Why might the money price for something be higher than the opportunity cost? Why might it be lower? Give an example of each to illustrate your answer.
What will be an ideal response?
Money price can be higher than opportunity cost if the good or service has no alternative use. An example might be hiring unemployed persons to perform labor. Because the next best use of the labor has zero monetary value, the money cost of the task is above the opportunity cost. The opportunity cost can be higher than the money price if one ignores implicit costs, e.g., time, in computing cost. One example is the opportunity cost of attending college.
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At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's net investment for the year totaled
A) 1 machine. B) 2 machines. C) 3 machines. D) 6 machines.
Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?
A person's marginal tax rate equals
a. her tax obligation divided by her average tax rate. b. the increase in taxes she would pay as a percentage of the rise in her income. c. her tax obligation divided by her income. d. the increase in taxes if her average tax rate were to rise by 1percent.
In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to private and national saving?
a. private and national saving would rise b. private and national saving would fall c. private saving would rise and national saving would fall d. private saving would fall and national saving would rise