ECON 1B03 Chapter Notes - Fall 2018 Chapter 2 - Opportunity cost

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21 Sep 2018

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ECON 1B03 Full Course Notes

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To move from 0 to 500 trucks (a to b): To get 500 trucks, give up 2000 smartphones. To get 1 truck, give up 2000/500 = 4 smartphones. Therefore opportunity cost of a truck = 4 smartphones moving from a to b. To move from 500 trucks to 700 trucks (b to c): To get 200 trucks, give up 1000 smartphones. To get 1 truck, give up 1000/200 = 5 smartphones. Therefore opportunity cost of a truck = 5 smartphones moving from b to c. To move from 700 trucks to 1100 trucks (c to d) To get 400 trucks, give up 5000 smartphones. To get 1 truck, give up 5000/400 = 12. 5 smartphones. Therefore opportunity cost of a truck = 12. 5 smartphones moving from c to d. We can easily calculate opportunity cost of a smartphone along ppf (inverse of opportunity cost of truck moving between same points on ppf) = 1/opportunity cost of truck.

Related Questions

Suppose that, instead of taking this test, you could either have worked and earned income or partied and had a pleasurable time. Your opportunity cost of taking the test is the

	a.	forgone working or partying, depending on which was your next best choice.
	b.	forgone work.
	c.	forgone working and partying.
	d.	test because you are taking it.

1 points

QUESTION 2

A trend is

	a.	a measure of closeness on a scatter diagram.
	b.	a general tendency for a variable to rise or fall.
	c.	the maximum value of a variable.
	d.	the difference between the maximum value of a variable and the minimum value of the variable.

1 points

QUESTION 3

A time-series graph measures

	a.	time on the y-axis and the variable or variables in which we are interested on the x-axis.
	b.	time on the x-axis and the variable or variables in which we are interested on the y-axis.
	c.	the value of one variable against the value of another variable.
	d.	the value of an economic variable for different groups in a population at a point in time.

1 points

QUESTION 4

Canada has nationalized health care, so that everyone, regardless of their ability to pay, has some access to health care. Based on this observation, Canada has decided that "everyone, regardless of their ability to pay" is the answer to what microeconomic question?

	a.	Why will we offer health care?
	b.	How will health care be produced?
	c.	For whom will health care be produced?
	d.	What type of health care will be produced and in what quantity?

1 points

QUESTION 5

As a shoe factory adds more workers, shoe production grows, reaches a maximum, and then shrinks. In a diagram that has the number of workers on the horizontal axis and the number of shoes on the vertical axis, the relationship between the number of workers and the number of shoes starts as ________ and then, after the maximum point, is ________.

	a.	positive; negative
	b.	negative; positive
	c.	linear; negative
	d.	positive; linear

1 points

QUESTION 6

Microeconomics includes the study of the

	a.	choices made by individuals and businesses.
	b.	recessions and inflation in the global economy.
	c.	aggregate effects on the national economy.
	d.	reasons why the government changes interest rates.

1 points

QUESTION 7

When Fresh Express Salads decides to mechanically pick all of its lettuce, it directly answers the ________ question.

	a.	when
	b.	for whom
	c.	how
	d.	what

1 points

QUESTION 8

Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours. This argument is based on the assumption that

	a.	the opportunity cost of working is negative.
	b.	the marginal cost of each additional work hour is not important to most workers.
	c.	workers are irrational.
	d.	workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work.

1 points

QUESTION 9

A choice made by comparing all relevant alternatives systematically and incrementally is

	a.	an opportunity cost.
	b.	a benefit.
	c.	a sunk cost.
	d.	a choice on the margin.

1 points

QUESTION 10

A normative statement

i. can be tested as to whether it is true or false.

ii. is considered negative.

iii. depends on a person's values.

	a.	i, ii, and iii
	b.	iii only
	c.	i and iii
	d.	ii and iii

1 points

QUESTION 11

Normative statements

i. describe how the world is.

ii. describe how the world ought to be.

iii. depend on people's values and cannot be tested.

	a.	iii only.
	b.	i only.
	c.	ii and iii.
	d.	ii only.

1 points

QUESTION 12

In order to determine whether to major in economics, a rational individual compares the ________ of the decision.

	a.	positive benefits and normative costs
	b.	normative benefits and positive costs
	c.	marginal benefit and marginal cost
	d.	opportunity cost and the sunk cost

1 points

QUESTION 13

If x increases whenever y decreases, then x and y are

	a.	positively related.
	b.	negatively related.
	c.	not related.
	d.	related but whether positively or negatively related depends on whether the x variable or the y variable is plotted on the vertical axis.

1 points

QUESTION 14

Rational choice

	a.	is what you must give up get what you want.
	b.	is made by comparing different incentives.
	c.	making the choice.
	d.	provides the answer to only the "how" question.

1 points

QUESTION 15

Scarcity results from the fact that

	a.	choices made in self-interest rare not always in the social interest.
	b.	not all goals are desirable.
	c.	people's wants exceed the resources available to satisfy them
	d.	we cannot answer the major economic questions.

1 points

QUESTION 16

When Delta decides to quit flying to Lithuania, it directly answers the ________ question.

	a.	what
	b.	why
	c.	for whom
	d.	how

1 points

QUESTION 17

A normative statement

	a.	says what is currently believed about the way the world operates.
	b.	depends on someone's values.
	c.	cannot use the word "should."
	d.	must be tested to determine if it is correct.

1 points

QUESTION 18

Which of the following statements best describes the study of economics? Economics studies how

	a.	to organize production so that scarcity does not occur.
	b.	to create incentives so that scarcity does not exist.
	c.	firms make profits.
	d.	we make choices in the face of scarcity.

1 points

QUESTION 19

Which of the following best defines economics?

	a.	Economics teaches how to limit our wants.
	b.	Economics is concerned with prices and quantities of goods and services, both at the individual level and at the industry level.
	c.	Economics helps you earn as much money as possible.
	d.	Economics studies how to choose the best alternative when coping with scarcity.

1 points

QUESTION 20

In economics, cost is ________, and benefit is ________.

	a.	the amount of money that you pay for something; the amount of money that someone else is willing to pay you
	b.	what you are willing to pay on the margin; what the government pays you when you are unemployed or retired
	c.	what you must give up to get something; what you are willing to give up to get it
	d.	the amount of money that you pay on the margin; the amount of money that you receive on the margin

1 points

QUESTION 21

If Jessie studies economics for two hours instead of going to the movies with her friends, then

	a.	the opportunity cost of studying is the missed movie.
	b.	Jessie is ignoring a sunk cost
	c.	Jessie is not responding to any incentives.
	d.	Jesse definitely is making a rational choice.

1 points

QUESTION 22

Going skiing will cost Adam $80 a day. He also loses $40 per day in wages because he has to take time off from work. Adam still decides to go skiing.

	a.	The $80 price of skiing is a sunk cost and so did not affect Adam's decision.
	b.	He loses a total of $120 per day, so his decision is irrational.
	c.	His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost.
	d.	Adam's lost $40 per day in wages is a sunk cost and so did not affect his decision.

1 points

QUESTION 23

If a curve falls and then rises, it

	a.	has a maximum.
	b.	has a linear relationship.
	c.	has a minimum.
	d.	has a constant slope relationship.

1 points

QUESTION 24

In 2003, Michael Jordan decided to retire from professional basketball. Which of the following was an opportunity cost of his decision?

	a.	the avoidance of pain and injury from playing one more year
	b.	the time he could spend with his family while retired
	c.	the lost salary from playing one more year
	d.	the value of new employment opportunities that would await him

1 points

QUESTION 25

Which of the following statements is a normative statement?

	a.	Military spending as a percent of government spending decreased by 5 percent in the 1990s.
	b.	Every American household should have health care insurance coverage.
	c.	Welfare reform has decreased the amount the government spends on welfare.
	d.	The price of computers fell last year.

greencat417

The market for apple pies in the city of Ectenia is competitive and has the following demand schedule:

Price	Quantity Demanded
1	1200 pies
2	1100
3	1000
4	900
5	800
6	700
7	600
8	500
9	400
10	300
11	200
12	100
13	0

Each producer in the market has fixed costs of $9 and the following marginal cost:

Quantity	Marginal Cost
1 pie	$2
2	4
3	6
4	8
5	10
6	12

a.) Compute each producerâ€™s total cost and average total cost for 1 to 6 pies.

b.) The price of a pie is now $11. How many pies are sold? How many pies does each producer make? How many producers are there? How much profit does each producer earn?

c.) Is the situation described in part (b) a long-run equilibrium? Why or why not?

d. Suppose that in the long run there is free entry and exit. How much profit does each producer earn in the long-run equilibrium? What is the market price and number of pies each producer makes? How many pies are sold? How many pie producers are
operating?

skymink790

#1 (5pts, 1pt each) [circle all that apply, there may be more than one correct answer] The monthly payment of rent in the amount of $800 is a:

a) Fixed cost

b) Variable cost

c) Sunk cost

d) Recurring cost

e) Life-cycle cost

Engineering economic analysis is appropriate when:

a) The amount of money involved is significant

b) The situation is too complex for simple âback of envelopâ calculations

c) Social and environmental impacts are the most significant considerations

d) The problem is economic in nature

e) Quantifying political goals

After a new product or process is put in place the production cost per unit tends to _______as manufacturing methodology improves over time. This is known as the _______.

a) Increase, Ramp up effect

b) Decrease, Start-up effect

c) Decrease, Learning curve

d) Be flat, Opportunity cost

e) Vary widely, Chaos effect

Why is $100 today worth more than a rock solid guarantee to receive $100 in 10 years?

a) Inflation may erode the purchasing power of the $100
b) If you have the money you could put it to use
c) If you have the money you could invest it and collect interest
d) There is always some risk that the future payment may not happen
e) No telling what your circumstances might be in 10 years, i.e. you may not be around

Which of the following activities could be categorized as backward planning?

a) Figuring that you will need $1000 by June 1st to go on vacation and determining how many extra hours you need to work over the next few months.

b) Saving 10% of your salary.

c) Planning a drive that will hit the least amount of traffic, allow you to stop for dinner, and make it to a meeting in Austin by 7pm.

d) Renewing the lease on your apartment because a discount was offered.
e) Focusing on alternate activities while you are waiting for a supplier to provide a quote.

#2 (5 pts) Below is a plot of total cost and revenue versus the quantity made and sold. Fill in the correct answers.

What is the fixed cost? ____________
At what volume will the project break even? ___________
What is the profit (or loss) if 100 units are produced and sold? __________
What is the price charged per unit? ___________
What is the incremental total cost between producing 50 units and producing 100 units? _________

#3 (10 pts) A certain index for the cost of purchasing and installing utility boilers is keyed to 1988, where its baseline value was arbitrarily set at 100. Company XYZ installed a 50,000-lb/hour boiler for $525,000 in 2010 when the index had a value of 468. This same company must install a boiler of the same size in 2017. The index in 2017 is 542. What is the approximate cost of the new boiler?

#4 (10pts) Draw the cash flow diagram reflecting the following car ownership. Please draw neatly with the length of the arrows corresponding to the magnitude of the amounts (but not necessarily fully to scale). Label the amounts different from the standard monthly payments.You purchase the car at time zero for $2000 down plus 24 monthly payments of $200. In month 4 you have an unexpected repair bill of $250. In month 18 you have to purchase new tires for $400. At 30 months you are offered $700 for the car and happily sell it.

ECON 1B03 Chapter Notes - Fall 2018 Chapter 2 - Opportunity cost

ECON 1B03 Full Course Notes

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