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Question 4. Outline in detail: The notion of free exchange. Discuss the types of protectionism used around the world to reinforce restriction of free-trade and what they denote. Name and describe at least 5 organizations that promote these concepts.

The Notion of Free Exchange

Free exchange refers to the rights allowed to an investor to transfer assets to another party without paying for any transaction fees during the exchange (Boyes, 2010). There are different types of protectionism employed around the world as a way of reinforcing free-trade for instance through tariffs. This is whereby governments raise the price of imports to make them less attractive to foreign customers (Langholtz, 2003). Subsidies as well as import quotas are also used. Such protectionism is put in place in order to protect local industries from foreign competition (Dunkley, 2004). A number of organizations promote these concepts for instance the World Trade Organization (Boyes, 2010).

Question 5 Explain the notion of (PPC) production possibilities curve. Include shapes shifts and operational points

Production Possibilities Curve (PPC)

Production Possibilities Curve or the PPC is a graphical representation of the various possibilities in alternative production facing a given economy (Dunkley, 2004). In other words, it is a graphical illustration of the total goods and services that can be made available in an economy at any given time, depending on the availability of resources (Boyes, 2010). If available resources are present and are fully employed, operational points of PPC can lie anywhere on the illustration other than inside or outside of it (Langholtz, 2003). Whenever the resources increase, the PPC shifts outward to the right indicating that more goods can be made available as compared to before (Dunkley, 2004).

Question 6. Describe in some detail. The difference in allocation of resource (4 hints questions) between capitalism; socialism and communism? Use any model to explain, Centralized vs decentralized allocations.

There exists a difference in allocation of resources between capitalism, communism and socialism. While Capitalism does not require government control in allocation of resources, Socialism relies on a public worker or owner for allocation of resources (Dunkley, 2004). This means that the worker owns the rights to resources (Langholtz, 2003). Communism is more political and allocation of resources is through people of power within the society (Boyes, 2010).

Centralized vs. Decentralized allocations

In centralized allocations, decisions regarding distribution of resources are made by people of a higher management (Dunkley, 2004). On the other hand decentralized allocations delegate decisions regarding allocation of resources to all levels of management (Langholtz, 2003).

Question 7. Describe the notions inverse vs positive relationship; scarcity; association as causation; fallacy of composition and Rational self-interest.

Inverse vs. Positive Relationship

Inverse relationships also referred to as negative relationships happen when increased value of a variable leads to a decreased value of another variable (Boyes, 2010). The value of these variables tends to move in opposite direction on number lines when this occurs (Langholtz, 2003). On the other hand, positive relationships or rather direct relationships take place when both variables in a given equation lead to an increase or decrease in value (Dunkley, 2004). On a number line, these variables tend to move in the same direction unlike those in inverse relationships.

Scarcity

This can be defined as a situation whereby there are fewer products in the market than the demand for them (Boyes, 2010). In other words, scarcity is when individuals want more than is available in the market. This force, people to make certain choices as they cannot have the products they want (Langholtz, 2003).

Association as causation

The term association can mean a number of things. It can be defined as a group of individuals who come together for a common purpose or a relationship between two variables, where one is dependent or leads to the other (Dunkley, 2004). Causation on the other hand refers to changes in a variable that directly cause changes in another variable (Boyes, 2010). Association and causation are intertwined in that by associating two variables, changes are observed in either one of them.

Fallacy of composition and rational self-interest

This is the belief that what might apply to one individual will apply to others in the same manner (Langholtz, 2003). In other words, it argues that what might be true for a person is also true for a society in general. It means that people will make the choices that give them the greatest amount of satisfaction. This is the assumption that people do not intentionally make decisions that would leave them worse off. For example, if a person can save more by spending less, then the society in general can also do the same. This is however not the case.

Rational self-interest depends on the information at hand and the individual’s perception of what is in his or her best interest. People only focus on 1)Selfish or excessive regard for one’s personal advantage or interest and 2)Personal advantage or interest.

References

Boyes, W., & Melvin, M. (2010). Economics. 8th Edition. Eagan, MN: Cengage Learning.

Dunkley, G. (2004). Free Trade: Myths, Realities and Alternatives. New York: Zed Books.

Langholtz, H.J. (2003). Resource-Allocation Behavior. Boston: Springer.