Quiz 2: Thinking Like an Economist

Business

a.Final exam is scheduled for tomorrow: Despite tomorrow's final exam schedule, the decision of going to a movie today evening will have a higher opportunity cost. Because, the student could have used that crucial time in studies to perform well in next day's exam. Hence, the opportunity cost includes the ticket price plus the poor performance in the exam grade the next day. b.School will be out for one month starting tomorrow: The decision of going to a movie today evening will cause low opportunity cost. The opportunity cost involves the price of ticket; and any other activity the student had planned like going to an opera, chilling out with friends, helping parents etc. c.The same movie will be on TV next week: If the movie will be telecast on TV next week, then the opportunity cost would be relatively less , because the student could have watched it free of cost with less attraction. Hence, the opportunity cost involves the price of the ticket and travel expenses (in terms of price and time). d.Super Bowl is on TV: A student has decided to go to a movie today evening when Super Bowl is expected to be on TV. The opportunity of this decision depends on whether the student is a fan of football or not. If the student is a fan of football, then he/she will miss the match; hence, the opportunity cost is very high.If the student is not a fan of football, then the program is less or not attractive to him/her; hence, the opportunity cost will be zero.

a.Opportunity cost is the cost of the best alternative that an individual gave up; hence, the statement opportunity cost of an activity is the total value of all the alternatives passed up is FALSe. b.Since the opportunity cost is a subjective measure of cost, only the individual can estimate the expected benefits and costs to him/her for choosing an option, therefore, the statement is FALSe. c.Collecting information regarding all available alternatives is not feasible, in terms of time and cost. People take decisions based on the limited information that is available to them, and hence, the statement is FALSe. d.Since the decision is made based on the expected value of the alternatives, the statement of A decision-maker seldom knows the actual value of a forgone alternative and therefore must make decisions based on expected values is TRUe.

Statement is conflicting with the theory: According to comparative advantage theory, an alternative can be chosen based on low opportunity cost. If the opportunity costs of own prepared food is higher than the precooked frozen foods, then the law of comparative advantage theory would suggest precooked frozen foods. Therefore, the given statement is conflicting with the theory of comparative advantage.

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