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Economics Homework Four Answers - Student Ten (view source)
Revision as of 21:27, October 7, 2009
, 21:27, October 7, 2009no edit summary
'''5. Explain why the shape of an indifference curve for two goods that are perfect substitutes is a straight line going from the upper left down to the lower right. Extra credit: why must its slope be negative 1?'''
'''5. Explain why the shape of an indifference curve for two goods that are perfect substitutes is a straight line going from the upper left down to the lower right. Extra credit: why must its slope be negative 1?'''
You would plot 0 - 10 (or whatever number you want) starting with 0 on the X-axis and do the same on the Y-axis. Connect, with a straight line, the same value on each axis directly (running from left to right and downward), since X=Y for a perfect substitute. The slope is calculated as rise over run or 1/-1 which equals -1.
'''6. Describe either the "income effect" or the "substitution effect." Take your pick.'''
'''6. Describe either the "income effect" or the "substitution effect." Take your pick.'''
The income effect is part of the Law of Demand. It says that if you save money on a purchase, it is like earning the difference between what you would have paid and what you did pay. For example, if I am on my way to Walmart to buy a LEGO set for $20, and I stop at a yard sale on the way and find the same set for $5, it is the same as earning $15.
The income effect is part of the Law of Demand. It says that if you save money on a purchase, it is like earning the difference between what you would have paid and what you did pay. For example, if I am on my way to Walmart to buy a LEGO set for $20, and I stop at a yard sale on the way and find the same set for $5, it is the same as earning $15.
'''7. Charity is based on the foundation of a successful free market. Or is a successful free market based on a foundation of charity? Describe and explain which is the cart, and which is the horse (in other words, which comes first or is most important, charity or the free market).'''
'''7. Charity is based on the foundation of a successful free market. Or is a successful free market based on a foundation of charity? Describe and explain which is the cart, and which is the horse (in other words, which comes first or is most important, charity or the free market).'''