1. Describe some of the trade-offs faced by each of the following:
a. a family deciding whether to buy a new car
b. a member of Congress deciding how much to spend on national
parks
c. a company president deciding whether to open a new factory
d. a professor deciding how much to prepare for class
e. a recent college graduate deciding whether to go to graduate school
2. You are trying to decide whether to take a vacation. Most of the costs of
the vacation (airfare, hotel, and forgone wages) are measured in dollars,
but the benefits of the vacation are psychological. How can you compare
the benefits to the costs?
3. You were planning to spend Saturday working at your part-time job, but a
friend asks you to go skiing. What is the true cost of going skiing? Now
suppose you had been planning to spend the day studying at the library.
What is the cost of going skiing in this case? Explain.
4. You win $100 in a basketball pool. You have a choice between spending
the money now and putting it away for a year in a bank account that pays
5 percent interest. What is the opportunity cost of spending the $100
now?
5. The company that you manage has invested $5 million in developing a
new product, but the development is not quite finished. At a recent
meeting, your salespeople report that the introduction of competing
products has reduced the expected sales of your new product to $3
million. If it would cost $1 million to finish development and make the
product, should you go ahead and do so? What is the most that you should
pay to complete development?
6. A 1996 bill reforming the federal government's antipoverty programs
limited many welfare recipients to only 2 years of benefits.
