ECO Homework 1 and 2

Suppose Joe is trying to decide whether to buy a latte at a nearby coffee shop or make a cup of coffee at home. Joe would get $5 worth of value from the latte, and the price of a latte at the coffee shop is $3. Joe would get $2.50 worth of value from a cup of homemade coffee, and it would cost him $1 to make. How much economic surplus would Joe get from buying a latte at the coffee shop?

.5

Suppose the most you would be willing to pay to have a freshly washed car before going out on a date is $6. The smallest amount for which you would be willing to wash someone else's car is $3.50. You are going out this evening and your car is dirty. How much economic surplus would you receive from washing it?

6-3.5=2.50

Suppose the most you would be willing to pay to have a freshly washed car before going out on a date is $6.00. The smallest amount for which you would be willing to wash someone else's car is $3.00. You are going out this evening and your car is dirty. How much economic surplus would you receive from washing it?

6-3=3

Suppose Joe is trying to decide whether to buy a latte at a nearby coffee shop or make a cup of coffee at home. Joe would get $5 worth of value from the latte, and the price of a latte at the coffee shop is $3. Joe would get $2.50 worth of value from a cup of homemade coffee, and it would cost him $1 to make. What is the opportunity cost to Joe of buying a latte at the coffee shop?

8-3.50= 4.50

You and your friend Joe have identical tastes. At 2 p.m., you go to the Ticketmaster outlet and buy a $30 nonrefundable ticket to a basketball game to be played that night in Syracuse, 50 miles north of your home in Ithaca. Joe plans to attend the same game, but because he cannot get to the Ticketmaster outlet, he plans to buy his ticket at the game. Tickets sold at the game cost only $25 because they carry no Ticketmaster surcharge. (Many people nonetheless pay the higher price at Ticketmaster, to be sure of getting good seats.) At 4 p.m., an unexpected snowstorm begins, making the prospect of the drive to Syracuse much less attractive than before (but ensuring the availability of good seats.) If both you and Joe are rational, is one of you more likely to attend the game than the other?

Joe is more likely to go to the game. >You are more likely to go to the game. Both of you would make the same decision.

The opportunity cost of an action is equal to:

the sum of its explicit and implicit costs.