Micro and Macro-economics Name: Institution: Course: Tutor: Date: Micro and Macro-economics questions and answers Lesson 1: Foundations of economic thinking 1. A small county produces two goods: automobiles (consumer goods) and forklifts (capital goods). Points on a production possibilities curve can be shown in a table: A B C D E Automobiles 0 10 20 30 40 Forklifts 70 60 45 25 0 a).Show these data graphically…
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The horizontal movement represents all the resources that were used to come up with automobile while vertical movement represent all resources that were used to come with the forklifts. Additionally, the graph represents a trade off that may exist when resources are shifted to either automobile or fork lifts. This is usually done when resources are fully employed given the fact that technology and institutions remain constant (Tucker, 2011). Given all the above conditions, out potential for the two products may be able to be achieved at any point on the curve (Tucker, 2011). The law of increasing opportunity coast states that, when technology and resources are held constant, opportunity cost increases as the production of one out increases (Tucker, 2011). In this case, the production possibility curve above exhibit the law of increasing opportunity cost because production possibility curve above displays a convex shape (Tucker, 2011). ...
Therefore, based on the above assessment it can be scrutinized that the production possibility curve above exhibit the law of increasing opportunity cost (Tucker, 2011). b) If the economy is at point C, what is the opportunity cost of 10 more automobiles? (5 points) If the hypothetical economy is at point C, the economy must sacrifice 20 units of automobile in order to produce 45 additional units of forklifts this is because movement along the vertical axis led to an increase in number of automobile units being sacrificed in order to produce additional units of fork lifts. On the other hand, a downward movement below point C along the vertical axis leads to an increase in number of additional units of automobile being produced as more and more units of forklifts are being sacrificed(Tucker, 2011). C) If the economy is characterized by this production possibilities curve and is producing 10 automobiles and 40 forklifts, what can you conclude about its use of its available resources? (5 points) When this economy produces 10 automobiles and 40 forklifts, it is an indication that, the hypothetical economy must sacrifice 10 units of automobile in order to produce 10 units of folk lifts. On the other hand, the economy must sacrifice 40 units of forklifts to produce 10 units of automobile. At this point of production we can say that economy is it’s attainable and efficient because the resources are fully employed while technology is held constant (Tucker, 2011). d) Is production at a point outside of the production possibilities curve currently possible? Could a future advance in technology allow production beyond the current production possibilities curve? Could international trade allow a country to consume beyond its current production possibilities
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