Draw the production possibility curve

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Reference no: EM131048


1. 'Economics is the study of the principles governing the allocation of scarce means among competing ends when the objective of the allocation is to maximize the attainment of the ends.'

a. Draw the production possibility curve and list the underlying assumptions.

b. Explain the above statement by referring to your graph for question (a).

c. Explain THREE (3) fundamental economic questions which reflect the reality of scarce resources.

2. On April 20, 2010, an oil-drilling platform owned by British Petroleum exploded in the Gulf of Mexico, causing oil to leak into the gulf at estimates of 1.5 to 2.5 million gallons per day for well over two months. Due to the oil spill, the government closed over 25 percent of federal waters, which has devastated the commercial fishing industry in the area.

a. Define consumer surplus and producer surplus.

b. Draw a standard supply and demand diagram which relates to the above situation.

c. Using the diagram in (b), explain how the reduction in supply from the reduced fishing waters will either increase or decrease consumer surplus and producer surplus.


3. Suppose the demand and supply curves for eggs in the Malaysia are given by the following equations:

Qd = 100 - 20P, and Qs=10+40P

Where the Qd = millions of dozens of eggs Malaysian would like to buy each year; Qs = millions of dozens Malaysia farms would like to sell each year; and P = price per dozen of eggs.

a. Fill the missing data in the table. Show your workings.

Price (per dozen)

Quantity demanded (Qd)

Quantity supplied (Qs)

Shortage/ surplus of supply

RM 0.50




RM 1.00




RM 1.50




RM 2.00




RM 2.50




b. Use the information in the table to find the equilibrium price and quantity.

c. Graph the demand and supply curves and identify the equilibrium price and quantity.

4. Fill in the missing amounts in the following table:

a. Fill the missing data in the table. Show your workings.







Demand for Ben & Jerry's Ice Cream




Demand for beer at San Francisco 49ers football games




Demand for Broadway theater

tickets in New York




Supply of chickens




Supply of beef cattle




b. Would you recommend that Ben & Jerry's move forward with a plan to raise prices if the company's only goal is to increase revenues? Explain.

c. Would you recommend that beer stands cut prices to increase revenues at 49ers football games next year? Explain.

d. Briefly explain TWO (2) determinants of elasticity other than price of its own.


Read and answer the questions based on the article given below:

Doctors call for 30% hike

PETALING JAYA: Doctors in private clinics and hospitals are asking for a 30% increase in consultation fees, saying it is impossible for them to survive with rising operating costs.

Malaysian Medical Association president Datuk Dr N.K.S. Tharmaseelan said the proposed hike was more than a decade overdue.

He claimed that doctors were now paid less than plumbers, electricians, hairstylists and food outlet operators.

General practitioners get between RM30 and RM50 per consultation while specialists charge between RM50 and RM80.

Dr Tharmaseelan said: "It is a misconception that doctors are rich and greedy. Many doctors are scraping the barrel with rising utility, rent and salary costs, and quite a few have even quit practice as it's just too expensive to maintain a clinic.

"On average, the operating cost for a general practitioner to run a clinic in Kuala Lumpur is about RM20,000 per month."

There are over 7,600 private clinics and hospitals nationwide. The association represents over 3,000 members.

Dr Tharmaseelan added that a general practitioner charged cough and cold patients between RM45 and RM50, including medication.

"It does not make sense that people are paying more for a haircut or a meal than for treatment," he said.

He said that a rise was necessary for doctors to cover their "basic costs" in light of mandatory rulings like paying minimum wage.

"We are also required by law to have medical indemnity insurance, hire radiographers and engage waste disposal contractors at our clinics.

"It's been three decades and our fees have remained unchanged," he said.

He said the MMA submitted the new fee schedule to the Health Ministry two years ago but the proposal was rejected because the Government felt it was steep.

He said the MMA could not agree to the Government's 14% fee increase proposal made last year as it would result in a bleak future for its members.

Malaysian Medical Council member and senior medical practitioner Dr Milton Lum said: "A plumber charges between RM50 and RM100 just to check my pipes - that's way more than what a general practitioner charges (for a consultation).

"These days, RM100,000 medical bills are not uncommon but doctors only receive a fraction.

"Between 75% and 85% of the bill goes to the hospital and managed care organisations," he said.

Federation of Private Medical Practitioners Associations Malaysia president Dr Steven Chow said the existing schedule amounted to only 2.3% per year since 2000.

"Bearing in mind the inflation rate, the 30% hike is a fair request," he said.

(Adapted from an article from The Star Newspaper, 18 August 2013 2013)

Using the principles of demand and supply, carefully illustrate and explain how the consultation prices have increased due to the cost changes.

What is the possibility of price elasticity in this scenario of for both demand and supply? Illustrate using a well-labeled diagram and explain your answer.

c. Using the principles of demand and supply, carefully illustrate and explain how the consultation price affects the demand of alternative services such as traditional medication, health supplements, etc?

Reference no: EM131048


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