Assignment Question

I’m working on a macro economics multi-part question and need the explanation and answer to help me learn. General Instructions – PLEASE READ THEM CAREFULLY The Assignment must be submitted on Blackboard (WORD format only) via the allocated folder. The due date for Assignment 1 is 7/10/2023. Assignments submitted through email will not be accepted. Students are advised to make their work clear and well-presented, marks may be reduced for poor presentation. This includes filling in your information on the cover page. Students must mention the question number clearly in their answers. Late submissions will NOT be accepted. Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. All answers must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism). Submissions without this cover page will NOT be accepted. Assignment 1 Questions: Week 1, 2 & 3 Q1: Define price ceiling and price floor and give an example of each. Which leads to a shortage? Which leads to a surplus? Why?[2.5 Marks] Q2: Export or Import, what is the option available for a nation if it has a comparative advantage in the production of agricultural produce over the other country? Explain. Why do a group of economists favor the policies that restrict imports? (Minimum 500 words). [2.5 Marks] Q3: Pick any two principles of economics from Chapter 1 and explain each with an example.[2.5 Marks] Q4: Take an example of a two-goods economy and explain the concept of opportunity cost with the help of the Production possibility curve (PPC). Also, draw a PPC and explain why any combination outside the PPC is not possible.[2.5 Marks] Answer: please be careful of note begining AND dont forgate the reference please

Answer

Introduction

Economics is a multifaceted field that provides valuable insights into the way societies allocate their limited resources. From understanding the dynamics of supply and demand to exploring concepts like opportunity cost and comparative advantage, economics offers a framework to comprehend the choices we make as individuals, businesses, and nations. In this assignment, we delve into key economic principles, such as price ceilings, price floors, comparative advantage, and opportunity cost. By defining and illustrating these principles with real-world examples, we aim to shed light on the fundamental concepts that underpin economic decision-making.

Q1: Define price ceiling and price floor and give an example of each. Which leads to a shortage? Which leads to a surplus? Why?

A price ceiling is a government-imposed maximum price that can be charged for a particular good or service (Mankiw, 2019). For instance, rent control in some cities can set a maximum allowable rent for apartments. On the other hand, a price floor is a government-imposed minimum price, such as the minimum wage, which sets the lowest legal pay rate for certain workers (Frank et al., 2020).

Price ceilings typically lead to a shortage (Mankiw, 2019). When the government sets a price ceiling below the equilibrium price (the price at which quantity demanded equals quantity supplied), it often results in increased demand for the product at the lower price. However, suppliers may be unwilling to provide the product at this reduced price, leading to a shortage.

Conversely, price floors generally result in a surplus (Krugman & Wells, 2018). When the government mandates a price floor above the equilibrium price, it can lead to higher wages or prices for the specific product. However, this may discourage demand and create excess supply, resulting in a surplus.

Q2: Export or Import, what is the option available for a nation if it has a comparative advantage in the production of agricultural produce over the other country? Explain. Why do a group of economists favor the policies that restrict imports?

When a nation has a comparative advantage in producing agricultural produce over another country, it should focus on exporting these goods (Mankiw, 2019). A comparative advantage means that the nation can produce a specific good at a lower opportunity cost than its trading partner.

Restricting imports can be favored by a group of economists due to various reasons. One key reason is to protect domestic industries from foreign competition, especially when these industries are considered vital for national security or economic stability (Frank et al., 2020). Tariffs and import quotas can help safeguard domestic jobs and industries from being overwhelmed by cheaper foreign imports.

However, it’s essential to note that such protectionist policies can also lead to retaliation from other countries, potentially resulting in trade wars and reduced global economic welfare (Krugman & Wells, 2018).

Q3: Pick any two principles of economics from Chapter 1 and explain each with an example.

Two fundamental principles in economics are “People face trade-offs” and “Rational people think at the margin” (Mankiw, 2019).

The principle of “People face trade-offs” implies that individuals must make choices because resources are limited. For instance, if a person decides to spend more time studying for an exam, they might have to sacrifice leisure time.

The principle of “Rational people think at the margin” suggests that rational decision-makers weigh the benefits and costs of incremental changes. For example, a business owner deciding whether to produce one more unit of a product will assess whether the additional revenue exceeds the added cost of production.

Q4: Take an example of a two-goods economy and explain the concept of opportunity cost with the help of the Production Possibility Curve (PPC). Also, draw a PPC and explain why any combination outside the PPC is not possible.

Imagine a two-goods economy that produces only guns and butter. The Production Possibility Curve (PPC) illustrates the maximum combinations of guns and butter that the economy can produce, given its resources and technology.

Imagine we are at a point on the PPC where resources are fully utilized to produce both guns and butter. If the economy decides to produce more guns (moving along the PPC to the right), it must allocate resources away from butter production. This shift represents the opportunity cost of producing additional guns—the amount of butter foregone.

• Opportunity Cost: The opportunity cost is represented by the slope of the PPC. As you move along the curve, producing more of one good requires sacrificing the production of the other. For example, if the economy is initially producing only guns and decides to produce more butter, it must shift resources away from gun production. The opportunity cost here is the number of guns that could have been produced but were foregone to produce more butter.
• Combinations Outside the PPC: Any combination of guns and butter that lies outside the PPC is not feasible. This is because the economy’s resources and technology are limited. If the economy operates beyond its production possibilities, it will face inefficiency or resource constraints. In other words, it’s not possible to produce more of both goods simultaneously without increasing available resources or improving technology.

Conclusion

Economics serves as a foundational discipline that helps us navigate the complexities of resource allocation, trade-offs, and efficiency. We’ve explored essential economic concepts in this assignment, including price ceilings, price floors, comparative advantage, and opportunity cost. These principles play pivotal roles in shaping economic policies, trade strategies, and individual choices. As we continue to grapple with economic challenges and opportunities in our increasingly interconnected world, a solid understanding of these principles equips us to make informed decisions and contribute to the well-being of our societies. By recognizing the implications of price controls, the benefits of specialization, and the significance of trade-offs, we gain valuable insights into the intricate web of economic interactions that influence our daily lives.

References

Frank, R. H., Bernanke, B. S., & Antonovics, K. (2020). Principles of economics. McGraw-Hill Education.

Krugman, P. R., & Wells, R. (2018). Microeconomics. Worth Publishers.

Mankiw, N. G. (2019). Principles of economics. Cengage Learning.

FAQs

1. What are price ceilings and price floors in economics, and can you provide examples of each?
   • A price ceiling is a government-imposed maximum price that can be charged for a particular good or service. For instance, rent control in some cities sets a maximum rent landlords can charge.
   • A price floor, on the other hand, is a government-imposed minimum price for a good or service. An example is the minimum wage, which sets a floor for hourly wages.
2. Why does a price ceiling often lead to a shortage, while a price floor results in a surplus?
   • Price ceilings lead to shortages because they prevent prices from rising to equilibrium levels, causing demand to exceed supply. This creates a situation where some consumers can’t obtain the good or service.
   • Conversely, price floors lead to surpluses because they set prices above the equilibrium, discouraging demand and causing suppliers to produce more than consumers are willing to purchase.
3. In international trade, what options does a nation have when it possesses a comparative advantage in agricultural production over another country?
   • When a nation has a comparative advantage in agricultural production, it can choose to export agricultural products to other nations, taking advantage of its cost-efficiency in this sector.
4. Why do some economists support policies that restrict imports despite the benefits of international trade?
   • Some economists favor import restrictions for various reasons, such as protecting domestic industries and jobs, ensuring national security, or addressing unfair competition from foreign nations. They argue that trade restrictions can help correct trade imbalances and protect local industries.
5. Can you explain the concept of opportunity cost in a two-goods economy using the production possibility curve (PPC)? Why is it impossible to produce combinations of goods outside the PPC?
   • Opportunity cost refers to the value of the next best alternative that must be forgone when a choice is made. In a two-goods economy, the PPC shows the maximum quantities of two goods that can be produced with given resources.
   • Any combination outside the PPC is unattainable because it exceeds the economy’s production capacity. Resources are limited, so producing more of one good requires sacrificing the production of another. Points on the PPC represent efficient resource allocation.