Consider the following statement: “Economists always put things into monetary terms; as a result, economics can most appropriately be called the study of money.”
Is this true or false? Briefly explain your reasoning.
Use the cost-benefit principle to evaluate the following:
You are about to buy a calculator for $10, and the salesperson tells you that the model you want to buy is on sale for $5 at the store’s other branch, which is a 20 minute drive away. Would you make the trip?
You are about to buy a laptop for $1,000 and the salesperson tells you that the model you want to buy is on sale for $995 at the store’s other branch, which is a 20 minute drive away. Would you make the trip?
Did you make the same choice in both cases? Should you have? Do you think this is how people actually choose?
During the economic downturn of 2008–2009, the unemployment rate increased to nearly 10%. At the same time, the price of college tuition and the number of college enrollees increased. Using the opportunity cost principle, explain why more people would enroll in college during this time period even as the price of college increased.
A friend once remarked that longer movies were a better deal than shorter movies because the ticket price was the same in both cases. Therefore, the longer movie provided more benefit for the same cost as a shorter movie. Using the opportunity cost principle, evaluate your friend’s statement.
In 2016, the top-selling pharmaceutical drug in the world was AbbVie’s Humira, which is used for the treatment of several common, chronic conditions. The majority of its profits are derived from treatment of the most common diseases, so why does AbbVie develop drugs for rare diseases instead of investing all of its resources toward drugs for common diseases? Use the marginal principle to briefly explain your answer.
You are a preschool teacher working at a public school, but are considering quitting your job to start a day-care facility of your own. Describe four types of dependencies that will affect your decision, with at least one example for each.
Ivan has inherited his grandmother’s 1963 Chevrolet Corvette, which he values at $45,000. He decides that he might be willing to sell it so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000. Would Ivan and Samantha want to voluntarily engage in trade? How much economic surplus is created for both of them as a result of this exchange? What is the total economic surplus?
You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $40, you typically leave a 20% tip, and an Uber will cost you $5 to get there. You value the restaurant meal at $20. You enjoy your friend’s company and are willing to pay $30 just to spend an evening with her. If you did not go out to the restaurant, you would eat at home using groceries that cost you $8. How much are the benefits and costs associated with going out to dinner with your friend? Should you go out to dinner with your friend?
It is a beautiful afternoon and you are considering taking a leisurely stroll through the park. There are several other activities you had considered doing instead. The value you would have received from each of the activities is provided in the table below.
| Alternative activities | Value |
|---|---|
| Streaming a movie | $5 |
| Taking a nap | $8 |
| Chatting with your best friend | $13 |
| Reading a new book | $15 |
What is the opportunity cost to you of taking the stroll through the park?
Suppose you have midterms in economics and astronomy tomorrow, and you only have four hours left to study. The accompanying table provides the combinations of time spent studying economics and astronomy and your expected exam scores.
| Hours spent studying economics | Economics exam score | Hours spent studying astronomy | Astronomy exam score |
|---|---|---|---|
| 0 | 60 | 0 | 70 |
| 1 | 80 | 1 | 83 |
| 2 | 90 | 2 | 87 |
| 3 | 95 | 3 | 90 |
| 4 | 98 | 4 | 92 |
Draw a production possibilities frontier to illustrate your study options. What is the opportunity cost, in terms of your grades, of studying one extra hour for economics or one extra hour for astronomy?
If your goal is to maximize your combined exam scores, how many hours should you spend studying each subject?
Your laptop dies and refuses to start up. All your notes and class materials are saved on its hard drive. How do your production possibilities change? Illustrate in your graph from part (a).
Your niece is deciding whether or not to open a lemonade stand. She expects to sell 20 cups of lemonade for $1 per cup. She already made a sign that cost her $10 and will have $15 worth of additional costs for cups and lemonade mix if she decides to open the stand. If your niece decides to open the lemonade stand, how much profit will she earn? Should she open the lemonade stand? What kind of cost is the $10 spent on the lemonade stand sign?
Aliyah is preparing to expand her IT consulting company. The current market rate for IT professionals is $58,000 per year. Each employee she hires will also require a computer and equipment that costs $6,000 per employee annually. Hiring more employees means that Aliyah can provide consulting services to more clients each year. Each client Aliyah has will pay her $15,000 per year.
The number of clients Aliyah can take on depends on the number of workers she hires as shown in the accompanying table. What is the marginal cost and marginal benefit of hiring each worker? Using the Rational Rule to maximize her economic surplus, how many workers should Aliyah hire?
| Number of workers | Clients per year |
|---|---|
| 0 | 0 |
| 1 | 11 |
| 2 | 20 |
| 3 | 27 |
| 4 | 32 |
Neal is a coffee drinker. At the local coffee shop, the price of a cup of coffee is $3. Neal’s total benefits from drinking coffee is provided in the accompanying table. What is Neal’s marginal benefit of consuming each cup of coffee? How many cups should he consume each day?
| Quantity of coffee | Total benefits |
|---|---|
| 1 | $8 |
| 2 | $14 |
| 3 | $18 |
| 4 | $20 |
| 5 | $21 |
Consider your decision to read this textbook on economics. Identify which of the four core principles of economics is most relevant for the following aspects of that decision.
Reading this textbook will help establish a solid foundation for understanding concepts you will learn in more advanced economics courses.
Reading this textbook will require time and effort, but doing so will help you improve your grade in this course.
The time you will spend reading this textbook could instead be used to study for your chemistry exam.
Each extra page that you read and each practice problem that you complete will help you increase your understanding of the material.
For each of the following, indicate how you might apply the four core principles of economics.
You are considering whether you should vote in the next election.
You watch a beautiful sunset from the back porch of your home.
Should you major in economics or philosophy?
Should you and your spouse purchase a second vehicle?