(A) With The Help Of Figure, Explain Three Economics Concepts That Are Represented In The Production Possibilities Frontier

1737 words - 7 pages


Group A1


Question 1
(a) With the help of figure, explain three economics concepts that are represented in the production possibilities frontier.

(b) The following events occur in the market for Malaysian Airline System (MAS).
I. The crash of MAS flight MH17 in Ukraine.
II. The wage rate paid to MAS captain and cabin workers decreases.
III. The price of Air Asia tickets increase.
...view middle of the document...

The crash of MAS flight MH17 in Ukraine decrease the demand of MAS service and demand curve shifts leftward, therefore quantity demanded decreases from Qe to Q1, supply of airplanes decrease and price equilibrium falls from Pe to P1. The figure is shown below.

II. The decrease in wage rate paid to MAS captain and cabin workers can be considered as decrease in input or decrease in cost. Therefore, it increases supply and supply curve shifts rightward, quantity increases from Qe to Q1, price falls from from Pe to P1. The figure is shown below.

III. Air Asia services are substitute to the services of MAS. When the price of Air Asia tickets increases, the demand of MAS services increases, quantity of tickets sold increases from Qe to Q1 and price per ticket increases from Pe to P1. The figure is below.

IV. People expect the price of MAS economic class tickets to fall next school holidays, which influence both demand and supply. The fall in expected price decreases demand among clients for current season, demand curve shifts leftward, and increases supply of MAS services for now, supply curve shifts rightward. So it lowers the price from Pe to P1, we cannot say what happens to quantity unless we know the magnitudes of changes. The figure is shown below.

Question 2
a) Nora Nabila owns the Sweet Chocolate stall in KB Mall. She charges RM10 per gram for her hand made chocolate. As an economist, Chun Yew, has calculated the elasticity of demand for chocolate in KB Mall to be 2.5. If Nora Nabila wants to increase her total revenue, what advice will Chun Yew gives her?
(b) A 10 percent increase in the price of a good has led to a 1 percent increase in the quantity supplied of the good after one month and a 25 percent increase in the quantity supplied after one year.
(i) What is the price elasticity of supply of this good after one month? Is the supply of this good elastic, unit elastic or inelastic? Is this good likely to be produced using factors of production that are easily obtained?
(ii) What is the price elasticity of supply of this good after one year? Has the supply of this good become more elastic or less elastic? Why?
(c) Luqman Hakiem decided to quit lecturing at the Al-Hijr University and opens LH Economics Consultant in Kangar. He gave up an annual income of RM50,000 to open the consultant firm. A year after opening the firm, the total revenue for the year was RM200,000. Luqman Hakiem's expenses were RM30,000 for labor, rent was RM18,000, and utilities were RM1,200. He also had to purchase new furniture from manufacturers, at a cost of RM60,000, which was financed by cashing in his savings of RM60,000 that had been in a bank earning 8 percent per year. The normal profit from operating a firm is RM20,000.
(i) Which of Luqman Hakiem's costs are explicit costs and what is their total?
(ii) Which of Luqman Hakiem's costs are implicit costs and what is their total?
(iii) What is Luqman Hakiem's...

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