Microeconomics Unit 1 Individual Project

Microeconomics Unit 1 Individual Project Cynthia A. Collins ECON220-1002B-13 October 4, 2011

Microeconomics Unit 1 Individual Project

Michelles opportunity cost of producing potatoes is of a chicken for every pound of potatoes she grows a year equaling 50 chickens a year. Her prospect cost of raising chickens is 4 lbs of potatoes for every chicken she raises equaling 200 lbs of potatoes a year. James opening cost of producing potatoes is of a chicken for every pound of potatoes equaling 40 chickens a year. His opportunity cost of raising chickens is 2 lbs of potatoes for every chicken equaling 80 lbs of potatoes a year. In this example, Michelle has the general advantage in both areas. She can produce more of each product using the same resources. Michelle has the virtual advantage in producing potatoes. It would cost her of a chicken per lb. of potatoes as compared to James where it cost him of a chicken for a lb of potatoes. James has a comparative advantage in raising chickens. He can raise a chicken and it would only cost him 2 # lbs of potatoes where for Michelle it will cost her 4 lbs of potatoes to raise 1 chicken. In this example James would benefit from a trade of 2.5 lbs of potatoes for every one of his chickens. He would be receiving more in this trade than he could produce on his own if he were to specialize in only growing potatoes. He would receive 100 lbs of potatoes as compared to the 80 lbs he could produce on his own. Michelle would also benefit from this trade. At a trade of 2.5 lbs of her potatoes for 1 of James chickens she would receive 80 chickens, if James were able to raise that many. Being that he is only capable of raising 40 a year, Michelle would obtain 40 chickens and still have 100 lbs of potatoes for herself. If Michelle were to concentrate in only raising chickens, she would only be able to raise 50 in a year and would not have any chickens. This example explains to a nation by showing the benefits of a market economy. When one nation can focus in an area and trade that service or good to another country for the service

Microeconomics Unit 1 Individual Project or good that this country focuses in it helps both economies grow and flourish. This type of

economy has proven to be a better choice than one such as communism where the marketplace is dictated by central decision maker. Many times, this central decision maker will not be in touch with consumers needs and the cost to yield goods, therefore making it difficult to determine the price of a good. In a market economy, the price is determined by supply and demand making it easier to dictate what to charge for a service or product.

Microeconomics Unit 1 Individual Project

References Mankiw, N. (2008). Principals of Economics (5th ed.). Mason, OH: South-Western Cengage Learning