1 - Ecn 1B Answer Key: Problem set #1 1. When y changes, x...

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Ecn 1B Answer Key: Problem set #1 1. When y changes, x stays the same. The line depicting this relationship would be a. Vertical b. Horizontal c. Linear with a negative slope d. Linear with a positive slope Answer: (a) Vertical lines have the relationship where y changes but x stays the same. For example, let us consider the vertical line x=2. Two points on this line are (2,1) and (2, 45). Both these points have an x value of 2; but the points have different y values. 2. Because total income in the United States has increased over time, everyone's total income has increased as well. This incorrect argument is an example of a. Opportunity cost b. The fallacy of composition c. The post hoc fallacy d. Voluntary exchange Answer: (b) The fallacy of composition is the (false) statement that what is true of the whole is true of the parts. (See Page 13 for more examples) 3. Misty has the option of purchasing one of three products: Brand A, Brand B, or Brand C. Each costs ten dollars. If she decides that Brand A meets her needs best, then the opportunity cost of this decision is a. Brand B plus Brand C b. Twenty dollars c. Brand A d. Brand B or Brand C, depending on which is considered the highest- value alternative forgone. Answer: (d) Opportunity cost of something is the highest-valued alternative that we give up to get it. So the brand Misty considers to be the highest –value alternative is the opportunity cost of the decision.
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4. In the above figure, x is a. Positively related to y and negatively related to z b. positively related to both y and z c. negatively related to y and positively related to z d. negatively related to both y and z Answer: (c) To find the relationship between y and x, let us pick up two points for the line z=3 [Note: we keep z constant here], which are (2,3) and (4,1). When y=3, x=2 and when y=4, x=1. Thus when x increases from 2 to 4, y decreases from 3 to 1. So x is negatively related to y. To find the relationship between z and x, we have to keep y constant. Let us pick y= 3. Then for this value for y, we will find that when z=3, x=2 and when z=4, x=4 (approximately). Thus when z increases from 3 to 4, x also increases from 2 to 4. So x is positively related to z. 5. In the figure above, ceteris paribus , an increase in x is associated with a. an increase in y b. an decrease in y c. a decrease in z d. None of the above answers is correct Answer: (b) This follows from the relationship we found in Number 4. 6.
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1 - Ecn 1B Answer Key: Problem set #1 1. When y changes, x...

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