Principles of Economics: Production Possibility Curve

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Questions and Answers

What does the hotel manager's decision indicate about his valuation of leisure time?

The hotel manager values his leisure at more than €250.

How did the pandemic affect the production possibilities curve (PPC) of the hotel industry in Spain?

The pandemic likely shifted the PPC inward due to reduced workforce and capital for maintenance.

In what way would a mandatory 16 weeks of paid vacation affect the nation's production possibilities curve?

It could shift the PPC inward due to decreased labor availability.

What does full and efficient utilization of resources in a PPC represent?

It represents points on the PPC where maximum output is achieved with available resources. Signup and view all the answers

What are attainable and unattainable combinations in the context of a PPC?

Attainable combinations lie on or within the PPC, while unattainable combinations lie outside it. Signup and view all the answers

How does growth in the labor force shift the production possibilities curve?

Growth in the labor force can shift the PPC outward, indicating increased production capacity. Signup and view all the answers

What impact does technological advancement in car manufacturing have on the PPC?

Technological growth can lead to an outward shift of the PPC for cars, enhancing production efficiency. Signup and view all the answers

What does an increase in military size imply about North Korea's production of consumer goods?

It implies that the production of consumer goods will decrease. Signup and view all the answers

How does the production possibilities curve (PPC) for France change if 5 million additional workers join the labor force?

The PPC shifts outward, reflecting an increase in potential production capacity. Signup and view all the answers

What is the opportunity cost of producing one aircraft in France, considering the labor required for both goods?

The opportunity cost of producing one aircraft is 2.5 packaged medicines. Signup and view all the answers

If France has 18 million workers actively producing 6 million packaged medicines, how many aircrafts are they producing?

France is producing 2 million aircrafts. Signup and view all the answers

What happens to the PPC if the productivity of packaged medicines increases, requiring only 1 million workers for 1 million units?

The PPC shifts outward for packaged medicines while remaining unaffected for aircrafts. Signup and view all the answers

What is the opportunity cost for Italy to produce one unit of wine?

Italy's opportunity cost for producing one unit of wine is 15 units of olive oil. Signup and view all the answers

How does Spain's opportunity cost for producing olive oil compare to Italy's?

Spain's opportunity cost for producing one unit of olive oil is 3 units of wine. Signup and view all the answers

Discuss how trade could benefit both Italy and Spain based on their comparative advantages.

Italy should produce wine while Spain focuses on olive oil, allowing both to trade and enjoy both products more efficiently. Signup and view all the answers

Is it true that the opportunity cost of aircrafts remains constant if the productivity of packaged medicines increases?

Yes, the opportunity cost of aircrafts remains the same even if medicine productivity changes. Signup and view all the answers

Study Notes

Problem Set 1: Principles of Economics and the Production Possibility Curve

Question 1: A hotel manager considers opening an extra day during the low season. Costs of operation (electricity, water, commuting) total €20 and €6, respectively. Net revenue was €250. The manager chooses not to open. This implies the manager values leisure at more than €250.

Question 2

COVID-19 Impact on Hotel Industry PPC: The pandemic caused significant losses in the hospitality workforce (layoffs, resignations) and reductions in capital for renovations and maintenance.
PPC Shift: The pandemic led to a shift inward of the hotel industry's PPC in Spain. This means the industry can produce fewer goods and services than before the pandemic due to reduced resources.

Question 3

Government-Mandated Paid Vacation: A new law mandates 16 weeks of paid vacation for employees yearly.
PPC Shift: This legislation likely shifts the nation's PPC inward. Production shifts from other goods to allocated paid time off.

Question 4

Production Possibility Curve (PPC): Displays trade-offs in production of two goods (cars and computers)
- Full Utilization: Points on the PPC representing efficient use resources
- Attainable/Unattainable: Combinations of car and computer production that are/aren't possible with available resources.
- Growth of Labour Force: Increased workforce allows producing more goods, shifting the curve outwards.
- Growth of Technology: Technological advancements in car production enable more cars to be produces, shifting the curve outwards.

Question 5

Military Spending and PPC: An increase in North Korea's military spending leads to a decrease in resources available for consumer goods production and a shift of PPC inward.

Question 6

France's Exports: Aircrafts and medicine are France's main exports. 1 million aircrafts require 500,000 workers, 1 million medicine packages require 1,500,000 workers. Total workers available are 20 million.
PPC for France: A graphical representation of possible combinations of aircrafts and medicine production.
Opportunity Cost of an Aircraft: The amount of medicine packages France must forgo to produce one more aircraft.
Unemployment and PPC: If unemployment occurs, the PPC may not shift, depending on the temporariness of the situation.
Increased Workforce and PPC: If the workforce increases, the PPC shifts outwards – more options for production available.
Improving Medicine Production Faster, more efficient production of medicine packages may shift the PPC outwards – more options for production available.
No Change in Aircraft Production If only medicine production improves there will be a change to opportunity cost.

Question 7

Comparative Advantage: The ability of a country to produce a good or service at a lower opportunity cost than another country.
Italian and Spanish Economies: Spain and Italy are compared concerning their production time in Wine and Olive oil, to figure out their comparative advantage.
PPC Graphical Representation: A graphical illustration of the possible combinations of Wine and Olive oil production for both Italy and Spain.
Opportunity Cost: The value of the next best alternative that is forgone when a choice is made. (e.g., 1 hour of olive oil production in Italy, or Spain, vs. producing wine.)
International Trade: Allows countries to specialize in production based on comparative advantage, enabling increased output using existing resources.

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Description

This quiz explores the principles of economics with a focus on the Production Possibility Curve (PPC). It covers case studies including the impact of COVID-19 on the hotel industry and implications of government-mandated paid vacation. Each scenario illustrates shifts in PPC due to varying economic factors.