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foundations of microeconomics

Questions and Answers of Foundations Of Microeconomics

Figure A1.8 Graphing a Relationship Among Three Variables
Figure A1.8 shows a relationship among three variables. The table shows the number of gallons of ice cream consumed per day at various temperatures and ice cream prices. How can we graph these
price.
cream is inexpensive and the temperature is high. For any given price of ice cream, the quantity consumed varies with the temperature; and for any given temperature, the quantity of ice cream
the price of ice cream and the temperature. If ice cream is expensive and the temperature is low, people eat much less ice cream than when ice
two variables as a point formed by the x and y values. But most of the relationships in economics involve relationships among many variables, not just two. For example, the amount of ice cream
All the graphs that you have studied so far plot the relationship between
Two Variables
In part (c), we calculate the slope at a point on a curve. To do so, place a ruler on the graph so that it touches point A and no other point on the curve, then draw a straight line along the edge of
In part (c), the slope of the curve at point A equals the slope of the red line. 1 When Δx is 4, 2 Δy is 3, so 3 the slope (Δy ÷ Δx) is 3/4.
In part (b), 1 when Δx is 4, 2 Δy is −3, so 3 the slope (Δy ÷ Δx) is −3/4.
In part (a), 1 when Δx is 4, 2 Δy is 3, so 3 the slope (Δy ÷ Δx) is 3/4.
Figure A1.7 Calculating Slope Watch Calculating Slope
6. The change in x is 4—that is, is 4. The change in y is 3—that is, is 3. The slope of that line is 3/4. In part (b), when x increases from 2 to 6, y decreases from 6 to 3. The change in y is
Figure A1.7 shows you how to calculate slope. The slope of a straight line is the same regardless of where on the line you calculate it—the slope is constant. In part (a), when x increases from 2
If a large change in y is associated with a small change in x, the slope is large and the curve is steep. If a small change in y is associated with a large change in x, the slope is small and the
We can measure the influence of one variable on another by the slope of the relationship. The slope of a relationship is the change in the value of the variable measured on the y-axis divided by the
The Slope of a Relationship
In part (b), the vineyards of France produce 3 billion gallons of wine no matter what the rainfall is in California. These variables are unrelated, and the curve is vertical.Watch Variables That
curve is horizontal.
A1.6 shows two graphs in which the variables are unrelated.In part (a), as the price of bananas increases, the student’s grade in economics remains at 75 percent. These variables are unrelated, and
Part (a) shows a relationship that starts out sloping upward, reaches a maximum, and then slopes downward. Part (b) shows a relationship that begins sloping downward, falls to a minimum, and then
upward as the cost per mile rises.Figure A1.6 Variables That Are Unrelated
per acre rises, 2 is flat at point A, the maximum yield, and then 3 slopes downward as the yield per acre falls.In part (b), as the speed increases, the curve 1 slopes downward as the cost per mile
Figure A1.5 Maximum and Minimum Points Watch Maximum and Minimum Points
Part (c) shows the relationship between the amount of leisure time and the number of problems worked by a student. Increasing leisure time produces an increasingly large reduction in the number of
Part (b) shows the relationship between the cost per mile traveled and the length of a journey. The longer the journey, the lower is the cost per mile. But as the journey length increases, the fall
Part (a) shows the relationship between the number of hours spent playing squash and the number of hours spent playing tennis when the total number of hours available is five. One extra hour spent
Part (c) shows that as leisure time increases, the number of problems worked decreases along a curve that becomes steeper.
Part (b) shows that as the journey length increases, the cost of the trip falls along a curve that becomes less steep.
Part (a) shows that as the time playing tennis increases, the time playing squash decreases along a straight line.
Part (c) shows the relationship between the number of problems worked by a student and the amount of study time. An upward-sloping curved line that starts out quite steep and becomes flatter as we
An upward-sloping curved line that starts out quite flat but then becomes steeper as we move along the curve away from the origin describes this relationship. The curve slopes upward and becomes
Part (b) shows the relationship between distance sprinted and recovery time (the time it takes the heart rate to return to its normal resting rate).
Part (a) shows a straight-line relationship, which is called a linear relationship . The distance traveled in 5 hours increases as the speed increases. For example, point A shows that 200 miles are
Part (c) shows that as study time increases, the number of problems worked increases along a curve that becomes less steep.
Part (b) shows that as the distance sprinted increases, recovery time increases along a curve that becomes steeper.
number of hours increases along a straight line.
Watch Positive (Direct) Relationships Part (a) shows that as speed increases, the distance traveled in a given
Figure A1.3 Positive (Direct) Relationships
Figure A1.3 shows graphs of the relationships between two variables that move in the same direction. Such a relationship is called a positive relationship or direct relationship . 
We use graphs to show the relationships among the variables in an economic model. An economic model is a simplified description of the economy or of a component of the economy such as a business or a
different groups in a population at a point in time. Figure A1.2(d) is an example of a cross-section graph. It shows the percentage of people who participate in selected sports activities in the
Figure A1.2(c) shows that the 2000s were different from the 1990s, which in turn were different from the 1980s. The price of coffee started the 1980s high and then fell for a number of years. During
A time-series graph also reveals whether the variable has a trend. A trend is a general tendency for the value of a variable to rise or fall over time. You can see that the price of coffee had a
3. Rising or falling quickly or slowly. If the line is steep, then the price is rising or falling quickly. If the line is not steep, the price is rising or falling slowly. For example, the price rose
2. Rising or falling. When the line slopes upward, as in 2006, the price is rising. When the line slopes downward, as in 1997, the price is falling.
1. High or low. When the line is a long way from the x-axis, the price is high, as it was in 1986. When the line is close to the xaxis, the price is low, as it was in 2001.
A time-series graph conveys an enormous amount of information quickly and easily, as this example illustrates. It shows when the value is
we are interested in is the price of coffee, and it is measured on the y-axis.
Figure A1.2(b) shows the relationship during the 1990s between the percentage of Americans who own a cell phone and the average monthly cell-phone bill. This scatter diagram reveals that as the cost
Figure A1.2(a) shows the relationship between expenditure and income. Each point shows expenditure per person and income per person in the United States in a given year from 2000 to 2015. The points
A cross-section graph shows the value of a variable across the members of a population. Part (d) shows the participation rate in the United States in each of ten sporting activities.
it increased and decreased, and when it changed quickly and changed slowly.Watch Data Graphs
A time-series graph plots the value of a variable on the y-axis against time on the x-axis. Part (c) plots the price of coffee each year from 1980 to 2016. The graph shows when the price of coffee
A scatter diagram reveals the relationship between two variables. In part(a), as income increases, expenditure almost always increases. In part (b), as the monthly cell-phone bill falls, the
A scatter diagram is a graph of the value of one variable against the value of another variable. It is used to reveal whether a relationship exists between two variables and to describe the
6. Increased inequality a global phenomenon The Organisation for Economic Co-operation and Development (OECD)held a conference in the summer of 2011 on economic inequality. In a backgrounder to the
5. Incomes in China and India are a small fraction of those in the U.S. But incomes in China and India are growing at more than twice the rate of those in the U.S.a. Explain how economic inequality
4. High income inequality in Singapore In 2012, Singapore had the highest income inequality among all developed economies in the Organization for Economic Cooperation and Development(OECD). The
3. India records sharp drop in poverty rate Jay Prakash Mahato migrated to Gurgaon from Bihar, one of the poorest states in India, more than a decade ago. With better job opportunities there,
2. Gender income inequality in Denmark In Denmark, the average annual disposable income for working women is$43,978, which is $7,664 less than their male counterparts.Source: Ice News, January 2,
1. Suppose the low-skilled workers in rural and urban areas earn the same wage rate. While the cost of acquiring skill is the same in both areas, the increase in the value of marginal product by
8. California progress In May, California voters rejected an increase in taxes to close a $26 billion budget gap. To generate more tax revenues, California will have to encourage new businesses and
7. Income gap in New York is called nation’s highest New York continues to have the highest income gap of any state. Experts claim that the income gap arises from the large number of poor unskilled
6. Suppose that a government law required both groups of workers to be paid$22.50 an hour. Draw a graph to illustrate what would happen to the quantities employed of the two types of labor.
5. Draw the demand and supply curves for these two types of labor. What feature of your graph accounts for the differences in the two wage rates and what feature accounts for the differences in the
Use the following information to work Problems 5 and 6.In the United States in 2002, 130,000 aircraft mechanics and service technicians earned an average of $20 an hour whereas 30,000 elevator
4. Suppose the cost of acquiring a skill increases and the value of marginal product of skill increases. Draw demand-supply graphs of the labor markets for high-skilled and low-skilled labor to
3. Table 2 shows the distribution of prize money among the top 20 professional golfers. Calculate the cumulative distribution of income of these golfers and draw the prize money Lorenz curve of these
2. Table 1 shows the income share for each household quintile and the cumulative shares. Provide the values for A, B, C, D, and E.
1. Which influence adds more, on average, to a household’s income: getting a professional degree, getting married, getting older, or moving to California?Which of these influences, on average, adds
9. Read Eye on Inequality on p. 550 and rank the influences on the degree of income inequality—education, household size, household type, age of householder, race, and region of residence—in
8. America’s racial wealth gap White Americans have 22 times the wealth of African-Americans and 15 times the wealth of Latinos and these gaps got larger during the Great Recession.Source: National
7. If the people whose market incomes are taxed cut their work hours and their market incomes fall by 10 percent, what is the distribution of income after taxes and benefits?
6. If the cost of administering the redistribution scheme takes 50 percent of the taxes collected, what is the distribution of income after taxes and benefits?
5. Calculate the distribution of income after taxes and benefits and draw the Lorenz curve (i) before taxes and benefits and (ii) after taxes and benefits.
4. Why do economists think that discrimination in the labor market is an unlikely explanation for the persistent inequality in earnings between women and men and among the races?Use Table 2 and the
3. Figure 1 shows the market for low-skilled workers. With on-the-job training, low-skilled workers can become high-skilled workers. The value of marginal product of high-skilled workers at each
2. Rich-poor gap worries Chinese planners In 1985, urban Chinese earned 1.9 times as much as people in the countryside, which is home to 60 percent of the population. By 2007, they earned 3.3 times
1. Table 1 shows the distribution of money income in Australia. Calculate the cumulative distribution of income for Australia and draw the Lorenz curve for Australian income. In which country is the
Would a policy that taxed the bottom 60 percent of income earners at a 0% tax rate and reduced redistribution by 1 percent of tax revenue have any merit?
The 0% tax rate solution In 2006, the lowest 40 percent of income earners received net payments equal to 3.6% of total income tax revenues. The third 20 percent of income earners pay 4.4% of total
2. Draw this economy’s Lorenz curves before and after taxes and benefits.
1. Calculate the income shares of each quintile after taxes and benefits.
Table 1 shows the distribution of market income in an economy and Table 2 shows how the government taxes and redistributes income.
Explain how governments redistribute income and describe the effects of redistribution on economic inequality.
Why might people who previously worked in factories be going to trade school?
Trade schools boom with enrollees of all ages Disappearing jobs have helped drive people to state-run trade schools. Patricia Parker, who is tired of getting laid off at factories decided to
3. As more firms offer their goods and services for sale online, how does the market for salespeople change?
2. Explain why, despite the higher weekly wage, more people are employed as managers and professionals than as salespeople.
1. Explain why managers and professionals are paid more than salespeople.
In the United States in 2010, 30 million people had full-time managerial and professional jobs that paid an average of $1,200 a week and 10 million people had full-time sales positions that paid an
Explain how economic inequality arises.
Minorities hit harder by economic issues Plummeting home values, as well as home foreclosures, have had a big impact on the distribution of wealth because blacks and Hispanics have a much higher
2. Draw the Lorenz curves for Canada and the United States. Compare the distribution of income in Canada with that in the United States. Which distribution is more unequal?
1. Create a table that shows the cumulative percentages of households and income in Canada.
Table 1 shows the distribution of money income in Canada and Table 20.1(a) on page 546 shows the distribution of money income in the United States.
Describe the economic inequality in the United States.
3 Explain how governments redistribute income and describe the effects of redistribution on economic inequality.

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