University of Lethbridge – Department of Economics
ECON 1012 – Introduction to Macroeconomics
Lab Instructor: Michael G. Lanyi
Lab # 1
Chapter 1 –– Economics and Economic Reasoning
Answer Key
1. A
Response:
See the definition in the text.
2. D
Response:
All of the choices involve either individuals or governments trying to make choices from a set of
alternatives when faced with scarce resources.
3. D
Response:
See definition in the textbook. Economics studies situations were decision makers act in their
own self-interest, whatever that may be.
4. B
Response:
Economics is the study of individuals making optimal decisions over more than one alternative
subject to conditions of scarcity (limited resources).
5. A
Response:
Such a comparison makes it possible to determine whether the marginal benefit of an action
exceeds the marginal cost.
6. A
Response:
See the definition of marginal benefit in the text.
7. D
Response:
Sunk costs are costs that have already been incurred and cannot be recaptured. They are in
essence "water under the bridge" and as such, they do not influence economic decisions.
8. B
Response:
To be able to make a decision you need to know the marginal costs, not the sunk costs.
9. C
Response:
Since the marginal benefit of dating Perry exceeds the marginal cost, you will be better off
going on a date.
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10. C
Response:
The economic decision rule is to do it if the marginal benefit exceeds the marginal costs. Since
the marginal benefits of taking any trip is always less than the marginal cost of $600, Rodney
will take no trips.
11. A
Response:
The economic decision rule is to do it if the marginal benefit exceeds the marginal cost. Since
the marginal benefits of only the first three trips exceed the marginal costs of $299, Rodney will
take three trips.
12. B
Response:
The economic decision rule is to do it if the marginal benefit exceeds the marginal cost. The
information in the question does not tell us marginal cost, just average cost.
13. B
Response:
The economic decision rule is to do it if the relevant (marginal) benefits exceed the relevant
(marginal) costs. It they don't, don't do it. Following the economic decision rule, Carol initially
purchased 4 video tape rentals because the marginal benefit of only the first four rentals
exceeded the marginal cost of $2.99. When the price dropped to $1.99, the marginal benefit of
even the fifth rental exceeded its marginal cost, so Carol purchased 5 rentals.
14. D
Response:
Alan will quit drinking only when the marginal cost exceeds the marginal benefit.
15. B
Response:
The marginal cost is the additional cost over and above the costs already incurred. The $10,000
price of the car should not be included in the marginal cost calculation since it is a sunk cost.
16. A
Response:
The economic decision rule is if relevant benefits exceed relevant costs, do it. If relevant costs
exceed relevant benefits, don't do it. Since, the marginal benefit of the sunroof does not exceed
the marginal cost, don't buy it. Since the marginal benefit of the security system does exceed the
marginal cost, buy it.
17. A
Response:
The relevant cost in this case is the opportunity cost of attending class, in this case the value of
her time doing the next best activity. The $45 in this case is a sunk cost and should not enter into
the decision.
18. B
Response:
Opportunity cost is the benefit you forgo by not undertaking the next best activity.
19. C
Response:
Opportunity cost is what you must sacrifice when you choose an activity. By taking this course,
you are sacrificing the benefit you could have obtained from the activity you would have chosen
if you had not taken the course.
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20. C
Response:
The opportunity cost of an activity is the benefit foregone by not undertaking the next best
activity. In this case, the next best activity is the job that pays $8 an hour.
21. B
Response:
Opportunity cost is the benefit forgone by undertaking an activity. You have chosen to play
tennis and the next-best use of your time is studying. So the benefit of studying must be the
opportunity cost of playing tennis.
22. C
Response:
Opportunity cost is the benefit forgone by undertaking an activity. Since Brook is forgoing a $2
million salary, and Sandy is forgoing a $10,000 salary, the opportunity cost of attending
university is greater for Brooke.
23. A
Response:
The opportunity cost of working is the foregone benefit of leisure. The benefit of leisure does
not change with a change in wage. The opportunity cost of leisure is the benefit foregone of
working, or wages earned. In this case, the wage has risen and so has the opportunity cost of
leisure.
24. C
Response:
If you choose not to answer a test question, then you believe that the benefit from answering the
question is less than the benefit from not answering the question. Thus the opportunity cost of
answering the question must be too high.
25. A
Response:
See the definition of the invisible hand in the text.
26. D
Response:
See the definition of microeconomics in the text.
27. D
Response:
Macroeconomics is the study of inflation, unemployment, business cycles, and growth.
28. C
Response:
If there is a direct relationship between two variables, then as one increases, so will the other,
making the graph of them upward sloping.
29. A
Response:
As one goes up the other goes down is how an inverse relationship is defined in the text.
30. B
Response:
The slope of a line is rise over run, or the change in the y-axis value divided by the change in
x-axis value.
31. A
Response:
Because the rise over run is 6 over 2, and the line is downward sloping, the slope of the line is
minus 6/2 or minus 3.
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32. D
Response:
The slope of a point on a curve is determined by taking the slope of the tangent to that point.
Different points will have tangents with different slopes, and thus will have different slopes.
33. D
Response:
As mentioned in the textbook, both maximum and minimum points have slopes of zero.
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