MULTIPLE CHOICE QUESTIONS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
B
A
B
B
D
A
B
A
A
B
B
C
D
C
B
SHORT ANSWER QUESTION
1. Her analysis is correct as opportunity cost is the foregone of second best or other
alternatives when one alternative is chosen based on the satisfaction when scarcity occurs.
In this case, my friend faced the scarcity of time which is she has only 2 hours. Within the 2
hours, there are some activities that she can do which are attending the class, play tennis or
watch a movie. The scarcity of time pushed her to make a choice between the three
activities. Since attending the class would give her more satisfaction, therefore she chooses
to attend class for the 2 hours. As a result, she could not play tennis or watch movie during
the 2 hours. In short, the opportunity cost the she gets from her choice is playing tennis and
watch movie.
Your friend's analysis is incorrect.
The opportunity cost of an action is the highest-valued alternative(only one alternative)
forgone, not all alternatives forgone.
Kiki's opportunity cost of studying for her exam is either the tennis or the movie, whichever
she would have done had she not studied.
Opportunity cost depends on the individual’s preference of what they perceive of the next
best alternative forgone.
2. a.
John
David
Opportunity cost of one (1) serving of
Pizza
8/5 (1.6) serving of pasta
Calculation:
40/25= 1.6
3/2 (1.5) serving of pasta
Calculation:
Opportunity cost of one (1) serving
of Pasta
5/8 (0.625) serving of pizza
Calculation:
25/40= 0.625
2/3 (0.67) serving of pizza
Calculation:
30/20= 1.5
20/30= 0/67
b. Based on the table, the manager’s decision in assigning the assignments should be both of
them concentrate on making pasta as the opportunity cost on pizza are lower. On the other
hand, if the manager wants two dishes are made. John can make pasta as he has
comparative advantage (lower opportunity cost) in pasta while David can make pizza as he
has comparative advantage in pizza.
- David will make pizza because he has comparative
advantage in making pizza.
(David = 1.5 units of pasta, John = 1.6 units of pasta)
- John will make pasta because he has a comparative
advantage in making pasta.
(John = 0.63 units of pizza, David = 0.67 units of pizza)
3. a. Assume the market is initially at Point B and that pizza is a normal good. A decrease in
income would cause the demand curve shifts from D2 to D1 as the demand has decreased.
Answer: ‘the shifting of the demand curve from D2 to demand curve D1’. A shift to the left
(decrease in demand for pizza).
b. Assume the market in initially at Point B and that pizza and beer are complementary
goods, a decrease in the price of beer are complementary goods, a decrease in the price of
beer will cause the demand curve shifts from D2 to D3 as the demand has increased.
Answer: ‘the shifting of the demand curve from D2 to demand curve D3’. A shift to the right
(increase in demand for pizza)