Economies of scale represents the situation when long run
average total cost decreases as output increases, while diseconomies of scale
occur when long run average total cost increases as output increases, and
constant returns to scale occur when costs do not change as output increases.
In this diagram, at point A, long term average cost is decreasing and quantity
increasing, it representing economies of scale while on point B cost and output
are not changing therefore it is representing constant return. At point C the
long term cost is increasing as well as output also increasing it represents
diseconomies of scale (Silberston., 1972).
is the difference between short run and long run cost curves? State two points.
No fixed cost in long run while short term
have both fixed and variable cost as well.
In long run general price level adjusted
according to the economy but in short term price level do not condensed
according to the economy.
are economies of scope? Give one example.
Economies of scope refer to the concept
that the unit cost to produce the product will decrease when there is increase
in variety of products increases. For instance you are manufacturing shoes for
both male and female, you want to add variety of children that increase the
economies of scope because production cost will increase to introduce new one.
PPF curve shows different points on the graph:
Define a Production Possibility Frontier
conducting analysis of the business, the production possibility frontier PPF is
a curve that explains the changing quantity of two products that could be
produced depending on the limited resources.
three sources of economic growth (outward shift)
List three sources of economic decline
Loss of investment
Higher interest rate
Stock market crash
Draw a circular flow of economic activity
and label the diagram in detail.
Consumer household possesses the
factors of the production that is based on the land, labor, capital
organization that are used in the production of the products and services. In
the chart, the offer of commodities by firms to buyers in the market is
appeared in the lower part of the inward float from left to right; and the
offer of their management to firms by family units or customers in the factor
showcase is appeared in the upper bit of the internal hover from option to
In a modem economy, employment
happens through budgetary streams which move in the converse bearing to the
genuine streams. The achievement of products in the item vehicle by customers
is their utilization consumption which turns into the income of the
organizations and is appeared in the external hover of the lower divide from
option to left in the diagram. The acquisition of commodities in the item
advertises by buyers is their utilization use which turns into the income of the
organizations and is appeared in the external hover of the lower parcel from
option to left in the diagram.
The utilization of firms in
purchasing profitable assets in the factor advertise from the buyers turns into
the income of family units, which is appeared in the external float of the
upper bit from left to directly in the diagram.
that Oman implements a combination of contractionary fiscal and monetary
policies. What will be the effect of these policies on each of the following?
policy impact several elements of aggregate demand that are based on the
contractionery monetary policy leads to the higher interest rate and decrease
the quantity of the loans that could reduce the elements aggregate demand (Bature, 2014).
Price level: The economy is initially creating over the potential
GDP level of yield and is running into pressures for an inflationary rise in
the price level. As a result, if an economy is creating at an amount of yield
over its potential GDP, a contractionary money related arrangement can lessen
the inflationary weights at an increasing price level.
Interest rates: With the higher interest rate the investment demand
is increase that increases the interest rate in the economy. It is generally
progressively alluring to place those assets in a budgetary speculation than to
make an interest in physical capital. Furthermore, higher loan fees will
debilitate customer obtaining for expensive things like houses. On the other
hand, free or expansionary money related strategy that on time lower financing
costs and a higher amount of loanable finances will in general increment business
enterprise and purchaser obtaining for first-class things.
is a business cycle?
Business cycle is based on four phases of situation
of market such as boom, trough, contraction and recovery. It represents the
fluctuation in the long term of growth measuring in the domestic product (Chari, Kehoe, &
Explain what is happening during each
phase of the cycle with:
Output: In the boom of the cycle, output of the firms is at
maximum while with the decreasing in the boom to recession output also
decreases in the economy.
Employment: Employment level increase when the business cycle is
at the boom and in contraction, employment level decrease.
Inflation: In boom of business cycle, inflation rate is in control and as compared
to boom, in recession inflation remain in control.
following table shows the number of donuts or cupcakes that John and Erica can
each produce in one day:
has the absolute advantage in producing donuts? Explain.
is taking the absolute advantage of producing donuts as it is based on the
concept of economies of scale by producing it on large scale.
(ii) Who has the comparative advantage in
producing donuts? Explain
to the economies of scale, john is producing donuts according to the economies
of scale and getting comparative advantage.
following table shows labour-market data for country X:
Not in the labor force
Calculate the unemployment rate in Country X. Show
The formula for unemployment rate is: Unemployment
Rate = Number of Unemployed Persons / Labor Force.
Country x has unemployment rate of 0.25
or 25% in the relevant year.
Unemployed persons = 20,000
Labor forced = 180,000-100,000 = 80,000
Bature, B. N. (2014). "An Assesment of Monetry Policy
Transmission Mechanisms in Nigeria.
Chari, V. V., Kehoe, P.
J., & McGrattan., E. R. (2007). Business cycle accounting. Econometrica
, 75 (3), 781-836.
Silberston., A. (1972).
"Economies of scale in theory and practice. The Economic Journal ,
82 (325), 369-391.