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Armaandeep Singh Sidhu 100294666
Assignment 1
Question 1 a) b) The opportunity cost of producing first 15 Gizmos is losing 25 Widgets when economy is producing 0 Gizmos and 475 Widgets. The opportunity cost of gaining 15 additional Gizmos is losing 50 Widgets when economy is producing 15 Gizmos and 450 Widgets. The opportunity cost of Gizmos keeps on increasing as their production is continuously increased. c) If the production levels were at 15 Gizmos and 150 Widgets for a given period, this means that the economy is not working at its full potential and is below its PPB. With the given production levels only 60 workers are working and 60 are not working in the economy. 0 , 475 15 , 450 30 , 400 40 , 300 45 , 150 (^0) 47.5, 0 50 100 150 200 250 300 350 400 450 500 0 5 10 15 20 25 30 35 40 45 50 Widgets Gizmos
Production Possibility Boundary (PPB)
Armaandeep Singh Sidhu 100294666 d) The production of 15 Gizmos requires 30 workers and production of 150 Widgets also require 30 workers, which means production of both 15 Gizmos and 150 Widgets at same time in this economy only requires 60 workers, which leaves 60 workers unemployed. The increase in production from 15 Gizmos and 150 Widgets to 15 Gizmos and 450 Widgets would not have any effect on Gizmos production as there are 60 workers unemployed, which can be utilised to increase production and still remain within PPB. But the same number of workers could be used to increase the production of Gizmos from 15 to 45. In this economy the move from 15 Gizmos and 150 Widgets to 15 Gizmos and 450 Widgets has an opportunity cost of losing potential gain of 30 Gizmos. e) The output combination of 25 Gizmos and 450 Widgets is not possible in this economy because the production of 15 Gizmos and 450 Widgets is the max this economy can produce with its limited number of workers and additional 10 Gizmos would put the production levels out of PPB. Ther is no information provided about the additional workers required to produce 25 Gizmos. f) With the new technology and doubling the production of Gizmos, the PPB is moved to right. With double production of Gizmos, the Planner’s output of 25 Gizmos and 450 Widgets can be achieved in this economy because that combination lies below the PPB. 0 , 475 30 , 450 60 , 400 80 , 300 90 , 150 (^095) , 0 50 100 150 200 250 300 350 400 450 500 0 10 20 30 40 50 60 70 80 90 100 Widgets Gizmos
Production Possibillity Boundry (PPB)
with Double Gizmo Production
