The opportunity cost of a particular activity

PART I: Multiple choice (only 15 questions) 15 marks

1. The opportunity cost of a particular activity

a. is the same for everyone pursuing this activity

b. may include both monetary costs and forgone income

c. always decreases as more of that activity is pursued

d. usually is known with certainty

e. measures the direct benefits of that activity

 

2. Carl is considering attending a concert with a ticket price of $35. He estimates that the

cost of driving to the concert and parking there will total an additional $20. In order to

attend the concert, Carl will have to take time off from his part-time job. He estimates

that he will lose 5 hours at work, at a wage of $6 per hour. Carl's opportunity cost of

attending the concert equals.

a. $35

b. $55

c. $30

d. $65

e. $85

 

3. In one hour, George can fix 4 flat tires or type 200 words. His opportunity cost of fixing a

flat tire is

a. 200 words

b. 4 flat tires

c. 1 word

d. 50 words

e. 800 words

 

Use the information in Figure 1 to answer questions 4-5

 

Figure 1

4. In Figure 1.1, which labeled points are attainable?

a. Only A

b. Only B and C

c. Only D

d. A, B and C

 

5. In Figure 1.1, which labeled points are unattainable?

a. Only A

b. Only B and C

c. Only D

d. A, B and C

 

6. If the economy is producing a combination of goods inside its production possibilities

frontier, then

a. workers are on vacation

b. a significant number of workers have little education

c. some resources are being wasted

d. technology must improve before output can increase

e. the opportunity cost of producing more output is greater than the value of the

additional output that could be produced

 

7. After graduating from high school, Steve had three choices, listed in order of preference:

(1) study economics at Iowa State University, (2) work in a printed circuit board factory,

or (3) attend a rival college. His opportunity cost of going to college here includes which

of the following?

a. the cost of books and supplies at the rival college

b. the income he could have earned at the printed circuit board factory plus the direct cost

of attending college here (tuition, textbooks, etc.)

c. the benefits he could have received from going to the rival college

d. only the tuition and fees paid for taking classes here

e. cannot be determined from the given information

8. Figure-2 illustrates the trade-off for a particular student between time spent studying per

week and income per week from working part-time. What is the opportunity cost for this

person of moving from point a to point b?

a. $5 of income per week

b. $10 of income per week

c. two hours of studying per week

d. $10 per hour of studying per week

e. $20 of income per week

 

9. Assume that Kelly's various possible activities are mutually exclusive. The opportunity

cost from choosing one activity equals the ( c )

a. summed value of all her alternative activities

b. summed value of all her alternative activities minus the value of the chosen activity

c. value of the next most valuable alternative activity

d. value of the next most valuable alternative activity minus the value of the chosen activity

e. summed value of all her alternative activities minus the value of the next most valuable alternative activity

What can you conclude about the price elasticity of demand in each of the following

statements? Your answer should be written as Q10 – Q13.

10. “The pizza delivery business in this town is very competitive. I’d lose half my customers

if I raised the price by as little as 10%.”

11. “I owned both of the two Jerry Garcia autographed lithographs in existence. I sold one on

eBay for a high price. But when I sold the second one, the price dropped by 80%.”

12. “My economics professor has chosen to use the Krugman/Wells textbook for this class. I

have no choice but to buy this book.”

13. “I always spend a total of exactly $10 per week on coffee.”

Answer to Question:

14. Points on the Production Possibilities Frontier are

a. Attainable

b. Unattainable

c. Associated with some unemployment

d. Both A and C

15. Points outside the Production Possibilities Frontier are

a. Attainable

b. Unattainable

c. Associated with some unemployment

d. Both A and C

 

Part II Short Answers

1. What is the utility function and state three areas (fields0 where it can be applied? 5 Marks

2. What are the factors that influence the choice of a consumer? 4 Marks

Part III Comprehensives (11 Marks)

Using algebra, determine how the equilibrium price and quantity of lemon change from the

initial levels, p = $2 and Q = 80, if the price of fresh strawberry increases from its original price

of pt = 80¢ by 55¢ to $1.35.