UNIVERSITY OF EDUCATION, WINNEBA
DEPARTMENT OF ECONOMICS EDUCATION
INDEX NUMBER: 202125420
COURES CODE: ECNS 111 (PRINCIPLE OF MICROECONOMICS)
LECTURER: DR. G. Y. DAKE
Q1. Given a table for the production of cocoa beans and cashew nut.
COCOA BEANS
350
300
250
200
150
100
50
0
A
B
C
D
E
F
G
H
CASHEW NUT
0
100
150
200
225
250
275
300
Assumption in drawing the PPC
i.
a. We assume that the economy can produce only two commodities with the given
resources.
b. We assume that factors of production or technology is fixed in supply.
ii.
From the diagram, due to scarcity it is impossible to increase the production for the
two commodities at the same time. This is because the resources are limited in
supply. Hence the need for opportunity cost.
From the diagram, in order to produce a particular commodity, part of producing the
other commodity must be forgone. From the table and curve, in order to produce 50
tons of cocoa, is the 25 tons of cashew forgone. The opportunity cost is the quantity
forgone in order to produce the other commodity.
iii.
An increase in technology or discovery of new technology leads to the expansion of
the production possibility curve. From the diagram, whenever there is a new
technology been employed, the curve moves to Z indicating an improvement in
production. This means that with the same resources, production will increase.
Natural disasters can lead to the contraction of the production possibility curve. When
natural disasters like flood, fire occurs they destroy properties or some factors of
production leading to a decrease in production, causing the PPC to contract causing
inefficiency in production. Production therefore moves to X in the diagram.
iv.
The sloping nature of the production possibility curves indicate the fact that to
produce more of one commodity, involve producing less of the other commodity.
From the diagram, to produce cocoa beans means producing less of cashew nut.
The shape of the curves indicates that the production of one commodity is the
opportunity cost of producing the other commodity. It implies that the law of
increasing opportunity cost hold in the production process.
Q2. I.
From the diagram, when there is a change in supply from SoSo to S2S2, quantity
demand will decrease from Qe to Q2 due an increase in price from Pe to P2. Also
when there is an increase in supply from SoSo to S1S1, quantity demand will
increase from Qe to Q1 due to a decrease in price from Pe to P1.
II.
From the diagram, when there is a change in demand from DoDo to D2D2,
quantity supply increases from Qe to Q2. This is due to an increase in price from
Pe to P2. Also when demand decrease from DoDo to D1D1 quantity supply
decrease from Qe to Q1 due to a decrease in price from Pe to P1 indicating a fall
in quantity supply.