Assignment:
Problem 1: Using either a graph or table (Refer to page 22 for help with graphs and tables) use two goods to construct a production possibilities curve. Clearly explain what a variety of different points on the curve mean. What would make the curve expand or contract? Why is efficiency lost at the extremes, as when substantially more of one good and very little of another is produced?
The curve demonstrates that quantity is the key. The more batteries that are produced means there will be fewer iPhone's produced and vice versa. I think the key here is to use moderation. For example, if there were a point on 5, 5 it would represent both iPhones and batteries were being manufactured equally so there will be no surplus or shortage of either product. Anything outside of the curve is unattainable and represents full employment is not being realized.
Types of Production Production Alternative
Iphones A B C D E F
Batteries 1 2 3 4 5 6
8 7 6 4 2 0
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Batteries
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10
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9
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8
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*
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7
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*
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6
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*
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5
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4
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3
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2
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*
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1
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0
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1
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2
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3
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4
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5
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6
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7
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8
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9
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10
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Quantity iPhones (Consumer Good)
Problem 2 Part A: Go to the internet auction site eBay® at www.ebay.com and select the category Jewelry and Watches, followed by Loose Diamonds and Gemstones, and then Diamonds, Natural. How many natural diamonds are for sale at the moment? Note the wide array of sizes and prices of the diamonds. In what sense is there competition among the sellers in this market? How does that competition influence prices? In what sense is there competition among buyers? How does that competition influence prices?
There are 182,746 diamonds available for sale currently. The large selection and variety of sizes and shapes influence competition among buyers because when a buyer falls in love with a piece of jewelry, they will spend more money trying to obtain that specific diamond therefore driving the price up past what it would have been had that particular buyer never found it listed on ebay. Many times buyers will try to outbid their competition just because the competitor may have won an item in a previous bid and beat them because they drove the price up so high.
Problem2 Part B: Describe what would happen if an outside agency determined the prices eBay could charge.
If an outside agency set limitations and guidelines on each item, this would probably drive the prices either extremely high or low. With a set price for each category, the value of each item couldn't reasonably be uniformly priced without the sellers losing money. If the company were to evaluate each item for their value, they would have to be paid for their evaluation so they would drive the prices up and business would slow down considerably. If they drove the prices down, everyone would lose money since they would only be paid the minimum for items that are valuable.
Problem3: Read the "LAST word" feature on markets for human organs on Page 66 of your text. Next, select a social problem where free markets are not allowed to function and describe how free market features could be introduced to help alleviate the problem. As part of your answer also include a discussion of the risks of introducing market mechanisms in situations where ethical issues are present. Your answer should be approximately two pages long and in APA format.
(Note: You can write about social problems where the free markets are not allowed to function, which includes the market for a particular illegal good or service, a regulated market, etc.).