Question

Ch. 1 In-class exercises:

Q.1 (B4 Marginal thinking)

The table below shows the relationship between the grade you obtain for Microeconomics and the hours you spend watching TV.

GPA	Hours spent on watching TV
D	15
C	12
B	7
A	0

1. What is the marginal cost in terms of TV viewing to improve the GPA from D to C?
2. What is the marginal cost in terms of TV viewing to improve the GPA from B to A?
3. Is the marginal cost increasing?

Q.2 (B5 Trade creates value)

Consider the following examples and discuss how trades create value.

1. Patrick bought an orange pen from Jill for $2.00. Patrick would have been willing to pay $2.50 for the pen, and Jill would have been willing to sell the pen for $1.25.
2. Hillary found a car on Craigslist and she is willing to pay up to $10,000. The car’s owner Jason, would be willing to sell it for $6,000. They agreed on a price of $7,500.

Q.3 (B3. Opportunity cost)

Malik has two options this weekend. He could work at his job and earn $7 per hour for three hours, or he could go to a concert for that three hours. A ticket for the event costs $30.

What is the opportunity cost of the event?   

Q. 4. (B3. Opportunity cost)

Like a good economist, you calculated the opportunity cost of getting your college degree. Suppose that at your university, you will pay $12000 each year for tuition, $3000 each year for textbooks, and $10000 per year for room and board. Before you left for college, your boss at your high-school job offered you a job paying $20000 per year.

Assume that if you decided not to go to college, your parents would not let you live at home.

What is your opportunity cost for four years of college?

Q.5 (B1. Incentives)

For each of the following separate government policies, discuss a possible unintended consequence resulted from the policy.

1. People who are unemployed can receive money from the government.
2. Homeless people in Seattle can receive free food from the government.
3. People can receive money from the government if they give up and turn in their guns to the government.

Answer 1

Q1.

a. Hours spent on watching TV to obtain a GPA of D = 15 hours

Hours spent on watching TV to obtain a GPA of C = 12 hours

The marginal cost of improving GPA from D to C = 15 - 12 = 3 hours of TV viewing.

b.

Hours spent on watching TV to obtain a GPA of B = 7 hours

Hours spent on watching TV to obtain a GPA of A = 0 hours

The marginal cost of improving GPA from B to A = 7 - 0 = 7 hours of TV viewing.

c. It can be observed that the marginal cost of improving GPA from D to C is less than the marginal cost of improving GPA from B to A. Therefore, the marginal cost is increasing.