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Scenario 1-5
Suppose that you have a choice between going to the movies with a friend for three hours or
working at your job. If you go to the movies, you will spend $12 on a ticket and $6 on popcorn. If
you choose to work, you will earn $10 an hour.
19. Refer to Scenario 1-5. What is your opportunity cost of going to the movies?
20. Refer to Scenario 1-5. What is your opportunity cost of working?
Scenario 1-6
It costs a company $30,000 to produce 600 heart rate monitors. The company’s cost will be
$30,070 if it produces an additional heart rate monitor. The company is currently producing 600
heart rate monitors.
21. Refer to Scenario 1-6. What is the company’s average cost?
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22. Refer to Scenario 1-6. What is the company’s marginal cost?
23. Refer to Scenario 1-6. A customer is willing to pay $60 for the 601st heart rate monitor. Should
the company produce and sell it? Explain.
24. Refer to Scenario 1-6. What is the minimum price that would induce this company to produce
the 601st heart rate monitor?
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25. Tracy quits her job, which pays $25,000 a year, to finish her college degree. Her annual college
expenses are $12,000 for tuition and fees and $1,000 for books. What is her opportunity cost of
attending college for the year?
26. Melinda quits her job at a bank, which pays $30,000 a year, to enroll in a two-year graduate
program. Her annual school expenses are $22,000 for tuition and fees and $2,000 for books. What
is her opportunity cost of attending the two-year graduate program?
27. What does the term “marginal change” mean?
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28. Rational people make decisions “at the margin” by comparing .
29. In a centrally-planned economy, economic activity is guided by .
30. Explain how trade with other countries is beneficial.
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31. What are the two basic types of economies?
32. What is the main difference between a centrally planned economy and a market economy?
33. Invisible hand is a term used by the economist to describe how the decisions of
households and firms lead to desirable market outcomes.
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34. Economists use the term to refer to a situation in which the market on its own fails to
produce an efficient allocation of resources.
35. What are the two possible causes of market failure?
36. Explain the concept of externality and give an example.
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37. What are the two reasons for the government to intervene in a market?
38. What does the “invisible hand” refers to?
39. Invisible hand is a term used by the economist in his 1776 book An Inquiry into the
Nature and Causes of the Wealth of Nations.
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40. What do prices reflect in a market economy?
41. Explain the concept of market failure.
42. Economists use the term to refer to the ability of a single person (or a small group) to
have a substantial influence on market prices.
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43. Give an example of government intervention that is intended to reduce an externality.
44. Give an example of government intervention that is intended to improve equality.
45. Economists use the term to refer to an increase in the overall level of prices in the
economy.
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46. In the short run, an increase in the money supply is likely to lead to inflation and
unemployment.
47. Economists use the term to refer to fluctuations in economic activity, such as
employment and production.
48. Consider two countries, Muria and Zenya. In Muria total annual output is worth $800 million and
people work 40 million hours. In Zenya total annual output is worth $900 million and people work
50 million hours. In which country is productivity higher?
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49. Suppose that in Germany total annual output is worth $600 million and people work 40 million
hours. In France total annual output is worth $700 million and people work 50 million hours. In
which country do people enjoy a higher standard of living?
50. What are the two short-run effects of increasing the quantity of nation’s money?