Shuvojit Paul. Roll:14 Section B BBA 28th Class Test 1 Course: Microeconomics BBA 28th Batch, IBA University of Dhaka March 10,2021 Duration 35 Minutes Each question contains 5 marks. All questions are compulsory Q1: "If you go to a superstore then you find there many goods in appropriate quantities and qualities without having these ordered in advance." Why and how does it happen? Explain briefly. Ans: It happens because of the phenomenon of supply and demand and the Invisible Hand. When ability and willingness to buy a commodity is present, then that commodity has demand. To fulfill that demand, supply is ensured by the producers of that commodity. In a free market, supply and demand has a certain equilibrium. In a free market, where individuals are left to pursue their own self-interest, the invisible hand guides the economy to be as efficient as possible. It’s in the superstore’s interest have on stock the products that have the most demand. It’s in the consumer’s self interest to buy everything they need from a single place with affordable prices. This is how superstores came to be and work. Businesses such as superstores judge consumer demand for products and stock their inventory accordingly. To do this, they use market research and statistics to predict demand for all classes of products. Perfect balance of supply and demand ensures maximum profitability for both consumer and producer. Q2: Why is the PPF curve concave shaped? Show graphically a PPF curve and explain. Ans: The slope of Production Possibility curve is marginal opportunity cost which refers to the additional sacrifice that a firm makes when they shift resources and technology from the production of one commodity to the other. Since resources that are used are specific and scarce, so every time when one more unit of a commodity is produced, additional units of the other commodity are sacrificed that results in increasing marginal opportunity cost. This leads to the concave shape of the production possibility curve. In the following graph, we can see that for a specific country, it can produce only guns or only butter, or it can produce a combination of both in varying numbers. The more it produces of one, the less it can produce of the other. Shuvojit Paul. Roll:14 Section B BBA 28th Q3: A recent bill reforming the government's anti-poverty programs limited many welfare recipients to only 2 years of benefits. a. How does this change affect the incentives for working? b. How might this change represent a trade-off between equity and efficiency? Ans(a): Welfare recipients usually don’t have a strong incentive to seek employment as they depend on the welfare benefits to live. Limiting the welfare recipients to only 2 years of benefits ensures that the recipients would have a strong incentive to seek employment before their period of benefits end. Ans(b): Anti-Poverty programs ensure equity between all poverty-stricken people. However, if these programs last for a short period of time, it would reduce equality in the distribution of income, since those who cannot find a job will get no income at all; But the increased incentive for the unemployed to seek jobs would make the economy more efficient and contribute to the total output of the economy.
