Revision questions

Question 1

A production possibilities curve​ (PPC) ___________.

Answer 1

shows the relationship between the maximum production of one good for a given level of production of another good.

Question 2

comparative advantage means

Answer 2

lowest opportunity cost

Question 3

: How do consumption possibilities differ between a situation of no trade and a situation
of trade?

Answer 3

In the no trade case, the consumption possibilities are identical to the production
possibilities.
In the trade case, the consumption possibilities can exist outside of the country’s production
possibilities.

Question 4

The PPFs are straight lines here. What does this reflect? What does a bowed out
(concave) PPF reflect?

Answer 4

Straight lines mean that the trade off or opportunity cost between the two goods are
constant along the curve. Bowed out PPFs are more realistic, where the trade off varies
along the curve. At the top of the curve, the opportunity cost of cars, in terms of computers,
is low. At the bottom of the curve, the opportunity cost of cars, in terms of computers, is
high.

Question 5

What is meant by holding all else equal and how is this concept used when discussing movements along the demand​ curve?

Answer 5

All variables that can affect the demand for the good are held constant.

Question 6

Which of the following shows the arc elasticity method of calculating the price elasticity of​ demand?

Answer 6

1/10

Question 7

For two goods that are substitutes​, the​ cross-price elasticity of demand will be

Answer 7

Negative

Question 8

If the income elasticity of demand for a good is negative​, the good is

Answer 8

Inferior