Possibilities: Economic Analysis

In this assignment, you will gain insight into the methods economists use to study economic behavior and the economy. You will also examine production possibilities, the concepts of opportunity costs and increasing opportunity costs, and marginal cost and marginal benefit-all vital skills for the global business leader.

Requirements - This assignment has three parts. Be sure you have completed all three parts before submitting.

Part I - Below is a production possibilities table for consumer goods (butter) and capital goods (guns).

Production Possibilities

Type of Production Production Alternative A Production Alternative B Production Alternative C Production Alternative D Production Alternative E Production Alternative F Production Alternative G

Butter 0 1 2 3 4 5 6

Guns 14 13 11 9 7 4 0

Graph the data provided in the table using Excel:

• Type your data into an Excel spreadsheet.
• With your mouse, highlight the data only.
• Go to "insert." Click on "scatter."
• Click on "smooth lines chart."
• Select the line chart. Plot data drawing line.

Based on the graph you created, complete the following:

• Analyze the graphed data to develop assumptions, referencing the possibility curve.
• Identify the specific assumptions that underlie the production possibilities curve.
• Determine the cost of more butter, if the economy is at point C. What would be the cost of producing more guns? How does the shape of the production possibilities curve reflect the law of increasing opportunity costs?
• Suppose this hypothetical economy were producing only 1 item of butter and 10 guns, and this was depicted by this production possibilities table and curve. What conclusions could you draw about this economy's resource utilization?
• Determine whether this economy is able to produce outside its current production possibilities. How might technological changes affect the production possibilities curve? How can international trade allow consumption above its production possibilities curve?

Part II -

• Analyze the concept of opportunity cost.
• Explain what is meant by opportunity cost.
• Explain how opportunity cost relates to the definition of economics.
• Determine if allocating advertising expenditures to boost sales or investing in a new plant and equipment would entail the greater opportunity cost. Explain and support your response.

Part III -

• Apply the concept of marginal cost and marginal benefit to real-world decisions.
• Provide two examples of recent decisions you made in which you, either explicitly or implicitly, weighed marginal cost and marginal benefit.