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Questions and Answers
Referring to the Production Possibilities Curve diagram, which production point would not be possible in this economy?
Referring to the Production Possibilities Curve diagram, which production point would not be possible in this economy?
Under present conditions, the economy can produce 800 pounds of potatoes and 500 pounds of fish.
Under present conditions, the economy can produce 800 pounds of potatoes and 500 pounds of fish.
False
What is the opportunity cost of producing the 400th potato at Point D?
What is the opportunity cost of producing the 400th potato at Point D?
The opportunity cost is the amount of fish that must be given up. This can be calculated by observing the change in fish production when moving from the next best option, such as point E.
The law of ________ opportunity cost tells us that as an economy moves along its production possibilities curve in the direction of producing more of a particular good, the opportunity cost of additional units of that good will ________.
The law of ________ opportunity cost tells us that as an economy moves along its production possibilities curve in the direction of producing more of a particular good, the opportunity cost of additional units of that good will ________.
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In the summer of 2000, what weather conditions helped salmon to breed?
In the summer of 2000, what weather conditions helped salmon to breed?
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Suppose there is a successful campaign to educate the public about the caloric values in soft drinks and their contribution to obesity. At the same time suppose that the price of corn syrup, a key ingredient in many soft drinks, rises. What will be the effect on the demand and supply curves?
Suppose there is a successful campaign to educate the public about the caloric values in soft drinks and their contribution to obesity. At the same time suppose that the price of corn syrup, a key ingredient in many soft drinks, rises. What will be the effect on the demand and supply curves?
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Consider the market for noodles that is initially in equilibrium. Noodles are an inferior good. Suppose that people's incomes fall due to the financial crisis. What would happen to the demand and supply curves?
Consider the market for noodles that is initially in equilibrium. Noodles are an inferior good. Suppose that people's incomes fall due to the financial crisis. What would happen to the demand and supply curves?
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Match the following goods with their characteristics:
Match the following goods with their characteristics:
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Which of the following is NOT a fiscal policy tool?
Which of the following is NOT a fiscal policy tool?
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A limitation of fiscal policy is that it can be implemented very quickly.
A limitation of fiscal policy is that it can be implemented very quickly.
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List one monetary policy tool the Bank of Canada can use.
List one monetary policy tool the Bank of Canada can use.
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A shift of the AD curve to the left would likely cause a ______ in real GDP.
A shift of the AD curve to the left would likely cause a ______ in real GDP.
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When the AD shifts right, what happens to employment?
When the AD shifts right, what happens to employment?
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If the AD curve shifts to the left, what type of policy might the government adopt?
If the AD curve shifts to the left, what type of policy might the government adopt?
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A decrease in the overnight rate by the Bank of Canada would be considered a contractionary monetary policy.
A decrease in the overnight rate by the Bank of Canada would be considered a contractionary monetary policy.
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In the context of aggregate demand (AD) shifts, what typically happens when AD moves to the left?
In the context of aggregate demand (AD) shifts, what typically happens when AD moves to the left?
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If the aggregate demand curve shifts to the right, it indicates a potential decrease in employment levels.
If the aggregate demand curve shifts to the right, it indicates a potential decrease in employment levels.
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If the government wanted to counteract a decrease in aggregate demand, what is one type of fiscal policy that it could implement?
If the government wanted to counteract a decrease in aggregate demand, what is one type of fiscal policy that it could implement?
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A decrease in aggregate demand typically leads to a ______ in the overall price level.
A decrease in aggregate demand typically leads to a ______ in the overall price level.
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What action might the Bank of Canada take when there's a decrease in aggregate demand?
What action might the Bank of Canada take when there's a decrease in aggregate demand?
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A shift of the aggregate demand curve from AD1 to AD2 (rightward shift) would mean real GDP has contracted.
A shift of the aggregate demand curve from AD1 to AD2 (rightward shift) would mean real GDP has contracted.
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What is one potential cause for a shift in the aggregate demand curve?
What is one potential cause for a shift in the aggregate demand curve?
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Match the following economic concepts with their effects during shifts in aggregate demand:
Match the following economic concepts with their effects during shifts in aggregate demand:
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Study Notes
Production Possibilities Curve
- A production possibilities curve (PPC) illustrates the various combinations of two goods an economy can produce given its resources and technology at a specific time.
- Points on the curve represent efficient production levels; points inside the curve denote underutilization of resources; and points outside the curve are unattainable.
- The opportunity cost, which represents the trade-off, increases as production shifts toward a particular good.
Opportunity Cost
- The opportunity cost of producing a good is the value of the next best alternative forgone.
- As production of one good increases, the opportunity cost of producing the other good increases as resources are shifted.
Production Possibilities Curve Shifts
- Economic growth, technological advancements, changes in resource availability, or improvements in productivity shift the PPC outward, increasing the attainable output.
- Conversely, events like natural disasters, resource depletion, or decreased productivity can shift the PPC inward.
Negative Externalities
- Negative externalities arise when the production or consumption of a good or service imposes costs on third parties who are not directly involved.
- Examples: pollution from a factory affecting the community's health or noise pollution from a construction site impacting nearby residents.
- Internalizing social costs involves methods like taxes, regulations, or other measures to address the external costs.
Positive Externalities
- Positive externalities occur when the production or consumption of a good provides benefits to third parties not directly involved.
- Examples: education, vaccination programs.
- The government encourages production by providing subsidies or offering other incentives.
Types of Goods
- Public goods: non-rivalrous (consumption by one person doesn't prevent another) and non-excludable (no one can be prevented from consuming). Usually provided by the government. Examples: national defense, public parks.
- Common goods: rivalrous (consumption by one person prevents another) and non-excludable. Example: clean air in a densely populated city (the more cars, the less clean air there is)
- Natural monopolies: one firm is more efficient at providing a good or service. Example: utilities, telecom providers.
- Private goods: rivalrous and excludable. Example: food, clothing, houses.
Fiscal Policy Tools
- Fiscal policy involves government spending and taxation to influence the economy. Monetary policy works through interest rates and the money supply. Examples encompass changes in government spending programs, tax rates, transfer payments, and subsidies.
Monetary Policy Tools
- Monetary policy involves central banking to adjust interest rates and money supply to affect the economy. Tools include reserve requirements for banks, discount rates, and open market operations (buying or selling government securities).
Economic Indicators
- Real GDP: Measures the value of goods and services produced in an economy, adjusted for inflation.
- Employment: Reflects labor market conditions, with data on unemployment rates and labor participation rates.
- Inflation: Measured by inflation indices, such as the Consumer Price Index (CPI), it shows changes in the overall price level, reflecting how much money can buy.
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Description
Explore the concepts of production possibilities curves and opportunity costs through this quiz. Understand how resources, technology, and economic changes influence production efficiency and trade-offs. Test your knowledge on shifts in the PPC and their implications for economic growth.
