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Case study analysis about optimum resource allocation
Course:- Microeconomics
Length: Word count 548
Reference No.:- EM1324

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Question: Scenario-You have been hired as the economics adviser for the newly elected State Premier. On your first day, the Premier introduces you to the new Minister for Health and the Minister for Education and Training, and explains that your expertise is needed to settle a policy debate. The Minister for Education and Training wants to build 6 new technical schools to train new trades people to help solve the critical shortage of skilled workers.  The Minister for Health wants to establish 30 health clinics that provide specialised childhood, preventative and early intervention medical services to improve public health in disadvantaged communities.  The Premier asks you if this is possible.  You are unsure, and question whether the economy has the resources to do both. The Minister for Education and Training says he won't accept less than 5 new technical schools. The Minister for Health says she will agree to no less than 29 new clinics. The Premier says that this compromise of 5 facilities and 29 clinics seems fair.  You then calmly suggest that before a policy is announced, it might be worthwhile working out what is actually possible. Before the Cabinet Meeting at 10.00 am tomorrow morning, you have to write a report that answers the following

Questions:

(a) Why might you suspect (even without evidence) that the economy might not be able to produce all the schools and clinics the Ministers want? What constraints are there on an economy's production?

(b) The Premier provides you with the following production possibilities data recording combinations of schools and clinics produced over past years.

Technical Schools                 Health Clinics

0                                              30

1                                              29

2                                              27

3                                              23

4                                              18

5                                              10

6                                              0

Given this information, draw a production possibilities curve (PPC) for the economy, labelling the axes and each combination. Explain why the line is curved and not straight, with reference to the concept of opportunity cost. Were you right to suspect the economy could not produce 6 schools and 30 clinics at once?  Explain why.

(c)  Explain the concepts of efficiency and inefficiency in relation to the PPC. Consider the Minister for Education and Training and the Minister for Health's second choices of 5 schools and 29 clinics and mark it on your graph. Is this combination possible or efficient?  Explain.

(d) The Premier wants to improve all possible and efficient outcomes, to keep the people happy with the government.  He understands that this year's production is restricted, but next year he wants to provide both 6 schools and 30 clinics.  Describe two different changes in the economy that could make this possible.

(e) Explain in just a few lines, if it were up to you, which combination of technical schools and health clinics you would choose to produce, and why. In terms of kinds of economic analysis, what makes your answer for (e) different to those for questions (a) to (d)?                                                                                                  Are other economists likely to agree with your analysis in parts (a) to (d)?  Are they likely to agree with your preferred choice in (e)? Explain.

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