ch 01 text ans 2

1-1       Briefly explain the use of graphs as a way to present economic relationships.  What is an inverse relationship?  How does it graph?  What is a direct relationship?  How does it graph?  Graph and explain the relationships you would expect to find between (a) the number of inches of rainfall per month and the sale of umbrellas, (b) the amount of tuition and the level of enrollment at a university, and (c) the popularity of a music artist and the price of her concert tickets.

1-2       (Key Question)  Indicate how each of the following might affect the data shown in Table 2 and Figure 2 of this appendix:

1-3       (Key Question)  The following table contains data on the relationship between saving and income.  Rearrange these data into a meaningful order and graph them on the accompanying grid.  What is the slope of the line?  The vertical intercept?  Interpret the meaning of both the slope and the intercept.  Write the equation which represents this line.  What would you predict saving to be at the $12,500 level of income?

1-4       Construct a table from the following data shown on the accompanying graph.  Which is the dependent variable and which the independent variable?  Summarize the data in equation form.

1-5       Suppose that when the interest rate is 16 percent, businesses find it unprofitable to invest in machinery and equipment.  However, when the interest rate is 14 percent, $5 billion worth of investment is profitable.  At 12 percent interest, a total of $10 billion of investment is profitable.  Similarly, total investment increases by $5 billion for each successive 2-percentage point decline in the interest rate.  Describe the relevant relationship between the interest rate and investment in words, in a table, graphically, and as an equation.  Put the interest rate on the vertical axis and investment on the horizontal axis, and in your equation use the form i = a + bI, where i is the interest rate, a is the vertical intercept, b is the slope of the line (which is negative), and I is the level of investment.  Comment on the advantages and disadvantages of the verbal, tabular, graphic, and equation forms of description.

1-6       (Key Question)  The accompanying graph shows curve XX and tangents at points A, B, and C.  Calculate the slope of the curve at these three points.

1-7       In the accompanying graph, is the slope of curve AA’ positive or negative?  Does the slope increase or decrease as we move along the curve from A to A’?  Answer the same two questions for curve BB’.