Impact of Taxes on Alcops Market
Added on 2020-02-24
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Running head: MICROECONOMICSMicroeconomicsName of the StudentName of the UniversityAuthor note
1MICROECONOMICSTable of ContentsQuestion 1........................................................................................................................................2Question 2........................................................................................................................................5Part I.............................................................................................................................................5Part II...........................................................................................................................................5Question 3......................................................................................................................................10References......................................................................................................................................12
2MICROECONOMICSQuestion 1a)050001000015000200002500030000350000100020003000400050006000Production Possibility CurveCarsBicyclesFigure 1: Production Possibility Frontier of Cars and Bicycles b) Production Possibility Curve shows maximum level of output that can be produced within theeconomy using all the resources (Mankiw 2014). Production Possibility curve also known asproduction possibility frontier is drawn based on the following assumption. Resources are fixed in an economy. However, the resources can be relocated; means in order toincrease output in one-industry resources must be drawn out of some other industry. Production Possibility Curve is drawn in a two goods framework. That is it assumes that usingall the resources the country can produce only two goods. The economy uses its fixed resources efficiently. Thus, points on production possibility curveshows efficient production points.
3MICROECONOMICSResources though moveable are however not equally efficient in producing all goods. This is thereason when resources are shifted from one industry to another inefficiency increases (Nicholsonand Snyder 2014).PPF is drawn assuming a constant level of technology. PPC has the following characteristics.i) PPC is downward sloping from left to right. Given limited resources, in order to increaseoutput of one good the country must sacrifice some other cost. This is called opportunity cost ofproduction.ii) PPF is concave in shape to the origin. The opportunity cost involved in production operationis increasing in nature. Not all resources are suitable for all industries (Findlay and Lundahl2017). Hence, more the resources are drawn from specialized industry to the other industry theopportunity cost increases. c) In PPC, if demand for both goods increases simultaneously then this indicates point outsidethe PPC, which is not feasible. The increased combination of cars and bicycles are obtained onlywhen there is a shift in PPF implying an expansion of output capacity. Exploration of newsource of resource causes an expansion of output of both goods. When there is improvement intechnology used in both the industry then production in both the industry increases.Specialization of resources to specific industries increases efficiency in resource use and henceincreases output of both goods. Newland can adapt either of the strategy to meet the newdemand.
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