Questions and Answers
A straight-line production possibilities frontier (PPF) illustrates ___ opportunity costs.
constant
Given the data, the opportunity cost of 1X is ___ and the opportunity cost of 1Y is ___.
2Y, 1/2X
The production possibilities frontier is bowed outward. This is illustrative of ___ opportunity costs.
increasing
The law of increasing opportunity costs states that as more of a good is produced, the opportunity costs of producing the good increase.
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A movement from point A to B is a movement from a productive ___ point to a productive ___ point.
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At point A there are ___ resources.
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An advance in technology will shift the PPF ___.
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An increase in resources will shift the PPF ___.
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Does point B lie on, above, or below the PPF?
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___ has a comparative advantage in producing X and ___ has a comparative advantage in producing Y.
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The opportunity cost for Jillian of producing good X is 1X = 12Y, which means the opportunity cost for Jillian of producing 1Y is ___ X.
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Specialization and trade permits individuals to consume beyond their ___.
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As a result of an increase in resources that can be used to produce good X but not good Y, the PPF shifts outward.
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A decrease in resources will shift the PPF ___.
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As ___ of a good is produced, the opportunity cost of producing that good ___.
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Study Notes
Production Possibilities Frontier (PPF)
- A straight-line PPF indicates constant opportunity costs.
- Bowed outward PPF represents increasing opportunity costs as more of a good is produced.
Opportunity Costs Calculation
- Between two points on the PPF, such as Point A (10X, 20Y) and Point B (5X, 30Y), the opportunity cost of producing 1X is 2Y, while the cost of producing 1Y is 0.5X.
- The opportunity cost illustrates trade-offs in production choices, showing what is foregone when increasing output of a particular good.
Efficiency in Production
- Point A being below the PPF indicates inefficiency, while Point B on the PPF reflects efficient production.
- Resources at Point A are considered unemployed, meaning not all resources are utilized effectively.
Impact of Technology and Resources
- Advancements in technology can shift the PPF outward (right), increasing production potential.
- An increase in available resources also shifts the PPF outward (right), improving overall production capacity.
Comparative Advantage
- Sam has a comparative advantage in producing good X (1X = 2Y), whereas Jackson excels in producing good Y (1Y = 0.2X).
- Jillian's opportunity cost for producing 1X is equivalent to 12Y, allowing for comparability in production efficiencies among individuals.
Specialization and Trade
- Specialization enables individuals to produce goods more efficiently, allowing for consumption beyond their individual PPFs.
Changes in PPF due to Resource Shifts
- An increase in resources for good X, while keeping those for good Y constant, shifts the PPF outward but maintains the original intersection on the vertical axis. True statement.
- A decrease in resources leads to an inward shift of the PPF (left), indicating a reduction in production capabilities.
Law of Increasing Opportunity Costs
- As more of a good is produced, the opportunity cost of that good increases, reflecting the principle of diminishing returns in resource allocation.
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Test your understanding of Chapter 2 in Microeconomics with these flashcards. This set covers concepts like opportunity costs and production possibilities frontiers. Perfect for reinforcing key microeconomic principles!
