AEB 2014: Economic Issues, Food and You
Answers
to Problem Set # 1
Professor: Carlos Pitta Page
✦
1
Here are the suggested answers to your problem set # 1. Of course, your working and mine
would differ, but as long as you recognized in your answers the basic economic principles
involved, you answer is as valid as mine.
Carlos Pitta
Chapter 1/Ten Principles of Economics
1.
a.
A family deciding whether to buy a new car faces a trade-off between the cost of
the car and other things they might want to buy. For example, buying the car
might mean they must give up going on vacation for the next two years. So the
real cost of the car is the family's opportunity cost in terms of what they must give
up.
b.
For a member of Congress deciding whether to increase spending on national
parks, the trade-off is between parks and other spending items or tax cuts. If
more money goes into the park system, that may mean less spending on national
defense or on the police force. Or, instead of spending more money on the park
system, taxes could be reduced.
c.
When a company president decides whether to open a new factory, the decision
is based on whether the new factory will increase the firm's profits compared to
other alternatives. For example, the company could upgrade existing equipment
or expand existing factories. The bottom line is: Which method of expanding
production will increase profit the most?
d.
In deciding how much to prepare for class, a professor faces a trade-off between
the value of improving the quality of the lecture compared to other things she
could do with her time, such as working on additional research.
3.
If you are thinking of going skiing instead of working at your part-time job, the cost of
skiing includes its monetary and time costs, which includes the opportunity cost of the
wages you are giving up by not working. If the choice is between skiing and going to the
library to study, then the cost of skiing is its monetary and time costs including the cost of
getting lower grades in your courses.
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- Spring '09
- EVANDRUMMOND
- Economics, Macroeconomics, Unemployment, Carlos Pitta, Carlos Pitta Page
-
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