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# Opportunity cost

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1. (I think the answer is c but could possible be D) A test was scheduled for Monday morning, but you went to a party on Saturday night. If you hadn't attended the party, you could have studied for the test or gone to a movie. Which of the following sentences is true?
a. The opportunity cost of going to the movie is studying for the test.
b. The opportunity cost of going to the party is the movie.
c. The opportunity cost of going to the party is both the movie and the study time.
d. Because you could go to the party only that night but could go to a movie any time, the opportunity cost of the party is the study time.
e. From the above information, it's not possible to determine the opportunity cost of attending the party.

E_(I think the answer is E or would it be D)_ 2. In one week, Mohammed can knit 5 sweaters or bake 240 cookies. The opportunity cost per cookie for Mohammed is
a. \$5
b. 5 sweaters
c. 48 sweaters
d. 1/48 of a sweater

____3. Because of specialization and comparative advantage, most people
a. consume only what they produce themselves
b. consume the products produced by their family and friends
c. consume the products of many other specialists
d. do not use money as a medium of exchange
e. share whatever they produce

4. True or false -A point inside the production possibilities curve illustrates that resources are not being fully employed

____5. Because resources are not perfectly adaptable to the production of both good A and good B,
a. the opportunity cost of A increases as production of A increases
b. the opportunity cost of A decreases as production of A increases
c. it is impossible for the economy to produce both A and B
d. the opportunity cost of A is constant
e. the opportunity cost of B is constant

#### Solution Preview

1. (I think the answer is c but could possible be D) A test was scheduled for Monday

morning, but you went to a party on Saturday night. If you hadn't attended the party, you

could have studied for the test or gone to a movie. Which of the following sentences is

true?
a. The opportunity cost of going to the movie is studying for the test.
b. The opportunity cost of going to the party is the movie.
c. The opportunity cost of going to the party is both the movie and the study time.
d. Because you could go to the party only that night but could go to a movie any time, the

opportunity cost of the party is the study time.
e. From the above information, it's not possible to determine the opportunity cost of

attending the ...

\$2.19

## If CD's and MP3's are substitute goods and the price of MP3's rises

Review Questions

1. If CD's and MP3's are substitute goods and the price of MP3's rises (be careful because we don't know why the price of MP3's rises):

A) the demand for CD's will fall and their price fall
B) the demand curve for CD's will shift to the right and their price rise
C) the supply curve for CD's will shift to the left and their price fall
D) the quantity supplied of CD's will fall and their price rise
E) the inverse investment portfolio will increase in value

2. Which of the following will not shift the demand curve of a normal good to the
right?

A) an increase in incomes
B) an increase in the price of a substitute good
C) a decrease in the price of a complement good
D) a population increase
E) a decrease in the price of the product

3. The economic result(s) of raising the minimum wage above the market wage is
(are):

A) all low income people will make more money
B) everyone will make more money, but jobs will be lost
C) all prices will rise
D) some people will make more money, and overall more jobs will exist
E) some people will lose their jobs, but others will make more money

4. Price per ear of corn Quantity of corn per week

\$ .50 10
.75 20
.90 35

The above table represents:

A) Demand
B) Quantity demanded only
C) Supply
D) The market for corn
E) A surplus of corn

5. The fact that resources are scarce leads to:

A) the law of supply
B) opportunity costs
C) ceteris paribus
D) the income effect
E) the law of increasing opportunity costs

6. Assume the following equations are the market for Jeep Grand Cherokees, then pick the equilibrium level of price and quantity: Q= 80,000 - 2P and Q = 0 + 1.2P

A) Price = \$ 25,000 and Quantity = 30,000
B) Price = \$ 20,000 and Quantity = 24,000
C) Price = \$ 30,000 and Quantity = 36,000
D) Price = \$ 28,000 and Quantity = 33,600
E) Price = \$ 40,000 and Quantity = 48,000

7. Utility measures:

A) How much what you buy will cost you
B) How much consumer surplus you that you pay for
C) How much your electric bill will be in winter
D) How much extra happiness you get from changes in what you buy
E) How much happiness you get from what you buy

8. If you increase price by 45% and quantity increases by 53%:

A) the price elasticity of supply is 1.18 and is elastic
B) the price elasticity of supply is .85 and is inelastic
C) the price elasticity of demand is 1.18 and is inelastic
D) the price elasticity of demand is .85 and is inelastic
E) then the good is a normal good

9. If the price of a product rises, and sales of a related product fall, we know:

A) nothing about the cross price elasticity because we need the numbers
B) that the cross price elasticity will be positive because these are substitutes
C) that the cross price elasticity will be negative because these are compliments
D) that the cross price elasticity will be negative because these are substitutes
E) that the income elasticity will be negative because these are inferior goods

10. Even with unlimited funds we would eventually stop buying more of a specific product because of:

A) Increasing marginal cost
B) Diminishing marginal utility
C) Diminishing marginal product
D) The alpha principle
E) Inverted average utility

11. Consumer surplus is:

A) What we are willing to pay for a product
C) The extra happiness we give up due to our budget constraint
D) The difference between what we are willing to pay and the price
E) Not possible, only a theoretical concept

A) Average product
B) Average revenue
C) Marginal revenue
D) Marginal product
E) Total Product

13. At the level of output where the extra output per new extra input is at its highest:

A) Marginal Cost is at its lowest
B) Marginal Cost is at its highest
C) Average Total Cost is at its highest
D) Marginal Profit it at its highest
E) Marginal Revenue is at its lowest

14. Which of the following is not a characteristic of Perfect Competition:

A) normal profits in the long run
C) no or few barriers to entry and exit
D) homogeneous products
E) market power

15. A firm's supply curve is:

A) the portion of its marginal cost curve above the average total cost curve
B) the portion of its marginal revenue curve above the avg. total cost curve
C) the portion of its marginal cost curve above the avg. variable cost curve
D) the portion of its marginal revenue curve above the avg. variable cost curve
E) the portion of its average total cost curve that is above

16. Monopolies reduce societal efficiency because:

A) They produce too little at too low of a price
B) They produce too much at too low of a price
C) They produce too much at too high of a price
D) They produce too little at too high of a price
E) They are corrupt and evil

17. Giving quantity discounts is an example of:

A) Consumer Surplus
B) Price discrimination
C) Perfectly competitive profit maximization
D) Under-the-counter sales

18. If you are producing more than the quantity at which M.R. = M.C.:

A) You can increase profits by increasing production
B) You can increase profits by decreasing production
C) You can increase profits by increasing the number of workers you have
D) Average costs will be at their lowest
E) You have maximized profits (or minimized losses)

19. Which of the following statements is correct:

A) Marginal Product will rise due to overwhelming the fixed resource
B) Marginal Product will rise due to overwhelming the variable resource
C) Marginal Product will fall due to gains from specialization
D) Marginal Product will fall due to overwhelming the variable resource
E) Marginal Product initially rises due to gains from specialization

20. If a firms accounting profit = \$50,000 and the economic profit = \$12,000 we know for certain that:

A) The entrepreneur received a normal profit
B) Other firms will definitely enter the industry
C) The entrepreneur's opportunity costs were \$38,000
D) The firm is in perfect competition
E) The profits must be short run

21. K-Mart once decided to close several of the stores it has operated for many years. Because of this decision we can say:

A) K-Mart was operating only in the long run
B) K-Mart did not care about Wal-Mart as competition
C) K-Mart needed to end it's long run relationship with the ICEE corporation
D) K-Mart charged too much money
E) K-Mart had looked at its long run position

22. A natural monopoly occurs when:

A) The firms in the industry buy up all of the natural resources
B) Economies of scale are small relative to supply
C) There are no dis-economies of scale
D) A patent has been granted
E) Economies of scale are very large relative to demand

23. Microsoft was found guilty of violating the Antitrust law that forbids a company from attempting to limit competition using monopolistic actions.
This act was the:

A) Sherman Act of 1890
B) Clayton Act of 1914
C) Federal Trade Commission Act of 1914
D) Robinson-Patman Act of 1936
E) Celler-Kefauver Antimerger Act of 1950

24. Most streetlights are an example of:

A) a private good resulting from negative externalities
B) a public good resulting from negative externalities
C) a private good resulting from positive externalities
D) a public good resulting from positive externalities
E) a private good resulting from an individual's paranoia

25. With only market forces, meaning no government action, negative externalities lead to:

A) too little product at the market quantity
B) too much product at the market quantity
C) only too much demand
D) only too much supply
E) the perfectly competitive level of product quantity

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