1. Consider Figure Between points c and d, the opportunity cost of ___ tons of wheat is _______ tons of steel.
2. Arrow up or down: An increase in the wage for high-school graduates ______ the opportunity cost of college.
3. Arrow up or down: An increase in the market interest rate ______ the economic cost of holding a $500 collectible for a year.
4. You just inherited a house with a market value of $300,000, and do not expect the market value to change. Each year, you will pay $1,000 for utilities and $3,000 in taxes. You can earn 6 percent interest on money in a bank account. Your cost of living in the house for a year is $ ___.
5. What is the cost of a pair of warships purchased by Malaysia?
6. Conservationists have a new strategy for preserving rainforests:_______ loggers and other developers for the land, paying as little as $ ________ per hectare per year.
7. The Cost of a Flower Business. Jen left a job paying $40,000 per year to start her own florist shop in a building she owns. The market value of the building is $200,000. She pays $30,000 per year for flowers and other supplies, and has a bank account that pays 8 percent interest. The annual economic cost of Jens business is____
8. The Opportunity Cost of a Mission to Mars. The United States has plans to spend billions of dollars on a mission to Mars. List some of the possible opportunity costs of the mission. What resources will be used to execute the mission, and what do we sacrifice by using these resources in a mission to Mars?
9. Interest Rates and ATM Trips. Carlos, who lives in a country where interest rates are very high, goes to an ATM every day to get $10 of spending money. Art, who lives in a country with relatively low interest rates, goes to the ATM once a month to get $300 of spending money. Why does Carlos use the ATM more frequently?
10. Correct the Cost Statements. Consider the following statements about cost. For each incorrect statement, provide a correct statement about the relevant cost.
a. One year ago, I loaned a friend $100, and she just paid me back the whole $100. The loan didn?t cost me anything.
b. An oil refinery bought a million barrels of oil a month ago, when the price was only $75 per barrel, compared to $120 today. The cost of using a barrel of oil to produce gasoline is $75.
c. Our new football stadium was built on land donated to the university by a wealthy alum. The cost of the stadium equals the $50 million construction cost.
d. If a commuter rides a bus to work and the bus fare is $2, the cost of commuting by bus is $2.
11. Production Possibilities Curve. Consider a nation that produces baseball mitts and soccer balls. The following table shows the possible combinations of the two products.
a. Draw a production possibilities curve with mitts on the horizontal axis and balls on the vertical axis.
b. Suppose the technology for producing mitts improves, meaning that fewer resources are needed for each mitt. In contrast, the technology for producing soccer balls does not change. Draw a new production possibilities curve.
c. The opportunity cost of the first two million mitts is ____ million soccer balls and the opportunity cost of the last two million mitts is ______ million soccer balls.
12. Cost of Antique Furniture. Colleen owns antique furniture that she bought for $5,000 ten years ago. Your job is to compute Colleen s cost of owning the furniture for the next year. To compute the cost, you need two bits of information: ______and_____.
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