Handout 1-1

The Opportunity Cost of Attending College (6 points)

Calculate the annual opportunity cost of attending college based on the following expenses:

What else should be counted as part of the opportunity cost?

Thinking at the Margin (5 points)

If a firm finds that advertising increases the total number of customers, for how many hours should it    advertise? Assume that each extra customer spends an average of $10 at the store, and an extra hour of advertising costs the firm $200.

Handout 1-2

Making Choices (7 points)

Which of the 11 principles is illustrated in each statement?

1.   People in Europe drive smaller cars than in the United States because the price of gasoline is higher.

2.   You decide to take only three instead of four classes this semester due to your busy work

schedule.                                                                                                                                               

3.   If you take the babysitting job on Friday night, then you will be unable to go to the party with

your friends.                                                                                                                           

4.   Jack and Jane are roommates. Jack makes breakfast for both of them each day, and Jane makes dinner for both of them each day.             

5.   In most cases, the open checkout lanes at the grocery store all have the same number of customers waiting to pay for their items.                                                                           

6.   The U.S. government’s regulation of air pollution has improved the quality of the air over the years.     

7.   The government lowers the income tax rate, and as a result, consumers increase their spending on goods and services.

Handout 2-1

Production Possibilities (6 points)

Consider a country that can produce wheat or airplanes. Here are the points on the production possibility frontier:

What is the opportunity cost of expanding production from 150 airplanes to 250 airplanes?

Why is the production possibility graph negatively sloped?

Why is it bowed out from the origin?

Handout 3-1

Comparative Advantage (8 points)

Activity 1:

What comparative advantages does the United States have?

Do a brief internet search to determine what products the United States exports the most? List them. How do these products compare with the comparative advantages listed above?

Activity 2:

Consider the pros and cons of the following two statements:

“The United States should limit imported textiles from China.”

“The United States should prohibit the import of products from abroad that are made with child labor.”

Handout 4-1

Circular-Flow Diagram (8 points)

Activity 1:

Draw the circular flow below. Add banks, government, and exports and imports to the circular flow.

Activity 2:

Consider what will happen in the circular flow from Activity 1 above if consumers decide to

spend more money and save less. Beside each entity in the diagram, describe briefly how this change will affect the group.