th Edition

Lecture Notes for Economics, 13th Edition

Analysis of McDonald

The Effect of Exercise on Clothespin Squeezing

Analyzing Coca-Cola's Demand, Supply and Market St

Principles of Managerial Economics

Emerging Economies and Globalization

Emerging Economies and Globalization

Economic Policy Recommendation

Company

Explore

Study Tools