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U1A1

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Submitted By amartinez51
Words 792
Pages 4
Alex. Martinez
Capella University
October 5th 2013
Chapter 1: Problem 5, a through d, on page 21
Chapter 3: Problem 7, a through d, on page 68

Abstract
This assignment explores production possibilities principles in a fixed and variable economy. This assignment also explores market equilibrium and how price ceilings and floors can affect that balance.

Production possibilities table and curve for consumer goods (automobiles) and capital goods (forklifts). Chapter 1: Problem 5, a through d. | Production Alternative | Type of Production | A | B | C | D | E | Automobiles | 0 | 2 | 4 | 6 | 8 | Forklifts | 30 | 27 | 21 | 12 | 0 |

The assumptions in the above table and curve are based on two products that can be produced with a specific set of resources, fixed technology and also assuming full employment (McConnell, Brue & Flynn, 2012).
If the economy is at point C, the economy is producing 4 automobiles and 21 forklifts. The cost of producing one more automobile would be 5 forklifts. If we increase the automobiles from 4 to 5, the forklifts decrease from 21 to 16, a loss of 5. If the economy is at point C on the production possibilities graph and the forklifts increase by 1 quantity, the cost would be .33 automobiles. If we increase the forklifts from 21 to 22, the automobiles decrease from 4 to 3.66. In this example, the law of increasing opportunity cost is characterized by the shape of the curve. The curve is bowed out from the origin of the graph, (McConnell, Brue & Flynn, 2012, p13.) This indicates that as the production of one of the goods increases the production of the corresponding good must be increasingly given up. The reason is the resources are not equally or perfectly allocated between the two goods.
Based on the original table 21 forklifts are produced with 4 automobiles. If at a point in time, the

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