Limits, Alternatives, and Choices
ANSWERS TO END-OF-CHAPTER AND APPENDIX QUESTIONS
What is an opportunity cost?
How does the idea relate to the definition of economics?
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?
An opportunity cost is what was sacrificed 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.
The opportunity cost would be much higher in New York City as the alternative uses for that
square block are much more valuable than for a typical suburban city block.
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
Cite three examples of recent decisions that you made in which you, at least
implicitly, weighed marginal costs and marginal benefits.
Student answers will vary, but may include the 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.
What are the key elements of the scientific method and how does this method relate to economic
principles and laws?
The key elements include the gathering of data (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.
The scientific method is the technique used by economists to determine economic laws or
These laws or principles are formulated to explain and/or predict behavior of
individuals or institutions.
Indicate whether each of the following
statements applies to microeconomics or
The unemployment rate in the United States was 5.2 percent in January 2005.
A U.S. software firm discharged 15 workers last month and transferred the work to India.