Question 1

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) $43,000
B) $57,000
C) $65,000
D) $71,000

Accepted Answer

Opportunity cost is the value of the next best alternative forgone.
Mark's opportunity cost of running the business is the income he gave up by quitting his job as a salesman. Therefore, his opportunity cost is $43,000 per year.
In addition to this, he also has personal expenses totaling $6,000 ($4,800 for apartment + $1,200 for bills).
So, Mark's total opportunity cost is $43,000 + $6,000 = $49,000

However, in order to run his business, Mark also incurs business expenses totaling $22,000 ($6,000 for rent + $12,000 for supplies + $4,000 for part-time help).
Therefore, Mark's total cost of running the business is $49,000 + $22,000 = $71,000.
Hence, the correct answer is C) $65,000, which is Mark's opportunity cost of not working as a salesman anymore.

Question 2

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 an activity is the value of the next best alternative forgone. In this case, the individual could have used their time to search for a job or engage in some other productive activity that would have yielded an income. Therefore, the cost of fishing includes the cost of bait and any other monetary expenses, as well as the value of the wages the individual could have earned if they had chosen to engage in the best alternative use of their time. Option D is the only answer that includes all of these costs, making it the best choice.

Question 3

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 while attending college, students are not earning any income that they would have earned if they were in the workforce instead. A and D are incorrect because they both make assumptions about the cost of college, which can vary greatly depending on individual circumstances. B is partially correct, but it only considers the monetary costs of college and not the opportunity cost.

Question 4

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 Jessica's decision to dress up as Sleeping Beauty is the fact that she cannot dress up as her second choice, Barbie.

Question 5

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 6

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 you would have done if you did not have math homework. If you would have spent the hour doing something more enjoyable or productive, then the opportunity cost of doing math homework is higher.

Question 7

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 whenever we make a choice or a decision, we must consider not only what we will gain but also what we will lose or give up. It is important to understand the concept of opportunity cost in order to make wise and informed decisions. The other options may be related to economics, but they do not directly relate to this specific principle.

Question 8

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 9

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 based on the principle of opportunity cost, where you consider the benefits of all possible options and choose the one that provides the highest value for your money. This is important for making the most out of a limited budget and maximizing the utility of available resources.

Question 10

Five years ago,Tammy always took a big envelope full of coupons to the grocery store.Now that 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

The correct answer is D because if the opportunity cost of grocery shopping had decreased, it might imply that Tammy has more time or finds it less costly in terms of what she is giving up to go shopping, which could potentially make it easier for her to use coupons, not less likely. The other options (A, B, C) provide plausible reasons for why she might not bring coupons anymore, such as fewer coupons being available, the time cost of clipping coupons being too high, or grocery prices decreasing, making coupons less necessary.

Question 11

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 depends on what else you could do with your time instead of watching the movie again. If you have other things to do that are more valuable to you than watching the movie again, then the opportunity cost is higher. If you have nothing else to do and you really enjoyed the movie, then the opportunity cost may be lower. So, the answer depends on your personal preferences and circumstances.

Question 12

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 did not 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 you could have received from a tenant if you did not live there. This is because by living in the house, you are giving up the opportunity to rent it out and receive income from it. Options A and B are incorrect as there is always an opportunity cost to consider, even if you own the asset. Option D is not entirely incorrect as the cost of the mortgage payment and bills are a factor to consider, but they do not fully encompass the opportunity cost of living in the house.

Question 13

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 refers to the cost of the next best alternative that he is giving up by choosing to run his t-shirt making business. His personal expenses such as his apartment and personal bills would still exist even if he did not start his business, so they are not considered opportunity costs. The expenses directly related to the business, such as rent, supplies, and part-time labor costs, are opportunity costs because the money could have been used for something else if he did not start his business. Therefore, the answer is D, as his apartment costs and personal bills are not part of the opportunity cost of running his business.

Question 14

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 includes both the explicit costs (tuition and room and board, totaling $10,000) and the implicit cost (the forgone income from not working, which is $22,000). Adding these together gives $32,000 as the total opportunity cost.

Question 15

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 16

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

All of the above options should be considered when weighing the cost-benefit of traveling to multiple supermarkets for groceries. The cost of gasoline and wear and tear on the car should be factored in, as well as the value of the time spent shopping at multiple stores. If these costs outweigh the savings from sale prices, then Pat may not be saving as much as she thinks.

Question 17

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 when making a decision, one must consider the alternative options that are forgone. In this case, Bob is giving up his lunch in order to have a fancy dinner, so the cost of the fancy dinner is the opportunity cost of not being able to have a lunch.

Question 18

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 processes, whether it is for individuals, firms or governments. It refers to the cost of the next best alternative foregone, which could be in terms of money, time, or other resources. This principle helps in making informed choices and evaluating trade-offs in decision-making.

Question 19

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 refers to what you have to give up in order to choose one option over another.

Question 20

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 statements is most correct?
A) Steven has a lower opportunity cost of owning a car than does 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, as he could potentially rent it out and earn a profit. This is because parking spots in his city are in high demand, indicating that there is a value to having a spot available. Options A and D are not relevant to the concept of opportunity cost in this scenario, while option B is incorrect as owning a house does not necessarily mean that there is no opportunity cost associated with using a resource on that property.

Quiz 2: The Key Principles of Economics

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

The opportunity cost of going to college

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

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

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?

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?

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 that 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?

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

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?

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

The principle of opportunity cost

The opportunity cost of something is

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 statements is most correct?