Economics is the name of how to earn money and how to consume it. Adam Smith is known as the father of economics who proposed the basic and the most authentic definition of the term ‘Economics’. Economics is a subject which is used in almost every walk of life.

The field of economics is as broad as it has the entire world in it. As per the qualified professionals, economics is the most important subject to read (Bernard, 2008). The government of every country always tries to enhance the knowledge of this particular subject among every citizen.

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The stance of consumption and saving is extremely important from the standpoint of an organization. There are different schools of thoughts which define the same in a plausible manner. Employment and working factor is extremely important in the literature of economics because it is a giant field and can be found in almost everything. The main perspective of this particular assignment is also relates to the concept of economics and its applicability. Basically there are different questions asked in this assignment relates to the core principles of economics. All of these questions relate to microeconomics which is one of the basic branches of economics. The first question which has been asked in this assignment relates to production and output; let’s now move towards this question.

In this question, one has to analyze the power of creating output with a constant workforce. According to the specification of the assignment, there are 10 workers who can make consumer good or can make the machine which can made consumer goods. With every increase in the labor, there is an increase or decrease in the output. Look at the table mentioned below to reveal rest of the story.

It can be seen from the above mentioned table that there were no production at the three level. According to the table, one labor can made2 units of the consumer good or can make 2 machines which then make consumer goods. When a new labor added, the units increased by 8 and 12 times with the addition of 1 and 2 more labors respectively but the stance got down by -6 times with the addition of 4th labor.

Production was on the highest level with the involvement of 10 labors at a time and made 50 units of consumer goods. Even at the time of 10 labor’s working, the marginal output level of the production fluctuated heavily. In the end the production level come at the basic level of 1. This particular phenomenon has been referred as Diminishing Marginal Output (DMO).

2) Opportunity cost of the economy can be found with the below mentioned graph. The opportunity cost of the economy is the added labors for the production. In the above graph, it is observe that, the production was actually downgraded with the inclusion of each labor within the production process.

3) Production Possibility Frontier

4) A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently.

Production Possibility Graph

As indicated on the chart above, points A, B and C represent the points at which production of Good A and Good B is most efficient. Point X demonstrates the point at which resources are not being used efficiently in the production of both goods; point Y demonstrates an output that is not attainable with the given inputs.
Economic efficiency can only be possible wherein the demand of the products can be matched with the supply of the products.

5) Imagine there are two economies, Z & W both have different intentions of human capital and overall country’s economy.

PPF For Countries

When the PPF shifts outwards, we know there is growth in an economy. Alternatively, when the PPF shifts inwards it indicates that the economy is shrinking as a result of a decline in its most efficient allocation of resources and optimal production capability. A shrinking economy could be a result of a decrease in supplies or a deficiency in technology.

6) An economy can be producing on the PPF curve only in theory. In reality, economies constantly struggle to reach an optimal production capacity. And because scarcity forces an economy to forgo one choice for another, the slope of the PPF will always be negative; if production of product A increases then production of product B will have to decrease accordingly.

The production of both the countries can affected by entering every unit of employee merely because of the law of Diminishing Marginal Utility Return discussed just earlier.

7) According to the table mentioned above 9 labors accumulatively doing a wonderful job in producing highest production units of consumer goods or machines to produce consumer goods. Both the countries can have the same amount of advantage by having 9 labors at the same time working on the production of consumer goods. Because adding one more labor will actually decrease the production level of the country and the same can be seen in the above mentioned table and graph.

8) The ways of PPF change are mentioned below,

Production Space: The main purpose of the simplifying assumption that our economy only produces two goods, guns and butter, is to allow the use of simple graphical analysis

Technological Efficiency and Inefficiency: The existence of a downward sloping PPF curve, which divides production space into attainable and unattainable production combinations.

Opportunity Cost in the PPF Model: Opportunity cost is defined to equal the value of the next best alternative whenever a choice is made. Given scarcity, the PPF model demonstrates that choices must be made between the production of the two different goods, guns and butter, measured on the axes.

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