Chapter 2A, Problem 1P

To determine

(a) If the price of movie increases, fewer consumers go to see movies.

Explanation of Solution

We know that the law of demand states that, the quantity of good demanded is inversely related to the relative price of that good. Thus as the price of the movie tickets increases, fewer consumers will go to see the movies. If a consumer has decided to keep a certain portion of his income as entertainment expenses, a rise in the ticket prices will refrain him from going to see the movie. Also, consumers will prefer to go to movies as long as the marginal utility derived from the movies is equal to the price paid for it. As the relationship between price and number of consumers watching the movie is negative, the slope will therefore be negative. Hence, Panel (a) is the most appropriate diagram for this relationship. If the prices are variable, it is measured on vertical axis. The price of movies being an independent variable will be projected on the Y axis (vertical axis) and the number of consumers will be projected on the X axis (horizontal axis), as it is dependent on the price variable. A change in the independent variable will have a direct effect on the dependent variable.

To determine

(b) More experienced workers typically have higher incomes than less experienced workers.

Explanation of Solution

A well-made product usually costs more than a poorly made product. Likewise, highly experienced workers are skilled and have up to date knowledge. Thus an experienced worker demands higher salary because of the added value which he gets along with his years of experience. Panel (c) is the suitable image for this kind of relationship. Thus the slope would be a positive slope, as additional experience would result in higher income. Years of experience being an independent variable will be represented on the horizontal axis and the income of the workers, the dependent variable, will be represented on the vertical axis.

To determine

(c) Whatever the temperature outside, Americans consume the same number of hot dogs per day.

Explanation of Solution

The slope for this kind of relationship will be zero and Panel (d) will be appropriate for this relationship. As there is no change in the number of hot dogs consumed irrespective of the temperature, the slope will be zero. The temperature being an independent variable will be projected on the horizontal axis and the number of hot dogs on the vertical axis, as the consumption of hot dogs does not change with the temperature.

To determine

(d) Consumers buy more frozen yogurt when the price of ice cream goes up

Explanation of Solution

The law of demand states that as price goes up, demand falls. However, in case of substitute goods, demand for a particular commodity varies directly with the price of a substitute good. Thus, when the price of ice cream goes up consumers would choose a close alternative, which in this case would be frozen yogurt. Panel (c) is the appropriate image for this relation. Thus the slope would be positive. If the prices are variable, it is measured on vertical axis. Hence, the price of ice cream is an independent variable and will be plotted on vertical axis. The demand for frozen yogurt will be plotted on horizontal axis.

To determine

(e) Research finds no relationship between the number of diet books purchased and the number of pounds lost by the average dieter.

Explanation of Solution

The slope for this kind of relationship will be zero and Panel (d) will be appropriate for this relationship. As there is no relationship between the number of diet books purchased and the number of pounds lost by the average dieter, the slope will be zero. The number of diet books purchased is an independent variable will be projected on the horizontal axis and the number of pounds lost on the vertical axis.

To determine

(f) Regardless of its price, Americans buy the same quantity of salt

Explanation of Solution

Some goods like salt are price inelastic because even if the price of the goods increase people generally keep buying. These goods are termed as necessary goods. Panel (b) illustrates the correct match for this relation.. If the prices are variable, it is measured on vertical axis. Hence, price of salt will be plotted on the vertical axis and the quantity of salt demanded will be plotted on the horizontal axis. Since consumers keep buying salt, irrespective of the change in price, the demand curve will be a vertical line and the slope will be infinity.