would be incorrect to say that the opportunity
cost is 30 minutes of sleep and 30 minutes of
exercise. The opportunity cost is just the cost of
the next– best option— either sleep or exercise.
4. This is not true. Trade creates value; both sides
are better off as a result. Trade, unlike football, is
not a zero- sum game.
Study Prob lems
2. While specifics of the answer will vary, the aver–
age standard of living has gotten better over the
past 25years. This is in large part due to changes
in technology. Technological shifts have made
cars more efficient, computers cheaper, and infor–
mation much easier to access (among other
improvements). Today, most people in college
item from a Web site only to discover that
spending another $5 gets you free shipping. If
shipping on the $20 item is greater than $5,
you may find something else to buy for $5,
even if it is something you may not use. In this
way, the Web site is incentivizing people to
spend more in order to have free shipping.
■ Life is about trade- offs: What if you want to
adopt kittens from an animal shelter? Having
Questions for Review
1. If an instructor gave daily quizzes, most students
would respond by reading the required readings
more diligently and carefully. You would most
likely read and study more than if there were no
daily quizzes. This is an example of a negative
gradu ate programs or have already found a job.
They no longer have the same incentives to main-
tain a high GPA. This means some se niors would
prefer to spend less time studying and more time
with their friends.
Hints and Common Pitfalls: Another
useful way to think about this is to consider
marginal costs and benefits. In the last semester
of college, the marginal benefit of studying
decreases— yes, you may get a higher grade, but
mon: The opportunity cost of reading this text-
book is what you gave up in order to spend time
reading the textbook. It’s what you would have
done had you not de cided to read this textbook.
For example, suppose you took 30 minutes to
read the first chapter and look through the
questions. For some people, the opportunity cost
of reading this chapter might be 30 extra minutes
Solutions to Chapterfi1 Text Prob lems
26 / CHAPTER 1 Foundations of Economics
Upon completing your undergraduate
program in finance, suppose you apply to many
Wall Street companies and banks in your town.
You get an offer (a decent one) with benefits. Let’s
semester. If you choose an entrepreneurship field,
there is a certain sequence of courses you must
complete by the time you gradu ate. On the other
hand, if you choose an economics major, you
must complete a dif fer ent set of courses, which
may or may not overlap. You must make a
combination. Your boss begs you to work extra
hours for the next two weeks because one of your
coworkers has a family situation and can’t come
to work. But you have three midterm exams
coming up, and you were planning to spend
more time studying. If you work more hours, you
know you’re likely to perform poorly or even fail
the course(s). If you can’t work more hours, you
are unlikely to get promoted or stay in the job,
which is essential for your long– term goals. As
you can see, there are always trade- offs to
What it means for apparel professionals to
have a comparative advantage is that they have a
lower opportunity cost per item produced. When
they make (let’s suppose) a shirt, they give up less
in the form of other things they could be doing
choice of going on the cruise, you give up your
next- best option, which is going on a ser vice
trip with Alternative Spring Break. This ser vice
trip was the opportunity cost of going on the
■ Trade creates value: If you enjoy cooking but
dislike doing dishes, and your roommate
enjoys eating homemade meals but doesn’t like
cooking, you can trade: You can cook a home-
made meal for the two of you, and your room-
mate can do the dishes. You are both better
would take you 8 hours. If the opportunity cost
of those 8 hours is working a job that nets you
$30/hour (so $240 over 8 hours), then it definitely
makes sense to hire movers, and it would be ratio-
nal to do so.
Hints and Common Pitfalls: People often
forget to think of opportunity cost when trying
to figure out the best course of action. Remember
to take into account what you would have done if
you didn’t move yourself. This is your
opportunity cost.
movers.
7. The answers will vary depending on your goals.
For example, let’s say you want to be one of the
best surgeons in a town, or a stock trader/broker
for a Wall Street firm, or an aspiring entrepre-
Solutions to Chapterfi1 Text Prob lems / 27
faster than you can, the professional not only
much faster than you would, and so they spend