Assignment 1

Q1) It takes you half an hour to do a math assignment and two hours to do a micro
assignment. What is the opportunity cost of you doing two math assignments?

(2 marks)

Q 2) Jenn won a free ride to four years of college. During these four years Jenn
could also do any number of things, including:

I. Travel the world.

II. Work to gather savings and career experience.
III. Become an expert oboist.
Which of the following is the opportunity cost of Jenn attending college?

(5 marks)

Q3) Which of the following decisions has the greater opportunity cost? Why?

a) A decision to use an undeveloped lot in Tokyo's financial district for an

apartment building.
b) A decision to use a square mile in the desert for a gas station.

(5 marks)

Q4) Assume that there are two goods. The price of the first good is $10 and the price
of the second good is $20. The income is m=200.

a) Determine the budget constraint. The budget constraint is the equation that
allows us to calculate the combination of quantities of both goods that will
allow the combination to be on the budget line. It will look like this

Income = P1*Q1 + P2*Q2

(3 marks)

b) Draw the budget line. For that you will need to find the intercepts.

(5 marks)

c) Using the budget constraint and show changes that would happen to the
budget line if the income increased to m=300. You will be required to make
the calculation, draw the graph, and explain the difference as income has
increased.

(5 marks)
d) Using the budget constraint and show changes that would happen to the
budget line if the price of first good increased to $20. You will be required to
make the calculation, draw the graph, and explain the difference as income
has increased.

(5 marks)