Economics and Production Possibilities Curve

Soha Oean Problem 1 Using either a represent or table (Refer to page 22 for help with represents and tables) use 2 goods to remodel a take possibilities curve. Clearly explain what a salmagundi of different points on the curve mean. What would make the curve hold out or contract? Why is efficiency lost at the extremes, as when easily to a greater extent of whiz good and very little of another is catchd? Answers- To construct this curve we need four assumptions- 1-The economy produces just two goods interpreter Cars and Tractors. 2-There is finite amount of resources available example land, labor and capital. -The resources ar utilize efficiently. 4-The methods of production that be used does not change or engine room does not change. The production possibilities curve ordain be helpful in understanding the need to make choices and the role of prospect cost when resources argon scarce. In our example Tractors and Cars as the economy two goods, if society resolved on producing only Tractors the production will hit its maximum level. In the other hand the cars production will be zero. One Tractor =2 Car, the opportunity cost of producing one 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 have an inverse relationship because the two variables change in turnabout at onceion, 1 Tractor = 2 Cars. When car spot decrease, Tractor no increase, and when car number increase, tractors number decreases. The six data points in the table A be plotted in the graph. Observe that an inverse relationship always graphs as a down sloping line. (McConnell,2012 ). Curve will 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 level off though we have the resource to produce more.Basically what makes the curve expand is when there are grows in economy its production possibilities curve will ex pand because more can be produced conversely, the production possibilities curve will contract with stinting growth meaning less can be produced. When we shift our resources toward making only tractor or only car, if we increase the cars only than the Tractors , then the production will be less efficient and we have exalteder opportunity cost because it can cost a lot higher to apportion resources than only if handing over the metal that was meant for tractors to the care manufacture. Applying the end product Possibilities Model) Supply reflects the borderline cost (CM) of producing the good. The food trade 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 request and supply curves, MB equals MC and allocative efficiency results. (McConnell pg. 59) Table A Points TractorsCars A010 B18 C26 D34 E42 F50 Graph A Reference Applying the Production Possibilities Model Free Video (n. d. ). Retrie ved 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 sale site eBay at www. ebay. com and select the category Jewelry and Watches, followed by unfastened baseball fields and Gemstones, and then Diamonds, Natural. How many natural diamonds are for sale at the aftermath? Note the wide array of sizes and prices of the diamonds. In what sense is there competitor among the sellers in this market? How does that competition influence prices? In what sense is there competition among buyers? How does that competition influence prices?Answers- Active listings are 726,550 as of 10/26/2012 at 154pm. Sellers are ratings play a walloping part in this competition as well as direct reputation. Reputation is a powerful force to make firms behave well, even when they supply highly complicated products. Whenever there are many buyers and fewer sellers price will rice. The limited supply of diamonds is also controlled by a few large companies. Many have argued that these companies have supported high prices by artificially limiting supply. Greater competition among the major jewelry suppliers may lead to lower prices. ( Diamond Grading and Buying Guide).The demand for diamond is generally measured in relation to the manufacturing capacity, at the flash 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 fence 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 determined by supply and demand, then there 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 move on 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 attain of Site in Italics. N. p. , n. d. Web. 30 Oct. 2012 . Problem 2 Part B Describe what would happen if an outside agency determined the prices eBay could charge. I study the idea for having eBay is to be able to find a deal and to mess with customers you would normally not be able to interact with because of the cost of croak and business to locate these items.All of these economic actors participate in the market in order to achieve specific goals. Consumers aim to maximize their own contentment businesses attempt to maximize profits and government agencies try to maximize companionable welfare. Foreigners pursue these same goals as producers, consumers or government agencies. In both case, they pursue to achie ve these goals by buying the best possible immingle of services, goods or factors of production. If an outside agency try to determine the eBay price, example a ceiling price this lower price seemingly makes diamond more affordable for everyone, including the poor.But what about the amount of diamond supplied? Diamond controls do not increase the number of diamonds available. On the contrary, price controls tend to have the opposite word effect. Price ceilings have three predictable effects they- Increase the quantity demanded. Decrease the quantity supplied. Create a market shortage. (Supply and Demand) Some suppliers simply decided that selling their diamond was no longer worth the effort. They decided, instead, to leave the market. Other suppliers will sell cheap and less quality diamonds, lento but surely the quantity of