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[Chapter 1 (Common): End-of-Chapter Solutions]
Discussion and Review Questions
Question 1
1. Consider the following statement: “Economists always put things into monetary terms; as a
result economics can most appropriately be called the study of money.”
Is this true or false? Briefly explain your reasoning.
Solution 1
1. This is false. Economists use monetary values because they provide a common metric for
measurement that enables them to compare the costs and benefits of a variety of different
outcomes. Essentially, it allows economists to compare apples to oranges. Expressing benefits
and costs in monetary terms simplifies the process of analyzing the decisions that we make in our
everyday lives. Economics, therefore, is more accurately described as the study of the decisions
that are made by individuals, firms, and governments.
Question 2
2. Use the cost-benefit principle to evaluate the following:
a. You are about to buy a calculator for $10, and the salesperson tells you that the model you
want to buy is on sale for $5 at the store’s other branch, which is a 20-minute drive away. Would
you make the trip?
Full download please contact or qidiantiku.com
,Full download please contact or qidiantiku.com
b. You are about to buy a laptop for $1,000 and the salesperson tells you that the model you want
to buy is on sale for $995 at the store’s other branch, which is a 20-minute drive away. Would
you make the trip?
c. Did you make the same choice in both cases? Should you have? Do you think this is how
people actually choose?
Solution 2
2. Student answers will vary. To apply the cost-benefit principle, analyze the full set of costs and
benefits (both monetary and non-monetary) of both alternatives. Only pursue the choice whose
benefits are at least as large as the costs to maximize your economic surplus. Convert costs and
benefits into dollars using your willingness to pay.
In parts a and b, your answer will depend on your willingness to pay. If you buy at the current
store, you will get the benefit of having the calculator and laptop now. If you buy at the other
branch, you save money off the purchase, but you forgo gas cost and travel time. How much
does the gas cost, and how much is your time worth to you?
For part c, note that in both cases, if you accept the offer, you are driving 20 minutes to save $5.
Your answer should be the same in both cases. However, many people may fall victim to the
framing effect, when a decision is affected by how a choice is presented. Saving $5 off the
calculator is 50% off the retail price. Saving $5 off the laptop is 0.5% off the retail price. In both
cases, the savings is $5. Although the framing effect is common, it is not rational. You should
make decisions based on the costs and benefits, not by how they are framed.
Question 3
3. During the economic downturn of 2008–2009, the unemployment rate increased to nearly
10%. At the same time, the price of college tuition and the number of college enrollees
increased. Using the opportunity cost principle, explain why more people would enroll in college
during this time period even as the price of college increased.
Full download please contact or qidiantiku.com
, Full download please contact or qidiantiku.com
Solution 3
3. One of the main costs associated with going to college is that individuals are giving up the
opportunity to work in the labor market instead. One of the key opportunity costs then is the
earnings that a student would have earned had they decided not to attend college. When the
economy is in a recession, there are fewer jobs available and wages tend to be lower than when
the economy is not in a recession. Therefore, the opportunity cost of going to college is also
reduced during a recession.
Question 4
4. A friend once remarked that longer movies were a better deal than shorter movies because the
ticket price was the same in both cases. Therefore, the longer movie provided more benefit for
the same cost as a shorter movie. Using the opportunity cost principle, evaluate your friend’s
statement.
Solution 4
4. When making an economic decision, you need to incorporate all the costs and benefits
involved. The ticket price is only part of the opportunity cost of watching a movie. There are also
the time costs. With longer movies, the time costs are greater. This is one of the reasons why
movie studios often try to limit the length of films; they are concerned that longer films may turn
away customers due to the additional opportunity costs. However, it may also be the case that the
additional plot development and enjoyment received from a movie are enhanced when the
duration is extended. Ultimately, individuals must do a cost-benefit analysis that includes all the
costs and benefits, not just the monetary out-of-pocket costs.
Full download please contact or qidiantiku.com
[Chapter 1 (Common): End-of-Chapter Solutions]
Discussion and Review Questions
Question 1
1. Consider the following statement: “Economists always put things into monetary terms; as a
result economics can most appropriately be called the study of money.”
Is this true or false? Briefly explain your reasoning.
Solution 1
1. This is false. Economists use monetary values because they provide a common metric for
measurement that enables them to compare the costs and benefits of a variety of different
outcomes. Essentially, it allows economists to compare apples to oranges. Expressing benefits
and costs in monetary terms simplifies the process of analyzing the decisions that we make in our
everyday lives. Economics, therefore, is more accurately described as the study of the decisions
that are made by individuals, firms, and governments.
Question 2
2. Use the cost-benefit principle to evaluate the following:
a. You are about to buy a calculator for $10, and the salesperson tells you that the model you
want to buy is on sale for $5 at the store’s other branch, which is a 20-minute drive away. Would
you make the trip?
Full download please contact or qidiantiku.com
,Full download please contact or qidiantiku.com
b. You are about to buy a laptop for $1,000 and the salesperson tells you that the model you want
to buy is on sale for $995 at the store’s other branch, which is a 20-minute drive away. Would
you make the trip?
c. Did you make the same choice in both cases? Should you have? Do you think this is how
people actually choose?
Solution 2
2. Student answers will vary. To apply the cost-benefit principle, analyze the full set of costs and
benefits (both monetary and non-monetary) of both alternatives. Only pursue the choice whose
benefits are at least as large as the costs to maximize your economic surplus. Convert costs and
benefits into dollars using your willingness to pay.
In parts a and b, your answer will depend on your willingness to pay. If you buy at the current
store, you will get the benefit of having the calculator and laptop now. If you buy at the other
branch, you save money off the purchase, but you forgo gas cost and travel time. How much
does the gas cost, and how much is your time worth to you?
For part c, note that in both cases, if you accept the offer, you are driving 20 minutes to save $5.
Your answer should be the same in both cases. However, many people may fall victim to the
framing effect, when a decision is affected by how a choice is presented. Saving $5 off the
calculator is 50% off the retail price. Saving $5 off the laptop is 0.5% off the retail price. In both
cases, the savings is $5. Although the framing effect is common, it is not rational. You should
make decisions based on the costs and benefits, not by how they are framed.
Question 3
3. During the economic downturn of 2008–2009, the unemployment rate increased to nearly
10%. At the same time, the price of college tuition and the number of college enrollees
increased. Using the opportunity cost principle, explain why more people would enroll in college
during this time period even as the price of college increased.
Full download please contact or qidiantiku.com
, Full download please contact or qidiantiku.com
Solution 3
3. One of the main costs associated with going to college is that individuals are giving up the
opportunity to work in the labor market instead. One of the key opportunity costs then is the
earnings that a student would have earned had they decided not to attend college. When the
economy is in a recession, there are fewer jobs available and wages tend to be lower than when
the economy is not in a recession. Therefore, the opportunity cost of going to college is also
reduced during a recession.
Question 4
4. A friend once remarked that longer movies were a better deal than shorter movies because the
ticket price was the same in both cases. Therefore, the longer movie provided more benefit for
the same cost as a shorter movie. Using the opportunity cost principle, evaluate your friend’s
statement.
Solution 4
4. When making an economic decision, you need to incorporate all the costs and benefits
involved. The ticket price is only part of the opportunity cost of watching a movie. There are also
the time costs. With longer movies, the time costs are greater. This is one of the reasons why
movie studios often try to limit the length of films; they are concerned that longer films may turn
away customers due to the additional opportunity costs. However, it may also be the case that the
additional plot development and enjoyment received from a movie are enhanced when the
duration is extended. Ultimately, individuals must do a cost-benefit analysis that includes all the
costs and benefits, not just the monetary out-of-pocket costs.
Full download please contact or qidiantiku.com
