Document on Microeconomics- PPF

Added on -2020-02-24

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Running head: MICROECONOMICSMICROECONOMICSName of the StudentName of the UniversityAuthors Note
1MICROECONOMICSTable of ContentsQuestion1.........................................................................................................................................2Question 2........................................................................................................................................4Question 3........................................................................................................................................9References......................................................................................................................................12
2MICROECONOMICSQuestion1a) Given the production capacity of Newland, the production possibility frontier (PPF) of carsand bicycle production is illustrated in the diagram below:01000200030004000500005000100001500020000250003000035000PPFPPFBICYCLESCARSFigure 1: The PPF curve for the production of Cars and BicyclesSource: (Authors creation)b) The PPF depicts a curve that represents two products maximum possible output given theinputs including resources. It also assumes that each input is efficiently used in the production.Some variables including labor, technology influences the available resources and this dictatesthe point where the PPF lies (Sloman et al. 2013). This curve signifies two products productionpossibilities when there are fixed resources. This denotes that production capacity of one productincreases owing to decrease in total production of another product. However, this curve helps inmeasuring efficiency of manufacturing two commodities at the same time.A
3MICROECONOMICSThe above figure reflects PPF of the manufacture of cars and bicycles. In this figure, point A andB on PPF curve indicates that the resources are efficiently allocated by the economy, while pointY represents inefficient utilization of resources. At point A, if the economy wants to manufacturelarge number of cars then it will have to give up those resources that are used for producingbicycles. On the other hand, point B denotes that if the nation starts to produce huge number ofbicycles then it must divert the resources that are utilized in manufacturing cars (Taussig 2013).Therefore, shifting from point A to point B, the nation will decline production of cars bynegligible amount as compared to rise in output of bicycle. Point Y represents that the resourcesof the nation are not allocated efficiently. This means that the nation is not manufacturing largenumber of cars and bicycles given the resource potential.The underlying assumptions of PPF are given below:Though the total amount of resources utilized in manufacturing products is fixed, it canbe relocated for producing one good to another (Rios et al. 2013).Technology used in the production of commodities is presumed to be fixed.Efficient utilization of resourcesThe economy can utilize same amount of resources for producing both the products andhence is shifted freely.The properties of PPF are given as under:PPF is negatively sloped – PPF is negatively sloped as change in total amount of oneproduct is inversely related with the change in amount of other product.

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