Problem #1:Using either a graph or table use two goods to construct a production possibilities...

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Problem #1:Using either a graph or table use two goods to construct a production possibilities curve. Clearly explain what a variety of different points on the curve mean. What would make the curve expand or contract? Why is efficiency lost at the extremes, as when substantially more of one good and very little of another is produced?Problem #2 Part A:Go to the internet auction site eBay® at www.ebay.com and select the category Jewelry and Watches, followed by Loose Diamonds and Gemstones, and then Diamonds, Natural. How many natural diamonds are for sale at the moment? Note the wide array of sizes and prices of the diamonds. In what sense is there competition among the sellers in this market? How does that competition influence prices? In what sense is there competition among buyers? How does that competition influence prices?Problem #3. Select a social problem where free markets are not allowed to function and describe how free market features could be introduced to help alleviate the problem. As part of your answer also include a discussion of the risks of introducing market mechanisms in situations where ethical issues are present. Your answer should be approximately two pages long and in APA format.(Note: You can write about social problems where the free markets are not allowed to function, which includes the market for a particular illegal good or service, a regulated market, etc.).
	
Document Preview: Problem #1: Using either a graph or table use two goods to construct a production possibilities curve. Clearly explain what a variety of different points on the curve mean. What would make the curve expand or contract? Why is efficiency lost at the extremes, as when substantially more of one good and very little of another is produced?Problem #2 Part A: Go to the internet auction site eBay® at www.ebay.com and select the category Jewelry and Watches, followed by Loose Diamonds and Gemstones, and then Diamonds, Natural. How many natural diamonds are for sale at the moment? Note the wide array of sizes and prices of the diamonds. In what sense is there competition among the sellers in this market? How does that competition influence prices? In what sense is there competition among buyers? How does that competition influence prices?Problem #3. Select a social problem where free markets are not allowed to function and describe how free market features could be introduced to help alleviate the problem. As part of your answer also include a discussion of the risks of introducing market mechanisms in situations where ethical issues are present. Your answer should be approximately two pages long and in APA format.(Note: You can write about social problems where the free markets are not allowed to function, which includes the market for a particular illegal good or service, a regulated market, etc.).

Robert · Accepted Answer

Consider two goods that a country can produce are X- a necessity and Y- a luxury good. To keep things simple assume only 1 input- labor.  IT can produce 2 goods – X, a necessity, and Y, a luxury good. Assume a workforce of 100 workers.  One L can produce 5X or 10Y. The corresponding PPF is given below. 
A PPC is based on the production function and the given amount and efficiency level of the resources.. The Y axis implies only luxury good is produced. This equals total L/ L per unit = 100/10 = 10 units.The X axis implies only necessity ( point B)  good is produced. This equals total L/ L per unit = 100/5 = 20 units.This means that society can produce only 10 units of luxury good and 0 units of the necessity. The other option is 20 units of necessity and 0 of luxury good. The only reason to be inside the curve is that some resources are idle and unused. Some labour may be unemployed due to its own demand for higher wages. It is also possible that the labour leisure preferences do not allow workers to work for more hours. In this case non wage incentives may be used to change this tradeoff in their preference maps. Points A and C are inefficient as the price ratio does not equal the slope at these points. In other words, he inputs are not perfect substitutes of each other and production of one good alone is inefficiency use of resources.  
Problem 2:
Competition is based on free market that includes demand and supply forces. In the case of diamonds, there are many buyers in the form of consumers who buy diamonds online / offline. In the same way there are many sellers like ebay and other sites that sell them. By this logic, there is enough competition to ensure that price is determined by free changes in demand and supply. Diamonds are on sale in different ranges in terms of quality ( 4 C’s of a diamond)  and price. A site like ebay that invites bids ensures that the final price is based on the willingness to pay for a particular diamond. The price will equal the highest willingness to pay for a good. 
competition among sellers cant be determined from 1 site alone.

Problem #1: Using either a graph or table use two goods to construct a production possibilities curve. Clearly explain what a variety of different points on the curve mean. What would make the curve...

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