Exam 1: Ten Principles of Economics

For your birthday, your friends have joined forces and offer you a choice among the following options (they will pay all expenses of your choice): A) A two-week trip to an exotic destination; B) A new, high-tech mountain bike, C) An annual pass to your preferred sports team games, and D) A dinner with your preferred celebrity. Suppose your subjective valuations of these options are as follows: A)$800, B)$700, C)$1500, and D)$1000. If you are a rational individual, you will obviously choose C, the annual pass, because it is the option of your highest valuation. a) What is your opportunity cost of choosing option C? Explain. b) Now, suppose your friends announce at the last minute a fifth option, E, a cheque of $1100. What is now your opportunity cost of choosing option C? c) As you can see, the theory of opportunity cost implies that the cost of an action depends on other, seemingly unrelated facts. Why does this make sense?

What has been the result of laws requiring that drivers wear seat belts?

What happens when government policies such as the welfare system try to help the neediest members of society?

Mike has spent $800 purchasing and repairing an old motorcycle, which he expects to sell for $1,200. He discovers that he needs an additional repair, which will cost $200. He can sell the motorcycle as it is now for $400. What should he do?

What is the opportunity cost of an item?

What does NOT result when seat belt laws alter a driver's cost-benefit calculation?

A worker in Bangladesh can earn $1 per day making cotton cloth on a handloom. A worker in Canada can earn $100 per day making cotton cloth with a mechanical loom. What accounts for the difference in wages?

To improve living standards, what should policymakers do?

What happens when society requires that firms reduce pollution?

What does the tenth principle of economics help explain?

The Students' Union on campus provides free popcorn to all students who attend their annual meeting. In this instance, how will the principle of scarcity apply?

When people act in their self-interest, what typically happens in a market system, according to Adam Smith?

Which activity will most likely result in an external benefit?

Which of the following is most likely to generate an externality?

What is the opportunity cost of going to university?

What is the best example of a marginal change?

What is the business cycle?

Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short run.

Mallory decides to spend three hours working overtime rather than watching Netflix with her friends. She earns $9 an hour. What is her opportunity cost of working?

Tim has spent $2500 purchasing and repairing a Hummer, which he expects to sell for $3500. He discovers that he needs an additional repair, which will cost $1100. He can sell the Hummer as it is now for $900. What should he do?