Economics for Decision Making - Desklib

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

ECONOMICS FOR DECISION MAKING1
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................4
Answer 3....................................................................................................................................6
Answer 4....................................................................................................................................7
Answer 5....................................................................................................................................8
References................................................................................................................................10

ECONOMICS FOR DECISION MAKING2
Answer 1
(a) (i)
Choices
Production
possibilities
Grade (%) Work
(hours per week)
A
B
C
D
E
0
20
40
60
80
60
55
45
30
0
Figure 1: PPC of Joan
Source: (Created by the Author)
0 10 20 30 40 50 60 70 80 90
0
10
20
30
40
50
60
70
A B
C
D
E
Production Possibility Curve
Grade %
Work hours per week

ECONOMICS FOR DECISION MAKING3
(ii)
Curved shape of PPC occurs when opportunity cost is increasing and the PPC is
straight line when opportunity cost is constant. In figure 1, the PPC is curved and it is
observed that Joan has to give up 5 hours of work to increase first 20% of the grade and to
increase from 20 to 40% then Joan has to give up 10 more hours and it increases further
showing an increasing opportunity cost.
(iii)
Figure 2: Increasing grade % - constant opportunity cost
Source: (Created by the Author)
In figure 2, the PPC curve takes a straight-line shape and this happens due to constant
opportunity cost that means Joan has to give up 15 hours of work for every 20% rise in grade
percent (Kelly and Pevehouse 2015). This constant change in opportunity cost makes the
straight-line shape suitable for PPC
(iv)
A point inside the PPC is an inefficient point and gives lower level of outcome, thus if
Joan’s combination points of work hours and grades is inside the PPC then she will face loss.
0 10 20 30 40 50 60 70 80 90
0
10
20
30
40
50
60
70
A
B
C
D
E
Constant Opportunity Cost
Grade %
Work hours per week