Assignment

In this Assignment, you will demonstrate your understanding of certain economic

principles that underlie virtually all decisions that people make. Specifically, the concept

of Opportunity Costs by selecting the correct underlying principle and explaining in a

series of logical steps which would likely produce the results described.

Questions

1. Howard needs to buy a laptop computer to start online university courses. The price

at the local computer store is $650. The identical computer is available at one online

site for $605 and another site, for $622. All prices include the appropriate sales tax. The

accompanying table indicates the typical shipping and handling charges for the

computer ordered online.

Unit 1BU224 | Microeconomics

Shipping method

Delivery time

Charge

Standard shipping

3–7 days

$13.99

Second–day air

2 business days

$18.98

Next–day air

1 business day

$23.98

a. Define “opportunity cost” in economic terms.

b. In this situation, what are the opportunity costs of Howard choosing to buy online

instead of at the local computer store? Note that if you buy the computer online,

you must wait to get it.

c. Show all of the relevant choices for Howard.

d. What determines which of these choices Howard will choose?

2. During the improving economic conditions of 2015 and early 2016 much additional

construction of homes and condos throughout much of the U.S. took place. This

provided a significant increase in the income of workers in the construction trades.

Many of the construction workers were immigrants and have family and relatives in

other countries. Often these workers would send part of their income to their less

fortunate relatives in their old country, especially in Mexico and some of the South

American countries.

a. Which of the economic principles best describes this situation?

b. Using the principle you have selected, describe the chain of events that best

explains how increased spending for U.S. home and condo construction is likely

to affect the performance of the economies of these South American countries.

3. From June 2008 oil was at a high of $144.78 per barrel. During the period from April

2011 until July of 2014, the price of oil hovered between about $115.32 per barrel and

about $105.22 a barrel. Then, starting in August 2014 oil began a precipitous fall in price

from the $105.22 to $33.62 a barrel in January 2016. Although the U.S. has great

amounts of oil that can be brought out of the ground by “fracking,” by the beginning of

2016 many of the workers in the U.S. oil exploration and drilling industry were out of

work and tremendous amounts of oil exploration equipment was sitting in the equivalent

of “used car lots” to be sold.

a. Which of the economic principles best describes this situation?

b. Using the principle you have selected, describe the chain of links that best

explains how the falling international oil prices caused U. S. workers to be laid off

and available U.S. oil to be left in the ground.

References