Assignment Example | Topics and Well Written Essays - 500 words - 39

Assignment Example Due to limited resources accompanied by the constraint on the same, there is demand for choice hence opportunity cost in economics. In the cases presented, allocation of a square block in the heart of Toronto for a parking lot poses the greatest opportunity cost due to the demand for packing space in the city. 3. The cost of production is $(5*40+7*60+2*60+1*20) = $760. Selling price is $(400*2) = $800. The firm can therefore continue producing bread because a margin of $40 will result. The flow of factors of production to the bakery is good since it will enhance technical efficiency and effectiveness. 4. If supply decreases and demand is constant, prices will rise and quantity reduces. With lower demand and constant supply, prices fall and quantities go up. Increase in supply with constant demand leads to reduced prices by the margin of increase while quantities will flood the market. Depending on the increase in demand and supply, there will be an increase with the same proportions. If demand increases and supply remains the same, there is a constraint created hence prices go up while quantity diminishes. Increase in supply accompanied with reduced demand leads to excess goods in the market hence lowered prices with excess goods in the market. If demand increases and supply decreases, prices will drastically escalate with steep decrease in quantity. If supply decreases alongside demand, prices and quantity would follow in the same proportion (Adil & Janeen 2006pg.57). 5. If price falls and demand is inelastic revenue falls since quantity is constant. Price rise with elastic supply leads to increase in revenue with the same proportion. While in a case, when supply is inelastic, rise in prices also increases revenue (Adil & Janeen 2006pg.194). 6. Price ceilings involve the setting of prices by governments below the equilibrium price to favor the consumers while reducing supplier’s profits. Price floors involve a