Chapter 01 - Limits, Alternatives, and Choices
McConnell Brue Flynn 21e
DISCUSSION QUESTIONS
1. What is an opportunity cost? How does the idea relate to the definition of economics?
Which of the following decisions would entail the greater opportunity cost: Allocating a
square block in the heart of New York City for a surface parking lot or allocating a square
block at the edge of a typical suburb for such a lot? Explain. LO1
Answer: An opportunity cost is what was sacrificed to do or acquire something else. The
condition of scarcity creates opportunity cost. If there was no scarcity, there would be no
need to sacrifice one thing to acquire another.
The opportunity cost would be much higher in New York City as the alternative uses for
that square block are much more valuable than for a typical suburban city block.
2. Cite three examples of recent decisions that you made in which you, at least implicitly,
weighed marginal cost and marginal benefit. LO1
Answer: Student answers will vary, but may include the decision to come to class, to
skip breakfast to get a few extra minutes of sleep, to attend college, or to make a purchase.
Marginal benefits of attending class may include the acquisition of knowledge,
participation in discussion, and better preparation for an upcoming examination.
Marginal costs may include lost opportunities for sleep, meals, or studying for other
classes. In evaluating the discussion of marginal benefits and marginal costs, be careful
to watch for sunk costs offered as a rationale for marginal decisions.
3. What is meant by the term “utility” and how does the idea relate to purposeful behavior?
LO1
, Answer: “Utility” refers to the pleasure, happiness, or satisfaction gained from engaging
in an activity (eating a meal, attending a ball game, etc.). It is an important component of
purposeful behavior because people will allocate their scarce time, energy, and money in
an attempt to gain the most utility possible.
4. What are the key elements of the scientific method and how does this method relate to
economic principles and laws? LO2
Answer: The key elements include the gathering of data (observation), the formulation of
possible explanations (hypothesis), testing the hypothesis, determining the validity of the
hypothesis, and repeated testing of hypotheses that have appeared to be valid in prior
tests.
The scientific method is the technique used by economists to determine economic laws or
principles. These laws or principles are formulated to explain and/or predict behavior of
individuals or institutions.
,5. State (a) a positive economic statement of your choice, and then (b) a normative
economic statement relating to your first statement. LO3
Answer: Student answers will vary. Example: (a) The unemployment rate is 4.8 percent;
(b) the unemployment rate is too high. In general we treat “what is” statements as
positive, “what should be” as normative, but keep an eye out for statements like “at full
employment an increase in the production of pizzas should come at the cost of less
robots.” Some students may incorrectly identify the statement as normative because of
the term “should.”
6. How does the slope of a budget line illustrate opportunity cost and trade-offs? How does
a budget line illustrate scarcity and the effect of limited incomes? LO4
Answer: Budget lines are always sloped downward. This downward slope shows
an inverse relationship between the two goods, meaning that as you increase one,
the other must decrease. This decrease is what you are giving up, or opportunity
cost, of the good you are getting more of.
Budget lines illustrate scarcity in that they show you are limited by your income.
Since they slope downward, they show you cannot keep getting more and more of
both goods. There is always a trade-off. The area beyond the budget line represents
combinations of the goods that are beyond your income.
7. What are economic resources? What categories do economists use to classify them? Why
are resources also called factors of production? Why are they called inputs? LO5
Answer: Economic resources are the natural, human, and manufactured inputs used to
produce goods and services. Economic resources fall into four main categories: labor,
land (natural resources), real capital (machines, factories, buildings, etc.,) and
entrepreneurs. Economic resources are also called factors of production because they are
used to produce goods and services. They are called inputs because they go in to a
production process (like ingredients go into a bowl to make a cake), with the resulting
goods and services also being referred to as output.
,
McConnell Brue Flynn 21e
DISCUSSION QUESTIONS
1. What is an opportunity cost? How does the idea relate to the definition of economics?
Which of the following decisions would entail the greater opportunity cost: Allocating a
square block in the heart of New York City for a surface parking lot or allocating a square
block at the edge of a typical suburb for such a lot? Explain. LO1
Answer: An opportunity cost is what was sacrificed to do or acquire something else. The
condition of scarcity creates opportunity cost. If there was no scarcity, there would be no
need to sacrifice one thing to acquire another.
The opportunity cost would be much higher in New York City as the alternative uses for
that square block are much more valuable than for a typical suburban city block.
2. Cite three examples of recent decisions that you made in which you, at least implicitly,
weighed marginal cost and marginal benefit. LO1
Answer: Student answers will vary, but may include the decision to come to class, to
skip breakfast to get a few extra minutes of sleep, to attend college, or to make a purchase.
Marginal benefits of attending class may include the acquisition of knowledge,
participation in discussion, and better preparation for an upcoming examination.
Marginal costs may include lost opportunities for sleep, meals, or studying for other
classes. In evaluating the discussion of marginal benefits and marginal costs, be careful
to watch for sunk costs offered as a rationale for marginal decisions.
3. What is meant by the term “utility” and how does the idea relate to purposeful behavior?
LO1
, Answer: “Utility” refers to the pleasure, happiness, or satisfaction gained from engaging
in an activity (eating a meal, attending a ball game, etc.). It is an important component of
purposeful behavior because people will allocate their scarce time, energy, and money in
an attempt to gain the most utility possible.
4. What are the key elements of the scientific method and how does this method relate to
economic principles and laws? LO2
Answer: The key elements include the gathering of data (observation), the formulation of
possible explanations (hypothesis), testing the hypothesis, determining the validity of the
hypothesis, and repeated testing of hypotheses that have appeared to be valid in prior
tests.
The scientific method is the technique used by economists to determine economic laws or
principles. These laws or principles are formulated to explain and/or predict behavior of
individuals or institutions.
,5. State (a) a positive economic statement of your choice, and then (b) a normative
economic statement relating to your first statement. LO3
Answer: Student answers will vary. Example: (a) The unemployment rate is 4.8 percent;
(b) the unemployment rate is too high. In general we treat “what is” statements as
positive, “what should be” as normative, but keep an eye out for statements like “at full
employment an increase in the production of pizzas should come at the cost of less
robots.” Some students may incorrectly identify the statement as normative because of
the term “should.”
6. How does the slope of a budget line illustrate opportunity cost and trade-offs? How does
a budget line illustrate scarcity and the effect of limited incomes? LO4
Answer: Budget lines are always sloped downward. This downward slope shows
an inverse relationship between the two goods, meaning that as you increase one,
the other must decrease. This decrease is what you are giving up, or opportunity
cost, of the good you are getting more of.
Budget lines illustrate scarcity in that they show you are limited by your income.
Since they slope downward, they show you cannot keep getting more and more of
both goods. There is always a trade-off. The area beyond the budget line represents
combinations of the goods that are beyond your income.
7. What are economic resources? What categories do economists use to classify them? Why
are resources also called factors of production? Why are they called inputs? LO5
Answer: Economic resources are the natural, human, and manufactured inputs used to
produce goods and services. Economic resources fall into four main categories: labor,
land (natural resources), real capital (machines, factories, buildings, etc.,) and
entrepreneurs. Economic resources are also called factors of production because they are
used to produce goods and services. They are called inputs because they go in to a
production process (like ingredients go into a bowl to make a cake), with the resulting
goods and services also being referred to as output.
,
