Macro Economics Question

Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below: (3 Marks)

Tables Chairs

0 200

50 180

60 160

70 140

80 120

90 0

1) Explain production possibilities frontier (PPF) by putting tables on the Horizontal axis and chairs on the vertical axis. What is Bill’s opportunity cost of producing one additional table?

2) Currently Bill is producing 70 tables and 120 chairs.

a) Is this allocation of resources efficient? Why?

b) Show this allocation on the graph and advise Bill how he can be more efficient.

Question-2

Explain by applying these concepts with examples. (2 Marks)

a. Rational people respond to incentives

b. Role of prices in allocating resources