QUESTION

assessment topic: Tourism, Hospitality and Culinary Aspects of the Production Possibilities Frontier.

10 references min, UK writer, based in Australia (VIC), also draw the PPF curve and explain.

SOLUTION

Introduction

When we study the aggregation of the total economic factors present then it is called the Macroeconomics like the total amount of services and eth goods produced in the society and their rising or decreasing price levels. But when we analyse the behaviour of the ‘smaller units’ it is termed as Microeconomics like the analysis of the workers, business managers,  consumers,  firms and markets etc is considered to be microeconomics. It emphasises the fact that the individuals have the prime and the fundamental right to make decisions in the existing society and the factors which influence these pricing decisions are studied in microeconomics. Since the ‘Price’ plays a vital role so microeconomics is also termed as ‘Pricing theory’.

Economic Theory is an effectual tool to understand eth relationships existing in the economy, but it is not sufficient enough to describe that which public policies are sought- after awhile which ones are unpleasant ones. Thus we will use the techniques of microeconomics to find out that how the markets function in case of the below listed two chosen products which are the only ones which exist in the economy we are trying to analyse (AN Introduction to Microeconomics, n.d.).

Markets or economy are the grounds where the interplay of the prospective sellers and buyers takes place in relation to a particular commodity or service. Thus we will find out the resources which are needed to manufacture or produce the selected two products that are: a home delivered pizza and a stay in five star hotels. In order to make the market analysis we need to find out the factors which have the maximum impact on the buying and the selling decision. The most influential factor that has been found is Price which sit eh result of the transactions taking place in the market (AN Introduction to Microeconomics, n.d.).

The chosen Two Products for the economy

A home delivered pizza

 Three Resources for creation of home delivered pizza

1. Pizza  manufacturing  unit
2. Pizza boxes
3. Pizza delivery boy

A stay in Five Star Hotel

Three Resources for a Stay in Five Star Hotel

1. Five Star Hotel Building
2. Reservation Desk for bookings
3. Hospitality services like laundry etc at Five Star Hotel

In case of microeconomics whenever we refer to price we always talk about the ‘real price’ of any commodity or service. The Real Price is the nominal price of any goods or services which has been adjusted according to the changing value of money. The change in the nominal prices is referred to as the Consumer Price Index (CPI) for the particular product.

Assumptions regarding Participants in the markets

The economists have made three basic assumptions regarding the behaviour of the marketing buyers and the sellers, which are listed below:

• Goal-Oriented:  The market participants are very much goal oriented and are always bothered about accomplishing their own personal goals.
• Rational Behaviour:  The behaviour of the participants is always rational.
• Scarce Resources: The market participants always try to tackle the resources which are scarce in nature.

 Types of Resources and their use in creation of Products

Basically there are four types of Resources which run the economy and they are listed below:

• Land: all the natural resources which are available for production are termed as Land.

• Labour: all the human or manpower input into the production of product is termed as labour or human resources.

• Capital:  all the machines, tools, and the infrastructure which is being needed to do a particular work or to produce a product are the capital resources.

• Enterprise: the main head or the marshal of the whole group is termed as the entrepreneur and the person or group which helps in the production of the goods or services finally using their marshalling skills is called entrepreneurship resources.

(Petrarca, 2008)

Now we will try to find out that what kind of resources are being used in both the selected products that is the home delivered pizza and a stay in Five star Hotel.

Three Resources for creation of home delivered pizza

1. Pizza manufacturing unit: This is a land as well as resource as the building and the place where the manufacturing unit is made both fall in land as well as capital category and it is the most important place which is needed for making the pizzas which are ordered by the consumers. The building or the place is needed for manufacturing the pizza bases and then finally preparing a pizza for home delivery.
2. Pizza boxes: These are the capital resources as they are the things which are required to keep the pizza and deliver them safely to their consumers.
3. Pizza delivery boy: They fall in the labour category of resources as they are the human resources who are needed for delivering the manufactured pizza to their required destination (Solow, n.d.).

Three Resources for a Stay in Five Star Hotel

1. Five Star Hotel Building: The land on which the building is made falls in the land resources category while the whole Five star hotel building falls under the category of capital resources and it is needed to caret the service called the five star hotel stay where the consumer can stay.
2. Receptionist for bookings: She falls in the labour resource as she is needed for making the bookings for the consumer of the service who wants to enjoy the five star hotel stay.
3. Hospitality services like laundry etc. of Five Star Hotel: These are again the capital resources as they are needed to keep the customer happy with the best services during their stay at five star hotels (Solow, n.d.).

Changes in the amount of Resources and their efficiency of usage over past 100 years

If we analyse closely we will see that the resources like the pizza manufacturing units have expanded and grown with growing demand of pizzas which is directly proportional to the increase in the number of pizza boxes and thus resulting in the increasing number of pizza delivery boys too. If we consider the efficiency of using every resource then it has also grown to great extent over the past 100 years with the increasing demand of pizzas all across the globe. The 30 minutes delivery time for Pizza Hut shows that now the efficiency of resources have grown to full blown extent because it then needs faster manufacturing technology and faster delivery by the delivery boys.

In the same manner if we analyse the amount of resources for the stay at five star hotels have also grown to vast extent over the past 100 years. Major traditional five star hotels have expanded their buildings and have gone global to cater to the needs of consumers. This has lead to proportional increase in the number of receptionists who need to be efficient enough to handle and do multi tasking at the same time. The growing numbers of international customers who stay at the five star hotels have lead to refinement in hospitality services which have been also revamped to great extent like energy saving housekeeping services etc. But with several cruises and seven star hotels coming up and growth of luxury resorts the stay at five star hotels frequency have decreased over the past 100 years because people want to experiment newer and unique options like cruises, resorts etc.

PPF Curve for 1912 and 2012

The Production Possibility Frontier is the varied kinds of combination of the goods, which a rational actor who has personal goals to fulfil can, achieve using the fixed amount of resources available. It is mainly used for showing the three basic assumptions which we had done regarding the market participants. It also depicts the opportunity cost for the products rather it is the boundary between the combination of goods which can be produced and which cannot be produced (Massey, 2008).

During 1912 we have found that there was non-satiable desire for both pizzas to be home delivered and five star hotel stays as both were new concepts so the PPF curve is a slanting line depicted by the AZ.

In this PPF chart it is visible that since the resources are scarce so the economy should stay below the PPF curve or on the boundary and any point beyond the boundary are unachievable and lead to scarcity of resources. The rational behaviour which is fallowed form this PPF graph is that it is better to select any point on the boundary. Since the graph is straight line it indicates that the per unit opportunity cost for home delivered pizza and the stay at five star hotel is constant.

But when we study eth graph for year 2012 it is seen that the graph becomes slightly concave, this indicates that the cost per unit for the opportunity cost of the five star hotel stay for every additional unit increases with the more five star hotels stay we produce and it results in extended opportunity cost increase per unit for the home delivered pizza too.

This graph clearly indicates that one unit increase in the opportunity cost of pizza will cause increase of 5 units of opportunity cost of the five star hotel stay. The reason being the difference in the relative productivity across the resources which exist in relation to several commodities or goods.

Bibliography

AN Introduction to Microeconomics, Wiley.

Massey, R. (2008) MICROECONOMICS IN CONTEXT 1e, A STudent STudy Guide, Medford, MA: Global Development and Environment Institute, Tufts University.

Petrarca (2008) The Four Economic Resources, Petrarcaeconomics.

Solow, R. factors of production, [Online], Available: http://tutor2u.net/economics/content/topics/introduction/factor.htm#LABOUR [22 March 2012].

JA78

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