Economics Online Quiz 1

ECON1210 Online Quiz #1 Solutions Q.01: The main incentive for business activity is: A) government subsidies. B) technological advancement. C) profit. D) government regulation. Ans) C Solution: Profit is the reward in monetary term that serves as the main incentive for business activity. Government subsidies, if available, may serve as an incentive for business activity but it will never be a main one. Technological advancement and government regulation are not incentives that will reward business activity. Q.02: The opportunity cost of winning a free ticket to the Super Bowl worth $950 and attending the game is: A) zero, since the ticket was free. B) priceless, if the person really loves football. C) $950, representing the lost market value of selling the ticket to somebody else. D) zero, if the person would rather go to the game than do anything else. Ans) C Solution: The correct answer is C. Although you obtained the ticket for free, as long as it is resale-able (which is implied in the question), the opportunity cost of attending the game equals the resale value of the ticket, which is $950. For answer B, it is incorrect as the opportunity cost of attending the game is not the value of the game itself, but the value we forgo if we attend the game. Answer D is not correct too. Opportunity cost is zero when there is no choice. However it is clear that we have a choice to resell the ticket rather than attending the game here.

Q.03: You are given a ticket to a Bob Dylan concert. The face value of the ticket is $50. You value attending the Bob Dylan concert at $40. You can sell the ticket to a friend for $10 and attend a U2 concert by getting a ticket priced at $60. The opportunity cost of attending the U2 concert is: A) $10. B) $90. C) $40. D) $50. Ans) B Solution: The price of the U2 concert ticket of $60 is part of the opportunity cost of attending the U2 concert as you have to pay for it (an explicit cost). The value of $40 forgone for attending the Bob