The price of a taco was 0.29 in 1970 and 1.09 in 2000. The CPI was 38.8 in 1970 and 172.2 in 2000. The 2000 price of a taco in 1970 dollars is:
A) 0.25.
B) 0.29.
C) 1.09.
D) 4.84.
Question 2
Constantine purchased 100 shares of IBM stock several years ago for 150 per share. The price of these shares has fallen to 55 per share. Constantine's investment strategy is buy low, sell high.
Therefore, he will not sell his IBM stock until the price rises above 150 per share. If he sells at a price lower than 150 per share he will have bought high and sold low. Constantine's decision: A) is correct and shows a solid command of the nature of opportunity cost.
B) is incorrect because the original price paid for the shares is a sunk cost and should have no bearing on whether the shares should be held or sold.
C) is incorrect because when the price of a stock falls, the law of demand states that he should buy more shares.
D) is incorrect because it treats the price of the shares as an explicit cost.
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