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Running head: INTRODUCTION TO ECONOMICS
Introduction To Economics
Name of the Student
Name of the University
Course ID

1INTRODUCTION TO ECONOMICS
Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................4
Question 3..................................................................................................................................9
References list..........................................................................................................................12

2INTRODUCTION TO ECONOMICS
Question 1
a)
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
0
1000
2000
3000
4000
5000
6000
Production Possibility Curve
Cars
Bicycles
Figure 1: Production Possibilities Frontier of Newland
b)
Production Possibility Frontier or PPF is the graphical presentation of all attainable
combination of maximum amounts of two goods or services those can be produce with full
employment of available resources.
Production Possibility Curve of an economy is constructed based on the following
assumptions
i)An economy can only produce different proportion of two goods. For simplicity one good is
assumed to be capital good while other is consumer good (Sloman and Jones, 2017)
ii) The given resources in the economy can be used for production of any of the two goods or
both good or can be freely moved between them.

3INTRODUCTION TO ECONOMICS
iii) Resources are fixed in the economy. But resources can be re-allocated from one industry
to other.
iv) The technology of production is given and fixed.
v) Resources are employed fully and efficient technically.
The main properties of PPF are as follow
i)PPF is concave or bowed outward from origin. The reason for concave shape of PPF is the
increasing opportunity cost.
ii) The slope of PPF is negative (Hill and Schiller, 2015) This is because given limited
resource to increase production of one good the economy need to sacrifice production of
other.
iii) Any point on the PPF is associated with full employment and efficient use of the
technology. Point lying inside the PPF shows inefficient production point.
c)
In Newland, there is a sudden increase in demand for both cars and bicycles. The output
combination of 4000 bicycles and 20000 cars represent point outside the PPF. In order to
attain such a point PPF of the economy needs to be shifted. This is possible if the economy
can find additional shared resource. For example, if capital or labor grows overtime then a
higher output for both the industry can be achieved (Cowen and Tabarrok, 2015) The second
possible way is access to an improved technology, Technological innovation can increase
production of both cars and bicycles and hence, new demand can be met. A third possible
way is more efficient use of existing resource by specialization of input.