What are the three categories of correlation? Illustrate with real life examples
What will be an ideal response?
Correlation can be divided into three categories. These are:
a) Positive correlation that implies that two variables tend to move in the same direction. For example, when income increases, consumption increases.
b) Negative correlation that implies that two variables tend to move in the opposite direction. For example, when people have more professional training they are less likely to be unemployed.
c) Zero correlation which implies that there is no relationship between two variables. For example, the amount of air pollution in India is likely to have no relationship with the pollution control measures adopted in the U.S.
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The figure above provides information about Light-U-Up Utilities, which is a natural monopoly that provides electricity. If Light-U-Up is regulated, what is its economic profit if it must follow a marginal cost pricing rule?
A) -$40 B) -$20 C) $0 D) $30
A straight-line isoquant
A) is impossible. B) would indicate that the firm could switch from one output to another costlessly. C) would indicate that the firm could not switch from one output to another. D) would indicate that capital and labor cannot be substituted for each other in production. E) would indicate that capital and labor are perfect substitutes in production.