Chapter 1

Question 1

Suppose that you have a choice between going to the movies with a friend for two hours or working at your job. If you go to the movies, you will spend $7 on a ticket and $5 on popcorn. If you choose to work, you will earn $10 an hour. What is your opportunity cost of going to the movies?

Answer 1

$32 (everything you give up to see the movie - the money for the ticket, the money for the popcorn, and the foregone income)

Question 3

Suppose that you have a choice between going to the movies with a friend for two hours or working at your job. If you go to the movies, you will spend $7 on a ticket and $5 on popcorn. If you choose to work, you will earn $10 an hour. What is your opportunity cost of going to the movies?

Answer 3

$32 (everything you give up to see the movie - the money for the ticket, the money for the popcorn, and the foregone income)

Question 4

Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal

Answer 4

benefit of leaving was greater than the marginal cost.

Question 5

Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $100, so he can only buy one. This illustrates the basic concept that

Answer 5

people face trade-offs

Question 6

Economics deals primarily with the concept of

Answer 6

scarcity

Question 7

The adage, “There is no such thing as a free lunch,” is used to illustrate the principle that

Answer 7

people face tradeoffs.

Question 8

When computing the opportunity cost of attending a concert you should include

Answer 8

the price you pay for the ticket and the value of your time.

Question 9

For most students, the largest single cost of a college education is

Answer 9

the wages given up to attend school.

Question 10

Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $5800. Bill discovers that he needs to do an additional $2400 of work to make the car worth $5800 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do? (Hint: think about his marginal cost of the additional work versus the marginal benefit of the additional work)

Answer 10

He should sell the car now for $3800.

Question 11

The opportunity cost of taking an online history class is

Answer 11

equal to the highest value of an alternative use of the time and money spent on the class

Question 12

Suppose the state of Massachusetts passes a law that increases the tax on alcoholic beverages. As a result, residents in Massachusetts start purchasing their alcohol in surrounding states. Which of the following principles does this best illustrate?

Answer 12

People respond to incentives.

Question 13

The decisions of firms and households are guided by prices and self-interest in a

Answer 13

market economy.

Question 14

The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as

Answer 14

an externality.

Question 15

Which of these activities will most likely impose a negative externality?

Answer 15

Betty plants flowers in her garden.
Bonnie gets a flu vaccine.
*Bridget drives her car after having too much alcohol to drink.
Becky buys a new flat screen television.

Question 16

Which of these activities will most likely result in a positive externality?

Answer 16

A college student buys a deck of cards to play solitaire in her dorm room.
*An elderly woman plants a flower garden on the vacant lot next to her house.
An executive purchases a book to read on a business trip.
A ten-year-old uses his allowance to buy new Nike shoes.