Question

Question 1

(a) Discuss how economists could apply fundamental economic questions in the production of smart phones

(b) Explain the following questions regarding the Production Possibility Frontier (PPF)

 The two (2) main assumptions of PPF

 Downward sloping shape of PPF

 Concavity of PPF to the origin

(c) Illustrate and describe any ONE (1) situation that would shift the production possibilities frontier outwards.

Answer 1

Q1).

a). As we know that there are three fundamental economic questions. Every society, regardless of its political structure, must develop an economic system to determine how to use its limited productive resources to answer the three basic economic questions of what, how, and for whom to produce. The three fundamental economic questions are:-

1). What to produce.

2). How to produce.

3). For whom to produce.

We know that using smartphones is a trend nowadays. Each and every one likes to keep smartphones. The smartphone companies are contineously increasing there production to meet the increasing customer demand of smartphones. The smartphone companies are earning a good profit. The smmartphone companies have to consider the three basic economic questions.

The first question is what to produce. Whether to produce smartphones with higher battery backups , whether to produce phones with larger RAM or whether to produce dual sim phones or whether to produce single or dual camera phones. The secondfquestion is how to produce the smartphones . whether to use larger capital or labour in the production of smartphones. The third question which smartphone companies have to deal is, for whom to produce. Whether to produce for home market or toproduce for internation markets. The smartphone companies will keep in consideraation the domestic demand and foreign demand. These three economic questions are very important while deciding the production of smartphones.

b). The production possibility frontier or curve  (PPF) is a curve illustrating the varying amounts of two products that can be produced when both depend on the same finite resources.The PPF demonstrates that the production of one commodity may increase only if the production of the other commodity decreases.

The two assumptions of production possibility curve are as:-

(1) The resources are used to produce one or both of only two goods.

(2) The quantities of the resources do not change.

(3) Technology and production techniques do not change.

__We know that PPC or the production possibility curve slopes downwards due to the negative relationship between the resources. To produce more of one good the production of the other good must be reduced and this happens due to scarcity of the resources. Production of Both the commodities cannot be increased.

__ The production possibility curve is concave due toincreasing Marginal opportunity cost. This is because inorder to increase the production of one good by 1 unit more and more units of the other good have to be sacrificed since the resources are limited and are not equally efficient in the production of both the goods.

c). The production possibility curve shifts outwards or inwards mainly by changes in the total amount of available production factors or by advancements in technology. If the total amount of production factors like labor or capital increases, then the economy is able to produce more goods at any point along the frontier.

Hope you got the answer..

Thanks...

kindly comment for any further explanation.