101_PS_1_ans_03 - Econ 101 Answers for Problem Set 1...

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Econ 101 Answers for Problem Set 1 Answers to Review Questions 1. Your friend probably means that your tennis game will improve faster if you take solo private lessons instead of group lessons. But private lessons are also more costly than group lessons. So those people who don’t care that much about how rapidly they improve may do better to take group lessons and spend what they save on other things. 2. False. Your willingness to make the trip should depend only on whether $30 is more or less than the cost of driving downtown. 3. Because the price of a movie ticket is a cost the patron must pay explicitly, it tends to be more noticeable than the money that she would fail to earn by seeing the movie. As Sherlock Holmes recognized, it’s easier to notice that a dog has barked than that it has failed to bark. 4. Using a frequent flyer coupon for one trip usually means not having one available to use for another. Thinking of frequent-flyer travel as free therefore leads people to take some trips that they shouldn't. 5. If your tuition payment is non-refundable, it is a sunk cost. If the payment is refundable until a certain date, it is not a sunk cost before that date but becomes one after it. Answers to Problems 1. The economic surplus from washing your dirty car is the benefit you receive from doing so ($6) minus your cost of doing the job ($3.50), or $2.50. 2. The benefit of adding a pound of compost is the extra revenue you’ll get from the extra tomatoes that result.
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101_PS_1_ans_03 - Econ 101 Answers for Problem Set 1...

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