Economics – Dr.

Katie Sauer
In Class Assignment 1: ch1 and ch2
1. Describe a trade-off you recently faced.

2. Give an example of some action that has both a monetary and nonmonetary opportunity cost.

3. Describe an incentive your parents offered to you in an effort to influence your behavior while you
were growing up.

4. Henry decides to spend two hours playing golf rather than working at his job which pays $8 per
hour. Henry’s tradeoff is
a. the $16 he could have earned working for two hours.
b. nothing, because he enjoys playing golf more than working.
c. the increase in skill he obtains from playing golf for those two hours.
d. the two hours he spent playing golf.

5. Which of the following statements is FALSE?

a. Economists often disagree about the assumptions that underlie a particular theory, but they still
agree on a wide variety of issues.
b. Incentives are not an issue looked at by economists very often.
c. Every action involves an opportunity cost.
d. Economists approach the study of the economy much the same way a scientist approaches
research.

6. It costs $40,000 to run 10 flights a day of a regional jet service. $20,000 goes to pay airport fees and
to run the ticket reservation system. The other $20,000 goes for actual operating costs such as the flight
crew for each flight and the jet fuel.

You are the airline ticket agent. It is 45 minutes before the last flight of the day. There are only 20
people ticketed for the flight and the plane has 40 seats. Each person has paid an average of $2000 for
their ticket. A customer approaches you and offers $99 for a seat. Using marginal analysis, explain why
/ why not the airline should sell the person a ticket.
7. How is economics like a science?

8. Should an economic model describe reality exactly?

9. Explain how even though you probably don’t enjoy paying your cell phone bill (or other bill)
each month, you are making a voluntary transaction that benefits you and the cell phone provider.

10. What is the difference between a positive and a normative statement? Give an example of each.