Microeconomics: Principles, Applications, & Tools
The Key Principles of Economics
2.1 The Principle of Opportunity Cost
1) The opportunity cost of something is
A) the cost of the labor used to produce it.
B) what you sacrifice to get it.
C) the price charged for it.
D) the search cost required to find it.
Answer: B
2) The principle of opportunity cost
A) is more relevant for firms than for individuals.
B) only refers to monetary payments.
C) is only relevant in economics.
D) is applicable to all decision-making.
Answer: D
3) The principle that the cost of something is equal to what is sacrificed to get it is known as the
A) marginal principle.
B) principle of opportunity cost.
C) principle of diminishing returns.
D) reality principle.
Answer: B
4) The saying that “There’s no such thing as a free lunch” refers to the
A) marginal principle.
B) spillover principle.
C) principle of opportunity cost.
D) reality principle.
Answer: C
5) Jacinda quit her job as a blackjack dealer where she made $42,000 per year to start her own
florist business. Her business expenses are $14,000 per year on rent, $21,000 per year on
supplies, and $9,000 per year on part time help. As for her personal expenses, her apartment
costs her $12,000 per year and her personal bills are an extra $6,000 per year. What is Jacinda’s
opportunity cost of running the business?
A) $104,000
B) $86,000
C) $62,000
D) $44,000
Answer: B
6) An unemployed individual decides to spend the day fishing. The opportunity cost of fishing is
equal to
A) the cost of bait and any other monetary expenses.
B) zero, because the person doesn’t have a job.
C) the cost of bait, any other monetary expenses, and the value of the individual’s wages while he
was working.
D) the cost of bait, any other monetary expenses, and the value of the best alternative use of the
individual’s time.
Answer: D
7) Suppose that you own a house. What is the opportunity cost of living in the house?
A) There is no opportunity cost because you own the house.
B) There is no opportunity cost unless you could set up a business in the house.
C) The opportunity cost is the rent you could have received from a tenant if you didn’t live there.
D) The opportunity cost is the cost of your monthly mortgage payment plus bills.
Answer: C
8) Steven lives in a big city where there is a shortage of parking. He has a parking spot in his
driveway where he parks his car. Which of the following statements is most correct?
A) Steven has a lower opportunity cost of owning a car than his neighbor, who must rent a
parking spot.
B) The opportunity cost of using the spot is zero, because Steven owns the house.
C) The opportunity cost of using the parking spot is the price he could charge someone else for
using the spot.
D) The opportunity cost depends on how much Steven’s mortgage payment is.
Answer: C
9) You rent a DVD of Iron Man II. The rental is for seven days and you watch the movie on the
first day. You tell a friend about the film and your friend asks to come over and watch the movie
with you before it is due back. What is your opportunity cost if you decide to watch the movie a
second time instead of going to a football game?
A) the entire cost of the movie rental, since you have already watched the movie
B) one half the rental cost, because you have already watched the movie one time
C) The answer depends on how much you liked the movie in the first place.
D) the football game you forego by watching the movie again
Answer: D
10) Angelina, age seven, decides to dress up like Princess Fiona for Halloween. What is her
opportunity cost of this decision?
A) the cost of the costume
B) the fact that she can’t dress up like Dora the Explorer, her second choice
C) zero, because seven-year-olds don’t have opportunity costs
D) the cost of the Lady Gaga costume which she did not want
Answer: B
11) Spending money on a new car instead of a used car when you are on a fixed budget is an
example of
A) the incursion of an opportunity cost.
B) isolating variables.
C) a bad thing to do because you run out of money.
D) living on the edge.
Answer: A
12) Suppose that your tuition to attend college is $24,000 per year and you spend $8,000 per year
on room and board. If you were working full time, you could earn $30,000 per year. What is your
opportunity cost of attending college for one year?
A) $32,000
B) $38,000
C) $54,000
D) $62,000
Answer: C
13) Suppose that your tuition to attend college is $14,000 per year and you spend $5,000 per year
on room and board. If you were working full time, you could earn $26,000 per year. What is your
opportunity cost of attending college?
A) $19,000
B) $31,000
C) $40,000
D) $45,000
Answer: C
14) The opportunity cost of going to college
A) is zero if your parents pay your tuition.
B) is equal to the cost of tuition, room and board, and other expenses.
C) includes wages you lose by going to school instead of working.
D) is the same for all students at a particular school who pay full tuition.
Answer: C
15) You have an hour between your economics and math classes. What is the opportunity cost of
that time if you use it to complete your math homework instead of your economics homework?
A) the economics homework you could have completed
B) the math homework you chose to complete
C) the cost of your calculator and math textbook
D) zero, because it doesn’t cost any money to do your math homework
Answer: A
16) The sacrifices made by societies in order to engage in military spending represent
A) the nominal costs of military spending.
B) the real costs of military spending.
C) the opportunity costs of military spending.
D) the excessive costs of military spending.
Answer: C
Topic: The Cost of Military Spending
17) The tradeoffs made by the U.S. government to fund the war in Iraq
A) prove that the government is spending too much on the war.
B) show that the government is justified in its war spending.
C) exceed the benefits derived from the war.
D) represent what was potentially sacrificed to engage in the war.
Answer: D
Topic: The Cost of Military Spending
18) According to the possible tradeoff example between warships and drinking water in the text,
the policy question that should be considered in Malaysia is
A) do the opportunity costs of the warships exceed their nominal costs?
B) do the nominal costs of the warships exceed their real costs?
C) do the benefits of the warships exceed their opportunity costs?
D) do the real costs of the warships exceed their nominal costs?
Answer: C
Topic: The Cost of Military Spending
Bath Groom
0 6
7 5
13 4
18 3
22 2
25 1
27 0
Table 2.1
19) Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs
they can bathe or groom in any given day is depicted in Table 2.1. The opportunity cost of
grooming the first dog in a day is bathing ________ dog(s).
A) 1
B) 2
C) 24
D) 25
Answer: B
Topic: Opportunity Cost and the Production Possibilities Curve
20) Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs
they can bathe or groom in any given day is depicted in Table 2.1. The opportunity cost of
grooming the third dog in a day is bathing ________ dog(s).
A) 3
B) 4
C) 5
D) 18
Answer: B
Topic: Opportunity Cost and the Production Possibilities Curve
21) Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs
they can bathe or groom in any given day is depicted in Table 2.1. The opportunity cost of
grooming the sixth dog in a day is bathing ________ dog(s).
A) 0
B) 5
C) 6
D) 7
Answer: D
Topic: Opportunity Cost and the Production Possibilities Curve
22) Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs
they can bathe or groom in any given day is depicted in Table 2.1. As they groom more dogs, the
opportunity cost of grooming additional dogs
A) falls.
B) rises.
C) remains constant.
D) depends on the prices being charged.
Answer: B
Topic: Opportunity Cost and the Production Possibilities Curve
23) Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs
they can bathe or groom in any given day is depicted in Table 2.1. As they groom more dogs, the
opportunity cost of bathing additional dogs
A) falls.
B) rises.
C) remains constant.
D) depends on the prices being charged.
Answer: A
Topic: Opportunity Cost and the Production Possibilities Curve
Figure 2.1
24) Referring to Figure 2.1,if you increase the production of farm goods, what other area is
affected?
A) the price of produce
B) the production of manufactured goods
C) how much people can purchase
D) the wages earned by farm workers
Answer: B
