Economics Problems Set 1 Essay

1368 words - 6 pages

MBA-FP6008: Assessment 1, Economics Problem Set 1
Dennis J. Johnson
Capella University

Problems A, B, and C


This assessment will be an analysis of graphed data and changes in supply and demand for three economic problems. Problem A involves production possibilities for consumer and capital goods, problem B is an evaluation of changes in supply and demand equilibrium, and finally, problem C involves pricing with relevance to supply and demand. Successful completion of this assessment demonstrates proficiency in; applying theories, models, and practices of economic theory, analyzing solutions with support from relevant data, resources, references, and ...view middle of the document...

The shape of the production possibilities curve reflects the law of increasing opportunity costs it illustrates the balances and imbalances within the production of consumer and capital goods.
3. If hypothetically the economy were producing only1 butter and 10 guns, it could be concludes increasing opportunity cost, because when the graph moves from A to E, it must give up larger amounts of butter to acquire equal amounts of guns. This is shown through the slope of the production possibilities curve, which gets steeper as we move from A to E (McConnell, Brue, Flynn, 2015)
4. Production outside the production possibility curve would currently be unattainable. The production that is attainable is inside of, on the shape of, or on the line of the curve. Technological changes such as production methods, could allow for attainability of production outside of the curve, as technological advancements may allow production of more guns and butter. International trade permit consumption also allows for production beyond the possibilities curve, in that the country being traded to may specialize in guns and butter. We could trade something that we produce at a very low opportunity cost, therefore making production of guns and butter cost less. (McConnell, Brue, Flynn 2015)

Problem B.
Evaluate each of the following changes in supply and/or demand. How will each affect equilibrium price and quantity in a competitive market? Will price and quantity rise, fall, or be unchanged? Based on shifts, will the answers be indeterminate?
1. Supply decreases and demand is constant.
Answer: According to the law of supply and demand, a decrease in supply will most always cause an increase in equilibrium quantity, but since demand is constant with no relative change, equilibrium price is indeterminate.
2. Demand decreases and supply is constant.
Answer: According to the law of supply and demand, since a decrease in demand, and an increase in supply renders the effect on equilibrium quantity indeterminate with a reduction in equilibrium price…… and since a decrease in both demand and supply decreases equilibrium quantity and renders equilibrium price indeterminate, it can be concluded that the effect on both equilibrium quantity and equilibrium price are indeterminate.
3. Supply increases and demand is constant.
Answer: According to the law of supply and demand, since an increase in supply and a decrease in demand renders the effect on equilibrium quantity indeterminate and decreases the equilibrium price….and since an increase in supply and an increase in demand increases equilibrium quantity, yet renders an indeterminate effect on equilibrium price, it can be concluded that the effect on both equilibrium quantity and equilibrium price are indeterminate.

4. Demand increases and supply increases.
Answer: According to the law of supply and demand, if the increase in demand is greater than the increase in supply, the equilibrium price...

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