Microeconomics: Supply, Demand & Taxes
Added on 2020-02-24
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Introduction to MicroeconomicsStudent ID:[Pick the date]
Introduction to MicroeconomicsQuestion 1a)The requisite PPF based on the given information is indicated below.b)PPF based on the above graph may be defined as a hypothetical curve which tends toindicate the various maximising output combinations that are possible if the availablefactors of production are utilised in an efficient manner. The various assumptions on which the PPF is based on are highlighted below.The resources or the various factors of production can be utilised only for productionof one or both of the products outlined in the PPF.There is no change in the available resources or else the PPF would change sinceproduction depends on the resources available.Further, it is also assumed that the production technique and underlying technologyremains static as improvement in the technology can increase the production beyondthe boundaries highlighted by the PPF.The available resources or factors of production are used in the most efficient mannerpossible under the above constraints.The various properties of PPF are highlighted below.
Introduction to MicroeconomicsPPF always slopes downwards which implies that to increase the production of oneparticular good, sacrifice would have to be incurred by reducing the production ofanother good so that there could be reallocation of resources.It is concave in slope which implies that the downward slope does not remain constantbut instead tends to increase as one goes downwards.c)Three ways in which the new demand can be met are highlighted below.The PPF could shift outwards to accommodate the increased demand if there is achange in the production process which can increase the overall productioncapacity. Since, change of production techniques typically happens over long term,the assumption for this solution is that such change is possible in the short term.The PPF could shift outwards to accommodate the increased demand if there is achange in the available resources such as capital and labour. Since, these changesare also normally long term, hence it is assumed that the same can be enabled inthe short term with the assistance of another nation perhaps.While continuing with the maximum possible production within the PPF, theeconomy can import the deficit amount of cars and bicycles from other countries.Since the resources are fixed, hence the underlying assumption is that the exporterwould be more efficient at production of these products than Newland. This wouldensure that even with the same resources, by deploying some resources to imports,the increased demand can be met. Question 2
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