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Unformatted text preview: 1-3(Key Question)Cite three examples of recent decisions that you made in which you, at least implicitly, weighed marginal costs and marginal benefits.Student answers will vary, but may include the decision to come to class, to skip breakfast to get a few extra minutes of sleep, to attend college, or to make a purchase. Marginal benefits of attending class may include the acquisition of knowledge, participation in discussion, and better preparation for an upcoming examination. Marginal costs may include lost opportunities for sleep, meals, or studying for other classes. In evaluating the discussion of marginal benefits and marginal costs, be careful to watch for sunk costs offered as a rationale for marginal decisions.1-7(Key Question) Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. The price of candy bars is $.75 and the price of peanuts is $1.50.a.Construct a table showing the alternative combinations of the two products that are available.b.Plot the data in your able as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one more bag of peanuts? Do these opportunity costs rise, fall, or remain constant as each additional unit of the product is purchased.c.How, in general, would you decide which of the available combinations of candy bars and bags of peanuts to buy?d.Suppose that you had won $30 on your ticket, not $15. Show the $30 budget line in your diagram. Why would this budget line be preferable to the old one?(a)Consumption alternativesGoodsABCDEFCandy bars48121620Bags of peanuts108642(b) Candy Bars2010Bags ofPeanuts5.5.175.-=-=SlopeThe slope for the budget line above, with candy bars on the horizontal axis, is -0.5 (= -Pcb/Pbp). Note that the figure could also be drawn with bags of peanuts on the horizontal axis. The slope of that budget line would be -2.The slope of that budget line would be -2....
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- Spring '08