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Unit 2 Problem Set 1

In: Business and Management

Submitted By Brett2112
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1. Refer to Problem 1.8 on page 59 of the Hubbard/O’Brien textbook. To answer questions a, b, and c, carefully study the graph and identify the points that are unattainable, efficient, and inefficient. Be sure to explain how you identified the points in each case. To answer question d, note that the graph shows the trade-off between producing capital goods (machines, tools, and factories) and producing consumption goods (food, clothing, and movies); which of these will add to an economy’s ability to produce in the future?

a. Point E is currently unattainable because that point is beyond the line meaning that there are not enough resources to reach that point.

b. Points B, C, and D are efficient because the points are on the line in the graph.

c. Point A is inefficient because that point is below the line meaning all resources are not being used.

d. Point D is likely to have the highest growth rate because there are more consumption goods being used at that point.

2. Refer to Problem 3.7 on page 62 of the Hubbard/O’Brien textbook. George represents households while BMW and McDonald’s represent firms. For each transaction, identify whether the transaction takes place in the factor market or the product market. • If the transaction takes place in the factor market, indicate whether households are supplying or demanding factors of production and whether firms are supplying or demanding factors of production. • If the transaction takes place in the product market, identify whether households are supplying or demanding the good or service and whether firms are supplying or demanding the good or service.

a. This transaction takes place in the product market. The households are the demanding factor in this scenario and the firms are supplying.

b. The increase in employment at a plant will take place at the factor market. The Firms will make this determination due to the demand of car being bought by the households.

c. The number of hours worked at a job will reflect the product market. In this case the household is supplying the service by working for the company.

d. This is a factor market. McDonalds wants to build a new restaurant so they buy Georges property to do so. McDonalds is the firm demanding the property and George is the one supplying it.…...

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