Suppose an Economist Collects the Following Data Between May and December

question 7

Multiple Choice

Suppose an economist collects the following data between May and December of a given year: gasoline prices rose sharply, consumer incomes remained constant, consumers purchased more fuel efficient vehicles than in the previous year, the size of the population did not change, sales of gasoline decreased by 15 percent. Which of the following theories could be tested with this information?

• A) When the price of gasoline rises, gasoline purchases fall.
• B) When consumer incomes rise, gasoline purchases rise.
• C) When the population increases, purchases of fuel efficient vehicles increase.
• D) No economic theory could be tested with this information.

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Definitions:

Direct Labor

The labor costs directly associated with the production of goods or services, which includes wages for workers who physically contribute to the finished product.

Direct Materials

Raw materials that can be directly associated with the production of specific goods or services and are included in the cost of the finished product.

Fixed Overhead

The total of all costs that do not vary with production volume, including salaries, rent, and insurance.

Variable Overhead

Costs that fluctuate with production volume, such as utilities and indirect materials, which are not constant like fixed overhead costs.