1) A production possibilities table for two products, shoes and handbags, is fou

Question

1)       A production possibilities table for two products, shoes and handbags, is found below. Usual assumptions regarding production possibilities are implied.

Combination

a) What is the opportunity cost of producing the first handbag? Justify your answer.

b) Calculate numbers to show that the opportunity cost is increasing.

2)    Explain why a producer who is causing external costs does not have the incentive to reduce these costs.  

3)   Explain why quantity supplied increases with increasing price of a product.

4)   Explain in detail how a decrease in consumer demand for a product will result in less of the product being produced and in fewer resources being allocated to its production.

5)    Suppose an economy

Combination

Explanation / Answer

a) it will decrease the demand for portable music player because more people start buying the improved device. b. increases the demand for the portable. more people with more income means more people buy the portable player c. increases the demand of the portable player. Even people that were not interested start buying attracted by the quality c. increases the demand. more and more pepole want to have their player before the price increase 9).The efficiency factor is the sixth ingredient of economic growth. It is used to reach its full production potential, an economy must achieve economic efficiency as well as full employment. The economy must use its resources in the least costly way (productive efficiency) to produce the specific mix of goods and services that maximizes people's well-being (allocative efficiency). The supply, demand, and efficiency factors in economic growth are related. Unemployment caused by insufficient total spending (demand factor) may lower the rate of new capital accumulation (supply factor) and delay expenditures on research (supply factor). Conversely, low spending on investment (supply factor) may cause insufficient spending (demand factor) and unemployment. Widespread inefficiency in the use of resources (efficiency factor) may translate into higher costs of goods and services and thus lower profits, which in turn may slow down innovation and reduce the accumulation of capital (supply factor). Economic growth is a dynamic process which the supply, demand and efficiency factors all interact. Definition- Efficiency Factor - is the capacity of an economy to combine resources effectively to achieve growth of real output that the supply factors of growth make possible

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