QUESTION 1 a
In the world, all of the resources are limited; there is the issue in a fundamental economic problem also for society at large. Also resources are finite and want and need to be infinite, unless everybody’s wants and has to be restricted in some way. But this is not possible in this world, so they should make the choices for conditions in scarcity resources. Choices comprise making a selection between two or more alternatives. The choices are always expressed in requirements of three questions. There are including what to produce, how to produce, and for whom to produce. The three questions are of great importance for choosing in resource. About to produce goods and services in society, we should consider various elements in land, labor, capital and enterprise. So, the society needs to do choices about how to allocate these resources effectively.
The following, we will be making a production possibility curve to show the resource allocating between goods and services. It be composed in an economy in a fixing period assume that all the resources in the economy are being used fully and efficiently.
PPC curve showing the combination of the production of cars and televisions
Table / curve (1)
From the above curve, we can see different points in this curve; let us analyze this means of points. In curve (A) there are unemployed resources. The point at Curve (E), there is unattainable with the resources the society at present. Also, if we want to achieve the point (E), we should just have to increase the quantity or quality of its factors of production, such as improve technology demands.
In additions, the point at point B on the curve, there are fully employed resources to show the maximum combination of goods. There are comprised 300 cars and 800 televisions that can be made by distributing a portion of the total resources to car production and the rest of television production. Then, due to the society wants to make more cars , such as 600, it will be made more resource in cars production, the cars is from 300 that raise to 600, conversely, the television production will be drop from 800 to 600, see the point (C) .So that, the fixed resources will need to be utilized for their alternative use. Deciding to spend scarce resources on producing cars comes at the expense of producing fewer televisions. There is a trade-off. Also, we can call an opportunity cost to produce more cars, which are foregoing some televisions. Opportunity cost is meant by the cost of the next best alternative foregone. Also, the opportunity cost of acquiring the cars instead of the televisions.
What we also notice is that as we are moved to point D there is an increasing opportunity cost in car production. We just have to give up more and more televisions to produce fewer and fewer cars. Here we are getting 750 cars, 150 more than at C, but giving up 350 more televisions than at B. Increasingly, we give up more and more televisions, but we can produce fewer and fewer cars. There is an increasing opportunity cost. This is explained by the fact that not all factors of production used to build televisions and cars are equally efficient at producing both. As we demand more and more cars, we move resources better in television production away from television production. Therefore, television production falls a lot but the car production does do not increase much.
The PPC shows that economics is first and foremost interested in the allocation of scarce resources which have alternative uses. Every society no matter if it has a command, mixed, or free market economy must deal with scarcity, and, therefore, it must make choices about how to allocate resources which have alternative uses. These choices carry with them the idea of opportunity cost.
In summary, why economics is primarily concerned with resource choices, it is scarcity resource in the world, we should analyze the opportunity cost in among resource, and then we should need the choices of resource.
QUESTION 1 b
We are a Quantity Surveyor Consultant Company in Hong Kong. We offer the full scope of services demanded by customers in the property and construction industry, ranging from strategic rede to building audits and surveys. There are three points to define in their specialized fiscal sense in our firm, there are including labour, nominal value and opportunity cost.
Labour is a human resource, capital in our firm. Nevertheless, in the economist’s meaning, that also calls for wages. Labours is the company’s employees, we employ them to push for the company, they are providing for their resources including knowledge, skills, abilities for the company, such as estimating, costing, quantity surveying, buying, accounts and contracts. However, we will refer to their work in order to provide returns. Also, of wages, it not just based on the company to pay the wages, there are also combined with communal elements about the development of the industry, government policy such as minimum wages.
Nominal value in economics also consults to a value presented in monetary words for a particular year or years, without revision for inflation. About our firm, we are a Quantity Surveyor Consultant Company. We are an aggregate workforce of 120 in the company. We are building and civil engineering works; also, our company is situated in a position to tender for contracts up to £20m in value. There is our capital. There are being affecting our trifling value from our capital, type of project.
With our investment and service activity, the nominal value is sometimes identified as the par value. Also, built on the nominal value of a security, some company will be issue stock or bond to remain fixed for the duration of its life. Such as, if the security has earned some type of actual rate of return since its purchase, that value will be higher than the purchase price.
The cost of an alternative that must be without one to select between two or more alternatives. In other words, the advantage you could have got by taking an alternate action. Such as, we have two projects that we wish to undertake, but we have not enough ability to handle both them, so we should make the opportunity cost compare with these two projects in the profit.
The difference in return between a chosen investment and one that is certainly passed up. Such as we want to create new investment in new project or new market, for example hospital and power station building, it is a new experience for our firm, we are not this project experience, so the return that maybe not more than our familiar market.
In conclusion, above three elements that more useful to provide different information to us to make up some policy in part of the economy. However, we hope that our profit will be raised through these economic policies.
Marginal utility refers to the consumer within a certain period of time to add a unit of goods or services brought new utility, which is the aggregate incremental utility. In economics, utility is the ability of the product to meet the people’s desire, or that utility is the satisfaction of consumers in the consumer goods felt. Also, marginal utility depends on the relationship between the need and supply. Needed to meet the needs of more and more intense, the less the amount of articles to meet these needs, the more significant unmet needs, and thus the higher the marginal utility of the article. Conversely, the lower the marginal utility and value.
One freely available good
It is mean that this resource is from nature for free. Also, it is not infrequent, and therefore is available without limits. A free good is provided in as great a quantity as desired with zero opportunity cost to society. For example unmetered water, it is a natural resource, not scarce and opportunity cost. It’s a free resource because there’s enough to go around.
In this case, we assume all free good is not scarce, not limits and not priced.
We can see from the above table (1) ‘s figure, table (1) does not accept the increase in the number of its utility and drop or reduce the number went from a positive to a negative, It is a constant figure,
Because of no limits and not priced in unmetered water, people do not worry losing these water. Their satisfaction is arrived in sufficient needs. These needs are no change in anything, such as the scarcity, price and place. They can be allowed to obtain these waters. They do not limit in anything. So that, in marginal utility curve, it is a constant figure to show this phenomenon. So water doesn’t have much utility for most people.
Two priced goods.
In this case, we will be used water and diamond to show our analysis. There are two priced goods including water diamond.
From the table (2), there are relatedly of water ‘s utility Diamonds ‘utility, we can find two elements in this table, the first point is necessary, the second point is price. Generally, water is critical to sustaining life cost to us, conversely, diamonds are atheistically pleasing only. There are relatively unnecessary. On the other hand, on price, price shows the scarcity of a good. Totally, the supply of water is comparatively plenty, but the supply of diamonds is comparatively finite. Therefore, we are required to pay the price in water that is low than the price in diamonds.
Also, if you are logical people, who are maximizing his utility to buy both water and diamonds? It is a nice question to talk about it. When we make up for water and diamonds, we will be considering in their price. Due to large of water consumption, the total utility of water is very large, if we have used the water in the last gallon, in this moment, the total utility of water is comparatively quiet. Some diamonds are purchased the marginal utility is very considerable in this moment, such as the diamond ring, you just bought for your lover; the total utility is minimal since these diamonds are purchased.
In summary, customer choice is led by favors for particular products, prices, budget constraints, and the marginal utility of products. A budget constraint exists since the client only has so much money. So he can only spend so much; therefore, even among things that he wishes, he must be chosen from one. Also, the choice will reply on its price and marginal utility of the product. Since marginal utility drops with quantity, at this moment price do not change, a consumer will want to purchase as much product until the marginal utility of the product declines below the marginal utility of other products that the customer can buy. Hence, the client stops buying more of a product when the marginal utility of an extra amount is less than its price. So, the total utility of what the client can buy within his budget is maximized. Therefore the marginal utility of each model of product separated by its price will be approximately matched to the marginal utility of the other products that the customer bought separated by their prices.
QUESTION 3 a
Diminishing returns (also called diminishing marginal returns), diminishing returns (also called diminishing marginal returns) are that when other inputs constant, continuous increase in a particular investment, the new law will reduce the final output. The law of another equivalent statement is: After more than a certain level marginal cost of the marginal decline in output. In general, the marginal product is never negative
Today, we will be using commercial property space to show the diminishing returns. In this approach, we should be assuming that labour, management, capital equipment and raw materials all fixed. Although factory space and shop space could be analyzed in a similar manner.
If we increase the demand for the services produced in office buildings, then more services would be supplied by increasing the use of the variable factor. However, if the other factors are set, this would lead to diminishing marginal returns. Also, the long-run solution to this problem is to increase the supply, that is, to build more buildings
The following we will be sharing the relationship between the firm’s output and the quantity of office space it uses. Owing to the firm wants to occupy more space, so its output expands, in this moment, as the firm has no extra workforce or equipment to occupy the space so the rate of expansion will start to decline eventually.
The reason for diminishing marginal returns is straightforward. When more space is added without adding more workforce or equipment, there are increasingly more spaces ”sharing” each unit of workforce or equipment, so eventually each space will be less. Whatever, Law of diminishing returns is a effective data analysis available to us to set up some policy.
The Law of Diminishing Returns describes that as one input variable is increased, then, there is a point at which the marginal grow in output starts to decline, keeping all other inputs constant. At the point, we can state that the utility of each extra unit of input decreases. This is not to say that output decreases; also, the output starts to increase at a decreasing rate for each additional unit of input. There can be an issue at which output beings to increase; this is called negative returns.
QUESTION 3 b
From the above table, we can see that we assume us to do 10 projects, the basic cost of each project is around 2 million, then, we need to do 10 projects that are around 20 million in expense. It is our basic cost to run these projects. Nevertheless, we need to gain the profit in these projects, so we provide 5 million to finish each projects, the aggregate revenue is around 50 million. Then, we can gain 30 million profits in these projects. Awaited to we want to increase our revenue, so we want to set the price for each projects that are 3 million, in this time, we will be gaining extra quantity up to 20 projects, therefore, we can obtain 60 million for revenue. Also, we have the profit that is only 20 million. So that, we can proof that the revenue of a firm of surveyors may rise, yet its profit may fall.
In this case , due to the price is from 5 to 3 million, so the firm gains more project to do, but the net profit is decrease, Maybe, the company wanted to increase or expand market occupancy rate, so they want to make up a low price to gain more project, However, this is a faster way to enhance their own image, and let the public know the existence of a large consumer of this company, which can be done to promote the role, on the other hand, it can tell their competitors, they is a sound company funds, this is a warning for these competitors.
Market share regularly is related to profitability and thus many firms try hard to increase their sales relative to competitors. There are some reasons that firms aim to increase market share.
1. Economies of scope – higher volume can be helpful in developing a cost advantage
2. Sales growth in a sluggish industry- when the industry is not keeping in growth, the firm still can develop its sales by expanding its market share
3. Reputation- a good reputation can be provided with a clout to market, it is also an advantage if they have a good reputation in the market.
4. Increased bargaining force–, If they have a large market share, they can be obtained more bargaining force in negotiations with suppliers and channel.
QUESTION 3 c
Marginal product (marginal product, referred to as: MP), otherwise known as the marginal product. MP is the marginal yield increase to increase the amount of labor input of a unit brought the total. For instance, when the number of workers from one enterprise to 2, the production of apples from 100 cases to 180 cases, the second person of the marginal yield is 80 boxes.
Raw materials are also natural resources such as wood, iron and oil. It is also in the primary manufacturing or production of a good. Before being used in the producing process, raw materials usually are modified to be used in distinct processes.
As the raw materials are limited, the demand for raw materials also is limited for the firm. Initially As we continue to increase demand for the use of raw materials, as raw materials to be utilized fully, and his marginal product increased product yield also increased. Then, as the raw material to be used close to full completion, it also began production increased by a negligible growth becomes diminishing, and finally, when the raw material is utilized fully finished, its total product yield absolute reduction. So that, firm’s demand for raw materials that should be use efficiently, therefore we can recycle to use some materials to decrease using raw materials, such as in about construction industry, we can use second hand formwork to instead some new formwork in some appropriate place. Also, we can decrease to use some manufacture by raw materials that cannot be recycled to use, such some plastic bags, because plastic bags are very difficult to decompose by nature.
At its summary, marginal product is virtually about learning to use the tools at hand in the most effectual manner. Taking the time to assess marginal productivity helps companies avoid the waste of valuable time and resources that could be controlled to better use. As a result, the companies are able to produce more services and goods, and thus intensify its position in the marketplace.
1. Murray N. Rothbard. “B. The Law of Marginal Utility”, Man, Economy and State, online version, 2009-07-07.
2. Jump up Robert P. Murphy. “A Study Guide to Murray Rothbard’s Man, Economy, and State, with Power and Market”, Chapter 1, 2009-07-07.
3. Opportunity Cost”. Economics A-Z. The Economist. 2010-09-18.
4. Samuelson, Paul A.; Nordhaus, William D. (2001).
QUESTION 1 a