Economic Principle and Decision Making - Desklib

Running head: ECONOMIC PRINCIPLE AND DECISION MAKING
Economic Principle and Decision Making
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ECONOMIC PRINCIPLE AND DECISION MAKING1
Table of Contents
Answer to Module: 1- Part: 1..........................................................................................................2
Answer to Module: 1- Part: 2..........................................................................................................3
Answer to Module: 2- Part: 1..........................................................................................................5
Answer to Module: 2- Part:2...........................................................................................................6
Answer to Module: 3-Part: 1...........................................................................................................9
Answer to Module: 4- Part: 1........................................................................................................10
Reference List................................................................................................................................12

ECONOMIC PRINCIPLE AND DECISION MAKING2
Answer to Module: 1- Part 1
For an individual who earns $250 per week, cheaper food options could be noodles. A
normal good is one where the demand for the product is rising due to an increase in income of
the person. There is positive relationship between demands for the good with rise in income of
the consumer. However, it is already mentioned that the individual considers noodles as a cheap
option for food (Allcott, Mullainathan & Taubinsky, 2014). Then noodles would not be
considered as a normal good and rather be an inferior good where demand goes down due to a
fall in demand of the good. The demand for noodles will go down and the demand curve will
show a rightward shift from its initial level.
Price S0
D1 D0
Q1 Q0 Quantity
Figure 1: Effect of change in demand of the individual due to an increase in income
Source: (Gillespie, 2014)

ECONOMIC PRINCIPLE AND DECISION MAKING3
The demand of the individual will change that would not have any impact on the market
demand (Pratt, 2016). Supply curve is upward sloping because the quantity supplied and price
are positively related (Varian, 2014). Initially the demand and supply curve is D0 and S0
respectively. When demand goes down, the individual demand curve shift leftwards and comes
to D1 that has no effect on the price and quantity in the market. The equilibrium quantity
demanded by the individual will decrease. The supply will remain as it is in S0 position. The
quantity demanded will go down from level Q0 to Q1 (Pigou, 2017).
Answer to Module: 1- Part 2
The production possibility frontier (PPF) gives a clear understanding of the amount of
two goods that is produced in a country. It is a curve mostly used in the analysis of a business
where there are fixed availability of resources and the increase in production of one good leads to
a decrease in the production of other good within a specific time frame. Opportunity cost is
defined as the best alternative that has to be chosen among the available options in order to
utilize the resources efficiently (Png, 2013).
The slope is bowed out which is related to the law of increasing opportunity costs. When
the economy produces more of the same type of product by devoting its resources to the same
kind, the efficiency level of the economy decreases. The PPF shows the highest level of output
produced in an economy, company or firm when all the input resources are efficiently allocated
which depends on the choice and decision of the consumer according to opportunity cost. The
point on the PPF denote efficient allocation of resources. Any point inside it, denotes inefficient
usage of available resources and supply needs to be increased by using the unused resources or to
allocate them efficiently.