How Scarcity force an individual to incur opportunity costs- Assignmen

Question 1 a) a) Explain why scarcity forces individuals and society to incur opportunity costs. Give specific examples. Answer 1 a) Scarcity andopportunity costcorrespond to two connecting thoughts ineconomicssince individuals and society have got to time and again select amongst scarce assets. on the whole, economic assets are not totally accessible constantly in unrestricted figures, as a result individuals and society have to make a selection regarding which possessions to utilize. The opportunity cost symbolizes the choice surrendered when selecting one source rather than any other. These two theories have a straight connection since, such as, companies might utilize a inferior class although additional accessible source for manufacturing merchandise. Question 1 b) Suppose a chocolate bar manufacturer promotes its products by advertising and opportunity to win a free car. Is this car free because the winner pays zero for it? Answer 1 b) The customers with the intention of boosting their opportunity to win the free car have remunerated in favour of the chocolate bar. Consequently jointly the buyers have together remunerated for car. The cost of the car is the price of the entire the chocolates. Question 1 c) Why is the production possibility frontier bowed outwards? Answer 1 c) The bowed out nature of the production possibility frontier is since some of the aspects of manufacture are better outfitted to manufacturing one thing as compared to what they are to manufacturing any other thing. such as, in case the two commodities are foodstuff and dresses, subsequently with the intention of manufacturing further attires, ultimately the the majority of dynamic farm land have to be owed to clothes manufacture consequently, the opportunity cost of making increasingly outsized amounts of clothes ascends as further attires are formed (Case and Fair, 2002). Question 2 a) Suppose you own a coffee shop. List some of fixed inputs and variable inputs you would use in operating the shop. Answer 2 a) Fixed inputs: Coffee shop, interiors (counter, chandeliers, chairs, furniture), coffee making machines Variable inputs: workers salaries, subcontractors (maintenance, security), computers Fixed expenses are free of manufacture. They happen each month even if there is n production. Variable costs take place simply in case of manufacture/sale. Question 2 b) Baubles and beads manufacturing produces 100 hammers per day. The total fixed cost for the plant is RM4000 per day and the total variable cost is RM1,300 per day. Calculate average fixed cost, average variable cost, average total cost and the total cost at the current output level. Answer 2 b) AFC= FC/production quantity = 4,000/100 = RM40 Average Variable cost= variable cost/quantity produced= 1,300/100 = RM13 Average Total Cost = Average fixed cost +Average variable cost= RM40+RM13= RM53 Total Coat= Variable cost +Fixed Cost= RM 1,300+ RM 4,000= RM 5,300 Question 2 c) Explain conditions under which labour might be treated as a variable cost and conditions under which it would be treated as a fixed cost. Answer 2 c) Fixed labour costs are some labour costs that will stay unvarying regardless of the manufacture intensity of the company. An illustration of fixed labour costs is executive remunerations. Variable labour costs are every labour costs that ascend or downwards with the amount of production. Illustrations of variable labour costs consist of overtime earnings and temporary employees salary. These are expenses that boost when fabrication boosts and fall with fall in fabrication. Question 3 a) Discuss the following statement. In the real world there is no industry which conforms precisely to the economists model of perfect competition. This means that the model is of little practical value. Answer 3 a) A trade with perfect competition has following features: Each and every organizations offer an indistinguishable item. Each and every organization is price-taker. Each and every organization has a moderately little piece of the overall industry. Purchasers know the way of the item being sold and the costs charged by every company. The business is described by liberty of entrance and way out These five prerequisites infrequently are present collectively in any single industry. Thus, perfect competition is hardly (if at any point) seen in this current time. For instance, the majority of items have a little level of differentiation. Indeed with an item as basic as filtered water, for instance, makers differ in the system of purging, item size, brand personality, and so on. Products, for instance, crude agrarian items, despite the fact that they can even now contrast regarding quality, appear closest to being indistinguishable, or possessing nil differentiation. At the point when an item does come to encompass zero differentiation, its industry is typically combined into a little number of substantial businesses, or an oligopoly. So, there are noteworthy barriers averting perfect competition as of emerging in current market. Question 3 b) Illustrate with a diagram and explain the short run perfectively competitive equilibrium for both the individual firm and the industry. Answer 3 b) In a short run perfectively competetive equilibrium, the solitary firm acquires its price as of the industry, moreover is, accordingly, known as aprice taker. The industry is compiled of each and every company in the industry and the market price is at the point at which market demand is identical to market supply. Every sole organization have to charge this price and cant deviate as of it. Source: Principles of Economics, Frank and Bernankes, 2001 Question 3 c) Illustrate with a diagram and explain the long run perfectly competitive equilibrium for the firm. Answer 3 c) In the long run businesses are pulled in into the industry in case the current businesses are making supernormal gains. This is on the grounds that there are no barriers to enter and in light of the fact that there is immaculate knowledge. The impact of this way to enter into the business is to move the business supply bend to the right side, which makes the fall in cost till the tip where all super-ordinary gains are depleted (Bordley, 2006). In case the organizations are making losses, they will leave the business sector as there are no barriers to go out of the segment, and this will move the business supply curve to the left, which lifts the price and empowers those remaining in the business sector to infer typical gains. Source: Principles of Economics, Frank and Bernankes, 2001 Question 4 a) Suppose the income elasticity of demand for pre recorded music compact disk is +7 and the income elasticity for a cabinet makers work is +0.7. Compare the impact on pre -recorded music compact disk and the cabinet makers work of a recession that reduces consumer income by 10 per cent. Answer 4 a) i) Compact disk Income elasticity of demand= %change in demand/%change in income 7 = x/10 %change in demand = 70% ii) Cabinet Makers Income elasticity of demand= %change in demand/%change in income `0.7=`x/10 %change in demand = 7% Question 4 b) How might you determine whether MP3 music player and the pre-recorded music compact discs are in competition with each other? Answer 4 b) This would be determined by cross elasticity of demand of MP3 music player and the pre-recorded music compact discs (Robert, 2008). Question 4 c) Interpret the following income elasticity of demand (YED) values for the following and state if the good is normal or inferior. Answer 4 c) YED = +0.85= Normal goods (Necessity Goods) since the YED is less than 1 YED = -2.4 = Inferior good- an raise in income will bring about a decrease in the demand and might cause transforms to extra lavish alternates. Question 4 d) Interpret the following cross price elasticity of demand (XED) and explain the relation between goods. Answer 4 d) XED = +0.85- two goods are substitutes since the XED0 XED = -4.5- two goods are supplements since XED References Bordley; McDonald. (2006). "Estimating Income Elasticities from the Average Income of a Product's Buyers and the Population Income Distribution".Journal of Business and Economic Statistics. Case, K.E. and Fair, R.C. (2002). Principles of Economics, New Jersey: Prentice Hall. Frank, R.H. and Bernanke, B.S. (2001). Principles of Economics, New York: McGraw Hill/Irwin Perloff, J. (2008).Microeconomics Theory Applications with Calculus. Pearson. ISBN978-0-321-27794-7. Robert, F. (2008).Microeconomics and Behavior(7th ed.). McGraw-Hill.ISBN978-0-07-126349-8.