CH 2.3 : Production Possibility Curve
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Questions and Answers

What is the Production Possibility Curve (PPC) based on?

  • Full employment of resources
  • Fixed resources and technology (correct)
  • Variable resources and technology
  • Partially employed resources

    • What does the PPC demonstrate?

  • The optimum output of two goods
  • The average output of two goods
  • The maximum potential output of two goods (correct)
  • The minimum possible output of two goods

    • What is the concept illustrated by moving along the PPC?

  • Opportunity cost (correct)
  • Opportunity benefit
  • Economic growth
  • Resource allocation

    • What shape of PPC suggests increasing opportunity costs?

    <p>Concave curve</p> Signup and view all the answers

    What can cause a change in the PPC?

    <p>Improvements in technology</p> Signup and view all the answers

    What does an outward shift in the PPC indicate?

    <p>Economic growth</p> Signup and view all the answers

    What is the PPC used to illustrate?

    <p>The trade-offs and opportunity costs associated with resource allocation</p> Signup and view all the answers

    What happens when there is a leftward shift in the PPC?

    <p>A reduction in resources or technological setbacks</p> Signup and view all the answers

    What is the number of goods or services assumed to be produced in a PPC?

    <p>Two</p> Signup and view all the answers

    What is the implication of a straight line PPC?

    <p>Constant opportunity costs</p> Signup and view all the answers

    What do indifference curves show?

    <p>The different combinations of two goods that provide the same level of satisfaction</p> Signup and view all the answers

    Which of the following is a cause of market failures?

    <p>Uneven income distribution</p> Signup and view all the answers

    What is a measure taken by governments to correct monopolies?

    <p>Regulating monopolies</p> Signup and view all the answers

    What can high inflation rates lead to?

    <p>Eroded purchasing power and destabilized economy</p> Signup and view all the answers

    What is the goal of government policies in addressing market failures?

    <p>To move the economy towards the PPC</p> Signup and view all the answers

    What does the PPC represent?

    <p>The trade-offs and choices facing economies due to scarce resources</p> Signup and view all the answers

    What can be a consequence of inefficiencies in resource allocation?

    <p>The economy operates inside the PPC curve</p> Signup and view all the answers

    What is an example of government intervention to correct market failures?

    <p>Environmental regulations</p> Signup and view all the answers

    What is a result of pollution, according to the content?

    <p>Irreversible environmental damage</p> Signup and view all the answers

    What is the role of government in correcting market failures?

    <p>To correct market failures and promote equitable distribution of resources</p> Signup and view all the answers

    What is the main purpose of the Production Possibility Curve (PPC)?

    <p>To show the trade-offs between two goods or services</p> Signup and view all the answers

    What is assumed in a PPC about the resources and technology?

    <p>They are fixed and constant</p> Signup and view all the answers

    What is the implication of a concave PPC?

    <p>Increasing opportunity costs</p> Signup and view all the answers

    What is a result of an improvement in technology in a PPC?

    <p>An outward shift of the PPC</p> Signup and view all the answers

    What is a consequence of a leftward shift in the PPC?

    <p>A reduction in resources or technological setbacks</p> Signup and view all the answers

    What is the main difference between a concave and a convex PPC?

    <p>The opportunity costs of production</p> Signup and view all the answers

    What is the relationship between the production of two goods or services in a PPC?

    <p>They are trade-offs with each other</p> Signup and view all the answers

    What is the effect of an increase in resource availability on the PPC?

    <p>It leads to an outward shift of the PPC</p> Signup and view all the answers

    What is the significance of the PPC in resource allocation?

    <p>It helps in allocating resources efficiently</p> Signup and view all the answers

    What is the PPC used to illustrate in economics?

    <p>The concept of opportunity cost</p> Signup and view all the answers

    What is the primary purpose of indifference curves in understanding consumer behavior?

    <p>To show different combinations of two goods that provide the same level of satisfaction</p> Signup and view all the answers

    Which of the following is a consequence of uneven income distribution?

    <p>Social and economic inequalities</p> Signup and view all the answers

    What is the primary goal of government intervention in markets?

    <p>To correct market failures and promote efficient resource allocation</p> Signup and view all the answers

    What is the consequence of an economy operating inside the PPC curve?

    <p>Resources are not being used efficiently</p> Signup and view all the answers

    Which of the following is a tool used by central banks to control inflation?

    <p>Monetary policy</p> Signup and view all the answers

    What is the primary role of indifference curves in understanding consumer behavior?

    <p>To determine the level of satisfaction or utility from different goods</p> Signup and view all the answers

    What is the consequence of pollution on the environment?

    <p>Harm to society's well-being</p> Signup and view all the answers

    What is the primary goal of government policies in addressing market failures?

    <p>To move the economy towards the PPC curve</p> Signup and view all the answers

    What is the primary consequence of monopolies in the market?

    <p>Reduced competition and potentially higher prices</p> Signup and view all the answers

    What is the primary goal of antitrust laws?

    <p>To prevent monopolistic practices and promote competition</p> Signup and view all the answers

    What is the primary assumption underlying the Production Possibility Curve?

    <p>Resources are fully employed and technology is constant</p> Signup and view all the answers

    What shape of the PPC indicates that the economy is experiencing decreasing returns to scale?

    <p>Convex curve</p> Signup and view all the answers

    What is the effect of an improvement in technology on the PPC?

    <p>An outward shift of the PPC</p> Signup and view all the answers

    What is the result of a decrease in resource availability on the PPC?

    <p>A leftward shift of the PPC</p> Signup and view all the answers

    What is the implication of a PPC with a straight line shape?

    <p>Constant opportunity costs</p> Signup and view all the answers

    What is the primary reason for the PPC to shift outward?

    <p>All of the above</p> Signup and view all the answers

    What is the relationship between the PPC and the concept of opportunity cost?

    <p>The PPC demonstrates the trade-off between two goods, illustrating opportunity costs</p> Signup and view all the answers

    What is the effect of external factors on the PPC?

    <p>Either an outward or leftward shift of the PPC</p> Signup and view all the answers

    What is the implication of producing at a point inside the PPC?

    <p>The economy is underutilizing its resources</p> Signup and view all the answers

    What is the primary purpose of the PPC in resource allocation?

    <p>To show the maximum potential output of two goods with limited resources</p> Signup and view all the answers

    What is the primary implication of an economy operating inside the PPC curve?

    <p>Inefficient allocation of resources</p> Signup and view all the answers

    What is the primary goal of government policies in addressing market failures in terms of resource allocation?

    <p>To move the economy towards the PPC</p> Signup and view all the answers

    What is the primary consequence of monopolies in the market?

    <p>Higher prices</p> Signup and view all the answers

    What is the primary role of indifference curves in understanding consumer behavior?

    <p>To show the impact of changes in income or prices on consumption choices</p> Signup and view all the answers

    What is the primary consequence of uneven income distribution?

    <p>Social and economic inequalities</p> Signup and view all the answers

    What is the primary goal of antitrust laws?

    <p>To promote competition</p> Signup and view all the answers

    What is the primary consequence of high inflation rates?

    <p>Eroded purchasing power and destabilized economy</p> Signup and view all the answers

    What is the primary role of government intervention in markets?

    <p>To correct inefficiencies and promote equitable distribution of resources</p> Signup and view all the answers

    What is the primary implication of a shift in the PPC curve?

    <p>A change in the availability of resources</p> Signup and view all the answers

    What is the primary goal of government policies in addressing environmental pollution?

    <p>To prevent irreversible environmental damage</p> Signup and view all the answers

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