Economics: Production Possibility Curve, Supply and Demand, Surplus, Elasticity, Cost and Revenue

ECONOMICS
STUDENT ID:
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ECONOMICS
Question 1
a) i) The production possibility curve for Joan is indicated below.
ii) The shape of the PPC is not linear but outward sloping which is indicative of the
increasing opportunity cost. This implies that there is an increasing opportunity cost attached
for every incremental increase in the production of the a particular good. This opportunity
cost is in the form of decrease in the production of the other good (Arnold, 2015).
In the given case, to increase the grade from 0% to 20%, the opportunity cost is 5 hours per
week. However, in order to enhance the grade from 20% to 40%, the opportunity cost
increases to 10 hours per week. As the grade increases still higher, the opportunity cost still
increases which is reflected in PPC shape.
iii) If the opportunity cost of increasing the grade was constant, then the PPC would be linear
as highlighted below.

ECONOMICS
The outwards sloping PPC is more likely shape since the opportunity cost does not remain
constant for incremental increases and same is reflected in this particular shape of PPC
(Mankiw, 2014).
iv) If the combination of grades and work is below the PPC indicated in 1a(i), then it implies
that Joan is not using her resources at 100% efficiency as a result of which the total output is
lower than at any point on the PPC which indicate maximum output possible given the
resources (Krugman and Wells, 2014).
v) In order to push beyond the current curve, there needs to be an improvement in resources
such as using technology as an aid to improve learning.. Additionally, seeking help from
friends, colleagues etc may also allow her to push beyond the current PPC (Nicholson and
Snyder, 2014).
b) With regards to scarcity, supply is just one aspect. Scarcity is caused when the demand is
greater than the supply. An additional factor is the price at which the underlying good is sold.
In this context, even though there has been a bumper crop, it is still possible that the demand
may still outstrip the supply at the market price. Also, it depends on other factors such as
global demand and supply as if there is global scarcity of wheat, a portion of the produce may
be diverted to exports, thus causing scarcity at home. Thus, solely on bumper production,
conclusions about scarcity should not be reached (Arnold, 2015).

ECONOMICS
Question 2
a) Since the supply of solar power capacity could double hence, the supply curve would shift
as indicated below.
As indicated in the diagram above, there is a shift in supply curve from S1 to S2 owing to
which there is a drop in the equilibrium price from P1 to P2 in the short term. Additionally,
the equilibrium quantity has also increased from Q1 to Q2 (Mankiw, 2014).
b) Owing to doubling of capacity and falling prices as indicated above, over a period of time
the demand would increase which would lead to slight increase in the prices. This is
because the lowering of prices on account of higher supply will make solar energy more
competitive to other sources of power. This is indicated below (Nicholson and Snyder,
2014).
In the above diagram, there is a shift in the demand curve from D to D1 and hence the price
returns back to the original price while demand is retained at the higher level.
c) Coal Fired Power Electricity Industry