Chapter 4: Production Possibility Curves

Question 1

What does PPC stand for?

Answer 1

Production Possibility Curve

Question 2

What does PPF stand for?

Answer 2

Production Possibility Frontier

Question 3

True or false?
PPCs are also known as PPF

Answer 3

True

Question 4

What are PPCs?

Answer 4

They are curves that show the maximum output of two types of products and combinations of those products that can be produced with existing resources and technology

Question 5

What do production points show?

Answer 5

They show what is being produced or what may be produced in the future

Question 6

What does it mean when a production point is inside the curve?

Answer 6

It means that there is not full use of resources

Question 7

What does it mean when a production point is on the curve?

Answer 7

It means that maximum use is being made of the resource. This is an efficient output

Question 8

What does it mean when a production point is above the curve?

Answer 8

It means that there are not enough resources to produce that combination. It is not currently attainable.

Question 9

What does a movement along the PPC curve show?

Answer 9

It shows that resources are being reallocated and it also shows the opportunity cost of that decision

Question 10

If a country initially decides to produce 80 units of manufactured goods and 75 units of agricultural goods. Then, it decides to produce 100 units of agricultural goods, it will now only produce 60 units of manufactured goods. What’s the opportunity cost of producing 25 extra units of agricultural goods?

Answer 10

20 units of manufactured goods

(Tip: ALWAYS pay attention to what is being lost and what is being produced even more. In these types of questions, you need to say what is being lost. Saying “__ units” only is not enough to get the full mark)

Question 11

If a country initially decides to produce 80 units of agricultural goods and 75 units of manufactured goods. Then, it decides to produce 100 units of manufactured goods, it will now only produce 60 units of agricultural goods. What’s the opportunity cost of producing 25 extra units of manufactured goods?

Answer 11

20 units of agricultural goods

Question 12

What shape are PPCs usually?

Answer 12

A curve bowed outwards

Question 13

Can PPCs be straight line?

Answer 13

Yes

Question 14

If a PPC is a straight line. what does that mean?

Answer 14

It means that the resources are equally suited to producing both types of products. This means the opportunity cost is constant

Question 15

What causes a PPC to shift to the right?

Answer 15

An increase in the quantity or quality of resources

Question 16

What causes a PPC to shift to the left?

Answer 16

A reduction in the quantity and quality of resources

Question 17

State whether the following will cause the PPC to shift left or right or doesn’t affect the PPC’s shifting at all:
a) Advances in technology
b) A rise in retirement age
c) Improved education
d) Widespread floods
e) Worn-out capital not being replaced
f) War
g) Increase in demand for a product

Answer 17

a) Right
b) Right
c) Right
d) Left
e) Left
f) Left
g) No effect( With this factor, resources will be reallocated only without the PPC shifting)

Question 18

What does it mean when a PPC shifts to the right?

Answer 18

It means that the country will be able of producing more