Question 1

Which of the following best describes the economic concept of opportunity cost?

Accepted Answer

The value of the highest alternative that is forgone when a choice is made.

Question 2

Suppose you bought a concert ticket for $$100. At the entrance, someone offers you 150 $$for your ticket. What is your opportunity cost of attending the concert?

Accepted Answer

$150, the amount you could have received by selling the ticket.

Question 3

Which of the following is a sunk cost in the context of running a comic book store?

Accepted Answer

The cost of a custom-made sign outside the store.

Question 4

A student is deciding whether to attend college. Which of the following is NOT part of the opportunity cost of attending college?

Accepted Answer

The cost of food, which the student would have to pay regardless of attending college.

Question 5

Elaine can clean a room in 60 minutes or cook a meal in 80 minutes. Jon can clean a room in 40 minutes or cook a meal in 20 minutes. What is Jon's opportunity cost of cleaning one room?

Accepted Answer

$$\frac{40}{20} = 2$$ meals forgone, but since Jon can cook a meal in 20 minutes, cleaning one room (40 minutes) costs him 2 meals he could have cooked instead.

Question 6

Which of the following statements about comparative advantage is TRUE?

Accepted Answer

Comparative advantage is based on who has the lowest opportunity cost in producing a good.

Question 7

Suppose Sue can produce 8 machine guns or 4 units of spinach per day. What is Sue's opportunity cost of producing one machine gun?

Accepted Answer

$$\frac{4}{8} = 0.5$$ units of spinach

Question 8

If the owner of a store is offered a higher rent by Walmart for her property, what does this imply about her cost of running the store?

Accepted Answer

Her cost increases because the opportunity cost of using the property as a store is now higher.

Question 9

Which of the following is an example of a variable, avoidable cost for a comic book store?

Accepted Answer

The cost of comic books bought from the wholesaler.

Question 10

Why are sunk costs considered irrelevant in economic decision making?

Accepted Answer

Because they cannot be recovered and do not affect future choices.

Question 11

Suppose Canada is more productive than Bangladesh in producing both wheat and textiles. According to the principle of comparative advantage, why might Canada still import textiles from Bangladesh?

Accepted Answer

Because Canada has a higher opportunity cost of producing textiles than Bangladesh.

Question 12

Which of the following best explains why the marginal cost curve is upward sloping in an economy with multiple producers?

Accepted Answer

Because as output increases, producers with higher opportunity costs must be used.

Question 13

If a student spends 4 years in college, paying $$10,000 per year in tuition and could have earned 20$$,000 per year working, what is the total opportunity cost of attending college (ignoring other costs)?

Accepted Answer

$120,000

Question 14

Which of the following is NOT a reason why people trade according to the study materials?

Accepted Answer

Because of differences in absolute advantage.

Question 15

A car insurance premium is best classified as which type of cost?

Accepted Answer

Fixed and sunk

Question 16

If Elaine and Jon both specialize according to their comparative advantage and trade, what is the effect on their total time spent on cleaning and cooking?

Accepted Answer

Both spend less time than if they did everything themselves.

Question 17

Which of the following statements is TRUE regarding fixed and variable costs, according to the study materials?

Accepted Answer

For simplicity, we assume all fixed costs are sunk and all variable costs are avoidable.

Question 18

Suppose three people can produce the following per day: Sue (8 machine guns, 4 spinach), Charles (3 machine guns, 3 spinach), Daphne (1 machine gun, 2 spinach). Who has the lowest opportunity cost of producing spinach?

Accepted Answer

Daphne

Question 19

Which of the following best describes the slope of the Production Possibility Curve (PPC)?

Accepted Answer

The marginal (opportunity) cost of producing one more unit of the good on the x-axis.

Question 20

Which of the following is a common misconception about opportunity cost?

Accepted Answer

That it is always equal to the historical cost.

Cost Concepts and Comparative Advantage in Microeconomics

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