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    Production possibilities for beef and potatoes

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    2. Suppose a production possibilities frontier (or curve) for an economy that produces beef and potatoes. Using terms like "on the curve," "within the curve," and "beyond the curve," indicate the position of an impossible point, an efficient point, and an inefficient point. What would happen to the curve following a severe hurricane? Weight: 15

    6. Suppose the income elasticity of the demand for Coca-Cola is 1.75. What would happen to the quantity demanded of Coke if there were an increase in income of 3 percent? Weight: 10

    8. Suppose you are the CEO of a big firm. How might information like elasticity be useful to you? What could be the cost of ignoring such information? Do you see any real-life application of the concept of elasticity? Weight: 10

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    Solution Preview

    Markets exist whenever buyers and sellers come together and agree on a price for exchange. In a competitive market, there are many sellers with identical products. In a duopoly, there are only two sellers, and in a monopoly there is only one.

    To demonstrate the capacity of an economy to produce two goods, economists often use production possibility frontiers. These graphs show the different combinations of goods that the economy can produce if it fully utilizes all its ...

    Solution Summary

    Discussion of the production possibilities frontier, income elasticity of demand, and price elasticity of demand.