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Assignment No. 1

Instructions:

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Q. 1. Explain with the help of suitable examples / graph the following; (1*3 MARKS)

a. Production Possibility Curve’

b. The concept of ‘Opportunity Cost’

c. Distinguish between ‘Quantity Demanded’ and ‘Demand Schedule’

Q, 2. In present scenario, the importance of microeconomics is increasing day by day, in your

Opinion, what are the three ways that we can use microeconomic analysis. (3 MARKS)

Answer:-

Question 1 (a)

- Production Possibility Curve : A curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used.

- Example : In Japan, The economy can choose to allocate all of its availabe resources to produce shoes only or produce jackets only or produce both.

Question 1 (b)

- Opportunity Cost : The cost you give up in order to get something, or it means what you sacrifice to get something in return.

Example 1 : when you choose to spend your limited time in reading books, that means less time for working or watching movies.

Example 2 : In the following PPC graph, the economy can choose either to produce more shoes or produce more jackets. In other words, if the economy chose to produce more shoes, for example, in this case it has to shift resources from producing jackets towards producing more shoes. That means the economy has given up producing jackets to get more shoes instead. When moving from one point to another along the curve in each time, an opportunity cost in incured.

Question 1 (c)

- Quantity Demanded : The amount of a product that consumers are willing and able to buy at a fixed price.

It can represented by putting any point on the demand curve at a specific price.

- Demand Schedule : A table that shows the relationship between the price of a product and the quantity demanded

The relationship between the price and quantity demanded is negative.

Question 2

Since mircroeconomics studies small economic units and focuses on the consequences of direct human rational choices, I believe that we can make use of mircroeconomics analysis in three different ways as following :-

1- We can use Microeconomics to make personal and managerial decisions.

This way helps both individuals and managers of big companies make better decisions. On personal level, we use this analysis to decide which career to pursue and how to spend and save our money. Also managers make use of this analysis to decide how to produce goods or provide servies, how much to produce and how to set prices for the products.

2- We can use Mircoeconomics to evaluate public policies.

Public polices are being designed by governments, so microeconomics can be used to evaluate the government performance and its efforts exerted to regulate the market.

3- We can use Mircroeconomics to understand the market and predict changes.