Question 1

Suppose a university offers college seniors one "free" course. Is this course also free to society?

Accepted Answer

While the college senior may have access to a "free" course, there is still a cost to society if a paying student is unable to enroll due to limited availability. This cost may manifest in lost tuition revenue or missed educational opportunities for the paying student.

Question 2

Opportunity cost:

Accepted Answer

Opportunity cost is the value of the next best alternative that must be given up in order to pursue a certain action or decision. It is not limited to only explicit expenses, and can include implicit costs such as foregone wages when taking a vacation.

Question 3

Jimmy is invited to a costume party with a 1990s theme. His first thought is to dress up as MC Hammer, but he is also considering going as a lifeguard from Baywatch. The opportunity cost of arriving dressed like MC Hammer is:

Accepted Answer

The opportunity cost of dressing like MC Hammer is the enjoyment he would have received if he had dressed like a lifeguard from Baywatch. Choosing one costume means giving up the benefits of the other. The cost of purchasing parachute pants or the money he saves on not buying red swimming trunks are not relevant to the opportunity cost. Option D is incorrect because there is always an opportunity cost when we make a decision.

Question 4

Economists assume that people choose to do something when they believe:

Accepted Answer

Economists often apply the "rational choice" theory, which assumes that individuals weigh the costs and benefits of their decisions before taking any action. This means that people are assumed to choose an option only if it provides them with more benefits than the costs it incurs.

Question 5

Aria purchases a coffee cup from her local gas station for $5.00 that can be refilled at any time for $0.50. Economists would say that the $5.00 she spent on the cup is:

Accepted Answer

The $5.00 spent on the cup is a sunk cost because it is a one-time expense that cannot be recovered or refunded. The refill cost of $0.50 is a marginal cost because it is the additional cost of each refill after the initial purchase. The $5.00 could also be considered an opportunity cost if Aria had other potential uses for that money, but in this scenario, it is most accurately a sunk cost.

Question 6

A gas station that does not offer pay at the pump service decides to require drivers to prepay for gas to decrease the amount of drive-offs. Which of the following could be an opportunity cost of this decision?

Accepted Answer

Requiring drivers to prepay for gas may result in lost revenue from people who underestimate how much their gas tank can hold and end up overpaying. This is an opportunity cost, as the gas station could have potentially earned more revenue if they continued to allow pay-at-the-pump service. Options A and B are benefits of requiring prepaid gas, and option D is not directly related to the decision to require prepayment for gas.

Question 7

The drug approval process regulated by the Federal Drug Administration (FDA) slows the pace at which helpful medications reach the marketplace. The alternative of having the medication available to consumers earlier is an example of:

Accepted Answer

The opportunity cost is the benefit that could have been received by choosing an alternative option. In this case, the alternative option would be to have the medication available to consumers earlier. This means that the benefit of having the medication available earlier is being sacrificed due to the FDA's regulations. Therefore, choice A is the best answer. Choice B is not relevant to the question. Choice C assumes that the FDA's regulation has a high marginal benefit, which is not mentioned in the question. Choice D is incorrect as it does not address the question of the trade-off between delayed availability of medications and the benefits of FDA regulation.

Question 8

If Johnny weren't in economics class this morning, he'd be sleeping. The value Johnny places on sleeping represents his:

Accepted Answer

The value Johnny places on sleeping represents his opportunity cost, which is the value of the next best alternative foregone as a result of making a decision. In this case, if Johnny weren't in economics class, he would choose to sleep, making sleep his next best alternative and thus his opportunity cost.

Question 9

Making a decision "on the margin" involves comparing:

Accepted Answer

Making a decision "on the margin" means analyzing the costs and benefits of making one additional unit of a decision, rather than considering the total. Therefore, the correct choice is A, which involves comparing additional benefits against additional costs.

Question 10

You're trying to determine whether to spend your Saturday afternoon attending a street festival, working to earn $100, or studying for your midterm exam. You really don't want to work, so you flip a coin between attending the street festival and studying. The coin flip determines that you should stay home and study. The opportunity cost of your time spent studying includes:

Accepted Answer

The answer of You're trying to determine whether to spend...

Question 11

A college student decides to spend his afternoon watching three movies rented from Redbox. The cost of each movie is $1. The student was willing to pay $4 to rent each of the first two movies and $2 to rent the third movie. What was the marginal benefit received by the student when renting the second movie?

Accepted Answer

The marginal benefit is the additional satisfaction or utility received from consuming one more unit of a good or service. In this case, the student was willing to pay $4 for each of the first two movies, so the marginal benefit of renting the second movie is $4 (the cost the student was willing to pay). Therefore, the answer is C) $4.

Question 12

Cameron can spend his weekend afternoon doing one of three things: playing golf, driving his boat, or cleaning his house. Although he enjoys golfing, he sometimes becomes frustrated when playing so he decides to enjoy a more relaxing afternoon on his boat. Cameron never really considered the idea of cleaning the house, but he did give playing golf some serious thought. Cameron's opportunity cost of driving the boat is:

Accepted Answer

The opportunity cost is the value of the next best alternative that is forgone in order to pursue a certain action. In this case, since Cameron chose to spend his afternoon on his boat, the opportunity cost is the enjoyment he would have gotten from playing golf, which he considered before choosing to drive his boat. Option A is not correct since having a messy house was never an option he considered. Option C is also not correct as it includes an option that he never considered. Option D describes his choice, but it is not the opportunity cost.

Question 13

Jasmin purchases a coffee cup from her local gas station for $5.00 that can be refilled at any time for $0.50. The marginal cost of her 10th cup of coffee is:

Accepted Answer

Since the cost to refill the coffee cup is $0.50 after purchasing it for $5.00, the marginal cost of each subsequent cup is simply $0.50. Therefore, the marginal cost of Jasmin's 10th cup of coffee is also $0.50.

Question 14

Your sister always brags about how savvy she is as a grocery shopper, claiming she saves lots of money by using coupons and shopping at multiple stores to get the lowest prices on all goods. Why might your sister be overestimating her savings?

Accepted Answer

All of these factors - the time and effort spent on coupon sorting and driving to multiple stores, as well as the value of time spent at checkout - could be possible costs that your sister is not considering when calculating her savings. Therefore, all the choices are correct.

Question 15

A college student decides to spend his afternoon watching three movies rented from Redbox. The cost of each movie is $1. The student was willing to pay $4 to rent each of the first two movies and $2 to rent the third movie. What was the marginal benefit received by the student when renting the first movie?

Accepted Answer

The marginal benefit received by the student when renting the first movie is the amount he was willing to pay ($4) minus the actual cost ($1), which equals $3. However, since the options provided do not include $3, and considering the context of the question might be aiming to assess the value the student places on the first movie alone without subtracting the cost, the closest correct interpretation based on the given choices would be that he was willing to pay $4 for the first movie, indicating the perceived value or benefit of that movie to him.

Question 16

A local fast-food restaurant mails coupons for a free sandwich to every home in the community. Natasha, who is on a diet, receives one of the coupons. Which of the following is an opportunity cost of redeeming the sandwich coupon for Natasha?

Accepted Answer

The opportunity cost is the benefit that is missed or given up when choosing one alternative over another. In Natasha's case, the opportunity cost of redeeming the sandwich coupon is the benefit she would receive from sticking to her diet plan, as this is the next best alternative she gives up by choosing to eat the sandwich.

Question 17

You are shopping at the local mall with an $80 gift card that expires tomorrow. Only three items catch your attention: a bottle of perfume, a remote control helicopter, and an "Amazing Ab Belt." You would be willing to give up $60 for the perfume, $70 for the belt, and $80 for the helicopter. Knowing this, you decide to purchase the helicopter. The opportunity cost of the helicopter is:

Accepted Answer

The opportunity cost of choosing the helicopter is the value of the next best alternative forgone, which is the ab belt valued at $70.

Question 18

A local street festival that previously sold bracelets in exchange for unlimited alcohol consumption is now concerned about overconsumption. If the festival providers decide to instead sell tickets for each drink, will overall alcohol consumption at the next festival decrease?

Accepted Answer

Selling tickets for each drink will increase the marginal cost per additional drink for consumers, which will likely decrease overall alcohol consumption at the festival. With unlimited alcohol consumption, consumers have no incentive to limit their consumption because the marginal cost of each additional drink is essentially zero. However, with tickets for each drink, consumers will have to weigh the cost of each additional drink, which could lead to decreased consumption.

Question 19

When making a decision, it is often more difficult to identify the ______ associated with the decision because ______.

Accepted Answer

It is often more difficult to identify the costs associated with a decision because individuals must consider both monetary costs and opportunity costs, and should also ignore sunk costs. Benefits can often be easier to identify as they may be more tangible and directly linked to the decision being made.

Question 20

You decide to drive your car on a long road trip of 1,500 miles. The opportunity cost of driving your car:

Accepted Answer

The opportunity cost of driving your car includes lost wages you could have earned instead of driving. While the cost of gas is a factor, the missed income from not working during the time of the trip should also be considered.

Quiz 1: Economicsand Life