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Scenario -The economic concept of cost differs from the everyday notion of a monetary payment. In economics, the cost of doing something is what you have to give up to be able to do it. In this sense, you can face a cost even if you do not have to pay anyone anything. Economists refer to this as an opportunity cost. Suppose that a farmer has land that can produce 20 bushels of corn per acre or 10 bushels of wheat per acre. She currently is producing 100 bushels of corn and 100 bushels of wheat.

Scenario -The economic concept of cost differs from the everyday notion of a monetary payment. In economics, the cost of doing something is what you have to give up to be able to do it. In this sense, you can face a cost even if you do not have to pay anyone anything. Economists refer to this as an opportunity cost. Suppose that a farmer has land that can produce 20 bushels of corn per acre or 10 bushels of wheat per acre. She currently is producing 100 bushels of corn and 100 bushels of wheat.

Scenario

The economic concept of cost differs from the everyday notion of a monetary payment. In economics, the cost of doing something is what you have to give up to be able to do it. In this sense, you can face a cost even if you do not have to pay anyone anything. Economists refer to this as an opportunity cost. 

Suppose that a farmer has land that can produce 20 bushels of corn per acre or 10 bushels of wheat per acre. She currently is producing 100 bushels of corn and 100 bushels of wheat.

What is the opportunity cost to the farmer, measured in bushels of corn, of producing an additional 20 bushels of wheat (answer with numbers only. Ex: If the correct answer is 3 bushels then enter 3 in the box below)?

Answer: 

Question 2

Based on the above scenario, what is the opportunity cost to the farmer, measured in bushels of corn, of producing 1 additional bushel of wheat (answer with numbers only. Ex: If the correct answer is 3 bushels then enter 3 in the box below, If your answer is 1/2 then enter .5)?

Answer: 

Question 3

Based on the above scenario, one of the unusual features of opportunity cost is that you can describe the cost of either good in terms of the other. If the cost of wheat is 2 bushels of corn per bushel of wheat, what is the cost, in bushels of wheat, of a bushel of corn? 

Select one:

A. 

10 bushels of wheat

B. 

2 bushels of wheat

C. 

0.5 bushel of wheat

D. 

0.1 bushel of wheat

Question 4

Which of the following would advocate a laissez faire economic policy? 

Select one:

A. 

Karl Marx

B. 

Adam Smith

C. 

John Maynard Keynes

D. 

President Franklin Roosevelt

Question 5

In Figure 1.1, a shift of the production possibilities curve from PP1 to PP2 could be caused by:

Select one:

A. 

An increase in the quality of raw materials available.

B. 

A shift of factors of production from one industry to another.

C. 

More labor.

D. 

All of the above could cause the shift.

Question 6

In figure 1.1, what is true about the production mix at point C and at point D? 

Select one:

A. 

Both represent the same mix of tank and automobiles

B. 

Point C represents a production mix with more tanks

C. 

Both are equal in terms of productive efficiency

D. 

Point D represents a production mix with fewer automobiles

Question 7

In figure 1.1, if there were no diminishing return between the production of tanks and automobiles, the production-possibilities curve would best be represented by a: 

Select one:

A. 

A straight line

B. 

A convex line (bowed outward)

C. 

A concave line (bowed inward)

D. 

A circle

Question 8

Table 1.1(use for questions 8-9)

Table 1.1 shows the hypothetical tradeoff between different combinations of Stealth bombers and B-1 bombers that might be produced in a year with the limited U.S. capacity, ceteris paribus. Complete the table by calculating the required opportunity costs for both the B-1 and Stealth bombers. Then answer the indicated questions.

What is the opportunity cost the 10th stealth bomber?

Select one:

A. 

0.1 B-1

B. 

1 B-1

C. 

2 B-1s

D. 

0.5 B-1

Question 9

What is the opportunity cost of the tenth stelth bomber?

Select one:

A. 

1 B-1 bomber

B. 

2 stealth bombers

C. 

.5 B-1 bomber

D. 

9 B-1 bombers

Question 10

A city’s decision to control apartment rents is an example of: 

Select one:

A. 

The invisible hand at work

B. 

Government intervention

C. 

Productive efficiency

D. 

The market mechanism at work

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