Microeconomics Unit 3 Assignment Template Name Course Number

Microeconomicsunit 3 Assignment Templatename Course Number Sect

Examine the following production possibility frontier graph with corn on the horizontal axis and poultry on the vertical axis illustrating these options and showing points 1–7 . a. Can St. Atanagio produce 650 pounds of poultry and 650 pounds of corn? Explain. Where would this point lie relative to the production possibility frontier? b. What is the opportunity cost of increasing the annual output of corn from 800 to 1000 pounds? c. What is the opportunity cost of increasing the annual output of corn from 200 to 400 pounds? d. Can you explain why the answers to parts c. and d. above are not the same? What does this imply about the slope of the production possibility frontier? 2. Suppose that the supply schedule of Belgium Cocoa beans is as follows: Price of cocoa beans (per pound) Quantity of cocoa beans supplied (pounds). Suppose that Belgium cocoa beans can be sold only in Europe. The European demand schedule for Belgium cocoa beans is as follows: Price of Belgium cocoa beans (per pound) European Quantity of Belgium cocoa beans demanded (pounds). Below is the graph of the demand curve and the supply curve for Belgium cocoa beans. From the supply and demand schedules above, what are the equilibrium price and quantity of cocoa beans from Belgium? Now suppose that Belgium cocoa beans can be sold in the U.S. The U.S. demand schedule for Belgium cocoa beans is as follows: Price of Belgium cocoa beans (per pound) U.S. Quantity of Belgium cocoa beans demanded (pounds). What is the combined (total) demand schedule for Belgian cocoa beans that European and U.S. consumers buy? Price of Belgium cocoa beans U.S. Quantity of Belgium cocoa beans demanded European Quantity of Belgium cocoa beans demanded Total Demanded (per pound) (pounds) (pounds) (pounds). Below is the supply and demand graph that illustrates the new equilibrium price and quantity of cocoa beans from Belgium. 1. From the supply schedule and the combined U.S. and European demand schedule, what will be the new price at which Belgium plantation owners can sell cocoa beans? What price will be paid by European consumers? What will be the quantity consumed by European consumers?

Paper For Above instruction

Introduction

The concepts of production possibility frontiers (PPFs) and market equilibrium form fundamental elements of microeconomics, illustrating how resources are allocated and how markets determine prices and quantities. This paper examines these concepts through two case studies: the production decisions of St. Atanagio island and the international cocoa bean market. By analyzing these scenarios, we will explore the trade-offs, opportunity costs, and market dynamics that underpin economic decision-making.

Part 1: Production Possibility Frontier of St. Atanagio

The production possibility frontier (PPF) graph depicts the maximum feasible combinations of corn and poultry that the inhabitants of St. Atanagio can produce given their resources and technology. Point 1–7 on the graph illustrates various production options. A key question involves whether the island can produce 650 pounds each of poultry and corn simultaneously. The answer depends on the position of this point relative to the PPF curve. If the point lies on the curve, it indicates efficient resource use; if inside, inefficiency or unemployment is present; if outside, production is unattainable with current resources and technology.

For example, if the PPF curve intersects the axes at points such as 1,000 pounds of corn and 1,200 pounds of poultry, then producing 650 pounds of each may be feasible. If the point 650 poultry and 650 corn lies on or near the curve, then it’s attainable; if outside, it is impossible given current resources.

The opportunity cost of increasing corn production from 800 to 1,000 pounds reflects the sacrifice in poultry production. Assuming a typical PPF shape—concave to the origin—the opportunity cost can be gauged by how much poultry output decreases as corn output increases. If poultry drops from 800 pounds to 600 pounds while corn increases from 800 to 1,000 pounds, then the opportunity cost is 200 pounds of poultry.

Similarly, increasing corn from 200 to 400 pounds may result in a different opportunity cost if the slope of the PPF is not constant. Usually, the opportunity cost increases as more of one good is produced, indicating a bowed-out PPF. This variation in opportunity costs implies a decreasing marginal rate of transformation and a convex or bowed-out shape for the PPF. This shape reflects increasing trade-offs as resources are reallocated along the frontier.

Part 2: Market Equilibrium for Belgium Cocoa Beans

The supply schedule indicates how much cocoa beans Belgium producers wish to sell at various prices. The demand schedules—European and U.S.—show how much consumers in each region are willing to buy at different prices. The intersection of supply and demand determines the equilibrium price and quantity in a closed market, here within Europe.

Based on the schedules, the equilibrium price occurs where the quantity supplied equals the quantity demanded in Europe. For example, if at $5 per pound, supply equals 1,000 pounds and demand also equals 1,000 pounds, then this is the equilibrium point. The equilibrium price in this regional market would thus be $5 per pound, with a traded quantity of 1,000 pounds.

When exporting to the U.S., additional demand from U.S. consumers shifts the overall market demand curve outward, increasing total demand at each price level. The combined demand schedule accounts for both European and U.S. demand. For instance, at a price of $5 per pound, U.S. demand might increase to 2,000 pounds, while European demand remains at 1,000 pounds, resulting in a total demand of 3,000 pounds.

The new intersection of the combined demand curve with the supply curve determines the world market equilibrium. Generally, this leads to a higher market price, incentivizing Belgian plantation owners to increase production. The new equilibrium price may rise to, for example, $6 per pound, with a total quantity of approximately 3,000 pounds exchanged in the international market.

The price paid by European consumers would be the same as the market price at equilibrium, which could slightly differ due to transaction costs or tariffs but generally remains close to the global market price. European consumers would purchase the quantities consistent with the new demand schedule at this equilibrium price, likely increased from previous levels due to the external demand from the U.S.

Conclusion

In summary, the analysis of St. Atanagio’s PPF demonstrates the resource allocation constraints and opportunity costs inherent in production decisions. Meanwhile, the cocoa market exemplifies how supply, regional demand, and international trade influence market prices and quantities. Understanding these concepts helps explain the complex interactions that characterize real-world economic systems and informs decisions by producers and policymakers alike.

References

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