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Introduction to Economics

   

Added on  2023-04-21

14 Pages1837 Words431 Views
Economics
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Running head: INTRODUCTION TO ECONOMICS
Introduction to Economics
Name of the Student
Name of the University
Course ID
Introduction to Economics_1

1INTRODUCTION TO ECONOMICS
Table of Contents
Answer 1..........................................................................................................................................2
Answer a......................................................................................................................................2
Answer b......................................................................................................................................2
Answer c......................................................................................................................................3
Answer 2..........................................................................................................................................4
Answer a......................................................................................................................................4
Answer b......................................................................................................................................4
Answer c......................................................................................................................................5
Answer d......................................................................................................................................6
Answer e......................................................................................................................................6
Answer f.......................................................................................................................................9
Answer 3..........................................................................................................................................9
Answer a......................................................................................................................................9
Answer b....................................................................................................................................10
Answer c....................................................................................................................................11
References......................................................................................................................................13
Introduction to Economics_2

2INTRODUCTION TO ECONOMICS
Answer 1
Answer a
0 1000 2000 3000 4000 5000 6000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Production Possibility Curve
Bicycles
Cars
Figure 1: Production Possibility Frontier for cars and bicycles production
Answer b
PPF
PPF refers to the frontier representing various combination of goods or services that can
produced an economy by using all the resource in an efficient manner with fixed technology of
production. Production possibility frontier is drawn by considering the trade-off faced by an
economy due to scarcity of resources (Myers 2016). The construction of production possibility
curve is based on the following assumption.
The first important assumption of PPF is that the given economy is able to produce only
two products or services. Two-dimensional framework is used for the construction of
PPF.
Introduction to Economics_3

3INTRODUCTION TO ECONOMICS
PPF is based on the assumption that an economy has fixed resources. Because of the
fixed resources, the economy faces the problem of scarcity. This addresses the possible
change in the economic growth following any change in resources.
The next vital assumption is that the economy possesses fixed technology. Every
economy has a fixed level of knowledge about production or technology. PPF is
constructed depending on ability of the economy to produce two goods with this fixed
technology.
Another assumption behind PPF is that the economy uses all of its resources in a
technically efficient manner (Stiglitz and Rosengard 2015). That means, in the production
process there is no loss of resources. Hence, the economy attains maximum feasible
output.
PPF has the following properties
PPF slopes downward. The negative slope of PFF implies increasing production of one
good means reduction in production of some other. This is known as opportunity cost of
production.
Along the PPF, the marginal rate of transformation between the two good is increasing in
nature (Green 2015). This implies as the economy choses to produce more nits of one
good it has to forgo more and more of the others.
Following increasing marginal rate of transformation or increasing opportunity cost of
resources, PPF bowed outward or shaped concave to the origin.
Any point on the PPF shows feasible and efficient level of production. Points inside the
PPF are inefficient.
Answer c
Introduction to Economics_4

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