As one may observe, as the units of produced goods increases, the number of units of produced services decreases. The maximum number of units of goods can be produced only if no units of services are produced at the same time.
A d) if the country's economy is producing on its production possibility frontier, the opportunity cost cannot be increased, it cannot be exploited in order to increase the production of goods and services. Therefore, in order to increase production, the country's production possibility frontier must be changed. This could take place by increasing the country's production capacity.
This situation can be influenced by quantities of available resources, on the one hand, and by technological progress, on the other hand. In our case, the situation is influenced by technological progress, which determines increased production with a given quantity of resources.
The dotted lines represent the new values of units of produced goods and the new production possibility curve. The number of units of produced services has remained unchanged.
2. a) the most important ingredients used in producing bread are flour, produced from processed wheat, and butter or margarine. If the price of wheat increases, this will lead to increased production costs, which will also determine the price of bread to increase. Bread is a good for which no substitute exists. Of course, there are other goods with similar qualities, like nutritive value or protein composition, for example rice, pasta and potatoes, but the competition between these goods can be considered indirect. For example, one cannot eat gem and butter with pasta or potatoes, but only with bread. For such goods, the demand is relatively inelastic. In other words, if the price of bread increases, the demand will remain generally constant, and people who usually eat bread will...
The diagram below illustrates this situation:
Bread demand diagram
In such conditions of wheat price increasing, the supply will also remain quite constant, as revealed below:
Bread supply diagram b) as mentioned above, butter and margarine represent important ingredients for producing bread, but not as important as wheat. Therefore, an increase in price of butter or margarine would have even less important effects on the demand and supply of bread, for the reasons described above. Therefore, the demand and supply diagrams will illustrate the following:
Bread demand diagram
Bread supply diagram c) as mentioned above, bread, rice, pasta, and potatoes are indirect competitors, as one does not combine these products on one dish, or even one meal. Therefore, certain price changes of one or more of these goods might affect the demand and supply for other goods. This could only happen if these goods would register extremely high increases regarding their price. However, given the production condition for these goods, it is quite difficult to believe that significant price increases might take place for rice, pasta, and potatoes. In such conditions, the bread demand and supply is quite unlikely to be affected, as illustrated in the following diagrams:
Bread demand diagram
Bread supply diagram
Reference List
Production possibility frontier (2008). Wikipedia, the free encyclopedia. Retrieved September 19, 2008 at http://en.wikipedia.org/wiki/Production_possibilities_frontier.
Hall & Leiberman (2004). Economics: Principles and Applications. Retrieved September 19, 2008 at http://www.econ.iastate.edu/classes/econ101/bhattacharjee/documents/Lecture2.ppt#259,2,OpportunityCost and…
