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Microeconomics: Principles, Applications, and Tools, 10e (O'Sullivan/Sheffrin/Perez)
Chapter 2 The Key Principles of Economics
2.1 The Principle of Opportunity Cost
1) The opportunity cost of something is:
A) the cost of the labor used to produce it.
B) what you sacrifice to get it.
C) the price charged for it.
D) the search cost required to find it.
Answer: B
Diff: 1
Topic: The Principle of Opportunity Cost
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
2) The principle of opportunity cost:
A) is more relevant for firms than for individuals.
B) only refers to monetary payments.
C) is only relevant in economics.
D) is applicable to all decision-making.
Answer: D
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
3) The principle that the cost of something is equal to what is sacrificed to get it is known as the:
A) marginal principle.
B) principle of opportunity cost.
C) principle of diminishing returns.
D) reality principle.
Answer: B
Diff: 1
Topic: The Principle of Opportunity Cost
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
1
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4) The saying that "There's no such thing as a free lunch" refers to the:
A) marginal principle.
B) spillover principle.
C) principle of opportunity cost.
D) reality principle.
Answer: C
Diff: 1
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
5) Jacinda quit her job as a blackjack dealer where she made $42,000 per year to start her own
florist business. Her business expenses are $14,000 per year on rent, $21,000 per year on
supplies, and $9,000 per year on part time help. As for her personal expenses, her apartment
costs her $12,000 per year and her personal bills are an extra $6,000 per year. What is Jacinda's
opportunity cost of running the business?
A) $104,000
B) $86,000
C) $62,000
D) $44,000
Answer: B
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
6) An unemployed individual decides to spend the day fishing. The opportunity cost of fishing is:
A) the cost of bait and any other monetary expenses.
B) zero, because the person doesn't have a job.
C) the cost of bait, any other monetary expenses, and the value of the individual's wages while he
was working.
D) the cost of bait, any other monetary expenses, and the value of the best alternative use of the
individual's time.
Answer: D
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
2
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7) Suppose that you own a house. What is the opportunity cost of living in the house?
A) There is no opportunity cost because you own the house.
B) There is no opportunity cost unless you could set up a business in the house.
C) The opportunity cost is the rent you could have received from a tenant if you didn't live there.
D) The opportunity cost is the cost of your monthly mortgage payment plus bills.
Answer: C
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
8) Steven lives in a big city where there is a shortage of parking spots. He has a parking spot in
his driveway where he parks his car. Which of the following statements is most correct?
A) Steven has a lower opportunity cost of owning a car than his neighbor, who must rent a
parking spot.
B) The opportunity cost of using the spot is zero, because Steven owns the house.
C) The opportunity cost of using the parking spot is the price he could charge someone else for
using the spot.
D) The opportunity cost depends on how much Steven's mortgage payment is.
Answer: C
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
9) You rent a DVD of The Dark Knight Rises. The rental is for seven days and you watch the
movie on the first day. You tell a friend about the film and your friend asks to come over and
watch the movie with you before it is due back. What is your opportunity cost if you decide to
watch the movie a second time instead of going to a football game?
A) the entire cost of the movie rental, since you have already watched the movie
B) one half the rental cost, because you have already watched the movie one time
C) zero, because you already paid for the rental
D) the football game you forego by watching the movie again
Answer: D
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
3
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10) Angelina, age seven, decides to dress up like Princess Fiona for Halloween. What is the
opportunity cost of her decision?
A) the cost of the costume
B) the fact that she can't dress up like Dora the Explorer, her second choice
C) zero, because seven-year-olds don't have opportunity costs
D) the cost of the Lady Gaga costume which she did not want
Answer: B
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
11) Spending money on a new car instead of a used car when you are on a fixed budget is an
example of:
A) the incursion of an opportunity cost.
B) isolating variables.
C) a bad thing to do because you run out of money.
D) living on the edge.
Answer: A
Diff: 1
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
12) Suppose that your tuition to attend college is $24,000 per year and you spend $8,000 per year
on room and board. If you were working full time, you could earn $30,000 per year. What is
your opportunity cost of attending college for one year?
A) $32,000
B) $38,000
C) $54,000
D) $62,000
Answer: C
Diff: 1
Topic: The Cost of College
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
4
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Microeconomics: Principles, Applications, and Tools, 10e (O'Sullivan/Sheffrin/Perez)
Chapter 2 The Key Principles of Economics
2.1 The Principle of Opportunity Cost
1) The opportunity cost of something is:
A) the cost of the labor used to produce it.
B) what you sacrifice to get it.
C) the price charged for it.
D) the search cost required to find it.
Answer: B
Diff: 1
Topic: The Principle of Opportunity Cost
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
2) The principle of opportunity cost:
A) is more relevant for firms than for individuals.
B) only refers to monetary payments.
C) is only relevant in economics.
D) is applicable to all decision-making.
Answer: D
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
3) The principle that the cost of something is equal to what is sacrificed to get it is known as the:
A) marginal principle.
B) principle of opportunity cost.
C) principle of diminishing returns.
D) reality principle.
Answer: B
Diff: 1
Topic: The Principle of Opportunity Cost
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
1
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4) The saying that "There's no such thing as a free lunch" refers to the:
A) marginal principle.
B) spillover principle.
C) principle of opportunity cost.
D) reality principle.
Answer: C
Diff: 1
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
5) Jacinda quit her job as a blackjack dealer where she made $42,000 per year to start her own
florist business. Her business expenses are $14,000 per year on rent, $21,000 per year on
supplies, and $9,000 per year on part time help. As for her personal expenses, her apartment
costs her $12,000 per year and her personal bills are an extra $6,000 per year. What is Jacinda's
opportunity cost of running the business?
A) $104,000
B) $86,000
C) $62,000
D) $44,000
Answer: B
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
6) An unemployed individual decides to spend the day fishing. The opportunity cost of fishing is:
A) the cost of bait and any other monetary expenses.
B) zero, because the person doesn't have a job.
C) the cost of bait, any other monetary expenses, and the value of the individual's wages while he
was working.
D) the cost of bait, any other monetary expenses, and the value of the best alternative use of the
individual's time.
Answer: D
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
2
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7) Suppose that you own a house. What is the opportunity cost of living in the house?
A) There is no opportunity cost because you own the house.
B) There is no opportunity cost unless you could set up a business in the house.
C) The opportunity cost is the rent you could have received from a tenant if you didn't live there.
D) The opportunity cost is the cost of your monthly mortgage payment plus bills.
Answer: C
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
8) Steven lives in a big city where there is a shortage of parking spots. He has a parking spot in
his driveway where he parks his car. Which of the following statements is most correct?
A) Steven has a lower opportunity cost of owning a car than his neighbor, who must rent a
parking spot.
B) The opportunity cost of using the spot is zero, because Steven owns the house.
C) The opportunity cost of using the parking spot is the price he could charge someone else for
using the spot.
D) The opportunity cost depends on how much Steven's mortgage payment is.
Answer: C
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
9) You rent a DVD of The Dark Knight Rises. The rental is for seven days and you watch the
movie on the first day. You tell a friend about the film and your friend asks to come over and
watch the movie with you before it is due back. What is your opportunity cost if you decide to
watch the movie a second time instead of going to a football game?
A) the entire cost of the movie rental, since you have already watched the movie
B) one half the rental cost, because you have already watched the movie one time
C) zero, because you already paid for the rental
D) the football game you forego by watching the movie again
Answer: D
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
3
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10) Angelina, age seven, decides to dress up like Princess Fiona for Halloween. What is the
opportunity cost of her decision?
A) the cost of the costume
B) the fact that she can't dress up like Dora the Explorer, her second choice
C) zero, because seven-year-olds don't have opportunity costs
D) the cost of the Lady Gaga costume which she did not want
Answer: B
Diff: 2
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
11) Spending money on a new car instead of a used car when you are on a fixed budget is an
example of:
A) the incursion of an opportunity cost.
B) isolating variables.
C) a bad thing to do because you run out of money.
D) living on the edge.
Answer: A
Diff: 1
Topic: The Principle of Opportunity Cost
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
12) Suppose that your tuition to attend college is $24,000 per year and you spend $8,000 per year
on room and board. If you were working full time, you could earn $30,000 per year. What is
your opportunity cost of attending college for one year?
A) $32,000
B) $38,000
C) $54,000
D) $62,000
Answer: C
Diff: 1
Topic: The Cost of College
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-20: Apply the concepts of opportunity cost, marginal analysis, and
present value to make decisions
4
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