ECON6000 Economic Principles and Decision Making System - Free Samples
Problem A:
Schmeckt Gut has several production facilities in Industria with different production capacities. In
District B we are producing both of our energy bars: The Schmeckt Gut Energy Bar and Schmeckt Gut
2.0. The table below summarises our production capacity:
Table 1 – District D production capacity
Schmeckt Gut Energy Bar Schmeckt Gut 2.0
30,000 0
28,000 1,000
24,000 2,000
18,000 3,000
10,000 4,000
0 5,000
- Using the above figures and Microsoft Excel, map out the Production Possibilities Frontier (PPF) for the production of the Schmeckt Gut Energy Bar and Schmeckt Gut 2.0.
Hint A: If you are unsure how to use Microsoft Excel, review the Module 1 Learning Activities and try to replicate the examples.
Hint B: If you are unsure how to create the PPF with the help of Microsoft Excel, do a quick google search.
- In your own words, while making use of the graph that you have created in part 1, explain what the PPF is.
- District D usually has a demand of 3,000 Schmeckt Gut 2.0 and 18,000 Schmeckt Gut Energy Bars. Suddenly we receive notice that the demand has increased to 4,000 Schmeckt Gut 2.0 and 20,000 Schmeckt Gut Energy Bars.
- Discuss and explain at least three possibilities how we could meet that demand. Hint: Make appropriate assumptions.
- For each solution that you have identified and discussed above, explain whether or not your solution is sustainable.
Problem B:
At a local market in Industria, the following demand and supply information are given:
Demand for energy bars: ! = 800 − 2'(
Supply for energy bars: ! = 200 + 1'+
- What are the market equilibrium price and quantity?
- If the subsequent price increases by $1, how does demand and supply change? Explain with the help of the concepts of the law of demand and supply.
Answer:
Question: 1. Using the above figures and Microsoft Excel, map out the Production Possibilities Frontier (PPF) for the production of the Schmeckt Gut Energy Bar and Schmeckt Gut 2.0.
1) The relevant PPF as drawn using Excel is shown as follows.
Question2: In your own words, while making use of the graph that you have created in part 1, explain what the PPF is.
2) It is representative of the possible output combinations for the two goods provided assuming that the underlying resources are used optimally. Hence, with the resources at hand, it is not possible to achieve any production level which lies outside the boundary indicated by PPF. Thus, if one desires to produce more than 5000 units of Schmeckt Gut 2.0, then the same canoe be achieved as it lies outside the PPF.
Question 3: District D usually has a demand of 3,000 Schmeckt Gut 2.0 and 18,000 Schmeckt Gut Energy Bars. Suddenly we receive notice that the demand has increased to 4,000 Schmeckt Gut 2.0 and 20,000 Schmeckt Gut Energy Bars. a. Discuss and explain at least three possibilities how we could meet that demand. b. For each solution that you have identified and discussed above, explain whether or not your solution is sustainable
3) It is apparent that the new demand tends to exceed the maximum possible output in accordance with the PPF since it is apparent that with 4000 Schmeckt Gut 2.0 production, not more than 10000 Schmeckt Gut Energy Bar units can be produced while the demand is 20000 units. Thus, there is shortfall and require measures to be taken for meeting the higher demand (Dombusch, Fischer & Startz, 2016).
- a) 1) The technology involved in production may be improved through deployment of machines thus leading to higher production.
2) Increasing the resources (capital, labour, land) devoted to the production of the two products, so that the desired output level can be achieved within the given time frame.
3) The shortfall can be met though imports from neighbouring nations assuming that surplus are available.
- b) The underlying sustainability associated with the proposals is highlighted as follows.
1) The technological change would be sustainable as once enacted it would keep the higher production for future time period also.
2) The resource addition may be sustainable or not depending upon the underlying source of these resources. Typically internally generated resources would sustainable while the externally generated resources would not be.
3) The option to import is not sustainable and is clearly a short term strategy to meet the higher demand so that a more sustainable solution may be worked out (Koutsoyiannis, 2015).
PROBLEM B
Question 1: What are the market equilibrium price and quantity?
1) At equilibrium, the demand and supply functions need to be equated with an equilibrium price assumed as P and equilibrium quantity assumed as Q.
800-2Q = 200 + Q
On solving, Q comes out as 200 units.
By substituting the above value of Q in the demand equation, the equilibrium price P may be estimated.
P = 800 – 2*200 = $ 400
Thus, the equilibrium price and quantity are 200 units and $ 400 respectively.
Question 2: If the subsequent price increases by $1, how does demand and supply change? Explain with the help of the concepts of the law of demand and supply.
2) In accordance with the demand equation, it is apparent that price and quantity have an inverse relation. Hence, the increase by $ 1 would lead to lower demand. The precise change in this regards may be estimated by substituting the value of P with (P+1) in the demand equation indicated above (Besanko & Braeutigam, 2014).
Further, the supply equation indicates a positive slope which is on expected lines considering the suppliers tend to increase the production when a higher price is offered. Thus, when the price is hiked by $ 1, then the supply of energy bar would increase. The precise change in this regards may be estimated by substituting the value of P with (P+1) in the supply equation indicated above (Pindyck & Rubinfeld, 2014).
Q: provide an example from your day to day work in which you can see supply and demand ?
this question should be with out reference in the assignment as a fifth question
Example of Demand & Supply
With regards to the price of various items in the supermarkets, I see the demand and supply having a role. This is because the price of these items tends to increase when there is a demand. Also, these tend to decrease when there is decrease in demand or increase in supply. Consider for example lamb meat prices. When the supply of this is lesser, the price of this in the supermarkets tends to increase and the consumers have to pay more. Similarly, in case certain imported grocery items, price tends to vary with the supply.
References
Besanko, D. & Braeutigam, R. (2014) Microeconomics, New York: John Wiley & Sons.
Dombusch, R, Fischer, S & Startz, R (2016).Macroeconomics (10th ed) New York: McGraw Hill Publications
Koutsoyiannis, A. (2015). Modern Macroeconomics (4th ed), London: Palgrave McMillan
Pindyck, R. & Rubinfeld, D. (2014) Microeconomics, London: Prentice-Hall Publications
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