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ECO 2 0 4 In - Class Problem Set 1 Imagine you have been given a free ticket for a concert tonight. You can't resell

ECO 204 In-Class Problem Set 1
Imagine you have been given a free ticket for a concert tonight. You can't resell the ticket.
a. Concert is 2 hours and your next best use of time is tutoring a colleague for $10. What is the cost of concert?
b. If concert worth $80 to you, should you attend?
You have been given the free, non-sellable ticket but face a new choice. The Tampa Bay Lightning are playing in Tampa
tonight for $60 a ticket. This is the only other option you are considering. You would be willing to pay as much as $70 to see
the Lightning. (If tickets exceeded $70, you would not attend even if you had nothing else to do.)
a. What is the opp. cost of attending concert tonight?
b. You would have received a $70 enjoyment by spending $60, giving you a profit of $10. Should you attend the
concert?
The vast majority of newly licensed automobile drivers in the 1990 s knew how to change a tire. In 2020, most newly licensed
drivers did not. Use the benefit-cost model to explain the change in behavior assuming that no significant changes in the costs
of learning how to change a tire occurred. (Hint: Consider incorporating facts related to cell phones, tire technology,
opportunity cost of time.)
The benefit-cost model reveals why professionals such as local lawyers, insurance agents, and dentists are more likely to sit
on the boards of their local service clubs-such as the Kiwanis club, Rotary club, Hospice, etc--than pilots, mail carriers, and
government employees. Both groups, however, would face the same expenditure of time and money to attend meetings.
(Hint: Consider incorporating facts about networking.)
When on vacation, Mike and his wife were caught in a rainstorm. The only umbrella available for purchase was both ugly
and extremely expensive. They purchased it and used it for the remainder of the trip. When packing their suitcases for home,
Mike threw the umbrella in the trash. Astonished, his wife said "we spent $100 on that umbrella! Shouldn't we keep it?"
Mike said, "We have enough umbrellas at home and no one else will want it. Moreover, I need the space to bring an $80
wine bottle home where I would have to pay $100 for it." Mike's wife replied, "But what about the umbrella's sentimental
value?"
a. What kind of cost is the $100 spent on the umbrella?
b. The opportunity cost of the umbrella to Mike is $
c. Given Mike wanted to throw out the umbrella, its sentimental value to him must be less than $
People often say that small town folks are kinder than big city folks. When asking for directions in Manhattan, New York,
residents there tend to be impatient and rude though they are extremely wealthy and have world-class amenities around them
(e.g., Broadway theaters, museums, etc.). When asking for directions in Woodstock, New York, residents there tend to be
friendly and courteous though they have more moderate incomes and lack New York's world-class amenities. This seems
odd because increases in wealth, on average, increase happiness and increases in happiness increase kindness. Explain this
behavior using the benefit-cost model assuming residents in Manhattan and Woodstock have similar preferences for assisting
visitors to their city. (Hint: Consider concepts of opportunity costs and time constraints.)
In his book, Predictably Irrational, Dan Ariely tells the story of retirees in need of legal services who turned to the Bar
Association for assistance. Their representatives from the AARP searched for attorneys who would work at sufficient
discounts. No attorneys were willing to work for the low pay. The AARP, however, found more than enough attorneys when
they suggested the attorneys work for free or pro bono. Provide a behavioral economic explanation for this result. (Hint:
consider concepts of propriety or utility, incentives being additive or non-additive).
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