Question 1

The principle that states that the cost of something is equal to what is sacrificed to get it is known as the:
A)marginal principle.
B)principle of opportunity cost.
C)principle of diminishing returns.
D)reality principle.

Accepted Answer

The principle of opportunity cost states that the cost of something is equal to what is sacrificed to get it. This means that when we make a choice, there is always an opportunity cost or the value of the next best alternative that we have to give up in order to choose our preferred option. The other options (A) marginal principle, (C) principle of diminishing returns, and (D) reality principle are not directly related to the concept of opportunity cost.

Question 2

Mark quit his job as a salesman where he made $43,000 per year to start his own t-shirt making business.His business expenses are $6,000 per year on rent,$12,000 per year on supplies,and $4,000 per year on part-time help.As for his personal expenses,his apartment costs him $4,800 per year and his personal bills are an extra $1,200 per year.What is Mark's opportunity cost of running the business?
A)$65,000
B)$57,000
C)$71,000
D)$43,000

Accepted Answer

Mark's opportunity cost is the income he gave up by quitting his job, which is $43,000. In addition, he has business expenses of $6,000 + $12,000 + $4,000 = $22,000, and personal expenses of $4,800 + $1,200 = $6,000. So his total opportunity cost is $43,000 + $22,000 + $6,000 = $65,000.

Question 3

Nancy and Melissa both have broken light fixtures in their living rooms.Nancy opts to hire an electrician,while Melissa spends two hours replacing the fixture herself.Which of the following is a possible explanation of this behavior?
A)Nancy dislikes electrical work more than Melissa.
B)Melissa is better at doing electrical work than Nancy.
C)The opportunity cost of Nancy's time is higher than her cost to hire an electrician.
D)All of the above are possible explanations of this behavior.

Accepted Answer

Each option provides a plausible explanation for the difference in behavior between Nancy and Melissa. Nancy might dislike electrical work more (A), Melissa might have better skills in electrical work (B), or the opportunity cost of Nancy's time could be higher than the cost of hiring an electrician (C), leading them to make different decisions regarding how to address the broken light fixture.

Question 4

Suppose a ticket to a concert costs $39,and parking costs $5.Further,in order to watch the concert,you must miss 2 hours of work where your hourly wage is $15 per hour.The total opportunity cost of watching a concert is:
A)$74.
B)$44.
C)$39.
D)$30.

Accepted Answer

The total opportunity cost includes the ticket price ($39), parking cost ($5), and the wages foregone by missing 2 hours of work (2 hours * $15/hour = $30). Adding these together gives $39 + $5 + $30 = $74.

Question 5

When Bob has to give up lunch in order to have a fancy dinner,the economic principle that is highlighted by his situation is the:
A)marginal principle.
B)spillover principle.
C)principle of opportunity cost.
D)reality principle.

Accepted Answer

The principle of opportunity cost states that making a decision requires sacrificing the opportunity to pursue alternatives. In this case, Bob has to give up his lunch in order to have a fancy dinner, which highlights the idea of sacrificing one opportunity (having lunch) for another (having a fancy dinner).

Question 6

Spending money on a fixed budget is an example of:
A)the principle of opportunity cost.
B)how to survive with unlimited financial resources.
C)a bad thing to do because you run out of money.
D)living on the edge.

Accepted Answer

Spending money on a fixed budget requires making choices about how to allocate limited funds, which is an application of the principle of opportunity cost.

Question 7

Pat claims to save a great deal of money on groceries by traveling to various supermarkets to make her purchases at their advertised sale prices.She might visit as many as five different stores in one day in order to complete her weekly shopping.Her savings are not as great as she may think they are if she does not consider the:
A)cost of the gasoline in driving from one store to another.
B)mileage she is putting on her car driving from one store to another.
C)value of the time she is spending doing the shopping as opposed to other things.
D)all of the above

Accepted Answer

The cost of the gasoline and mileage on the car add up to an additional expense that may negate the savings she gets from shopping at different stores. Additionally, the time and effort taken to go to multiple stores should be factored in when considering the overall savings. Therefore, all of the above factors should be considered.

Question 8

Five years ago Tammy always took a big envelope full of coupons to the grocery store.Now she has a child in pre-school,she rarely brings coupons.Which of the following is NOT a possible explanation of this change in her behavior?
A)Fewer coupons appear in the newspapers than five years ago.
B)The opportunity cost of clipping coupons has risen above their monetary value.
C)Grocery prices have decreased.
D)The opportunity cost of grocery shopping has decreased.

Accepted Answer

If the opportunity cost of grocery shopping has decreased, it would not explain why Tammy stopped using coupons, as it would imply she has more time or resources to use them.

Question 9

The opportunity cost of going to college:
A)is zero if your parents pay your tuition.
B)is equal to the cost of tuition,room and board,and other expenses.
C)includes wages you lose by going to school instead of working.
D)is the same for all students at a particular school who pay full tuition.

Accepted Answer

The opportunity cost of going to college includes the wages you lose by going to school instead of working. This is because during the time you are in school, you could have potentially earned money by working. The other options (A, B, and D) are not correct as they do not fully capture the opportunity cost of going to college.

Question 10

An unemployed individual decides to spend the day fishing.The opportunity cost of fishing is equal to:
A)the cost of bait and any other monetary expenses.
B)zero,because the person doesn't have a job.
C)the value of the individual's wages while he was working.
D)the cost of bait,any other monetary expenses,and the value of the best alternative use of the individual's time.

Accepted Answer

The opportunity cost of fishing includes all expenses incurred to fish (such as bait and other monetary expenses) as well as the value of the best alternative use of the individual's time (such as working or engaging in some other productive activity). Therefore, the best choice is D.

Question 11

Suppose that you own a house.What is the opportunity cost of living in the house?
A)There is no opportunity cost because you own the house.
B)There is no opportunity cost unless you could set up a business in the house.
C)The opportunity cost is the rent you could have received from a tenant if you didn't live there.
D)The opportunity cost is the cost of your monthly mortgage payment plus bills.

Accepted Answer

The opportunity cost of living in the house is the rent that could have been received if you didn't live there. This is because you could have rented the house out to someone else and received a financial benefit, but by choosing to live in the house yourself, you are giving up that opportunity. Options A and B are incorrect because there is always an opportunity cost, regardless of whether you own the house or could set up a business in it. Option D is partially correct in that the cost of your mortgage and bills is a cost associated with living in the house, but it doesn't fully capture the opportunity cost of forgoing rental income.

Question 12

Jessica,aged three,decides to dress up like Sleeping Beauty for Halloween.What is her opportunity cost of this decision?
A)the cost of the costume
B)the fact that she can't dress up like Barbie,her second choice
C)zero,because three-year-olds do not have opportunity costs
D)impossible to say,because Jessica does not understand what an opportunity cost is

Accepted Answer

The opportunity cost of dressing up like Sleeping Beauty is the fact that Jessica cannot dress up like Barbie, her second choice. This is the best answer because it represents the true cost of her decision in terms of what she had to give up. Option A, the cost of the costume, represents a monetary cost, but not an opportunity cost. Option C is incorrect because even though Jessica is young, she still has opportunity costs. Option D is not the best choice because it assumes that Jessica does not understand the concept of opportunity cost, even though it was not mentioned in the scenario.

Question 13

The principle of opportunity cost:
A)is more relevant for firms than for individuals.
B)only refers to monetary payments.
C)is only relevant in economics.
D)is applicable to all decision-making.

Accepted Answer

The principle of opportunity cost is applicable to all decision-making, not just in economics but also in personal and business decision-making. It refers to the idea that choosing one option means giving up the benefits that could have been obtained from choosing another option. It is important to consider opportunity cost in decision-making because it helps individuals and businesses make the best use of their resources.

Question 14

Mark quit his job as a salesman where he made $43,000 per year to start his own t-shirt making business.His business expenses are $6,000 per year on rent,$12,000 per year on supplies,and $4,000 per year on part-time help.As for his personal expenses,his apartment costs him $4,800 per year and his personal bills are an extra $1,200 per year.Which of the following is NOT part of the opportunity cost of running his business?
A)his apartment costs
B)his personal bills
C)his part-time labor costs
D)his apartment costs and his personal bills

Accepted Answer

The opportunity cost of running his business includes the income he could have earned as a salesman ($43,000 per year) and any additional benefits he may have received from that job (such as health insurance, retirement contributions, etc.). His personal expenses, such as his apartment and personal bills, are not directly related to the business and therefore do not need to be factored into the opportunity cost. However, his part-time labor costs are part of the opportunity cost because he could have earned that money working as a salesman instead of paying someone else to do that work for his business.

Question 15

The opportunity cost of something is:
A)the cost of the labor used to produce it.
B)what you sacrifice to get it.
C)the price charged for it.
D)the search cost required to find it.

Accepted Answer

Opportunity cost is the value of the next best alternative that is foregone in order to choose a certain action. It is what one sacrifices or gives up in order to obtain something else. Therefore, the correct answer is B - what you sacrifice to get it.

Question 16

You have an hour between your economics and math classes.What is the opportunity cost of that time if you use it to do math homework?
A)It depends on what you would do if you had no math homework.
B)It depends on how much you like math.
C)zero,because an hour isn't long enough to go to a paying job
D)zero,because it doesn't cost any money to do your math homework

Accepted Answer

The opportunity cost of using the hour to do math homework depends on what else you could have done with that time if you had no math homework.

Question 17

Steven lives in a big city where there is a shortage of parking.He has a parking spot in his driveway where he parks his car.Which of the following statement is most correct?
A)Steven has a lower opportunity cost of owning a car than his neighbor,who must rent a parking spot.
B)The opportunity cost of using the parking spot is zero,because Steven owns the house.
C)The opportunity cost of using the parking spot is the price he could charge someone else for using the spot.
D)The opportunity cost depends on how much Steven's mortgage payment is.

Accepted Answer

The opportunity cost of using the parking spot is the price Steven could charge someone else for using the spot. In a city where parking is scarce, there is always a demand for parking spaces, and Steven could potentially earn rent by leasing out his parking spot. Therefore, the opportunity cost of using the parking spot is the potential income he could have earned by renting it out.

Question 18

Suppose that your tuition to attend college is $5,000 per year and you spend $5,000 per year on room and board.If you were working full time,you could earn $22,000 per year.What is your opportunity cost of attending college?
A)$13,000
B)$27,000
C)$30,000
D)$35,000

Accepted Answer

The opportunity cost of attending college is the value of the next best alternative forgone, which in this case is the income that could have been earned by working full time. The income that could be earned by working full time is $22,000 per year.

Since the total cost of attending college is $10,000 ($5,000 for tuition and $5,000 for room and board), the opportunity cost of attending college is $22,000 - $10,000 = $12,000 per year.

Therefore, over a four-year period, the opportunity cost of attending college is $12,000 x 4 = $48,000.

However, the question only asks for the opportunity cost of attending one year of college, which is $12,000.

Therefore, the best choice is option B, $27,000, because none of the given options match the correct answer of $12,000 for one year of attendance.

Question 19

Suppose that your tuition to attend college is $10,000 per year and you spend $4,000 per year on room and board.If you were working full time instead of attending college,you could earn $20,000 per year.What is your opportunity cost of attending college for one year?
A)$14,000
B)$24,000
C)$30,000
D)$34,000

Accepted Answer

The opportunity cost of attending college for one year is the income that could have been earned by working instead of attending college.
Opportunity cost = income that could have been earned - cost of attending college
Opportunity cost = $20,000 - ($10,000 + $4,000)
Opportunity cost = $20,000 - $14,000
Opportunity cost = $6,000
Therefore, the opportunity cost of attending college for one year is $6,000.

Question 20

You rent a copy of a new action/adventure movie.The rental is for seven days and you watch the movie on the first day.You tell a friend about the film and your friend asks to come over and watch the movie with you before it is due back.What is your opportunity cost of watching the movie a second time?
A)zero,because it won't cost you any money to keep the movie for another day
B)one half the rental cost,because you have already watched the movie one time
C)The answer depends on how much you liked the movie in the first place.
D)The answer depends on what else you could do besides watching the movie.

Accepted Answer

The opportunity cost of watching the movie a second time is the value of the next best alternative that you would have forgone in order to watch the movie again. This depends on what else you could do besides watching the movie, such as spending time with friends, reading a book, or pursuing a hobby. Therefore, the answer depends on individual circumstances and preferences.

Quiz 2: The Key Principles of Economics

The principle that states that the cost of something is equal to what is sacrificed to get it is known as the:

Nancy and Melissa both have broken light fixtures in their living rooms.Nancy opts to hire an electrician,while Melissa spends two hours replacing the fixture herself.Which of the following is a possible explanation of this behavior?

Suppose a ticket to a concert costs $39,and parking costs $5.Further,in order to watch the concert,you must miss 2 hours of work where your hourly wage is $15 per hour.The total opportunity cost of watching a concert is:

When Bob has to give up lunch in order to have a fancy dinner,the economic principle that is highlighted by his situation is the:

Spending money on a fixed budget is an example of:

Five years ago Tammy always took a big envelope full of coupons to the grocery store.Now she has a child in pre-school,she rarely brings coupons.Which of the following is NOT a possible explanation of this change in her behavior?

The opportunity cost of going to college:

An unemployed individual decides to spend the day fishing.The opportunity cost of fishing is equal to:

Suppose that you own a house.What is the opportunity cost of living in the house?

Jessica,aged three,decides to dress up like Sleeping Beauty for Halloween.What is her opportunity cost of this decision?

The principle of opportunity cost:

The opportunity cost of something is:

You have an hour between your economics and math classes.What is the opportunity cost of that time if you use it to do math homework?

Steven lives in a big city where there is a shortage of parking.He has a parking spot in his driveway where he parks his car.Which of the following statement is most correct?

Suppose that your tuition to attend college is $5,000 per year and you spend $5,000 per year on room and board.If you were working full time,you could earn $22,000 per year.What is your opportunity cost of attending college?

Suppose that your tuition to attend college is $10,000 per year and you spend $4,000 per year on room and board.If you were working full time instead of attending college,you could earn $20,000 per year.What is your opportunity cost of attending college for one year?