Econ test chapter 1.4

Question 1

What does a production possibility curve do

Answer 1

It represents the maximum combination of goods and services which can be produced in an economy (the production capacity of the economy)

Question 2

What does a production possibility curve represent

Answer 2

scarcity, opportunity cost and the allocation of resources in an economic system

Question 3

The PPC diagram

Answer 3

a graphical representation of the maximum combination of the amount of goods and services that can be produced in an economy per period of time.

Question 4

What do the points along the curve represent on a PPC diagram

Answer 4

The points on the curve show that resources are being used efficiently and to the optimum potential.

Question 5

What do the points outside of the curve represent

Answer 5

This point shows that production is not attainable with only the available resources & technology.

Question 6

What do points within the PPC represent?

Answer 6

The underutilisation of resources

Question 7

What is the relationship between the two factors on the y and x axis

Answer 7

inversely proportional

Question 8

Whats an example of a point having to be within a PPC

Answer 8

an economy producing 50 cars and 100 computers when it has the capacity to produce 80 cars and 120 computers. This indicates underutilized resources, like idle labor or machinery.

Question 9

whats an example of two goods that can be on a PPC diagram

Answer 9

cars, smartphones

guns, butter

Question 10

What does it mean when a point is on the axis?

Answer 10

It means that all resources are dedicated to the product on that axis.

Question 11

Why is the shape of the PPC a curve?

Answer 11

There is an increasing opportunity cost- producing more of one good means giving up increasing amounts of the other good.

Question 12

In what cases is the PPC a straight line?

Answer 12

when opportunity cost is constant- switching resources between the production of the two goods does not result in an opportunity cost

Question 13

What does movement along a curve result in.

Answer 13

an opportunity cost- to produce more of one good there must be less of another product.

Question 14

What conditions have to be met for a country’s production to be on the curve

Answer 14

• all resources have to be used
• factors of production are used to their best use / purpose

Question 15

What must there be for a country to shift its PPC outwards?

Answer 15

economic growth

Question 16

What does an outward shift mean

Answer 16

An outward shift in the PPC means that the country has increased its productive capacity (GDP)

Question 17

What are two causes of a shift in a PPC

Answer 17

1. One cause of a shift in the PPC is an increase in resources, such as labor or raw materials. This increases the increase in the productive potential of the economy. (e.g)
2. Another cause is improvements in technology. businesses can produce goods more efficiently. More can be produced with the same resources. (e.g)

Question 18

What does an increase in productive potential mean?

Answer 18

It will be capable of producing more, output increases.

Question 19

What causes an inward shift in PPC

Answer 19

-natural disasters, wars and in general destruction of the country’s farmland, factories and infrastructure.