Assignment 1:

Introduction to Economics and Business

1. This sentence implies that everything has a cost, even though it may appear as free.
Scarcity can be described as the limitation of resources such as time and money while
the human needs and wants are never ending or unlimited. This essentially means that
we may have to often give up something we have at the moment in order to satisfy
your own needs and wants. And this leads to the idea of opportunity costs.
Opportunity costs can be described as the cost of the next best alternative you gave up
when you made a decision. It's the thing you could have had or done if you hadn't
chosen to do something else. So, when applying these two concepts to the sentence,
we can see that while the lunch itself may not cost you any money, there are still some
costs associated with it. For example, the time it takes to go and get the lunch could
be used for other activities like studying or working out. This is an opportunity cost.
Eating the lunch can mean that you are using up the resource (which is the food) as it
could have been used by someone else. This is an example of scarcity.

2. Principles book describe opportunity costs as having to consider all the costs when
doing a particular action and it includes all the implicit and explicit costs of that
particular action. The Economy book describes opportunity costs as having to choose
between two different actions that cannot be done at the same time so one would have
to give up either one of the two in order to do the other action.

The main difference between the two interpretations is that the Principles book is
more focused on financial aspects of decision making while the Economy book
focuses more on trade-offs and scarcity in decision making.

Principles book calculation:

W.P = Willingness to pay

E.C = Explicit costs.
 Economics’ book calculation: Here, the benefit of the next best alternative to going
to the gym is €7 as this is the amount you would earn per hour working as a
homework tutor. So, €7 is the opportunity cost of going to the gym.

According to the Principles book, the total opportunity cost of going to the gym is €14
and you were willing to pay €15. Since the opportunity cost of going to the gym is
lower than the maximum you were willing to pay, then you should choose to go to the
gym.
According to the Economics book, the opportunity cost of going to the gym is €7,
which is equal to the €7 you would earn by working as a homework tutor for that hour
so this means that they are both beneficial so you could choose to either go to the gym
or work the hour as a homework tutor according to your preference.

3. In lower income countries, women have fewer chances to access education and career
opportunities and so the cost of having a child would be lower here as they would not
be giving up much and so would have lower opportunity costs and in higher income
countries, women often have more opportunities to pursue their education and career
goals and they would be giving up a lot if they are to choose to have kids instead as it
would take up most of their time and so would have higher opportunity costs.

In terms of the educational level of women within countries, the same can be said.
Women with lower educational levels don’t have a lot of opportunities to pursue their
career goals and having children wouldn’t affect them much as they wouldn’t give up
a lot so would have lower opportunity costs. For women with higher educational
levels, they have more opportunities for career growth and having children may
hinder their progress so would have higher opportunity costs and they would be
giving up a lot.

4. When working, one usually trades their personal time for money(income), and it can
be said that the benefit of working more is that you earn more money. However, if
income taxes increases, the amount of money you get to keep from working decreases
because it goes to taxes and so in this case, the benefit of working more (and keeping
the money) is less than before the increase in income tax. When considering working
more, one should decide if giving up their personal time is worth the additional
 money they would earn and would therefore have to compare the benefit of earning
more money to the cost of spending more time working rather than doing other things
in their personal time. So, if the increased income tax decreases the amount of money
one keeps for themselves even after working extra hours, they could decide that
working extra hours is not worth it as the benefit of getting extra money is less than
the cost of giving up their free time and so people might start working fewer hours
instead.

5. a) Economist could consider the value someone places on free time by thinking about
the income that they may have to give up if they choose not to work during their “free
time”. If someone chooses free time over working, the opportunity cost is the income
they could have earned and so the economist would consider this reduced income as
the value of free time.
For example, if a person earns €40 per hour and chooses to work an extra hour of
overtime instead of enjoying free time, economists could say that they value one hour
of free time at €40 since they gave up one hour of leisure to earn €40.

b) Economics could consider the time period that the government had imposed
lockdowns to control the spread of the pandemic. The opportunity cost could be the
economic growth that would have happened if the lockdown wasn’t implemented. So,
the cost of saving lives through lockdowns is the potential economic growth that
society had to give up. So essentially, the higher the opportunity cost of the lockdown
in comparison to the number of lives saved, the more society values the lives saved
during the pandemic.

6. a) For Android;
 Software costs € 5,000 (explicit costs)
 Expected profit is € 12,000 (value)
 Net profit € 12,000 - € 5,000 = € 7,000 (implicit costs)
For IOS;
 No software costs (explicit costs)
 Expected profit is € 13,000 (value)
 Net profit is € 13,000 - € 0 = € 13,000. (Implicit costs)
 Since there are no additional cost for software as you already own the license for iOS,
developing the app for IOS would be better as it has a higher net profit.

b) For android, the net profit is €7,000 but if you sell the license of the IOS software
for €8,000, then you can use that €8,000 plus the €7,000 and have a profit of
€15,000.
For IOS, net profit would be €13,000, which is less than the €15,000.
So, developing the app for android provides more profit than for the IOS so should
choose android.

7. Option 1: Working at the Conference:

 Earnings from the conference: €300

Option 2: All-Inclusive Weekend:

 Total cost of the weekend: €300 (including the non-refundable deposit)
 Maximum willingness to pay for the weekend: €450

So:
o Economic Rents for Working at the Conference:
 Economic Rents = €300 - €0 (as there are no costs associated with
working) = €300

o Economic Rents for All-Inclusive Weekend:

 Economic Rents = €450 - €200 (which is the non-refundable deposit
already paid) = €250
Based on the calculation of economic rents, you should choose to work at the
conference because the economic rents are higher for working at the conference
compared to going on the all-inclusive weekend.
8. In terms of implicit costs, people may see that engaging in sustainable behavior may
be costly in regard to time and money. For example, recycling may require a lot of
 time sorting and cleaning waste material and so this time spent on doing this
sustainable activity rather than doing other things may discourage people from acting
sustainably even though they may care about the possible negative effects of climate
change.
In terms of explicit costs, sustainable products tend to be more expensive than non-
sustainable ones so people would much rather spend money on the cheaper products
even though they are not sustainable.
In terms of expected outcomes of the choices made, people may find it difficult to
decide between the expected but distant and unknown results of practicing sustainable
choices against the immediate costs (both explicit and implicit) and so they may
prefer the immediate costs if they believe that sustainability will bring rewards that
are far away or uncertain.

9.
Hours Marginal Cost Marginal benefit
1 12 20
2 12 17
3 12 14
4 12 11

The optimal number of hours of exercises per week would be 3 hours. This is because
on the from the 1st hour to the 3rd hour, the marginal benefit is higher than the
marginal cost but on the 4th hours, the marginal cost is higher than the marginal
benefit so that’s why we don’t include the 4th hour.

10. The cost for each extra table is €250 more than the cost of the previous table. So, for
the 11th table, it would be €3000 + €250 = €3250, and for the 12th table would be
€3250 + €250 = €3500, and up until for the 15th table. So, the total would be €48,750
for making a total of 15 tables.
The price to make the optimum number of tables would then be €48,750/15 which
would be €3250.
11. Q1 represents the point in the graph where the marginal benefits are equal to the
marginal cost, and this is where profit is most optimal. At this point, the business’
 profit is optimized when compared to its production costs. Any change in production
after this point would lead to a decrease in profit since any additional costs would be
greater than the profits made. As a result, by balancing production costs to profits,
like at Q1, ensures that the business will make the most profit possible.

Hours needed to produce Truck SUV

Country A 3 5
Country B 6 4