124. Economics 1A: Assignment notes

QUESTION 1.

1.       Some class notes on the  PPF (ppc)

*Efficiency & Inefficiency

*Opportunity costs

*Scarcity

Choice

Du Toit: P 7-9; P 19 -22

The alternative needs to be sacrificed. All the factors of production is fully utilized.

Any combination of the two can be produced.

The opportunity cost for producing A is the B that cannot be produced.

The different alternative combinations that can possibly be produced is represented by the PPC or frontier (given fixed production techniques (ceteris paribus)).

Scarcity is illustrated by the fact that all points to the right of the curve is unattainable

Choice is illustrated by the need to choose among the available combinations along the curve.

Opportunity cost is shown by the fact that more of one good can only be produced by sacrificing the production of the other good (negative slope of the curve) – there is a trade-off between the two goods.

Sacrificing A for B is cheap at the flat end of the graph and expensive at the more vertical end of the graph (and vice versa). Allocative efficiency is attained where the marginal value of A equals the marginal value of B!

3.1 Determinants of demand (apart from price) P32 in the study guide

3.2 Price ceilings and price floor

When the government imposes price ceilings on goods and services (as it does in some countries with rent controls) or with price floors (as it does in South Africa with the minimum wage legislation and in the US with agricultural price support programmes), it is in effect redefining the rights of sellers regarding the property that they sell. One of the purposes of economics is to analyse the effect of such imposition on their property rights and on the efficiency of trade and production.

3.3 Free Market Foundation legal challenge to making bargaining council agreements (on minimum wages) obligatory to all in an industry even if they were not party to the agreement. The reason for that is to protect the jobs of persons in the smaller more marginal businesses.

4. Differentiating characteristics - the differences lie in the market conditions in which the businesses operate. The state often determines these conditions (the are also "natural" in some cases). p243 du toit

THE DIAGRAM on page 233 in Du Toit is VERY IMPORTANT