Question 1

If a market system is functioning well, we can conclude that goods with

Accepted Answer

In a functioning market system, goods with high opportunity costs (meaning the resources used to produce them could have been used to produce other goods) will tend to have high money costs because producers need to charge enough to cover their costs and make a profit. Similarly, goods with low opportunity costs will tend to have lower money costs because it is easier for producers to cover their costs and make a profit. However, there is not necessarily a direct correlation between opportunity cost and money cost, as many other factors can affect prices in a market system.

Question 2

The divergence between money costs and opportunity costs will be greatest in which of the following situations?

Accepted Answer

The divergence between money costs and opportunity costs is greatest when resources (like labor) are used that otherwise would not be employed. In option C, employing otherwise unemployed teenagers means their opportunity cost is very low (essentially zero), but the money cost to the university for their labor is positive, creating a significant divergence between money costs and opportunity costs.

Question 3

Which of these options best reflects Jim's opportunity cost of operating his own business?

Accepted Answer

Opportunity cost refers to the foregone alternative of choosing one option over another. In this case, Jim's opportunity cost of starting his own business would be the value of his managerial skills that he could have used somewhere else if he had chosen not to start his own business. The cost of getting capital equipment or hiring laborers are expenses incurred in running the business and not necessarily opportunity costs.

Question 4

Ted got a ticket to this year's Super Bowl and paid the face value of $1,000.His cousin offered him $3,000 for the ticket.Given this information, Ted's opportunity cost of this ticket is

Accepted Answer

Ted's opportunity cost is the value of the next best alternative he foregoes, which is the $3,000 his cousin offered him for the ticket.

Question 5

As a strategy to boost enrollment, in January 1996, a private college in Iowa offered free tuition for graduating high school seniors from the county where it is located.For students who accepted the offer, how did this offer affect the opportunity cost of attending college?

Accepted Answer

While the tuition cost was eliminated, there are still other costs associated with attending college, such as the cost of room and board, textbooks, and lost earnings from not working during college. Therefore, the opportunity cost was lower than if tuition was charged, but there was still a cost.

Question 6

The money cost of a particular good will approximate its opportunity cost if

Accepted Answer

The opportunity cost of a good is the value of the next best alternative foregone. In a well-functioning market, prices reflect the value that consumers place on a good or service, which is influenced by its opportunity cost. Therefore, the money cost of a particular good will be a good approximation of its opportunity cost in a well-functioning market. A and D are incorrect because distortions in the market and the law of comparative advantage can affect prices and lead to deviations from the true opportunity cost. C is also incorrect because specialization in the market may not necessarily guarantee that prices accurately reflect opportunity cost.

Question 7

Money costs and opportunity costs are concepts that are

Accepted Answer

Money costs and opportunity costs are related through the concept of relative prices. Money costs refer to the actual monetary expenses incurred in acquiring a good or service, while opportunity costs refer to the value of the best alternative option forgone in choosing one course of action over another. The relative prices of goods and services affect both types of costs, as higher prices for one option may make the other option more economically attractive due to lower opportunity costs. Hence, money costs and opportunity costs are intertwined in economic decision-making.

Question 8

Rob took the afternoon off from his job as a tire salesman to mow his lawn.Rob told his wife that this made sense because he would be saving the $50 he would have to pay a lawn service, noting that this would be the opportunity cost to the family.Rob's wife disagreed.What did Rob's wife say?

Accepted Answer

Rob's wife likely pointed out that the opportunity cost of Rob mowing the lawn himself includes not just the $50 saved from not hiring a lawn service, but also the income he forfeits by not working that afternoon. This total opportunity cost is calculated by subtracting the $50 saved from the income he would have earned, indicating that the cost of the decision includes both the saved expense and the lost income.

Question 9

The divergence between money costs and opportunity costs is the smallest in which of the following situations?

Accepted Answer

In this situation, the money cost and opportunity cost are both equal to the full market value of the land and the construction project. Therefore, there is no divergence between the two costs. In the other situations, there are differences between the money cost and opportunity cost, such as the low wages paid to workers in option A or the opportunity cost of Wilhelm giving up his higher-paying job in option B. In option C, Colleen incurs an opportunity cost of giving up her salary and potential career growth to stay at home with her children.

Question 10

Rational production decisions require an understanding of

Accepted Answer

Rational production decisions require an understanding of trade-offs, opportunity costs, and scarcity of resources. Thus, all of the responses are correct.

Question 11

As the term "opportunity cost" is defined in the text, the opportunity cost of going to college includes

Accepted Answer

According to the text, opportunity cost includes both the monetary cost of tuition and the value of the student's time that could have been spent earning money instead of attending college. Therefore, option A is the correct answer.

Question 12

Do all valuable items have price tags?

Accepted Answer

Some valuable items, such as sentimental or heirloom possessions, may have no explicit price on them. While they still hold value to the owner, they may not have a market value or an opportunity cost associated with them.

Question 13

A ticket to an Eric Clapton concert costs $45.If you have a ticket, you can "scalp" it (sell it illegally) for $75.To a ticket holder, the opportunity cost of actually attending the concert is

Accepted Answer

The opportunity cost of attending the concert is the value of the next best alternative foregone, which in this case is the $75 that could have been earned by scalping the ticket.

Question 14

A recent study found that it was cheaper to buy a chicken dinner from Kentucky Fried Chicken than it was to prepare it at home.The researcher included all costs including the imputed value of time involved to prepare the meal at home.This study illustrates the

Accepted Answer

The study highlights the difference between real costs (which include the imputed value of time and other non-monetary factors) and money costs (the actual cash spent to purchase goods or services). By accounting for the value of time, it demonstrates how the real cost of preparing a meal at home can exceed the money cost of buying it ready-made.

Question 15

How are money cost and opportunity cost related to each other?

Accepted Answer

In a well-functioning market, the price of a good or service represents the money cost, which is the amount of monetary resources that must be given up to acquire it. However, individuals also have an opportunity cost, which is the value of the next best alternative foregone. When making economic decisions, individuals weigh the money cost against their opportunity cost to determine the best course of action. Thus, if markets function well, money cost and opportunity cost are closely related to each other.

Question 16

In a market economy, the decision regarding allocation of resources is made by

Accepted Answer

In a market economy, decisions regarding allocation of resources are made through the interaction of buyers and sellers in the marketplace, based on the forces of supply and demand.

Question 17

Why would it be a mistake to treat opportunity costs and explicit monetary costs as identical?

Accepted Answer

The answer of Why would it be a mistake to...

Question 18

The opportunity cost and the money cost of a good

Accepted Answer

In a well-functioning free market, the opportunity cost and money cost of a good can be the same. This is because the price of a good in a free market reflects the opportunity cost of producing the good, and consumers are free to choose whether or not to purchase the good based on their own opportunity cost. Therefore, if the market is functioning well, the opportunity cost and money cost of a good will be equal.

Question 19

Ted got a ticket to this year's Super Bowl and paid the face value of $1,000.His cousin offered him $3,000 for the ticket.Ted chose to attend the game.From this, we can infer that Ted's value for this ticket was

Accepted Answer

Ted's decision to attend the game instead of selling the ticket for $3,000 suggests that he values the experience of attending the game at least as much as the $3,000 he was offered.

Question 20

Which of the following is an example of opportunity cost not measured by money cost?

Accepted Answer

Opportunity cost refers to the value of the next best alternative that is forgone when making a choice. In all the given options (A, B, C, D), the opportunity cost is represented by the time spent on an activity instead of doing something else, which is not directly measured in monetary terms but rather in terms of what else could have been accomplished with that time.

Quiz 3: The Fundamental Economic Problem: Scarcity and Choice