Law of Demand and Law of Supply - Assignment Example

The salary of the baseball player is dependent on everything that involves baseball, such as the tickets bought by people or the drinks that people buy while watching the game. If people buy a lot of drinks or many tickets are sold, the players’ salary increases. If there are only a few people who buy the tickets or the drinks, the players’ salary decreases.

Questions 1 to 6: Key Terms & Economic Concepts (page 3)

Q.1.     When there is underutilization, a country uses fewer resources than those that it can use. The production possibilities frontier is that line on the production possibilities graph that indicates the maximum possible output.

2. 2. The Product Possibilities Curve abbreviated as PPC shows the optimum production level that economies can attain. For example, if a person compares the main level of production for an economy, with the actual curve, it is possible to determine the economy’s efficiency.
3. 3. Opportunity cost is demonstrated when making a comparison between data on different points on the production possibilities frontier. When the production of an element goes up, the curve on the PPC shows the production curve decreasing.
4. 4. If there is a decrease it does not mean that the production possibilities for the farm’s output have decreased. If the decrease in farms was higher than the production possibility then the farm output would increase and vice versa.
5. 5. If a computer is invented, its impact on the PPC would be to move it, therefore the output of factory goods would increase.

If there were a million unemployed farm workers, the production possibilities curve is likely to move inwards as the farm and factory goods decrease.

A drought would result in the production possibility curve moving inwards because there would be a decrease in factory gods and farm goods.

6. 6. Certain events such as natural disasters for example, floods, and hurricanes are likely to move the PPC down and to the left because there would be a reduction of productivity in the economy since most businesses are in operation.

If the frontier shifts to the right, it would mean that all the points in the PPC are producing since they are a section of the production aspects.

Questions 1 to 7: Key Terms (page 4)

1. Fixed Cost

1. Marginal Revenue

1. Excise Tax

1. Elasticity of Supply

1. Subsidy

1. Law of Supply

1. Marginal Cost

Questions 1 to 5: Key Terms & Economic Concepts (page 5)

1. 1. In the law of supply, the suppliers tend to supply more goods at high prices.
2. 2. a). The difference between supply and quantity supplied is that quantity supplied is the number of goods that a supplier wants and can supply at a specific price.

b). Supply is dependent on the choices made by suppliers in a market.

3. 3. The quantity supplied of a good reacts to price changes because of the large elasticity which makes it sensitive to change.

Q.4.     The increase in oil around the world will lead to an increase in oil production in Texas based on the law of supply.

5. 5. The supply of hotel rooms and taxi rides is elastic but the supply of photographs is inelastic

Questions 1 to 6: Key Terms & Economic Concepts (page 6)

1. 1. The marginal product of labor changes as more people are hired because the output changes.
2. 2. The impact of diminishing marginal returns on labor is that businesses are likely to reduce production to cater to every worker who is hired.
3. 3. An excellent example of a FC is the monthly rent paid by the bakery and VC will be the water bill that the bakery pays.
4. 4. For a business to calculate the marginal costs it has to keep a record of the variable and fixed costs.
5. 5. The first factory to experience diminishing returns will be the bigger factory because it has more workers.
6. 6. Repairing a leaking roof and paying the night security guard are fixed costs because the payment does not change despite the events surrounding the expenses. Cotton, food, and electricity at the mill are variable because they always change.

Questions 1 to 5: Key Terms & Economic Concepts (page 7)

1. 1. A subsidy is used by an economy to reduce its suppliers’ production costs temporarily: therefore it increases the supply of an economy.
2. 2. Governments impose excise taxes as a way of getting revenue or taxes.
3. 3. Regulations affect the output decisions of producers because they may make it too expensive or cheaper. For example, companies will not continue to supply if the regulations support the expensive decisions.
4. 4. If the government wanted to change the mining industry the best way would be to introduce regulations that cause a reduction in production.
5. 5. If the American government raised the minimum wage of the workers making backpacks to$40 per hour the supply of products would reduce.