Question

QUESTION ONE [30] 1.1 For each of the following events, ceteris paribus, explain whether the production possibility frontier shifts inward, shifts outward or remains unchanged. Use a single diagram to moti

vate your answer. 1.1.1 The discovery of coal. (3)

1.1.2 Training for workers that increases the amount of a good that can be produced per worker. (3)

1.1.3 A shift in preference for one good compared to the other good. (3)

1.1.4 Invention of a new process of production that reduces the resources necessary to produce a good. (3)

1.2 “Market structure refers to the nature and degree of competition in the market for goods and services. There are a number of determinants of market structures for a particular good.” In terms of the statement above, discuss the following determinants for the four main types of market structures.

1.2.1 Nature of product (6)

1.2.2 Entry and exit conditions (6)

1.2.3 Economies of scale

Answer 1

Answer :-

1):- PPC shows the conceivable blend of goods that can be delivered in an economy, given the current resources and technology. Explanations behind shift in PPC are÷

Change in technology.

Change in existing resources.

1.1.1 :- Discovery of coal implies that there is expansion to the current resources. This implies there can be more output and thus PPC will shift outwards.

1.1.2 :- Training builds human resource. This will again prompt outward shift in PPC.

1.1.3 :- Shift in preferences don't prompt any change in PPC. It will essentially prompt development along PPC.

1.1.4 :- Again, the invention which lessens the utilization of resources is improvement in technology. This will again prompt outward shift in PPC.

(PPC will shift inside if for eg-there is war, disease, decrease in technology and so forth.)

2):-

• Perfect competition :- Perfect competition is when there are numerous merchants selling homogeneous products. There is free entry and exit in the market. And there is no economies of scale in immaculate competition.

Eg- vegetable market

• Monopolistic competition :- In monopolistic competition there are numerous venders selling homogeneous however separated products. There is no or less barrier to entry and exit. Here, the economies of scale isn't completely misused.

Eg-dress industry

• Oligopoly :- In oligopoly there are not many huge dealers selling homogeneous products. There is critical barrier to entry and exit. Oligopoly can exploit economies of scale.

Eg-cigarette

• Monopoly :- In monopoly there is single producer selling one of a kind product. There is high barrier to entry and exit. Economies of scale is accomplished in monopoly.

(Economies of scale is diminishing ATC by producing greater amount of goods. )