Question 1

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
A)less than $1,000.
B)more than $2,000.
C)at least $3,000.
D)the ticket price plus his cousin's offer, a total of $4,000.

Accepted Answer

The answer of Ted got a ticket to this year's...

Question 2

How are money cost and opportunity cost related to each other?
A)If markets function well, they are closely related.
B)They are always identical in any economic system.
C)Opportunity cost must always exceed money cost.
D)Money cost is greater than or equal to opportunity cost.
E)In a market economy, they must be equal to each other.

Accepted Answer

Money cost is the cost of purchasing goods or services, while opportunity cost is the cost of the next best alternative that must be given up in order to pursue a certain decision. In a well-functioning market, prices reflect both money cost and opportunity cost, as individuals make choices based on their own preferences and trade-offs. Therefore, the two costs are closely related. The other options are incorrect; money cost and opportunity cost can be different and can vary across different economic systems and situations.

Question 3

The divergence between money costs and opportunity costs will be greatest in which of the following situations?
A)A university purchases 100 computers.
B)A university employs people from town in the cafeteria (the other alternative is to work at a paper mill).
C)A university employs otherwise unemployed teenagers to paint crosswalks and curbs.
D)A university replaces the roof of the fine arts building.

Accepted Answer

Employing otherwise unemployed teenagers to paint crosswalks and curbs has zero opportunity cost, as they were previously unoccupied. However, there is a money cost associated with paying for their work. This creates a large divergence between money costs and opportunity costs.

Question 4

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?
A)The opportunity cost did not change, since lost earnings were still a factor.
B)The opportunity cost became zero for the typical student.
C)The opportunity cost was very low, because the only cost was for books and supplies.
D)The opportunity cost did not change, since tuition was not a factor in computing opportunity cost.
E)The opportunity cost was lower than if tuition was charged, but there was still a cost.

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 5

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?
A)The opportunity cost would be Rob's lost income from selling tires that afternoon plus the $50.
B)The opportunity cost would be Rob's lost income from selling tires that afternoon minus the $50.
C)That Rob just wanted to take the afternoon off.
D)The opportunity cost would be Rob's lost income from selling tires that afternoon.

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 6

As the term "opportunity cost" is defined in the text, the opportunity cost of going to college includes
A)both tuition and the value of the student's time.
B)tuition but not the value of the student's time, which is a cash cost.
C)the value of the student's time but not tuition, which is a monetary cost.
D)neither tuition nor the value of the student's time, since obtaining a college degree makes one's income higher in the future.
E)neither tuition nor the value of the student's time, at least at subsidized state universities.

Accepted Answer

The opportunity cost of going to college includes both tuition and the value of the student's time, as stated in the text. The student could have potentially used that time to work and earn income, so the value of that time is an opportunity cost. Additionally, paying for tuition and other expenses also represents a financial cost.

Question 7

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
A)value of marginal analysis.
B)law of increasing costs.
C)difference between real costs and money costs.
D)cost disease of the service sector.

Accepted Answer

The study takes into account the real costs of preparing a chicken dinner at home, which includes the imputed value of time. This highlights the difference between real costs and money costs, as the money cost of buying the chicken dinner may be higher, but the real cost of preparing it at home is actually higher.

Question 8

The money cost of a particular good will approximate its opportunity cost if
A)there are serious distortions in the market.
B)the market functions well.
C)there is much specialization in the market.
D)nations are exploiting the law of comparative advantage.

Accepted Answer

The opportunity cost of a good is the cost of the next best alternative forgone. If the market for the good functions well, this means that there is competition and no market distortions that would prevent the price from reflecting the true opportunity cost. Therefore, the price of the good will closely approximate its opportunity cost.

Question 9

The opportunity cost and the money cost of a good
A)can be the same in a well-functioning free market.
B)are never the same.
C)matter only to the purchaser of the good.
D)are not reflected in its price.

Accepted Answer

In a well-functioning free market, the price of a good reflects both its money cost and opportunity cost. This is because firms will only supply goods if they can cover their costs and make a profit, so the price will reflect the resources used in producing the good, as well as the foregone opportunities to use those resources in alternative ways. Therefore, in a free market, the opportunity cost and the money cost of a good can be the same.

Question 10

Money costs and opportunity costs are concepts that are
A)not related in any meaningful way.
B)used by tax accountants.
C)related through the relative prices of goods and services.
D)used by economists to learn the most efficient level of output.

Accepted Answer

Money costs refer to the price of goods and services in monetary terms, while opportunity costs refer to the value of the next best alternative foregone. The relative prices of goods and services determine both money costs and opportunity costs, as choosing one option over another involves giving up the opportunity to use that money or time for another option. Economists use these concepts to determine the most efficient allocation of resources.

Question 11

In a market economy, the decision regarding allocation of resources is made by
A)the operation of the forces of supply and demand.
B)policy authorities in Washington, D.C.
C)budget planners in state capitals.
D)committees from a variety of economic interest groups.
E)All of the responses are correct.

Accepted Answer

In a market economy, the forces of supply and demand determine the allocation of resources. This means that suppliers and consumers make decisions based on the prices of goods and services, and this ultimately determines how resources are allocated in the economy.

Question 12

Which of these options best reflects Jim's opportunity cost of operating his own business?
A)The total amount of money he spends to obtain capital equipment
B)The value of Jim's managerial skills that are used to run the business
C)The cost of hiring his laborers
D)All of the responses are correct.

Accepted Answer

Opportunity cost refers to the value of the next best alternative that is foregone as a result of choosing one option over another. In this case, Jim's opportunity cost of operating his own business is the value of his managerial skills that could have been used elsewhere if he had chosen not to operate his own business. The cost of obtaining capital equipment and hiring laborers are expenses incurred in running the business and do not reflect the value of the foregone alternative.

Question 13

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
A)$1,000.
B)$2,000.
C)$3,000.
D)$4,000.

Accepted Answer

The answer of Ted got a ticket to this year's...

Question 14

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
A)$45.
B)$50.
C)$75.
D)$115.

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 15

If a market system is functioning well, we can conclude that goods with
A)high opportunity costs tend to have high money costs.
B)low opportunity costs tend to have high money costs.
C)high opportunity costs tend to have low money costs.
D)low opportunity costs tend to have zero money costs.
E)high opportunity costs tend to have zero money costs.

Accepted Answer

In a well-functioning market system, the law of supply and demand dictates that goods with high opportunity costs tend to have high money costs. This is because the cost of producing these goods is higher, which leads to a higher price to make a profit. Similarly, goods with low opportunity costs tend to have lower money costs, as they are easier and cheaper to produce.

Question 16

Which of the following is an example of opportunity cost not measured by money cost?
A)The time spent eating a business lunch at a restaurant
B)The time spent preparing a meal eaten at home
C)The time spent studying to obtain an "A" in economics
D)The time spent repairing a car in one's own garage
E)All of the responses are correct.

Accepted Answer

All of the choices listed involve an opportunity cost that cannot be measured by money cost. Time spent on any activity has an opportunity cost, as that time could have been spent on an alternative activity, such as leisure or work. The examples listed involve the opportunity cost of time spent on a business lunch, preparing a meal, studying for good grades, or repairing a car, all of which could have been spent on other activities.

Question 17

Rational production decisions require an understanding of
A)trade-offs.
B)opportunity costs.
C)scarcity of resources.
D)All of the responses are correct.

Accepted Answer

Rational production decisions require an understanding of all the mentioned factors, i.e., trade-offs, opportunity costs, and scarcity of resources. Therefore, Option D - All of the responses are correct is the best choice.

Question 18

Do all valuable items have price tags?
A)No, because some valuable items have no opportunity cost.
B)Yes, because everything has its price.
C)Yes, because price is the measure of opportunity cost.
D)No, some have no explicit price on them.
E)Yes, because only items that can be sold in markets have value.

Accepted Answer

Some valuable items may not have an explicit price tag, such as sentimental items or priceless artifacts. However, they are still considered valuable due to their significance or rarity.

Question 19

Why would it be a mistake to treat opportunity costs and explicit monetary costs as identical?
A)Because sometimes the market does not function well.
B)Because opportunity costs are different for different goods.
C)Because there are trade-offs involved in any decision.
D)Because of existence of efficient markets.

Accepted Answer

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

Question 20

The divergence between money costs and opportunity costs is the smallest in which of the following situations?
A)China hires millions of otherwise unemployable workers to build roads using picks and shovels.
B)Wilhelm, a petroleum engineer, is drafted, and his army salary is $1,000 per month.
C)Colleen quits her job to stay at home and raise her children.
D)A university employs a private contractor to build a field house on land it purchased at full market value from a local farmer.

Accepted Answer

In this scenario, the university is paying the full market value for the land and using a private contractor to build the field house, so the money costs are roughly equal to the opportunity costs. In the other scenarios (A, B, and C), either money costs are much lower than opportunity costs (A and C) or opportunity costs are much higher than money costs (B).

Quiz 3: The Fundamental Economic Problem: Scarcity and Choice

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

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

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

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?

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?

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

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

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

The opportunity cost and the money cost of a good

Money costs and opportunity costs are concepts that are

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

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

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

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

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

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

Rational production decisions require an understanding of

Do all valuable items have price tags?

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

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