Chapter 4: Production Possibility Curves

Question 1

A production possibility curve

Answer 1

Shows the maximum output of two types of products and combinations of those products that can be produced with the existing quantity and quality of resources and technology.

Question 2

Production points

Answer 2

A production point shows what is being produced or what may be produced in the future.

Question 3

Movements along a PPC

Answer 3

A movement along a PPC shows that resources are being reallocated. It also shows the opportunity cost of that decision.

Question 4

Straight PPCs

Answer 4

where resources are equally suited to producing both types of products, the opportunity cost remains constant. In this case, the PPC is shown as a straight line.

Question 5

Shifts in a PPC

Answer 5

The PPC will shift to the right, if there is an increase in the quantity or quality of resources.

Question 6

Consequences of a shift in a PPC

Answer 6

A shift to the right of the PPC increases a country’s productive potential. It will be capable of producing more. This is referred to as potential economic growth. To take advantage of this increased capacity, extra or better quality resources have to be employed.