For this Assignment you will explain basic economic concepts such as how scarcity and incentives affect economic decisions

What is economics and how do economic concepts apply to your life? With the complexities of technology and the current global economy, it may be helpful to consider a simplified and hypothetical scenario of an ancient family of potters who lived in a remote area. While the family was skilled and efficient, they only needed a certain number of pots but still needed clothing, shelter, food, and more. After struggling to tend to their farm and being unable to sell any more pots in their area, the family moved to a village that was in need of pottery. In this village, the family no longer had to tend to the farm, build and renovate their home, or make clothing. By focusing on their skills, they were able to trade their pottery with other families who were skilled in those other areas. By collaborating with traveling merchants, the family was able to manufacture more pottery that was sold across the lands and brought wealth to the potter family.

For this Assignment, you will explain basic economic concepts, such as how scarcity and incentives affect economic decisions, how marginal analysis affects allocation of time and resources, how the production possibilities frontier for countries can be impacted by opportunity costs, and if absolute advantage and specialization create opportunities for gains from trade.

To prepare for this Assignment:

Review the Week 1 Learning Resources.
Refer to the Academic Writing Expectations for 1000-Level Courses as you compose your Assignment.

BY DAY 7

Submit your responses to the following prompts.

Provide an example of a scarce resource and a free resource. What are the key differences between the two? What can cause a free resource to become a scarce resource? Your response should be at least 75 words (1 paragraph) in length.
Economists argue there is “no such thing as a free lunch,” yet you’ve just had lunch with a friend who paid for it. Are the economists incorrect? Explain using basic principles of economics. Your response should be at least 75 words (1 paragraph) in length.
A manager notices the company’s sales personnel are offering its customers deals that, while increasing revenues, are lowering profits. After reviewing the company’s compensation plan, the manager finds bonuses are based on sales revenue. Explain the sales personnel’s behavior using the economic principle that “people respond to incentives” and recommend a change to the compensation plan to correct this problem. Your response should be at least 75 words (1 paragraph) in length.
You have 8 hours to study for two final exams. The exam for course A is worth 25% of your grade and the exam for course B is worth 50% of your grade. The first hour you spend on studying for either exam will increase your score on it by 10 percentage points, the second hour will increase your grade on it by an additional 9 percentage points, the third hour will increase your grade on it by an additional 8 percentage points, and so forth. How will you allocate your time? Explain your answer in terms of marginal analysis. Your response should be at least 75 words (1 paragraph) in length.
How do increasing opportunity costs affect the shape of the production possibilities curve? Provide an example that illustrates the concept of increasing opportunity costs. Include a graph or illustration to support your answer. Your response should be at least 75 words (1 paragraph) in length, plus the graph or illustration.
Assume country A has an absolute advantage in producing all products compared to country B but country B has a comparative advantage in producing several products. Are there opportunities for gains from trade? If so, what determines the direction of trade? Your response should be at least 75 words (1 paragraph) in length.
Explain how international trade allows a country to move beyond its production possibilities frontier and create gains from trade. Your response should be at least 75 words (1 paragraph) in length.

**Scare Resource:** An example of a scarce resource is crude oil. Crude oil is limited in quantity and is essential for various industries, including energy production, transportation, and manufacturing. The finite nature of crude oil reserves and the high demand for its use make it a scarce resource.

**Free Resource:** An example of a free resource is air. Air is abundant and freely available for use without restriction. It is essential for human survival and various activities but does not have a monetary cost associated with its use.

**Key Differences:** The key difference between a scarce resource and a free resource is the availability and allocation. Scarce resources are limited in quantity and require allocation among competing uses, leading to trade-offs and the need for economic decision-making. In contrast, free resources are abundant and do not require allocation or trade-offs.

**Cause of Free Resource Becoming Scarce:** A free resource can become scarce due to overexploitation or depletion of its supply. For example, deforestation can lead to the depletion of forest resources, which were previously considered free, resulting in scarcity and the need for conservation efforts.

**Explanation of “No Free Lunch”:** Economists argue that there is no such thing as a free lunch because even if someone else pays for the lunch, there are still costs associated with it. These costs may not be monetary but could include time, effort, or resources allocated to provide the lunch. Therefore, someone ultimately bears the cost, and there is no truly “free” lunch.

**Explanation of Sales Personnel Behavior:** The economic principle that “people respond to incentives” explains the sales personnel’s behavior. Since bonuses are based on sales revenue, the sales personnel are motivated to focus on increasing revenue rather than maximizing profits. To correct this problem, the company should align the compensation plan with profit goals rather than revenue targets. For example, bonuses could be tied to profitability metrics such as gross margin or net profit margin, encouraging sales personnel to prioritize profitable sales.

**Time Allocation for Studying:** Marginal analysis suggests allocating more time to studying for the exam with the higher weightage (course B) initially, as each additional hour of study yields a higher increase in grade compared to the exam for course A. As the marginal benefit of studying for course B decreases relative to course A, shift focus to studying for course A to maximize overall grade improvement.

**Increasing Opportunity Costs and Production Possibilities Curve:** Increasing opportunity costs result in a bowed-out shape of the production possibilities curve. As a country reallocates resources from producing one good to another, the opportunity cost of producing the second good increases. An example is a country reallocating resources from producing consumer goods to military goods. As more resources are shifted to military production, the opportunity cost of producing consumer goods increases, leading to diminishing returns and a bowed-out production possibilities curve.

**Gains from Trade and Comparative Advantage:** Even if one country has an absolute advantage in producing all products compared to another country, gains from trade are still possible if each country has a comparative advantage in producing different goods. The direction of trade is determined by comparative advantage, where each country specializes in producing goods in which it has a lower opportunity cost, leading to mutual benefit from trade.

**International Trade and Production Possibilities Frontier:** International trade allows a country to move beyond its production possibilities frontier by specializing in producing goods in which it has a comparative advantage and trading them for goods it cannot produce efficiently. By reallocating resources to maximize production efficiency and taking advantage of specialization and trade, countries can achieve higher levels of consumption and economic welfare beyond their initial production possibilities.

For this Assignment you will explain basic economic concepts such as how scarcity and incentives affect economic decisions

The post For this Assignment you will explain basic economic concepts such as how scarcity and incentives affect economic decisions appeared first on Destiny Papers.