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Macroeconomics: Product Possibilities and Opportunity Cost - Essay Example

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Macroeconomics Section One: a. Production Possibilities and Opportunity Cost The topic on Production Possibilities and Opportunity Cost is a major topic in chapter 2. The chapter addresses the topic based on PPF and marginal cost. Marginal cost is the extra cost incurred from producing of more of a commodity in the expense of another commodity…
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Macroeconomics: Product Possibilities and Opportunity Cost
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Macroeconomics: Product Possibilities and Opportunity Cost

Download file to see previous pages... This article is related to the topic on Production Possibilities and Opportunity Cost. According to the article, production of biofuels will create competition in allocation of resources resulting into a reduction in food production. The opportunity cost from inefficient allocation of resources will be evident as an increase in food prices. Production of biofuels has always remained a controversial issue. The commercial production of the biofuels has often been considered as a solution to the global energy problem. A closer analysis on the issue has proved that the expected energy solution might not be realistic. This issue relate Henshaw’s article to the economic problem that addresses the satisfaction of unlimited human wants with scarce recourses (Parkin 11). The topic on efficient production presents efficient production as a possible solution to the economic problem. According to the topic, production of biofuels in the expense of food appears to be an inefficient production. The inefficiency in production results from an inappropriate allocation of resources. Allocation of resources depends on the expected income and therefore people will be enticed to allocate more resources to production of biofuels instead of food. Section Two: a. ...
Expectation of future changes in price is one method that consumers apply to maximize value from their spending. Consumers will therefore spend more on a commodity to protect themselves from the expected high prices. The shift in demand indicated in the given demand curve may have resulted from a systematic increase in price of the commodity that made consumers to anticipate for future increase in prices leading to an increase in demand. b. Suppliers take their commodities to the market with the aim of obtaining maximum value form them. This implies that suppliers will dispose off their products at the maximum possible price. Suppliers are also affected by expected changes in prices and they respond by varying the prices of their commodities. In the given market supplier increased prices of their commodities to compensate for the opportunities they will lose due to expected low demand. c. None of the indicated scenario would lead to an increase in demand. In the first scenario, consumers will be cautious about consuming hamburger due to fear of infection and this will result in a reduction in demand. The second scenario indicates expected fall in price that does not imply an increase in demand. The third case indicates expectations of population decline implying a reduction in the number of willing buyers and this does not imply an increase in demand. Section Three: a. A fall in price resulting from a positive shift in supply is a normal occurrence in any market that characterizes the competitive behavior of supplier. An increase in supply implies availability of a variety for the consumers. Availability of variety creates competition among suppliers forcing them to reduce prices of their commodities as a survival strategy. b. A ...Download file to see next pagesRead More
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