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10e PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Ma ch 01 the art and science of economic analysis

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  • 1. 10ePowerPoint Slides prepared by:Andreea CHIRITESCUEastern Illinois University 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2. The Art and Scienceof Economic AnalysisPowerPoint Slides prepared by:Andreea CHIRITESCUEastern Illinois University 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3. Why are comic-strip and TV characters likeFoxtrot, the Simpsons, and the Family Guymissing a finger on each hand? Why do the kids on South Park have hands thatlook like mittens? And where is Dilberts mouth? Which college majors have the most pay rightafter college and during mid-career? In what way are people who pound on vendingmachines relying on theory? Why is a good theory like a California Closet? Whats the big idea with economics? Finally, how can it be said that in economicswhat goes around comes around? 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.3 4. The Economic Problem The economic problem Unlimited wants Our wants, our desires are virtually unlimited Scarce resources The resources available to satisfy thosewants are scarce Not freely available Its price exceeds zero 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.4 5. The Economic Problem Because of scarcityYou must choose from among your manywantsYou must forgo satisfying some otherwants Economics The study of how people use their scarceresources to satisfy their unlimited wants 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.5 6. Resources Goods and services are scarce Because resources are scarce Resources: inputs or factors of production Used to produce the goods and servicesthat people want1. Labor2. Capital3. Natural resources4. Entrepreneurial ability 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.6 7. Resources Labor Physical and mental effort used toproduce goods and services We allocate our time to different uses Sell it as laborSpend it doing other things WagesPayment to resource owners for their labor 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.7 8. Resources Capital Buildings, equipment, and human skillsused to produce goods and services InterestPayment to resource owners for the use oftheir capital 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.8 9. Resources Physical capitalHuman creations used to produce goodsand services Human capitalKnowledge and skill people acquire toincrease their productivity 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.9 10. Resources Natural resources All gifts of nature used to produce goodsand servicesRenewable Exhaustible RentPayment to resource owners for the use oftheir natural resources 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.10 11. Resources Renewable resource Can be drawn on indefinitely if usedconservatively Exhaustible resource Does not renew itself Available in a limited amount 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.11 12. Resources Entrepreneurial ability The talent required to dream up a newproduct or find a better way to produce anexisting oneComes from an entrepreneur ProfitReward for entrepreneurial ability Sales revenue minus resource cost 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.12 13. Resources Entrepreneur Profit-seeking decision maker who startswith an idea Organizes an enterprise to bring that ideato life Assumes the risk of the operation 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.13 14. Goods and Services Good Tangible product used to satisfy humanwants Service Activity, or intangible product, used tosatisfy human wants A good or service is scarce If the amount people desire exceeds theamount available at a zero price 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.14 15. Goods and Services Making choices in a world of scarcityMeans we must pass up some goods andservices BadsWe want none of them Not even at a zero price The best things in life are freeMost goods and services are scarce, notfree 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.15 16. Goods and Services There is no such thing as a free lunch All goods and services involve a cost tosomeoneMay seem free to you But it draws scarce resources away from theproduction of other goods and servicesWhoever provides a free lunch Often expects something in return 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.16 17. Economic Decision Makers Decision makers in the economy Households Firms Governments The rest of the world Their interaction determines how aneconomys resources are allocated 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.17 18. Economic Decision Makers HouseholdsConsumers Demand the goods and services produced Resource owners Supply resources to firms, government, andthe rest of the world Firms, Governments, Rest of the WorldDemand resources Produce goods and services 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.18 19. Economic Decision Makers Market Set of arrangements by which buyers andsellers carry out exchange at mutuallyagreeable terms Product market A market in which a good or service isbought and sold Resource market A market in which a resource is boughtand sold 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.19 20. A Simple Circular-Flow Model Circular-flow model A diagram that traces the flow ofresources, products, income, and revenueAmong economic decision makers Simple circular-flow model Interaction between households andmarkets 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.20 21. Exhibit 2The Simple Circular-Flow Model for Households and FirmsHouseholds earn income bysupplying resources to theresource market, as shown inthe lower portion of the model.Firms demand theseresources to produce goodsand services, which theysupply to the product market,as shown in the upper portionof the model.Households spend theirincome to demand thesegoods and services. Thisspending flows through theproduct market as revenue tofirms. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as 21permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 22. Rational Self-Interest Individuals are rationalMake the best choice given the availableinformationMaximize expected benefit achieved witha given cost Minimize expected cost of achieving agiven benefit The lower the personal cost of helpingothers, the more help we offer 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.22 23. Choice Requires Time & Information Rational choice Takes time and requires information Time and information Are themselves scarce and thereforevaluable Rational decision makers Willing to pay for information Acquire information: additional benefitexpected exceeds the additional cost 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.23 24. Economic Analysis Is Marginal Analysis Comparison Expected marginal benefit Expected marginal cost Marginal Incremental, additional, extra Rational decision maker changes thestatus quo If the expected marginal benefit exceedsthe expected marginal cost 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.24 25. Microeconomics & Macroeconomics Microeconomics Study of the economic behavior inparticular markets Individual economic choices Markets coordinate the choices of economicdecision makers Individual pieces of the puzzle 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.25 26. Microeconomics & Macroeconomics Macroeconomics Study of the economic behavior of entireeconomies Performance of the economy as a whole Economic fluctuations Rise and fall of economic activity Relative to the long-term growth trend of theeconomy Business cycles 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.26 27. The Science of Economic Analysis Economic theory or economic model A simplification of economic reality Used to make predictions about causeand effect in the real world A good theory Helps us understand a messy andconfusing world Offers a helpful guide to sorting, saving,and understanding information 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.27 28. The Role of Theory Most people dont understand the role oftheoryPeople may substitute their own theory fora theory they either do not believe or donot understand All of us employ theories, however poorlydefined or understoodPounding on the Pepsi machine 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.28 29. The Scientific Method Step 1 Identify the question Define relevant variables Variable A measure that can take on differentvalues at different times 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.29 30. The Scientific Method Step 2: Specify assumptions Other-things-constant assumption Other variables remain unchanged Ceteris paribus Behavioral assumption Describes the expected behavior ofeconomic decision makers, whatmotivates them 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.30 31. The Scientific Method Step 3: Formulate the hypothesis How key variables relate to each other To help make predictions about cause andeffect in the real world Hypothesis Theory about how key variables relate 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.31 32. The Scientific Method Step 4: Test the hypothesisCompare its predictions with evidence Test the validity of a hypothesis Reject the hypothesis If it predicts worse than the best alternativetheory Use the hypothesis Until a better one comes along 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.32 33. Exhibit 3The Scientific Method: Step by StepThe steps of thescientific method aredesigned to developand test hypothesesabout how the worldworks. The objective isa theory that predictsoutcomes moreaccurately than thebest alternative theory.A hypothesis isrejected if it does notpredict as accuratelyas the best alternative.A rejected hypothesiscan be modified orreworked in light of thetest results. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as 33permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 34. Normative Versus Positive Positive economic statement Can be proved or disproved by referenceto facts What is Normative economic statement Reflects an opinionCannot be proved or disproved byreference to the facts What should be 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.34 35. Economists Tell Stories Economic analysis Is as much art as science Economists explain their theories By telling stories about how they think theeconomy works Case studies, anecdotes, parables, thepersonal experience of the listener, andsupporting data 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.35 36. Predicting Average Behavior Individual behavior Difficult to predictRandom actions of individuals Offset one another Average behavior of groups Predicted more accurately 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.36 37. Some Pitfalls of Faulty Economic Analysis Fallacy: incorrect idea or belief The fallacy that association is causation The incorrect idea that if two variables areassociated in time, one must necessarilycause the other The fallacy of composition The incorrect belief that what is true forthe individual, or part, must necessarily betrue for the group, or the whole 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.37 38. Some Pitfalls of Faulty Economic Analysis The mistake of ignoring the secondaryeffects Ignoring the unintended consequences Secondary effects Unintended consequences of economicactions that may develop slowly over timeas people react to events 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.38 39. If Economists Are So Smart, Why Arent They Rich? Some are Earning over $25,000 per appearance onthe lecture circuit Earn $2 million a year as consultants andexpert witnesses Economists in federal cabinet posts Secretaries of commerce, defense, labor,state, and treasuryHead the U.S. Federal Reserve System 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.39 40. If Economists Are So Smart, Why Arent They Rich? Economics The only social science and the onlybusiness discipline for which theprestigious Nobel Prize is awarded Pronouncements by economists Are reported in the media daily Economic models Usually do a better job of making economicsense out of a confusing world than doalternative approaches 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.40 41. College Major and Annual Earnings Some factors that affect earnings amongcollege graduatesGeneral ability EffortOccupation College attended College major Highest degree earned 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as 41permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 42. College Major and Annual Earnings Major in economics (bachelors) Rank: #6Median wage For 0-5 years experience: $47,300 For 10-20 years experience: $94,700 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as 42permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 43. Exhibit 4Median Annual Pay by College Major 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.43 44. Appendix Understanding Graphs Origin Point of departure Horizontal axis Straight horizontal line starting at theorigin Vertical axis Straight vertical line starting at origin 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.44 45. y2015105Vertical axis0Origin5 10 15 20 xHorizontal axisExhibit 5Basics of a graphAny point on a graphrepresents a combinationof particular values of twovariables.Here point a representsthe combination of 5 unitsof variable x (measured onthe horizontal axis) and 15units of variable y(measured on the verticalaxis).Point b represents 10units of x and 5 units of y. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.45ab 46. Appendix Understanding Graphs Graph A picture showing how variables relateConveys information in a compact andefficient way Time-series graphShows the value of a variable over time Functional relation The value of the dependent variabledepends on the value of the independentvariable 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.46 47. Exhibit 6U.S. Unemployment rate since 1900A time-series graph depicts the behavior of some economic variable over time.Shown here are U.S. unemployment rates since 1900. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.47 48. Appendix Drawing Graphs Types of relations between variables Positive or direct relation As one variable increases, the otherincreasesNegative or inverse relation As one variable increases, the otherdecreases Independent or unrelated variables As one variable increases, the otherremains unchanged 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.48 49. Exhibit 7Schedule Relating Distance Traveled to Hours DrivenThe distance traveled per day depends on the number of hours driven per day,assuming an average speed of 50 miles per hour. This table shows combinations ofhours driven and distance traveled. These combinations are shown as points inExhibit 8. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.49 50. Exhibit 8Graph Relating Distance Traveled to Hours Driven2000 1 2 3 45Hours driven per day15010050Distance traveled per day (miles)250Points a through e depict different combinations of hours driven per day and thecorresponding distances traveled. Connecting these points creates a graph. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.50bcdae 51. Appendix The Slope of a Straight Line SlopeChange in vertical variable for a givenincrease in horizontal variable SlopeChange in the vertical distance Divided by the increase in the horizontaldistance Slope of a straight line The same value along the line 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.51 52. Exhibit 9 (a), (b)Alternative slopes for straight lines(b) Negative relation0xSlope = - 7 /10 = - 0.710 20y20103(a) Positive relation0xSlope = 5/10 = 0.510 20y20151051010-7The slope of a line indicates how much the vertically measured variable changes fora given increase in the variable measured along the horizontal axis. Panel (a) showsa positive relation between two variables; the slope is 0.5, a positive number. Panel(b) depicts a negative, or inverse, relation. When the x variable increases, the yvariable decreases; the slope is - 0.7, a negative number. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.52 53. Exhibit 9 (c), (d)Alternative slopes for straight lines(c) No relation: zero slope0x10 20y201510Slope = 0/10 = 0(d) No relation: assumed infinite slope0x10y201010Slope = 10 /0 = 10Panels (c) and (d) represent situations in which two variables are unrelated. In panel(c), the y variable always takes on the same value; the slope is 0. In panel (d), the xvariable always takes on the same value; the slope is mathematically undefined butwe simplify by assuming the slope is infinite. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.53 54. Appendix Slopes Value of slopeDepends on units of measurementMeasures marginal effects Slope of a curved line Differs along the curve Slope of a curved line at one point Slope of the tangent 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.54 55. Exhibit 10Slope depends on the unit of measure(b) Measured in yards1 20Yards of copper tubingTotalcost$63(a) Measured in feetSlope = 1/1 = 15 60Feet of copper tubingTotalcost$651131Slope = 3/1 = 3The value of the slope depends on the units of measure. In panel (a), output ismeasured in feet of copper tubing; in panel (b), output is measured in yards.Although the cost is $1 per foot in each panel, the slope is different in the twopanels because copper tubing is measured using different units. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.55 56. Exhibit 11Slopes at different points on a curved lineA The slope of a curved line varies0 10 20 30 40x40302010yBfrom point to point. At a givenpoint, such as a or b, the slope ofthe curve is equal to the slope ofthe straight line that is tangentto the curve at the point. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.56ab 57. Exhibit 12Curves with both positive and negative slopes0 xyabSome curves have both positive and negative slopes. The hill-shaped curve (in red)has a positive slope to the left of point a, a slope of 0 at point a, and a negativeslope to the right of that point.The U-shaped curve (in blue) starts off with a negative slope, has a slope of 0 atpoint b, and has a positive slope to the right of that point. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.57 58. Appendix Line Shifts Change in the assumptionChanges the relationship betweenvariables Expressed by a line shift 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.58 59. Exhibit 13Shift of line relating distance traveled to hours driven0 1 2 3 45Hours driven per day20015010050Distance traveled per day (miles)250fTdTLine T appeared originally inExhibit 8 to show the relationbetween hours driven anddistance traveled per day,assuming an average speed of 50miles per hour. If the averagespeed is only 40 miles per hour,the entire relation shifts to theright to T, indicating that any givendistance traveled requires moredriving time. For example, 200miles traveled takes 4 hours ofdriving at 50 miles per hour but 5hours at 40 miles per hour. Thisfigure shows how a change inassumptions, in this case, theaverage speed assumed, canshift the entire relationshipbetween two variables. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.59