Problem Set #1 KEY

Problem Set #1 KEY - ECON 1001 C/D/E/F/G/H/I- INTRODUCTION...

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ECON 1001 C/D/E/F/G/H/I- INTRODUCTION TO ECONOMICS I DR. DEMURGER, DR. LO AND DR. WAN ANSWER KEY TO PROBLEM SET #1 HARDCOPY SUBMISSION DEADLINE: 4PM, MONDAY, SEP 29, 2008 Instructions: This problem set consists of four essay-type questions. Note that we only take submission of problem sets in hardcopy. Answer all the questions on regular A4 paper(s) and clearly write down your full name, university number and sub-class. Marks will be deducted if you fail to write any of them! Please submit your completed problem set by dropping it off into Clifford’s or Jennifer’s mailboxes, which are located on 9/F of K.K. Leung Building before the deadline. Direction: when you reach 9/F by elevator, simply make a left turn and you will see their mailboxes on your left. All the instructors will not take submission in class. If you have any questions regarding this key, please contact Clifford on or Jennifer on
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QUESTION 1 You and your friend Joe have identical tastes. At 2pm, you go to the local Ticket master outlet and buy a $30 ticket to a basketball game to be played that night in Syracuse, 50 miles north of your home in Ithaca. Joe plans to attend the same game, but because he cannot get to the Ticketmaster outlet, he plans to buy his ticket at the game. Tickets sold at the game costs only $25, because they carry no Ticketmaster surcharge. (Many people nonetheless pay the higher price at Ticketmaster, to be sure of getting good seats.) At 4pm, an unexpected snowstorm begins, making the prospect of the drive to Syracuse much less attractive than before (but assuring the availability of good seats). If both you and Joe are rational, is one of you more likely to attend the game than the other? Briefly explain with consideration of relevant cost(s). Answers: Since you have already bought your ticket, the $30 you spent on it is a sunk cost. It is the money you cannot recover, whether or not you go to the game. In deciding whether to see the game, then, you should compare the benefit of seeing the game (as measured by the largest dollar amount you would be willing to pay to see it) to only those additional costs you must incur to see the game (the opportunity cost of your time, whatever cost you assign to driving through the snowstorm, etc). But you should not include the cost of your ticket. That is $30 you will never see again, whether you go to the game or not. Joe, too, must weigh the opportunity cost of his time and the hassle of the
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This note was uploaded on 04/18/2011 for the course ECON 1001 taught by Professor S.c during the Spring '10 term at HKU.

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Problem Set #1 KEY - ECON 1001 C/D/E/F/G/H/I- INTRODUCTION...

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