Question

1.Explain the relationship between PPF and supply curve?

2.A recent news report suggested that university enrollement was rising as a result of the recession. Does this imply that education is an inferior good? Explain your answer

3. Use a production possibility frontier to explain why a traditional economy was effecient during middle ages!

4. Use a PPF to explain why canada is experiencing a higher growth rate than ethiopia.

Answer 1

1.
There is a positive relationship between PPF and supply curve. PPF represent the different combination of goods and service an economy can produce while using the available resources, whereas supply curve shows the goods and services supplied at a particular price. When economic efficiency increases due to technology, then PPF curve moves in outward direction. Here, supply curve also shifts to the rightward direction to increase the supply at each price level. With the inward movement of PPF curve causes supply curves to shift in leftward direction and supply level comes down at each price.

2.
During the recession, people opt for the education and university enrollment increases. It means that marginal benefits derived from the education during the recession are higher than the marginal benefits of doing job at low salary during the recession. So, people opt for the education during the recession.
Here, the opportunity cost is also considered as economic principle. When economy booms, then people get a very high package. So, opportunity cost of pursuing education is very high as it requires the person to leave the job. But, during the recession, people are either in job at low package or out of the job. In this scenario, opportunity cost of pursuing education is very low. So, people opt for the education in recession.
So, education has nothing to do as inferior good.

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