PPF

Question 1

What determines an economy’s production possibilities?

Answer 1

Quantity of resources available, Quality of resources available, Technical knowledge available

These factors influence the range of goods and services that an economy can produce.

Question 2

In a simple economy, what types of goods can be produced?

Answer 2

Military goods, Consumer goods, Combination of both

The production is constrained by the available resources.

Question 3

How can economists illustrate production possibilities?

Answer 3

In a table or on a graph

Visual representations help in understanding the trade-offs in production.

Question 4

What does Point A on the production possibilities graph represent?

Answer 4

Only military goods are being produced

This indicates a complete focus on military goods at the expense of consumer goods.

Question 5

What does Point D on the production possibilities graph represent?

Answer 5

Only consumer goods are being produced

This indicates a complete focus on consumer goods at the expense of military goods.

Question 6

What does Point Y on the production possibilities graph indicate?

Answer 6

Outside the possibilities of production

This point represents an unattainable production level with current resources.

Question 7

What does Point X on the production possibilities graph signify?

Answer 7

Resources are being underused, known as ‘production inefficiency’

This indicates that production can increase without sacrificing the output of the other good.

Question 8

What does a change from Point B to Point C imply?

Answer 8

A loss in the production of military goods and an increase in consumer goods

This illustrates the trade-off between two types of goods.

Question 9

What is opportunity cost in the context of production possibilities?

Answer 9

The cost of increasing or decreasing production of either good

It reflects the value of the next best alternative that is forgone.

Question 10

What is the relationship between an increase in consumer goods and military goods production?

Answer 10

A gain of 4,000 consumer goods leads to a loss of 2,000 military goods

This quantifies the opportunity cost in production terms.

Question 11

What is ‘factor mobility’ in resource allocation?

Answer 11

How well resources can be reallocated to different types of production

It affects how efficiently an economy can switch production focus.

Question 12

What shape does the production possibility curve take when opportunity cost is constant?

Answer 12

A straight line

This indicates that the trade-off remains the same for each unit produced.

Question 13

What is the common shape of the production possibility curve?

Answer 13

Bowed position

This reflects increasing opportunity costs as more of one good is produced.

Question 14

What happens to opportunity costs as production shifts from R to S?

Answer 14

The opportunity cost becomes greater

This is due to the more valuable resources being sacrificed.

Question 15

What does a shift outwards in the production possibility curve indicate?

Answer 15

Production possibilities have increased

This is associated with economic growth.

Question 16

What can cause a shift outwards in the production possibility curve?

Answer 16

• Discovery of new resources
• Increased training and education
• Increased working population
• New technology
• New methods of production

These factors contribute to economic growth by enhancing production capabilities.

Question 17

What is the assumption behind drawing the production possibility curve?

Answer 17

All factors remain equal and stable

This assumption simplifies analysis but may not reflect real-world dynamics.

Question 18

What can cause the production possibility curve to shift inwards?

Answer 18

Loss of resources or decline in technical knowledge

This indicates a decrease in an economy’s capacity to produce goods.

Question 19

What is the production possibility curve (PPC)?

Answer 19

A graphical representation showing the maximum possible output combinations of two goods or services that can be produced with available resources and technology.

Question 20

What does a shift outwards of the PPC indicate?

Answer 20

An increase in production possibilities, known as economic growth.

Question 21

List four factors that can cause a shift outwards in the PPC.

Answer 21

• Discovery of new resources
• Increased training and education
• Increased working population
• New technology
• New methods of production

Question 22

What does a shift inwards of the PPC represent?

Answer 22

A decrease in production possibilities.

Question 23

What term is used to describe the consumption of resources needed to maintain production possibilities?

Answer 23

Capital consumption.

Question 24

Define ‘investment’ in the context of production.

Answer 24

The process of producing capital goods in the production process.

Question 25

What is capital investment?

Answer 25

Any production other than for current consumption.

Question 26

What is the relationship between consumer goods production and standard of living?

Answer 26

The more consumer goods and services produced, the higher the standard of living.

Question 27

Fill in the blank: The minimum amount of resources needed is sometimes called the _______.

Answer 27

subsistence level of consumption.

Question 28

What is a significant challenge for developing economies in terms of capital stock?

Answer 28

They need to divert resources from current consumption to increase their capital stock.

Question 29

True or False: Developing economies can often manage to produce above the subsistence level of consumption.

Answer 29

False.

Question 30

What dilemma do people in developing economies face regarding investment?

Answer 30

Choosing between addressing immediate problems or risking bigger problems in the future due to lack of investment.

Question 31

Explain the term 'capital consumption' in the context of the PPC.

Answer 31

It refers to the usage of resources over time that can lead to a decrease in production possibilities if not managed properly.

Question 32

How does the production of consumer goods affect capital investment?

Answer 32

Increased production of consumer goods may lead to a drop in capital investment, affecting future production possibilities.

Question 33

What does a failure to produce sufficient capital goods lead to over time?

Answer 33

A decline in capital stock and a shift of the PPC inwards.

Question 34

What is the significance of the PPF in economic analysis?

Answer 34

It helps illustrate the trade-offs and opportunity costs involved in production choices.

Question 35

What does the term 'hard choices' refer to in the context of economic decision making?

Answer 35

The difficult decisions faced by economies regarding resource allocation between current consumption and future investment.