Production Possibility Curves PPC

Question 1

What is a production possibility curve?

Answer 1

It is a curve that joins together the different combinations of products that can be produced in an economy over a particular period of time, given the existing resources and level of technology available.

Question 2

What does a PPC illustrate?

Answer 2

It is used to illustrate the idea of choice and opportunity cost.

Question 3

What assumptions are made when drawing a PPC?

Answer 3

1) Only two goods can be produced
2) Resources are transferrable between the two products.
3) All resources are used
4) There’s a given state of technology
5) Resource endowment doesn’t change
6) Drawn for a given period of time

Question 4

What is factor endowment?

Answer 4

Factor endowment refers to the land, labour, capital and enterprise within an economy.

Question 5

What is opportunity cost?

Answer 5

It is the second best alternative foregone when making a choice.

What you give up / what you gain

Question 6

What is constant opportunity cost ?

Answer 6

This is a situation where the amount which is sacrificed from one product remains constant when the production of the other commodity increases. The slope of the PPC is linear/ straight line.

Question 7

What are capital goods?

Answer 7

They are goods used by a business to produce consumer goods.

Question 8

What are consumer goods ?

Answer 8

Consumer goods are used by consumers and have no future productive use.

Question 9

What’s the shape of a constant opportunity cost curve ?

Answer 9

Linear ppc

Question 10

What is increasing opportunity cost ?

Answer 10

When the production of one product increases in constant proportion, the amount sacrificed from the alternative product will increase continuously.

Question 11

What’s the shape of increasing opportunity cost curve ?

Answer 11

Concave PPC

Question 12

What may cause the opportunity cost to increase?

Answer 12

• Due to specialisation, workers may adapt to a particular task and therefore it would be difficult to carry out the duties in the new production unit.
• The resources transferred may not be suitable for the production of the new good therefore output may decrease as resources are not equally suitable for other productions, causing wastage
• Producers may face diseconomies of scale, when they expand the business and therefore in the long run the average cost of the firm may increase.

Question 13

What’s the shape of a decreasing opportunity cost curve ?

Answer 13

Convex ppc

Question 14

What may cause the production possibility curve to shift to the right?

Answer 14

• Investment in advanced in technology
• Introduction to new resources
• Increased supply of labour
  Rise in birth rate
  Rise in net migration
• improved human capital
• Improved management of resources
• Encouragement of an enterprise culture

Question 15

What’s an enterprise culture?

Answer 15

An enterprise culture is made up of enterprising people who are prepared to challenge existing ways of doing things, and to come up with new ideas and solutions to the benefit of society as a whole.

Question 16

How do you measure the productivity of employees?

Answer 16

Total output / Total input

Question 17

What does any point on the PPC reflect?

Answer 17

It reflects full employment of resorces

Question 18

Describe the nature of resources of increasing opportunity cost.

Answer 18

Resources utilised to produce one product will not match the other product as resources are not homogeneous.

Question 19

Describe the nature of resources of constant opportunity cost.

Answer 19

Resources are homogeneous. Resources utilised to produce one product will match the other product.

Question 20

Describe the nature of resources of decreasing opportunity cost.

Answer 20

It indicates the preserving of resources, when increasing production of one product, the production of the other product should decrease.

Question 21

What does a movement of a point from within the curve to the right indicate?

Answer 21

It reflects actual economic growth where production is increased by using unused resources. It means that production can be increased with zero opportunity cost .

Question 22

What does an outward shift of the curve indicate?

Answer 22

It reflects potential economic growth. The quantity and quality of resources had increased. It can happen due to the advancement in technology, where machines are made more use of than labour, discovery of resources/ /increase in resource endowment.

Question 23

What does an inward shift of PPC indicate?

Answer 23

It indicates a decline in an economy’s ability to produce. This situation can arise due to exhaustion or destruction of resources. Ex ; Tsunami

Question 24

What does a point outside the curve indicate?

Answer 24

It indicates an unattainable point.

Question 25

What does a shift of a point from within a curve to the left indicate?

Answer 25

An economic recession