Chapter 2: Quiz Answers -- Graphing & Slopes

1. If one point on a line has (X,Y) coordinates of (3,7) and another point has coordinates of (6,10), then the slope of the line is
   1. The rise in (10-7)=3 and the run is (6-3)=3, so the slope is 3/3 = 1.

2. A demand curve plots price on the vertical axis and quantity demanded on the horizontal axis. The slope of the line is negative. This suggests that
   price and quantity demanded are inversely related. If the 'x' value (quanity demanded) rises as the 'y' value (price) falls, then the two are negatively, or inversely related.

3. Which of the following examples deals with the concept of scarcity?
   All of the above are examples of scarcity. Remember that goods and services are scarce if demand exceeds supply when the product is free. If the concert tickets were free, odds are high that there would be more tickets demanded than supplied. The long lines or the lack of lines are signs that the prices may be too high or too low given the demand, but each case deals with a scarce good--the ticket.

4. Which of the following items are not scarce?
   Trash. If trash were free, would you demand more than is supplied? Hardly. We pay money to get rid of trash.

5. Suppose you purchase a ticket to go to Disneyland for $30. You had to decide between Disneyland and working for $5 per hour for six hours at your job. The opportunity cost of going to Disneyland expressed in dollars was
   $60. The ticket is $30 plus the opportunity cost of your time, in which you could have earned another $30.

6. Based on the chart below, we know that
   point C is more efficient than point I. Economic efficiency requires that the economy operate on the frontier. Because point C is on the frontier but point I is not, point C is efficient while point I is inefficient.

7. Based on the chart above, the opportunity cost of moving from point B to point C is approximately
   100 units of non-defense. The chart indicates that the economy can produce about 175 units of nondefense goods at point B and about 75 units of nondefense goods and point C. Therefore, to gain 50 units of defense goods, the economy gives up about 100 units of nondefense goods.

8. The principle of increasing costs holds because
   resources tend to be specialized. If resources were not specialized--for example, the resources used to produce left and right shoes--then the production possibilities frontier would bow outward, reflecting the principle of increasing costs.

9. A production possibilities frontier in which the Principle of Increasing Costs does not hold is simply a straight line.
   True. This is true by definition because the opportunity cost of producing one more unit of good X is a constant.

10. Economic growth results from either an increase in resources or a decrease in opportunity cost
    False. Economic growth is the result of an increase in resources or an increase in the productivity of those resources due to better technology.