UNIVERSITY OF TORONTO ECON 100: INTRODUCTORY ECONOMICS

DEPARTMENT OF ECONOMICS ROBERT GAZZALE, PHD

PRACTICE PROBLEMS
INTRODUCTION & THINKING LIKE AN ECONOMIST

1. Scarcity in economics means:

A) We do not have sufficient resources to produce all the goods and services we want.
B) The wants of people are limited.
C) There must be poor people in rich countries.
D) Shortages exist in nearly all markets.

2. You can spend $100 on either a new economics textbook or a new CD player. If you choose to buy
the new economics textbook, the opportunity cost is:
A) $100.
B) your enjoyment of the new CD player.
C) both the $100 and the your enjoyment of the new CD player.
D) impossible to determine.

3. A key theme fundamental to all of economics is:

A) There are limited wants.
B) We are a rich country but are simply not aware of it.
C) People have unlimited wants facing limited means to satisfy them.
D) There are unlimited resources.

4. A college student waits in line for hours to purchase a ticket to the Rose Bowl, but an attorney does
not. Rather than spend hours in line, he purchases a much more expensive ticket through a ticket
broker. Why?

5. Khalil is offered a free ticket to the opera. His opportunity cost of going to the opera is:
A) zero—the tickets were free.
B) the price listed on the ticket.
C) whatever Khalil would have done had he not gone to the opera.
D) the price listed on the ticket or whatever Khalil would have done had he not gone to the opera.

6. Scarcity exists when:

A) making choices among two or more alternatives is not necessary.
B) individuals can have more of any good.
C) individuals can have more of one good but only at the expense of another.
D) resources are unlimited.

7. The cost of going to college is:

A) tuition and the cost of housing.
B) tuition, the cost of housing, and the cost of books.
C) tuition, the cost of books, and forgone income.
D) forgone income only.

201209 1 PRACTICE PROBLEMS: INTRODUCTION

UNIVERSITY OF TORONTO ECON 100: INTRODUCTORY ECONOMICS
DEPARTMENT OF ECONOMICS ROBERT GAZZALE, PHD

8. Zoe's grandparents are excited about finally paying off their mortgage, because, as they say, “Our
cost of housing is now zero.” Zoe should explain to them the economic principle of:
A) marginal analysis: if the additional cost of housing is zero, then their additional benefit is also zero.
B) opportunity cost: by living in the house, they are giving up the opportunity to sell the house, buy a
smaller one, and pocket the difference.
C) efficiency: if their cost of housing is now zero, they should let Zoe move in without charging her any
rent. Zoe is better off, and her grandparents aren't hurt.
D) equity: it is unfair that some people are still paying off their mortgage.

9. Marla will make $10 by tutoring for an additional hour, but she will lose an hour of studying for her
economics test. Marla decides to study rather than tutor. Marla's choice indicates that she:
A) values an additional hour of studying more than the $10 she would earn tutoring.
B) values an hour of studying less than the $10 she would earn tutoring.
C) does not understand that there is no benefit from studying.
D) doesn't need the money.

10. You are planning to study eight hours this week for your economics final and are considering
studying a ninth hour. You should:
A) compare the benefits of one more hour of study with the cost of one less hour of sleep.
B) compare the benefits of one more hour of study with the cost of one less hour of studying calculus.
C) compare the benefits of one more hour of study with the cost of one less hour of work at your part-
time job.
D) make your decision based on the cost of the next best alternative use of your time compared to the
benefit of one more hour of study.

11. A friend comes up to you and offers to give you a free ticket to the local professional team's baseball
game that night. You decide to attend the game. The game takes five hours and costs you $15 for
transportation. If you had not attended the game, you would have worked at your part-time job for
$8 an hour. What is the cost to you of attending the game?
A) The cost is zero—the ticket is free.
B) $65
C) $40
D) $55

12. The university recently inherited a large mansion from a wealthy alumnus. The university plans to
use the mansion for faculty parties and to house distinguished guests. The opportunity cost of the
mansion to the university is:
A) zero, because it was a gift.
B) the original cost of building the mansion
C) the amount the university would receive if it sold the mansion.
D) the cost of catering the parties at the mansion

201209 2 PRACTICE PROBLEMS: INTRODUCTION

UNIVERSITY OF TORONTO ECON 100: INTRODUCTORY ECONOMICS
DEPARTMENT OF ECONOMICS ROBERT GAZZALE, PHD

13. Margo spends $10,000 on one year's college tuition. The opportunity cost of spending one year in
college for Margo is:
A) $10,000.
B) whatever she would have purchased with the $10,000 instead.
C) whatever she would have earned had she not been in college.
D) whatever she would have purchased with the $10,000 and whatever she would have earned had she
not been in college.

201209 3 PRACTICE PROBLEMS: INTRODUCTION

UNIVERSITY OF TORONTO ECON 100: INTRODUCTORY ECONOMICS
DEPARTMENT OF ECONOMICS ROBERT GAZZALE, PHD

Answers

1. A
2. B
3. C
4. For the attorney, the opportunity cost of waiting in line for a ticket is time that could be used to work
for a client and earn maybe several hundred dollars for each hour of legal work. Because he
worked during those hours, he was able to afford the higher price. The opportunity cost of the
student's time is much lower.
5. C
6. C
7. C
8. B
9. A
10. D
11. D
12. C
13. D

201209 4 PRACTICE PROBLEMS: INTRODUCTION