Economics for Decision Making - Study Material and Solved Assignments

Running Head: ECONOMICS FOR DECISION MAKING
Economics for Decision Making
Name of the Student
Name of the University
Course ID

1ECONOMICS FOR DECISION MAKING
Table of Contents
Answer to question 1.......................................................................................................................2
Answer a......................................................................................................................................2
Answer b......................................................................................................................................3
Answer to question 2.......................................................................................................................4
Answer a......................................................................................................................................4
Answer b......................................................................................................................................4
Answer c......................................................................................................................................7
Answer to question 3.......................................................................................................................8
Answer a......................................................................................................................................8
Answer b......................................................................................................................................9
Answer c....................................................................................................................................10
Answer to question 4.....................................................................................................................10
Answer a....................................................................................................................................11
Answer b....................................................................................................................................11
Answer c....................................................................................................................................11
Answer 5........................................................................................................................................11
Answer a....................................................................................................................................11
Answer b....................................................................................................................................13
Reference list.................................................................................................................................14

2ECONOMICS FOR DECISION MAKING
Answer to question 1
Answer a
i)
0 10 20 30 40 50 60 70 80 90
0
10
20
30
40
50
60
70
Producti on Possibiliti es
Grade
Works per hour
Figure 1: Production possibility curve of Joan
ii)
Opportunity cost is said to be increasing when people has to sacrifice more and more units of one
commodity to have one additional unit of other (Mankiw 2014). For Joan, increasing grades
involves sacrifice of more and more hours of work per week. For example, first 20 percent grade
has an opportunity cost of 5 work hours. The opportunity cost for grade of 40, 60, 80 are 10, 15
and 30 respectively which shows an increase in opportunity cost for a higher and higher grade.
iii)
A constant opportunity cost for grades produce a linear production possibility curve as shown in
figure 2

3ECONOMICS FOR DECISION MAKING
0 10 20 30 40 50 60 70 80 90
0
10
20
30
40
50
60
70
Producti on Possibiliti es
Grade
Hours of work
Figure 2: Constant opportunity cost and production possibility curve
The first PPF of concave shape is more likely to be obtained in real world. As resources
are not perfect substitute of each other moving resources from one alternative to another
increases the opportunity cost and hence makes production possibility to be concave (Bumas
2015).
iv.
Points below the plotted curve represent feasible but inefficient allocation of Joan’s time
between grades and work hours.
v.
The only way to push combination of grade and work hours is to increase the available time for
allocating more time for both grades and work hours by reducing time spent for leisure.
Answer b