ECON205 - S09

ECON205 - S09 - Sonoma State University (SSU)

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1. Who has the lowest opportunity cost? Maria and Felix need to decide which one of them will take time off of work to complete the rather urgent task of digging post holes for their new fence. Maria is pretty good with a post auger; she can dig the holes in 30 minutes. Felix is somewhat slow; it takes him 5 hours to dig the holes. Maria earns $160 per hour as a psychiatrist, while Felix earns $20 per hour as a cobbler. Keeping in mind that either Maria or Felix must take time off from work to dig the holes, who has the lowest opportunity cost of completing the task? o Maria and Felix face identical opportunity costs '" @ Maria o Felix Explanation: Close A If Maria decides to dig the holes, she gives up the $80 she could have earned working as a psychiatrist in the same 30 minutes. If Felix decides to dig the holes, he gives up the $100 he could have earned working as a cobbler in the same 5 hours. Since Maria gives up the least, she has the lowest opportunity cost of digging post holes for their new fence. Scores: .:. Average: 1 / 1
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2. Understanding opportunity cost You work as an assistant coach on the university basketball team and earn $15 per hour. One day, you decide to skip the hour-long practice and go to the movies instead, which has an $10 admission fee. The opportunity cost of skipping practice and going to the movies, valued in dollars, is ExpLanation: $25 '" . CLose A When you measure the opportunity cost of a choice in dollars, you include any actual monetary amount paid (the explicit cost) and the monetary value of any other sacrifices made (the implicit cost). By skipping practice, you forgo earning your hourly wage of $15 per hour, so this is your implicit cost. You also choose to pay $10 to get into the movies, so this is your explicit cost. So your opportunity cost in dollars, the sum of your explicit and implicit costs, is $15 + $10 = $25. Scores: .:. Average: 1 /1
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3. Efficiency in the production possibilities model Supposethe United Kingdom produces barley and cars. Its current production possibilities frontier (PPF) is shown on the diagram below, along with six output combinations labeled A through F. CARS (Millions per year) 100 80 C X 60 40 20 a F 0 X X A X PPF B X E X 20 40 60 80 100 BARLEY [MiLLions ot bushels per year) I Clear All II Help I Which of the points on the graph represent output combinations that are inefficient? Explanation: A and S only Close /\. The production possibilities frontier shows all efficient output combinations for the United Kingdom; that is, combinations of output that use all the nation's available resources and technology to their maximum potential. Points located below the PPF, such as A and S, represent inefficient output combinations. At these points, it is possible to increase the production of both goods because resources are unemployed. For example, point A is inefficient because it is possible for the United Kingdom to produce instead at point F, where the economy is producing both more barley and more cars. Which of the points on the graph represent output combinations that are efficient?
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ECON205 - S09 - Sonoma State University (SSU)

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