Plot the Ppc of a Nation Essay

864 Words Jun 9th, 2011 4 Pages
7. Plot the PPC of a nation given by the following data.

Combination Health Care All Other Goods

A 0 100

B 25 90

C 50 70

D 75 40

E 100 0

a. Calculate the marginal opportunity cost of each combination. When going from A to B the opportunity cost of each unit of Healthcare is 10/25. When going from B to C it is 20/25, from C to D it is 30/25, and from D to E it is 40/25. You can find this for any good by using the formula, Opportunity Cost = What You Lose/ What You Gain. b. What is the opportunity cost of combination C? This requires that you find the opportunity cost at a point, and not over an interval. There are various ways
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In this schedule it occurs when the price is $5, and the quantity demanded equals quantity supplied, that is 300. When the price is $10, there will be excess supply (975) and very small demand (150) leading to a surplus in the market. The surplus can fall only when producers start charging lower prices to get rid of their inventories. This process will continue till the prices converge to $5. If the price is $2 then we have the opposite situation: very high demand (400) and very small supply (120). Thus we will have a shortage in the market, and consumers will be willing to pay a higher price. The price will therefore rise till it reaches the equilibrium price of $5.

4. Suppose the government imposed a minimum price of $7 in the schedule of exercise 3. What would occur?

In case the government imposed a minimum price of $7 it will act as an effective floor. But there will be too much supply in the market (500) and little demand (260). This will create a surplus. When governments do such things they usually guarantee that the government will buy any unsold products. This policy is very common in agricultural

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