Chap 1 - Limits, Alternatives, and Choices ANSWERS TO...

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Limits, Alternatives, and Choices ANSWERS TO END-OF-CHAPTER AND APPENDIX QUESTIONS 1-1 What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greatest opportunity cost: Allocating a square block in the heart of New York City for a surface parking lot or allocating a square block at the edge of a typical suburb for such a lot? Explain. A n o p p o r t u n i t y c o s t i s w h a t w a s s a c r i f i ced to do or acquire something else. The condition of scarcity creates opportunity cost. If there was no scarcity, there would be no need to sacrifice one thing to acquire another. T h e o p p o r t u n i t y c o s t w o u l d b e m u c h h i g h e r i n New York City as the alternative uses for that square block are much more valuable than for a typical suburban city block. 1-2 What is meant by the term “utility” and how does it relate to purposeful behavior? “Utility” refers to the pleasure, happiness, or satisfaction gained from engaging in an activity (eating a meal, attending a ball game, etc.). It is an important component of purposeful behavior because people will allocate their scarce time, energy, and money in an attempt to gain the most utility possible. 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. S t u d e n t a n s w e r s w i l l v a r y , b u t m a y i n c l u d e t h e 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. 1-4 What are the key elements of the scientific method and how does this method relate to economic principles and laws? T h e k e y e l e m e n t s i n c l u d e t h e g a t h e r i n g o f d a ta (observation), the formulation of possible explanations (hypothesis), testing the hypothesis, determining the validity of the hypothesis, and repeated testing of hypotheses that have appeared to be valid in prior tests. T h e s c i e n t i f i c m e t h o d i s t h e t e c h n i q u e u s e d by economists to determine economic laws or principles. These laws or principles are formulated to explain and/or predict behavior of individuals or institutions. 1-5 Indicate whether each of the following statements applies to microeconomics or macroeconomics: a . T h e u n e m p l o y m e n t r a t e i n t h e U n i t ed States was 5.2 percent in January 2005.
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Chap 1 - Limits, Alternatives, and Choices ANSWERS TO...

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