Lesson test: Scarcity and the margin

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Scarcity and the margin

1.[2p]
A student pays £9,250 a year in fees for a three-year degree and gives up a job paying £20,000 a year. Rent of £9,000 a year would be paid either way. What is the opportunity cost of the degree?

£87,750

Correct

£27,750

The answer is: £87,750

£114,750

The answer is: £87,750

£60,000

The answer is: £87,750

2.[2p]
Why does rent that would be paid either way drop out of the calculation?

It appears in both branches of the choice, so it cannot be a sacrifice made in order to choose one

Correct

It is a sunk cost, since it was committed before the decision

The answer is: It appears in both branches of the choice, so it cannot be a sacrifice made in order to choose one

It is a fixed cost, and fixed costs are never counted in economics

The answer is: It appears in both branches of the choice, so it cannot be a sacrifice made in order to choose one

It is smaller than the fees, so it is negligible

The answer is: It appears in both branches of the choice, so it cannot be a sacrifice made in order to choose one

3.[2p]
On the frontier $F^{2} + 4 C^{2} = 10000$ , how many coconuts can be gathered when 60 fish are caught?

CorrectNot quite: 40

4.[3p]
On the same frontier, what is the marginal rate of transformation, in coconuts per fish, at $F = 80$ ?

CorrectNot quite: 0.667

5.[1p]
A point strictly inside the production possibility frontier means more of one good can be had only by giving up some of the other.

True

The answer is: False

False

Correct

6.[3p]
A firm splits £26,000 between two regions returning $60 \sqrt{a}$ and $40 \sqrt{b}$ thousand pounds. How many thousand pounds should go to region A?

CorrectNot quite: 18

7.[3p]
Which of these are correct statements about marginal analysis?

Select all that apply

The optimum satisfies $B' (x) = C' (x)$ only when it is interior

Correct

The condition $B' (x) = C' (x)$ locates a maximum only if the second order condition also holds

Correct

Price tracks the value of the last unit, not the total value of all units

Correct

Setting marginal benefit equal to marginal cost always gives the best possible quantity

The answer is: The optimum satisfies $B'(x) = C'(x)$ only when it is interior, The condition $B'(x) = C'(x)$ locates a maximum only if the second order condition also holds, Price tracks the value of the last unit, not the total value of all units

8.[2p]
What did the 1985 Arkes and Blumer theatre ticket experiment show?

People who had paid more for an identical ticket attended more plays, so sunk cost changed behaviour

Correct

People valued the plays more when they had paid less, because of the bargain

The answer is: People who had paid more for an identical ticket attended more plays, so sunk cost changed behaviour

Attendance was the same in all groups, confirming that sunk costs are ignored

The answer is: People who had paid more for an identical ticket attended more plays, so sunk cost changed behaviour

Season ticket holders attended more than single ticket buyers

The answer is: People who had paid more for an identical ticket attended more plays, so sunk cost changed behaviour

9.[3p]
Match each term to what it names.

Positive claim
Normative claim
Opportunity cost
Sunk cost

a statement evidence can settle
a commitment no choice can recover
a statement about what ought to be
the best alternative given up

Show the answer

Positive claim: a statement evidence can settle Normative claim: a statement about what ought to be Opportunity cost: the best alternative given up Sunk cost: a commitment no choice can recover

1.[2p] A student pays £9,250 a year in fees for a three-year degree and gives up a job paying £20,000 a year. Rent of £9,000 a year would be paid either way. What is the opportunity cost of the degree?

2.[2p] Why does rent that would be paid either way drop out of the calculation?

3.[2p] On the frontier F2+4C2=10000, how many coconuts can be gathered when 60 fish are caught?

4.[3p] On the same frontier, what is the marginal rate of transformation, in coconuts per fish, at F=80?

5.[1p] A point strictly inside the production possibility frontier means more of one good can be had only by giving up some of the other.

6.[3p] A firm splits £26,000 between two regions returning 60a and 40b thousand pounds. How many thousand pounds should go to region A?

7.[3p] Which of these are correct statements about marginal analysis?

8.[2p] What did the 1985 Arkes and Blumer theatre ticket experiment show?

9.[3p] Match each term to what it names.

1.[2p]
A student pays £9,250 a year in fees for a three-year degree and gives up a job paying £20,000 a year. Rent of £9,000 a year would be paid either way. What is the opportunity cost of the degree?

2.[2p]
Why does rent that would be paid either way drop out of the calculation?

3.[2p]
On the frontier $F^{2} + 4 C^{2} = 10000$ , how many coconuts can be gathered when 60 fish are caught?

4.[3p]
On the same frontier, what is the marginal rate of transformation, in coconuts per fish, at $F = 80$ ?

5.[1p]
A point strictly inside the production possibility frontier means more of one good can be had only by giving up some of the other.

6.[3p]
A firm splits £26,000 between two regions returning $60 \sqrt{a}$ and $40 \sqrt{b}$ thousand pounds. How many thousand pounds should go to region A?

7.[3p]
Which of these are correct statements about marginal analysis?

8.[2p]
What did the 1985 Arkes and Blumer theatre ticket experiment show?

9.[3p]
Match each term to what it names.