3) To increase income by $120 when the slope of the curve showing the relationsh

Question

3) To increase income by $120 when the slope of the curve showing the relationship between your income and
work hours is 8, how many extra hours will you need to work?

A) 8 B) 960 C) 112 D) 15 E) 28

4) Trade results from:
A) absolute advantage.
B) comparative advantage.
C) self-sufficiency.
D) diminishing returns.
E) all of the above except D).

8) In a market economy, what encourages firms to develop new products and production processes?
A) patents
B) accounting rules
C) insurance
D) contracts
E) governmental mandates

9) When people act in their own self-interest, it is described as the:
A) laws of each state.
B) principle of scarcity.
C) principle of supply and demand.
D) principle of voluntary exchange.
E) principle of denunciation.

11) Suppose that you lend $10,500 to a friend who pays you back $11,340 the next year. Assume that prices that year
rose by 7% and the real rate of return in the stock market was 3%. Your friend said that she was being more than
fair by giving you more than the rate of inflation as a return. Her statement: ______ (3 points)
A) was accurate since you would have earned a nominal return of 3% in the stock market, and she paid you a
return of 8%.
B) was accurate because your nominal return on the loan was 10%.
C) was flawed because you could have earned a 12% nominal return in the stock market, and she
only paid you a 10% return.
D) was flawed since your real return on the loan was less than what you could have earned in
the stock market.
E) was accurate because your real return on the loan was 1% (or 8% - 7%).

Explanation / Answer

Let W denote work and I denote income

Given I/W = 8
Slope = change in income/change in work hours
8 = 120/(change in work hours)

So no of extra work hours = 120/8
= 15 hours

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