. Refer to the table below. Define opportunity cost and calculate the opportunit
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Question
. Refer to the table below. Define opportunity cost and calculate the opportunity cost of increasing the production of mobile phones from 500 to 900. Also calculate the opportunity cost of increasing the production of pizzas from 8,000 to 10,000 Mobile Phones Pizzas 10,000 200 8,000 500 6,000 900 4,000 1400 2,000 2000 2. Refer to the graph below. Define Production Possibility Frontier and identify the efficient points, inefficient points and discuss the possibility of points outside the PPF. 180 160--- 140 120 100 #5 60 40 20 20 40 60 80 100 120 140 160 180 appiesExplanation / Answer
Opportunity cost can be defined as the cost of the next best opportunity forgone.
It can be calculated as the = rate of change in X/ rate of change in Y
The opportunity cost of increasing the production of Mobile phones from 500 to 900 is (6000-4000 = 2000 pizzas).
The opportunity cost of increasing the production of pizza from 8000 to 1000 is (200-0 = 200 mobile phones).
A Production Possibility Curve is a downward sloping concave curve which shows all possible combinations of 2 goods and services that be produced with the given resources and technology.
R and U are the efficient points. The inefficient points are T and W. S and X are the points that can only be attained if there is an increase in the amount of resources or if there is an improvement of technology.
3. Positive statements are based on facts and are a more scientific approach to economics. Whereas normative statements are based on opinions and is based on value judgments of an Economist.
Positive Statement: The GDP growth rate of India is 7%.
Normative Statement: The GDP growth rate of India "should be" 7% with the current economic environment.
4. A circular flow diagram depicts the exchange of goods, services, money, and factors of production between the principal economic agents i.e the households and the firms. A is goods and services while B is the factors of production(labor). 1 is household while 2 is firms. The firms give out rent, wages, dividend to the factors of production, denoted by the second arrow from B, whereas expenditure by households is denoted by the second arrow of A.
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