Thinking Like an Economist

In: Business and Management

Submitted By deusareis
Words 1414
Pages 6
Chapter 1
Thinking Like an Economist

Answers to text questions and problems

Answers to Review Questions
1. Your friend probably means that the benefits from private solo lessons are greater (your tennis game will improve faster) than if you take group lessons. But private lessons are also more costly than group lessons. So those people who don’t care that much about how rapidly they improve may do better to take group lessons and spend what they save on other things.
AACSB: Analytic
Bloom’s: Analyze

2. False. According to the Cost-Benefit Principle, your willingness to make the trip should depend only on whether $30 is more or less than the cost of driving downtown.
AACSB: Analytic
Bloom’s: Analyze

3. Because the price of a movie ticket is a cost the patron must pay explicitly, it tends to be more noticeable than the money that she would fail to earn by seeing the movie. As Sherlock Holmes recognized, it’s easier to notice that a dog has barked than that it has failed to bark.
AACSB: Analytic
Bloom’s: Analyze

4. Using a frequent flyer coupon for one trip usually means not having one available to use for another. By thinking of frequent-flyer travel as free, people fail to consider the opportunity cost of using the coupon, thereby making wasteful travel decisions.
AACSB: Analytic
Bloom’s: Analyze

5. Your tuition payment is a sunk cost as long as it is non-refundable, since the payment cannot be recovered even if you drop out of school. If the payment is refundable until a certain date, it is not a sunk cost until after that date.
AACSB: Analytic
Bloom’s: Analyze

Answers to Problems

1. The economic surplus from washing your dirty car is the benefit you receive from doing so ($6) minus your cost of doing the job ($3.50), or $2.50.
AACSB: Analytic
Bloom’s: Analyze

2. The…...

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