Chapter 1: Limits, Alternatives, and Choices

Match each term with the correct definition.

• Economics

• Opportunity cost

• Marginal analysis

• Utility

e. The next-best thing that must be forgone in order to produce one more unit of a given product

f. The pleasure, happiness, or satisfaction obtained from consuming a good or service

g. The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity

h. Making choices based on comparing marginal benefits with marginal costs

What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: allocating a square block in the heart of New York City for a surface parking lot or allocating a square block at the edge of a typical suburb for such a lot? Explain.

Potatoes cost Janice $1perpound,andshehas$5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth $1.50,thesecondpoundisworth$1.14, the third pound is worth $1.05,andallsubsequentpoundsareworth$0.30 per pound, how many pounds of potatoes will she purchase? How many pounds will she purchase if she has only $2 to spend?

Suppose that based on a nation's production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the one additional industrial robot it desires, but it can get the robot from another country in exchange for 9,000 pizzas. Relate this information to the following statement. "Through international specialization and trade, a nation can reduce its opportunity cost of obtaining goods and thus move outside its production possibilities curve."

Starbucks has $1 billion to invest. It can either purchase a rival coffee shop chain or build additional Starbucks shops. If Starbucks chooses to purchase the rival chain, what does that say about the relative profitability of purchasing and owning the rival's existing shops versus building additional Starbucks shops? Explain.

Cite three examples of recent decisions you made in which you, at least implicitly, weighed marginal cost and marginal benefit.

Pham can work as many or as few hours as she wants at the college bookstore for $12perhour.Butduetoherhecticschedule,shehasjust15hoursperweekthatshecanspendworkingateitherthebookstoreorotherpotentialjobs.Onepotentialjobatacaféwillpayher$15 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $13anhourforupto5hoursperweek.Andshehasapotentialjobatadaycarecenterthatwillpayher$11.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

Indicate whether each of the following statements applies to microeconomics or macroeconomics.

The unemployment rate in the United States was 3.7 percent in December 2018.

a. A U.S. software firm laid off 15 workers last month and transferred the work to India.

b. An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise.

c. U.S. output, adjusted for inflation, increased by 2.3 percent in 2017.

d. Last week, Wells Fargo Bank lowered its interest rate on business loans by one-half of 1 percentage point.

e. The consumer price index rose by 2.2 percent from November 2017 to November 2018.

What is 'utility', and how does it relate to purposeful behavior?

Suppose that you initially have $100tospendonbooksormovietickets.Thebooksstartoffcosting$25 each, and the movie tickets start off costing \(10 each. For each of the following situations, would the attainable set of combinations that you can afford increase or decrease?

a. Your budget increases from \)100 to \(150, while the prices stay the same.

b. Your budget remains \)100, and the price of books remains $25,butthepriceofmovieticketsrisesto$20.

c. Your budget remains $100,andthepriceofmovieticketsremains$10, but the price of a book falls to $15.