Answer to Question #75934 in Economics for Mo

Question

1. A community in Northern Namibia produces only two goods, Radio and DVDs. With the aid of properly labelled production possibilities curves illustrate each of the following(putting Radios on the vertical axis)

1.1. A shift in production from Radios (services) towards DVDs(goods)
1.2. An increase in the potential output of the community due to a greater availability of the factors of production.

2. Using well labelled diagrams, explain how the equilibrium price and equilibrium quantity of quava change as a result of the following:
2.1. A change in the wages of farm workers from R 150 per day to R 200 per day.
2.2. A decrease in the price of fertilizers and a concurrent increase in the demand for Quava juice.

Answer 1

1.1 A shift in production from CDs (services) towards TVs (goods) is a movement along the production possibilities curve.
1.2 If there is an increase in the potential output of the community due to a greater availability of the factors of production, then PPC will shift outwards (to the right).
2.1 A change in the wages of farm workers from R150 per day to R200 per day will cause a decrease in supply, so the equilibrium price will increase and equilibrium quantity of apples will decrease.
2.2 A decrease in the price of fertilizers and a concurrent increase in the demand for apple juice will cause an increase in supply and later in demand too, so the equilibrium price will fall or rice (uncertain change) and equilibrium quantity of apples will increase.