Economics is r – Opportunity cost
1. Suppose you are a fly-fishing guide. Your bookings of late great quantity of other goods may frequently be had
have been low, and you are thinking of lowering the in exchange for it.”4 This is situation is known as the
price of your guide service. If you lower your price, you’d diamond-water paradox. How does thinking at the
expect more clients, ceteris paribus. But if other events margin help to explain the paradox?
eccnr at ine same iirne as Yen decrease Yeiir Prices» rne 5. It is common for people trying to lose weight to notice
expecied increase in ciienrs rnignr ner naPPen- Discuss that the first 10 pounds are much easier to lose than
Pessibie enrcenies in rne renewing siniaiiensi the last 10 pounds. Use the concept of increasing mar-
a. You lower your price, and at the same time, many gina1COStof explain Why this is the Case.
of the local rivers are closed to fishing due to a 7. Suppose that you have 6 hours per day to devote to
cirengni er reresi nres- studying economics and accounting. You estimate
ii- Yen ieWer Yeiir Price» and at rne seine iirnea 3 neW your benefits of studying for each subject as follows:
movie about fly-fishing is released and draws record
attendance at the theaters. Marginal Marginal
B H f B ft f
2. Discuss the costs and benefits of each of the following Siflfwiinié simyiinig
activities; include at least one nonmonetary cost and “cm Exccctcc Eccccmicc “curs Exccctcc Accounting
benefit in your discussion of each: Studying Score on (increase in Studying Score on (increase in
3 Stud mg for ari exam Econom- Econom- economics Account- Account- accounting
c _ Y ,_ 5 ‘~ – 0 ics Per Day ics Exam score) ing Per Day ing Exam score)
b. Going skiing on a class day n 44 0 – -7?-~
c. Taking a job. . _. ‘ ~__m_..
d. Watching television 1 52 18 1 10
3. Suppose that a friend of yours recently opened her 2 76 2 88 E
own business. She is happy because it generated 3 85 10 __3_ 94 _ 5
$25,000 in earnings last year. How can you tell whether 4 94 8 4 96 2
this wasia good investment? ‘ 5 100 6 96 0
4. Economists are fond of saying that “there is no such 6 100 0 6 96 0
thing as a free lunch.” Use opportunity cost to explain
the meaning of this Saying What IS the best way for you to divide up your study
5. In his book The Wealth of Nations, Adam Smith noted tmie In Order to maximize Your grades m_bOth Classes‘
(Hint: What is the marginal cost of studying econom-
the contradiction that, Nothing 1S more useful than , ? Wh t , th , 1 t f t d , t_
water: but it will purchase scarce anything; scarce ics’ a IS 6 margma Co8 O S u ymg accoun mg‘)
anything can be had in exchange for A diamond’ 4 Smith, Adam. The Wealth of Nations. Bantam Classic Edition, March 2003, New
on the contrary, has scarce any value in use; but a very York: Bantam Dell (p. 41).
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