ONLINECO 

Ten Principles of Economics. Chapter 1. Principle of Economics

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1. Describe some of the tradeoffs faced by the following:

a. A family deciding a whether to buy a car.

b. A member of Congress deciding how much to spent on national parks.

c. A company president deciding whether to open a new factory.

d. A professor deciding how much to prepare for class 2.

 

2. You are trying to decide whether to take a vacation. Most of the costs of the vacation (airfare, hotel, forgone, wages) are measured in dollars, but the benefits of the vacation are psychological. How can you compare the benefits to the costs?

 

3. You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. What is the true cost of going skiing? Now suppose that you had been planning to spend the day studying at the library. What is the cost of going skiing in this case? Explain

 

4. You win $100 in a basketball pool. You have a choice between spending the money now or putting it away for a year in a bank account that pays 5% interest. What is the opportunity cost of spending the $100 now?

 

5. The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $3 million. If it would cost $1 million to finish development and make the product, should you go ahead and do so? What is the most that you should pay to complete development?

 

6. Three managers of the Magic Potion Company are discussing a possible increase in production. Each suggests a way to make this decision. Harry: We should examine whether our company’s productivity-gallons of potion per worker-would rise or fall. Ron: We should examine whether our average cost- cost per worker-would rise or fall. Hermione: We should examine whether the extra revenue from selling the additional potion would be greater or smaller than the extra costs. Who do you think is right ? Why?

 

7. The Social Security system provides income for people over 65.If a recipient of Social Security decides to work and earn some income, the amount he or she receives in Social Security benefits is typically reduced.a. How does the provision of Social Security affect people’s incentive to save while working?

 

8. A recent bill reforming the government’s antipoverty programs limited many welfare recipients to only two year benefits.A. How does this change affect the incentive for working? b. How might this change represent a tradeoff between equity and efficiency?