Economics and Production Possibilities Curve

Soha Oean problem 1 Using both a graph or instrument panel (Refer to page 22 for help with graphs and dodges) riding habit two goods to construct a fruit possibilities bias. Clearly explain what a sort of incompatible points on the curve mean. What would defend the curve expand or hire? Why is efficiency lost at the extremes, as when substanti anyy more of sensation good and very little of other is germinated? Answers- To construct this curve we need quaternion assumptions- 1-The thriftiness arrives just two goods warning Cars and Tractors. 2-There is finite amount of resources available moral land, labor and capital. -The resources be used efficiently. 4-The methods of employment that ar used does non transfigure or technology does not vary. The takings possibilities curve testament be reformative in understanding the need to watch choices and the role of opportunity cost when resources be s cable carce. In our example Tractors and Cars as the economy t wo goods, if society decided on producing only Tractors the production word of farewell build its maximum level. In the other eliminate the cars production lead be zero. bingle Tractor =2 Car, the opportunity cost of producing peerless(prenominal) Tractor is 2 cars. That takes more time and resources to produce one Tractor than car.By looking at the table A or graph A, we permit an inverse relationship because the two variables change in oppo settle swayion, 1 Tractor = 2 Cars. When car number decrease, Tractor no gain, and when car number increase, tractors number decreases. The six selective information points in the table A are plotted in the graph. Observe that an inverse relationship always graphs as a down sloping line. (McConnell,2012 ). bend depart expand when 2 goods are produced efficiently example if I chose to produce one Tractor and 2 cars then we are producing less than our capacity even though we consume the resource to produce more.Basically what make s the curve expand is when there are grows in economy its production possibilities curve will expand because more stool be produced conversely, the production possibilities curve will occupy with economic growth meaning less can be produced. When we shift our resources toward devising only tractor or only car, if we increase the cars only than the Tractors , then the production will be less efficient and we assimilate utmost opportunity cost because it can cost a lot higher to reallocate resources than simply handing over the coat that was meant for tractors to the care manufacture. Applying the Production Possibilities Model) Supply reflects the bare(a) cost (CM) of producing the good. The market ensures that firms produce all units of goods for which MB exceeds MC and no units for which MC exceeds MB. At the intersection of the demand and picture curves, MB equals MC and allocative efficiency results. (McConnell pg. 59) duck A Points TractorsCars A010 B18 C26 D34 E42 F 50 Graph A pen Applying the Production Possibilities Model Free television receiver (n. d. ). Retrieved from http//education-portal. com/academy/lesson/applying-the-production-possibilities McConnell? Brue? Flynn Microeconomics Principles n. d. ). Retrieved from http//www. scribd. com/doc/26127377/McConnell%E2%88%92Brue%E2%88%92Flynn-Microeco Problem 2 Part A Go to the internet auction site eBay at www. ebay. com and select the category jewelry and Watches, followed by Loose Diamonds and Gemstones, and then Diamonds, Natural. How many another(prenominal) natural rhombuss are for sale at the moment? Note the wide mightiness of sizes and harms of the baseball fields. In what sense is there contender among the sellers in this market? How does that contention incline charges? In what sense is there controversy among buyers? How does that competition influence expenditures?Answers- Active listings are 726,550 as of 10/26/2012 at 154pm. Sellers are ratings play a big part in this competition as well as direct reputation. Reputation is a powerful force to make firms behave well, even when they narrow highly complicated products. Whenever there are many buyers and few sellers price will rice. The limited supply of infields is also controlled by a few titanic companies. umteen have argued that these companies have supported high prices by artificially limiting supply. great competition among the major jewelry suppliers may lead to lower prices. ( Diamond grading and Buying usher).The demand for diamond is broadly measured in relation to the manufacturing capacity, at the moment there is a manufacturing over- capacity. In the medium to short term, there will be inadequate natural diamond available. (Diamond Grading and Buying Guide) Sellers compete in price which is varying according to diamonds quality, color, clarity, cut and size. There are over 16,000 different polished diamond prices. Since price is located by supply and demand, then the re are many sellers and buyers similar products are supposed to be identical. All sellers and buyers have full knowledge of market conditions and sellers nd buyers can enter the market or leave the market at will. If large quantities of Diamonds were suddenly found and was available for sale, price of diamonds would fall. Diamond Grading and Buying Guide Jewelry by LuShae. Insert mark of Site in Italics. N. p. , n. d. Web. 30 Oct. 2012 . Problem 2 Part B fall upon what would happen if an outside agency obdurate the prices eBay could charge. I believe the idea for having eBay is to be able to find a wrap up and to bargain with customers you would normally not be able to interact with because of the cost of depart and business to locate these items.All of these economic actors recruit in the market in array to achieve specific goals. Consumers aim to increase their own happiness businesses attempt to increase profits and government agencies try to maximise social welfare. Foreigners pursue these same goals as producers, consumers or government agencies. In every case, they pursue to achieve these goals by buying the best possible mix of services, goods or factors of production. If an outside agency try to check over the eBay price, example a ceiling price this lower price seemingly makes diamond more affordable for everyone, including the poor.But what about the sum of money of diamond supplied? Diamond controls do not increase the number of diamonds available. On the contrary, price controls tend to have the opposite effect. determine ceilings have three predictable effects they- Increase the beat demanded. Decrease the quantity supplied. Create a market shortage. (Supply and Demand) just about suppliers simply decided that selling their diamond was no longer worth the effort. They decided, instead, to leave the market. Other suppliers will sell seamy and less quality diamonds, Slowly just surely the quantity of