Economics and Opportunity Cost
Homework #1 ECO 156 Principles of Macroeconomics
Chapter 1 & 2
1. Identify whether each of the following transactions takes place in the factor market or the product market.
a. Billy buys a sofa from Home Time Furniture for his new home. Factor market
b. Home Time Furniture pays its manager her weekly salary. Product market
c. The manager buys dinner at Billy’s Café. Product market
d. After he pays all of his employees their wages and pays his other bills, the owner of Billy’s Café takes his profit. Factor market
2. List the opportunity costs of the following:
a. going to college - the money you would have earned if you worked instead.
b. missing a lecture – takes away from your knowledge of that lesson.
c. withdrawing and spending $100 from your savings account, which earns 5 percent interest annually – you would lose $5 if you take out $100.
d. going snowboarding on the weekend before final examinations - A chance you will not do as well on your exams.
3. Farmer Fred could grow wheat and barley. He could grow 75 bushels of wheat or 125 bushels of barley using the same resources on an acre of his land. The price of wheat is $2.00 per bushel and the price of barley $ 0.80. Show the benefits to Fred from specialization. What should he specialize in?
The 125 bushels of barley because even though it’s cheaper there are more of a supply and more people will by the cheaper product. He will make more money selling the barley in the end. People want the cheaper product and he has more of it so it will make more money then the wheat.
4. Given the following production possibilities curve:
a. Does this production possibilities curve show increasing opportunity costs? Explain. This shows increasing opportunity cost because there are alteratives that are not chosen.
b. What is the opportunity cost of moving from point I to point D? Explain.
The opportunity cost of moving from point I to D is I’s inefficient and D
Chapter 1 & 2
1. Identify whether each of the following transactions takes place in the factor market or the product market.
a. Billy buys a sofa from Home Time Furniture for his new home. Factor market
b. Home Time Furniture pays its manager her weekly salary. Product market
c. The manager buys dinner at Billy’s Café. Product market
d. After he pays all of his employees their wages and pays his other bills, the owner of Billy’s Café takes his profit. Factor market
2. List the opportunity costs of the following:
a. going to college - the money you would have earned if you worked instead.
b. missing a lecture – takes away from your knowledge of that lesson.
c. withdrawing and spending $100 from your savings account, which earns 5 percent interest annually – you would lose $5 if you take out $100.
d. going snowboarding on the weekend before final examinations - A chance you will not do as well on your exams.
3. Farmer Fred could grow wheat and barley. He could grow 75 bushels of wheat or 125 bushels of barley using the same resources on an acre of his land. The price of wheat is $2.00 per bushel and the price of barley $ 0.80. Show the benefits to Fred from specialization. What should he specialize in?
The 125 bushels of barley because even though it’s cheaper there are more of a supply and more people will by the cheaper product. He will make more money selling the barley in the end. People want the cheaper product and he has more of it so it will make more money then the wheat.
4. Given the following production possibilities curve:
a. Does this production possibilities curve show increasing opportunity costs? Explain. This shows increasing opportunity cost because there are alteratives that are not chosen.
b. What is the opportunity cost of moving from point I to point D? Explain.
The opportunity cost of moving from point I to D is I’s inefficient and D