Suppose that an economy produces only 2 goods, beer and pizza. Show a typical production possibilities frontier for this country and use it to define and explain the opportunity cost concept and the concept of increasing opportunity costs. If a technology was invented that made the production of beer much more efficient but had no effect on the production of pizza how would the production possibilities frontier change (show it). While all points on the production possibilities curves maximize production, which point maximizes satisfaction? 1. With reference to a diagram, show and explain how a market, left on its own, will tend toward an equilibrium in which there is neither a surplus nor a shortage of the product. 1. What condition must be met in order to conclude that an economy is maximizing social well-being? Do the equilibriums given by individual markets necessarily lead to the maximization of social well-being (that is, if demand is equal to supply, can you conclude that well-being is maximized)? Explain why/why not making sure to discuss marginal social benefits and costs, marginal private benefits and costs, and demand and supply. 1. Economists argue that resources flow to their highest valued use insuring, if there are no market failures, a purely competitive market will lead to a well-being maximum. This is referred to as the price or profit system. Explain why economists believe this. That is, explain how the price/profit system works. 1. List and briefly explain types of barriers to entry that keep the market from reaching a maximum of well-being.
Suppose that an economy produces only 2 goods, beer and pizza. Show a typical production possibilities frontier for this country and use it to define and explain the opportunity cost concept and the concept of increasing
Step by step
Solved in 3 steps with 3 images
