Posted by Pia on Monday, October 23, 2006 at 8:31am.
hey, could someone please give me some tips for the following questions. iv got a test coming up, and one of these 4 questions will be in it.....
so i have to write 4 essays n learn it. i just need a few points to put my essay together.
thanks in advance.
'Consumers maximise utility subject to a budget constraint. Firms maximise output subject to a cost constraint'.
Outline how the analysis of the firm's behaviour in terms of isoquant and isocost analysis parallels the analysis of consumer behaviour in terms of indifference curve and budget
To what extent does this type of analysis indicate the meaning of the basic economic problem.
Why does trade of any type take place? Illustrate your answer by reference to each of the
(a) Market exchange in which price is determined by demand and supply. (Refer in your answer to producer and consumer surplus).
(b) Exchange between two individuals based on differences in tastes given a fixed endowment of two goods.
(c) International trade.
3."In both monopoly and perfect competition the profit maximising output is at the level at
which MR = MC, but only in the latter is the optimum output level such that P = MC".
Explain the above statement by comparing the model of perfect competition with that of
4. "Prices contribute to the efficient production and distribution of goods and services by embodying vast amounts of knowledge not available to any individual … prices lead to
social outcomes that take account of producers' costs and consumers' preferences in ways that no individual planner could hope to accomplish".
(a) Outline the various roles played by prices in a market economy.
(b) In what way does the presence of externalities result in price information being
"inaccurate"? Illustrate your answer by considering:
i. The case of research and development expenditures, and
ii. The problem of traffic congestion.
All good fundamental microeconomic questions, Your question is rather open ended, so, a few tips as you requested.
1) the basic economic problem is how to allocate resources most effectively. Isoquants and isocost lines provide an analysis for maximizing output subject to fixed total cost constraint. With any other solution besides the optimal one you derive, a person/firm could be better off by moving to the optimal solution.
2) The whole reason why exchange exists is that both parties are better off with the exchange.
3) With a monopoly, output is set at a point where price is greater than marginal cost. Thus, we have a an inefficient solution; somebody is willing to pay for a good that is in excess of what it costs, at the margin, to make that good.
4) with a pure private good, the consumer pays the entire cost of the good and receives the entire benefit from consumption. With negative externalities, some person or group outside the transactions bears some of the cost. With positive externalities, some other person outside the transaction benefits.
I hope this helps. Lotsa luck.
thanks for the tips n luck, haha i'll need it.
Can you please elaborate on what you wrote Mr Economyst?
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