Decision Making in Economics

Running Head: DECISION MAKING IN ECONOMICS
Decision Making in Economics
Name of the Student
Name of the University
Student ID

1DECISION MAKING IN ECONOMICS
Table of Contents
Answer 1..........................................................................................................................................2
Answer a......................................................................................................................................2
Answer b......................................................................................................................................4
Answer 2..........................................................................................................................................4
Answer a......................................................................................................................................4
Answer b......................................................................................................................................5
Answer c......................................................................................................................................7
Answer 3..........................................................................................................................................9
Answer a......................................................................................................................................9
Answer b....................................................................................................................................10
Answer c....................................................................................................................................11
Answer 4........................................................................................................................................11
Answer a....................................................................................................................................11
Answer b....................................................................................................................................12
Answer c....................................................................................................................................12
Answer 5........................................................................................................................................12
Answer a....................................................................................................................................12
Answer b....................................................................................................................................14
References......................................................................................................................................15

2DECISION MAKING IN ECONOMICS
Answer 1
Answer a
i.
0 10 20 30 40 50 60 70 80 90
0
10
20
30
40
50
60
70
Production Possibilities
Grade
Works per hour
Figure 1: Production Possibility curve for Joan
ii.
Opportunity cost in economics is defined as the cost of sacrificing units of one commodity to
obtain one additional unit of other (Baumol and Blinder 2015). For Joan, in order to increase
percentage of grade from 0 to 20 percent 5 hours of work needs to be sacrificed. Increasing
grades from 20 percent to 40 percent 10 hours of work need to be sacrificed. Number of work
hours sacrificed increases as Joan goes for more and more grades constituting an increasing
opportunity cost.
iii.

3DECISION MAKING IN ECONOMICS
If the opportunity cost of Joan increases her grade was constant regardless of how many hours
she worked then production possibility curve will be a downward sloping straight line.
The first shape which gives the PPF as convex to the origin is more likely as compared to the
second one. This is because in real world, it is unlikely to have the opportunity cost to be
increases at a constant rate (Sloman and Jones 2017).
0 10 20 30 40 50 60 70 80 90
0
10
20
30
40
50
60
70
Production Possibilities
Grade
Hours of work
Figure 2: Production Possibilities with constant opportunity cost
iv.
The point below the production possibility curve indicates inefficient allocation of resources.
This shows combination of grades and work hours that are feasible but does not ensure best
allocation of Joan’s time.
v.