Description
QUESTION 1
The Economic Explanation for Shrinking Airline Washrooms
For a number of years, in a typical coach-class washroom on a passenger airplane, the
distance from the mirror on one side to a wall on the other measured about 84
centimetres. On newly produced jetliners now going into service, the washroom width is
closer to 66 centimetres?a reduction
of more than 20 percent.
The reason for the decrease is that the previously more ?spacious? washrooms required
airline companies to incur a significant opportunity cost. Reducing the widths of the forward
and rear washrooms by 18 centimetres each gains half the distance required to add an extra
row of seats on a typical jetliner. Airline companies can obtain the additional space for an
extra row of seats by removing closets, shrinking galleys, and placing all other rows of seats a
little closer together. By adding a row of seats, an airline company gains millions of dollars of
additional revenue over the lifetime of a typical plane. This fact explains why these
companies came to view the opportunity cost of the larger washrooms of the past as too high
to continue to incur.
For Critical Thinking
Why do you suppose that some airlines have simply removed a washroom or two from each
of their passenger planes?
QUESTION 2
Why People with the Highest Hourly Opportunity Cost Allocate as Much Time to
Leisure as Everyone Else
Studies consistently reveal that people who earn the highest hourly incomes allocate about as
much time each week to leisure as do people who earn lower hourly incomes. How can this
finding be true, given that the opportunity cost of hours devoted to leisure?that is, forgone
income earnings?
is so much greater than that incurred by people who earn lower hourly incomes?
Behavioural research indicates that those who earn the highest incomes engage in particularly
?active? forms of leisure, such as exercising and volunteering to spend time on charity projects.
In contrast, people who earn lower incomes tend to allocate leisure time to more ?passive? types
of
leisure, such as watching television or relaxing. Consistent with such evidence, behavioural
economists have found that people derive more enjoyment from active forms of leisure than
from passive leisure pursuits. Available evidence indicates that the highest-income individuals
engage in higher-quality activities during the time they allocate to leisure. Thus, people who
earn the highest incomes devote as much time to leisure because their leisure activities
yield greater levels of enjoyment.
For Critical Thinking
Why might a high-income individual perceive a substantial opportunity cost of devoting an
available labour hour to a low-income task?
QUESTION 3
You and a friend decide to spend $100 each on concert tickets. Each of you alternatively
could have spent the $100 to purchase a textbook, a meal at a highly rated local restaurant,
or several Internet movie downloads. As you are on the way to the concert, your friend tells
you that if she had not bought the concert ticket she would have opted for a restaurant meal,
and you reply that you otherwise would have downloaded several movies. Identify the
relevant opportunity costs for you and your friend of the concert tickets that you purchased.
Explain briefly.
QUESTION 4
Given a standard, concave production possibilities curve for a nation facing increasing
opportunity costs for producing food and video games. Describe how the PPC changes given
the following events:
a. A new and better fertilizer is invented.
b. Immigration occurs, and immigrants? labour can be employed in both the agricultural
sector and the video game sector.
c. People invent a new programming language that is much less costly to code and is
more memory-efficient.
d. A heat wave and drought result in a 10 percent decrease in usable farmland.
e. There is a trade war with China and many products cannot enter North America.
QUESTION 5
The following table illustrates the grades a student can earn on examinations in economics
and biology if the student uses all available hours for
study.
Economics Biology
100
40
90
60
80
75
70
85
60
93
50
98
40
100
1. Does the PPC illustrate the law of increasing opportunity cost? How do you know?
2. What is the opportunity cost to this student of allocating enough additional study time on
economics to move her grade up from a 90 to a 100?
Consider a change in the table above so it now looks like this:
Economics Biology
100
40
90
50
80
60
70
70
60
80
50
90
40
100
3. Does the PPC illustrate the law of increasing opportunity cost? How do you know?
4. What is the opportunity cost to this student for the additional amount of study time on
economics required to move her grade from 60 to 70?
5. What is the opportunity cost to this student for the additional amount of study time on
economics required to move her grade from 90 to 100?
QUESTION 6
If the production possibilities curve is a straight line, then:
The society is capable of producing only one of the goods and not the other
The society can produce more of both goods simultaneously
The law of increasing opportunity costs does not apply
The opportunity cost of producing one good is zero
QUESTION 7
A movement from one point to another along the production possibilities curve would
imply that:
Productivity has declined over time
The labor force available to society has grown
Productivity has increased over time
Society is producing a different combination of outputs
QUESTION 8
A nation that devotes more of its resources to the production of capital goods is likely to:
Increase the slope of its production possibilities curve
Decrease the slope of its production possibilities curve
Cause its production possibilities curve to shift outward
Cause its production possibilities curve to shift inward
QUESTION 9
A nation can increase its production possibilities by:
Eliminating unemployment
Shifting resources from private goods to public goods
Improving labor productivity
Shifting resources to produce more consumer goods and less investment goods
QUESTION 10
On a production possibilities curve, the single optimal or best combination of output for
any society:
Is at a point near the top of the curve
Is at the precise midpoint of the curve
Depends upon the preferences of society
Is at a point near the bottom of the curve
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