Unit 1 BU224 | Microeconomics

Unit 1 Assignment: Opportunity Costs

Name: Bobbe Jurado
Course Number and Section: BU224–01
Date: 07/08/2017

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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.

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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.

Opportunity cost in economic terms is the benefit that was given up in order to get

it. Opportunity cost is “the evaluation placed on the most highly valued of the rejected

alternatives or opportunities” (Buchanan 2008).

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.

The opportunity cost for Howard choosing to buy online is saving money because

the cost is cheaper. Another opportunity cost is time because there is a wait time to receive

the laptop when ordered online.

c. Show all of the relevant choices for Howard.

Choice one is purchase the laptop locally for $650

Choice two is purchase the laptop on line for $605 with 3-7 day shipping for $13.99, 2

business days at $18.98, or 1 business day for $23.98

Choice three is purchase the laptop online for $622 with 3-7 day shipping for $13.99, 2

business days at $18.98, or 1 business day for $23.98

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

What determines which choice Howard chooses depends on what is more

important to him. Is it more important to Howard to save time or save money? If saving

money is more important than Howard should buy online. Buying online with the

shipping cost is cheaper than buying at the local computer store. If time is more important

to Howard then he should by the laptop at the local computer store. If he purchases the

laptop at the local store he will have the laptop immediately and will not have to wait for

it to be shipped.

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?

Principle 10 – One person’s spending is another person’s income.

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.

An increase in spending of homes and condos leads to construction workers making more

money. When the workers make more money, they are able to send more money home to their

family. The additional money the families receives enables the family to spend more money in

their country. Spending more money on condos and homes and spending more money in other

countries contributes to the economic growth in the U.S., Mexico and South America.

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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?

Principle 4 – People usually respond to incentives, exploiting opportunities to make

themselves better off.

The correct principle is Principle # 7: “Resources should be used efficiently to achieve society’s goals”.

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.

When the oil prices fell it caused oil companies to loose profits. When the loss of profits

could not be recovered, the companies had to cut back production to save money. Cutting back on

production results in laying off workers and eventually companies go out of business. Loss of

income for the workers and companies result in less spending. The decline in spending prevents

the economy from growing.

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References:

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Buchanan, James (2008), “Opportunity Cost,” in The New Palgrave Dictionary of Economics,

2nd ed., ed. Steven N. Durlauf and LawrenceE. Blume,NewYork:PalgraveMacmillan,

http://www.dictionaryofeconomics.com.

Unit 1 Assignment: Opportunity Costs Grading Rubric:

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Percent Points Percent Points

Content Possible Possible awarded awarded
Full assignment 100% 40.00

Overall Writing: 20% 8.00

correct coversheet information at the top of 1st page 5% 2.00 100% 2.00
APA format for answers 3% 1.20 100% 1.20
correct citations 3% 1.20 100% 1.20
standard English no errors 4% 1.60 100% 1.60
At least ONE, or more, references 5% 2.00 100% 2.00

Answers: provides complete information demonstrating

analysis and critical thinking: 80% 32.00
Individual Questions:
1. a. - Define opportunity costs. 10% 4.00 100% 4.00
1. b. - What are Howard's opportunity costs? 10% 4.00 100% 4.00
1. c. - S how all relevant choices. 10% 4.00 100% 4.00

1. d. - What determines how Howard will make his choice? 10% 4.00 100% 4.00
2. a. - Which principle describes improvement in US
housing construction affecting some S outh American
economies? 10% 4.00 100% 4.00
2. b. - Describes steps between the improving US housing
construction and changes in the economies of some S outh
American countries. 10% 4.00 100% 4.00
3. a. - Which principle describes falling oil prices affecting
U.S . oil left in the ground? 10% 4.00 25% 1.00
3. b. - Describe steps between the fall in oil prices and laid
off workers. 10% 4.00 100% 4.00
Writing +
answers
S ub-total for Individual Questions: 80% 32.00 37.00 total

Overall Points Awarded 37

Overall Percentage Awarded 93%

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