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ECON 102

Key Principles

Dr. Jose J. Vazquez PhDEconomics Department

A study by the Highway Loss Data Institute found that the number of crashes associated with texting while driving had _______ in those states that had imposed a ban on texting while driving.

a) Increased (51% of students answered)

b) Decreased (23 %)c) stayed the same. (25 %)

- It seems like a trick question

- Rebellion

- Because I said so

- because people feel that they have to hide their phones and therefore put them below their wheels

-  I do not know

-  People choose not to follow the ban.

1) The opportunity cost principle

Sarah was choosing between three alternatives: working on her job that pays her $60; writing a term paper which she values at $40; or going out with a friend, which she values at $80. The opportunity cost of writing the term paper is:

a) $20 b) $60c) $80d) $100

2) Net Marginal Benefits Principle

Say you took an average of 13 minutes to answer an ECON problem, and 18 minutes to answer a MATH problem. If you had a limited time left to study, your best strategy would be to solve:

a. only MATH problemsb. It dependsc. only ECON problems

ECON MATH

1st problem 5 min 10 min

2nd problem 10 15

3rd problem 15 20

4th problem 20 25

Average 13 18

55 Minutes Available:4 ECON problems (5 + 10 + 15 + 20 = 50 min.)

3 ECON + 2 MATH (5 + 10 + 15 + 10 +15 = 55 min.)

Minutes to Solve

3) The Trade Principle

4) The Invisible Hand Principle

You are an energy-conservation-minded consumer whose only goal in choosing a car is to minimize the depletion of the planet's store of fossil fuels. You usually drive an average of 7,000 miles every year. If gasoline is $1 per gallon, and if you can't afford to buy a new car:

Should you rent a 40-year-old car ($100/yr, 20 miles per gallon) or a newer car ($600/yr, 40 mpg)?

A. Old

B. New

The yearly cost of the Old (O) car is given by

C(O) = $100 + $M/20 = $100 + $7,000/20 = $450

where M is the number of miles you drive each year.

The corresponding cost for the New car (N) is

C(N) = $600 + $M/40 = $300 + $7,000/40 = $775

The good of one is the good of the many

A study by the Highway Loss Data Institute found that the number of crashes associated with texting while driving had _______ in those states that had imposed a ban on texting while driving.

a) Increased (51% of students answered)

b) Decreased (23 %)c) stayed the same. (25 %)

- It seems like a trick question

- Rebellion

- Because I said so

- because people feel that they have to hide their phones and therefore put them below their wheels

-  I do not know

-  People choose not to follow the ban.

More Problems for Extra Practice

Say John was choosing between 3 alternatives: going to the beach, which he values at $80; washing his car, which he values at $60; or going out with a friend, which he values at $100. The opportunity costs of going out with a friend is:

a. $20b. $60c. $80d. $140

For your last birthday, your parents gave you a used car for which they paid the fair market value of $10,000. While you are happy with the car, you were hoping for a sportier model that sells for $18,000. The opportunity cost to you of keeping the car that your parents gave you is:

A. Zero, because the car was a gift.B. $10,000 worth of other goods that you

could get if you sold the car.C. $8,000, the surplus you lost when your

parents did not give you your hoped-for car.

D. $18,000, because that is the car you gave up.

On Saturday morning, you are contemplating whether to wash, wax, and detail your car. The improvements to your car’s appearance are worth $50 to you. An alternative use of your time is to work an extra morning shift at your job for which you would earn $30. Now a friend suggests a fun outing that will take all morning. Your opportunity cost for the outing with your friend is:

A. $0B. $20C. $30D. $50

You can buy an electronic game for $25 at the Campus Store or for $15 at a nearby shopping mall. You can buy a computer for $1000 at the Campus Store or for $990 at the nearby mall. Should your “where to buy” decision be the same or different in the two cases?

A. Different because buying the game at the shopping mall provides a greater percentage discount.

B. Different because the computer is a higher surplus item.

C. The same because the marginal costs and marginal benefits are the same in each case.

D. The same because the opportunity cost of buying at the Campus Store is zero.

One consequence of the principle of equilibrium is that when trying to choose a line at the movie theater you should:

a) choose the nearest to the door

b) choose the farthest from the door

c) choose the middle oned) choose randomly

Single game tickets to the Fighting Illini Basketball games are sold by $40-$45 on a first come first serve basis. This allocation is:

a) efficientb) equitablec) neither equitable nor

efficient