Quiz 2: The Production Possibilities Model, Trade, and Globalization
Graph is visual representation of relationship between two variables by plotting their corresponding value of two axis system i.e. X-axis and Y-axis. Show the graph sheet below for all the given points, as follows. The point a here represents (0,5), b represents (-5,-5), c represents (2,-3) and d represents (-1,1). .
The production possibility curve shows all the possible sets of maximum production of two goods when inputs are limited and allocated between them. Comparative advantage is ability of being better in production of one good in comparison to others. The interior of a production possibility curve represents an area where the production of good is done below the potential i.e. the input resources are underutilized. Therefore, if resources are utilized efficiently and with reasoning then the production point will lie on the circumference of the production possibility curve. But, to say that if everyone use reasoning then it would be impossible to produce below production possibility curve is wrong because there are other factors as well which affect productivity like legal, social and political issues, uncertainties and accidents, etc.
Merit goods are goods which are beneficial for consumer while the demerits goods are harmful. Public goods are common goods that are managed by the government. Externality is the cost or benefit burdened upon the people who either not using the good or related to it. When the intervention of government makes things bad instead of good, then that is government failure. Normally, it is seen that markets are most efficient when they are allowed to trade freely i.e. there is no government intervention. In this scenario there is no deadweight