McDonald’s interest. The decision is directly in McDonald’s self-interest. The social interest
could be affected because people will spend less time waiting in lines and drive-throughs.
c. Food Must Be Labelled with Nutrition Data
The decision to require that food must be labelled with nutrition information is made in the
social interest. This decision is not made by any one single firm and so does not (necessarily)
reflect anyone’s self-interest.
4. The night before an economics test, you decide to go to the movies instead of
staying home and working your MyLab Study Plan. Your grade on the test was 50
percent, lower than your usual 70 percent score.
a. Did you face a tradeoff?
Yes, you faced a tradeoff. The tradeoff was between a higher test score and an evening with
your friends at the movies.
b. What was the opportunity cost of your evening at the movies?
The opportunity cost of going to the movies is the fall in your grade. That is the 20 points
forgone from choosing to see the movie rather than study.
6 CH AP TER 1
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5. Cost of Rio Olympics
Brazilian federal, state, and local governments spent R$2.8 billion and private sponsors
spent R$4.2 billion on 17 new Olympic facilities, 10 of which will be used for sporting
events after the Olympics.
Source: Financial Times, August 6, 2016
Was the opportunity cost of the Rio Olympics? Explain your answer.
The opportunity cost of something is the highest-valued alternative that we give up to get it. To
host the Olympics in Rio, R$2.8 was spent by federal, state, and local governments and R$4.2
billion was spent by local sponsors, a total expenditure of R$7.0 billion. The opportunity cost of
the Rio Olympics is not the expenditure but the goods and services that would have been
purchased with R$7.0 billion if the money had not been spent on the Rio Olympics.
6. Which of the following statements is positive, which is normative, and which can
be tested?
a. Canada should cut its imports.
The statement is normative and cannot be tested.
b. China is Canada’s largest trading partner.
The statement is positive and can be tested.
c. If the price of gasoline rises, people will drive less and use less gasoline.
The statement is positive and can be tested.
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WH AT IS ECO NO MICS? 7
Answers to Additional Problems and Applications
7. Kanye West Offers Free Concert Tickets
Kanye West has teamed with Los Angeles inner-city schools to offer free passes for
students!
Source: consequenceofsound.net, November 27, 2016
When Kanye West gave away tickets, what was free and what was scarce?
Explain your answer.
The seats in the concert venue are scarce—there are only a limited number available. Also
scarce is the time the enthusiastic students spend at the concert. If the students who obtain
passes attend the concert rather than sell their “free” passes, they incur the opportunity cost
of the forgone pass price. So the concert was not “free” for the concert-goers. The publicity
that Kanye West receives is free to him but the publicity used reporters’ scarce time to report
on the event rather than reporting on other news worthy events.
8. How does the creation of a successful movie influence what, how, and for whom
goods and services are produced?
The “what” question is influenced in two ways. First, one good or service that is produced is
the successful movie. Second, spinoffs or similar films likely will be created in the future. The
“how” question is influenced because movies use different production methods. Some
movies, for example, have a lot of special effects while other movies have few or none.
The “for whom” question is influenced because those people who, as the result of the
blockbuster movie, have higher incomes have more goods and services produced for them.
9. How does a successful movie illustrate self-interested choices that are also in the
social interest?
A successful movie increases the income of the people involved with the movie production.
The choices of these people are driven largely by self-interest. The creation of a successful
movie also increases the quantity of widely enjoyed entertainment. The amount of
entertainment available in the economy increases, which benefits society. So the choices the
people made in their self-interest are also in the social interest.
10. Before starring in Guardians of the Galaxy, Chris Pratt had appeared in 11 movies
that grossed an average of $7 million on the opening weekend. Guardians of the