Business incubators support fledgling start-ups and are often used to pursue specific entrepreneurial ventures developed by
1 answer:
You might be interested in
Answer:
2. An outward shift of the production possibilities curve.
Explanation:
Economic growth can be defined as an increase in the output of goods produced in an economy or increase in what an economy produces using its scarce resources.
Simply put it is an increase in production capacity.
The production possibility curve shows all possible combinations of two products that can be produced with a given level of resources.
When there is increase in capacity there is increase in number of goods that can be produced. For example if resources of 50 units can produce 15 units of A and 20 units of B. An increase of resources to 70 units will be able to produce more let's say 20 units of A and 23 units of B.
This results in shift of PPP outward as illustrated in the attached diagram.
Answer:
In this problem, there are four cities. Average costs of living of these cities are same. Also, incomes in each city are same. You have to answer whether composition of different goods purchased will remain the same or not. Answer will depend upon availability of substitutes.
Objective of a consumer is to maximize his satisfaction. It is ascertained by comparing marginal utility (MU) with price. Here satisfaction from last unit of the commodity is MU. Suppose it is $10. Compare it with price. If $6 is paid for buying, then consumer is getting $4 extra satisfaction. It is known as consumer's surplus. So long this consumer surplus from marginal unit is positive he will buy it. Thus equilibrium will be attained where MU and price are equal.
Now assume that person has two commodities to consume. They are substitutable. Here ideal combination of two commodities will depend upon the MU per dollar. Divide MU by the price to get it. Suppose MU per dollar of first commodity is 8 and for 2nd commodity is 5. As first one is giving higher MU per dollar, consumer will better off by taking more units of commodity 1 and less units of commodity 2. Due to increase in quantity of 1 consumed, MU will decrease. It will happen since law of diminishing utility is operative.
As per this law, if you go on consuming the quantity of a specific commodity, keeping the consumption of others constant, then MU of it will gradually decrease. Just opposite will happen for commodity 2. Here it will increase. Ultimately optimum combination will be selected when MU per dollar of two commodities are equal. Thus utility is optimized when:
However, selection of this optimum combination will depend upon the availability of two commodities. Suppose, in one town commodity 1 and commodity are adequately available. But in another town, availability of commodity 1 is restricted. In that situation, consumer will not be able to take best bundle of choice. He will be forced to take more 2 and less of commodity 1. Limited availability of substitution has forced him to consume differently, obviously his satisfaction will be low.
Thus, cost of living of four cities Sarasota, FL; Cleveland, OH; Cheyenne, WY; and Phoenix, AZ may be equal. Also income of four cities are same. Yet choice of commodities will differ. It is due to the adequacy of availability of substitutes.