The paper "Financial Markets and Institutions in Australia" is a great example of an assignment on macro and microeconomics. The above graph illustrates the production possibilities of a given country that produces only two products, which are sunscreen in liters per month and food in kilograms per month. The trade-off between the two commodities, that is sunscreen and food, is in such a way that more food is foregone if this country decides to produce the only sunscreen. On the other hand, less sunscreen is foregone if this country decides to produce only food.
The trade-off is however different if this nation decides to produce either 100litres of sunscreen or 100 kilograms of food. If it decides to produce 100 kilograms of food, it will have to forego 100 liters of sunscreen. Similarly, if it decides to produce 100 liters of sunscreen, it will have to forego 100 kilograms of food. The amount of sunscreen to be produced so as to attain production efficiency can be calculated by first determining the equation of the line, which is given by y = a + bx.
We first begin by calculating the gradient, bb = ∆Y/∆XWhere Y denote sunscreen in liters and X denote food in kilograms. Therefore, by choosing any two points from the graph, such as (300, 200) in the X-axis and (0, 50) in the Y-axis, the gradient of the line will be calculated as follows, 50-0 = 50/-100 = - 0.5200-300The equation of a straight line normally takes a form of y = a + bx, where a is the adjacent point and b the gradient. By inserting the calculated gradient in the equation, Y = a – 0.5xTo determine a, we take any point from the graph, such as (300, 0), 300 represent a point in the x-axis while 0 represents a point in the y-axis.
By inserting these two points in the above equation, a is found to be 150. Therefore, the equation of the line becomes, Y = 150 – 0.5X. From this equation, the amount of sunscreen to be produced, if 150 kilograms of food per month is produced, will be calculated as followsY = 150 – 0.5 (150) = 75Therefore, if the country produces 150 kilograms of food per month, it will have to produce 75 liters of sunscreen for it to attain production efficiency.
Ford, T., & Valentine, S., 2005, Financial Markets and Institutions in Australia. Prentice Hall.
Organisation for Economic Co-Operation and Development, 2010, OECD Economic Surveys: Australia. OECD Publishing.
Spoehr, J., 2009, State of South Australia: From Crisis to Prosperity? Wakefield Press.